STATEMENT OF ADDITIONAL INFORMATION
   The date of this Statement of Additional Information is May 1, 2002, revised
   to September 30, 2002.

         T. ROWE PRICE BALANCED FUND, INC.
         T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
              T. Rowe Price Blue Chip Growth Fund-Advisor Class
             T. Rowe Price Blue Chip Growth Fund-R Class
         T. ROWE PRICE CAPITAL APPRECIATION FUND
         T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
         T. ROWE PRICE DEVELOPING TECHNOLOGIES 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 Equity Income Fund-Advisor Class
              T. Rowe Price Equity Income Fund-R Class
         T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
         T. ROWE PRICE GLOBAL TECHNOLOGY FUND, INC.
         T. ROWE PRICE GROWTH & INCOME FUND, INC.
         T. ROWE PRICE GROWTH STOCK FUND, INC.
              T. Rowe Price Growth Stock Fund-Advisor Class
              T. Rowe Price Growth Stock Fund-R Class
         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 INSTITUTIONAL EQUITY FUNDS, INC.
              T. Rowe Price Institutional Large-Cap Growth Fund
              T. Rowe Price Institutional Large-Cap Value Fund
              T. Rowe Price Institutional Mid-Cap Equity Growth Fund
              T. Rowe Price Institutional Small-Cap Stock Fund
         T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
         T. ROWE PRICE MID-CAP GROWTH FUND, INC.
              T. Rowe Price Mid-Cap Growth Fund-Advisor Class
              T. Rowe Price Mid-Cap Growth Fund-R Class
         T. ROWE PRICE MID-CAP VALUE FUND, INC.
              T. Rowe Price Mid-Cap Value Fund-Advisor Class
              T. Rowe Price Mid-Cap Value Fund-R Class
         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 Science & Technology Fund-Advisor Class
         T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
              T. Rowe Price Small-Cap Stock Fund-Advisor Class


                                                                 C20-043 9/30/02



         T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
              T. Rowe Price Small-Cap Value Fund-Advisor Class
                                       and
         T. ROWE PRICE VALUE FUND, INC.
              T. Rowe Price Value Fund-Advisor Class
 -------------------------------------------------------------------------------

   Mailing Address:
   T. Rowe Price Investment Services, Inc.
   100 East Pratt Street
   Baltimore, Maryland 21202
   1-800-638-5660

   Throughout this Statement of Additional Information, "the fund" is intended
   to refer to each fund listed on the cover page, unless otherwise indicated.

   For convenience, the term "director" is used to refer to both directors of
   funds that are corporations and to trustees of funds that are Massachusetts
   business trusts.

   This Statement of Additional Information is not a prospectus but should be
   read in conjunction with the appropriate fund prospectus dated May 1, 2002
   (or September 30, 2002 for the Blue Chip Growth Fund-R Class, Equity Income
   Fund-R Class, Growth Stock Fund-R Class, Mid-Cap Growth Fund-R Class, Mid-Cap
   Value Fund-Advisor Class, and Mid-Cap Value Fund-R Class, which may be
   obtained from T. Rowe Price Investment Services, Inc. ("Investment
   Services").

   Each fund's (other than the Blue Chip Growth Fund-R Class, Equity Income
   Fund-R Class, Growth Stock Fund-R Class, Mid-Cap Growth Fund-R Class, Mid-Cap
   Value Fund-Advisor Class, and Mid-Cap Value Fund-R Class) financial
   statements for the fiscal period ended December 31, 2001, and the report of
   independent accountants are included in each fund's Annual Report and
   incorporated by reference into this Statement of Additional Information. Each
   fund's (other than the Blue Chip Growth Fund-R Class, Equity Income Fund-R
   Class, Growth Stock Fund-R Class, Mid-Cap Growth Fund-R Class, Mid-Cap Value
   Fund-Advisor Class, and Mid-Cap Value Fund-R Class's) unaudited Semiannual
   Report for the six months ended June 30, 2002, are also 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 and
   they will be sent to you at no charge. Please read them carefully.


                                       2





                              TABLE OF CONTENTS
                              -----------------
                              Page                                       Page
                              ----                                       ----
                                                             
Capital Stock                   84       Legal Counsel                       86
- ------------------------------------     --------------------------------------
Code of Ethics                  71       Management of the Funds             31
- ------------------------------------     --------------------------------------
Custodian                       70       Net Asset Value per Share           79
- ------------------------------------     --------------------------------------
Distributor for the Funds       69       Organization of the Funds           85
- ------------------------------------     --------------------------------------
Dividends and Distributions     79       Portfolio Management Practices      15
- ------------------------------------     --------------------------------------
Federal Registration of         86       Portfolio Transactions              71
Shares
- ------------------------------------     --------------------------------------
Independent Accountants         86       Pricing of Securities               78
- ------------------------------------     --------------------------------------
Investment Management           60       Principal Holders of                58
Services                                 Securities
- ------------------------------------     --------------------------------------
Investment Objectives and        3       Ratings of Corporate Debt           96
Policies                                 Securities
- ------------------------------------     --------------------------------------
Investment Performance          80       Risk Factors                         3
- ------------------------------------     --------------------------------------
Investment Program               7       Services by Outside Parties         68
- ------------------------------------     --------------------------------------
Investment Restrictions         28       Tax Status                          79
- ------------------------------------     --------------------------------------






 INVESTMENT OBJECTIVES AND POLICIES
 -------------------------------------------------------------------------------
   The following information supplements the discussion of each fund's
   investment objectives and policies discussed in each fund's prospectus.

   Shareholder approval is required to substantively change fund objectives.
   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 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")
                  T. Rowe Price International, Inc. ("T. Rowe Price
   International")



 RISK FACTORS
 -------------------------------------------------------------------------------
   Reference is also made to the sections entitled "Investment Program" and
   "Portfolio Management Practices" for discussions of the risks associated with
   the investments and practices described therein as they apply to the fund.


                                       3



   Because of its investment policy, the fund may or may not be suitable or
   appropriate for any particular investor. 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
   Index 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. Many of
   the risks are more pronounced for investments in developing or emerging
   market countries, such as many of the countries of Asia, Latin America,
   Eastern Europe, Russia, Africa, and the Middle East. Although there is no
   universally accepted definition, a developing country is generally considered
   to be a country which is in the initial stages of its industrialization cycle
   with a per capita gross national product of less than $8,000.

  . Political and Economic Factors Individual foreign economies of some
   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 some 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 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 by
   widespread currency weakness in late 1997. In 1998, there was substantial
   turmoil in markets throughout the world. In 1999, the democratically elected
   government of Pakistan was overthrown by a military coup. The Russian
   government also defaulted on all its domestic debt. 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. In 2001,
   Argentina defaulted on its foreign-owned debt and had the peso devalued,
   resulting in the resignation of its president and deadly riots in December in
   response to government-mandated austerity measures.

   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 Restrictions Foreign investment in the
   securities markets of certain foreign countries is restricted or controlled
   to varying degrees. These restrictions limit and at times 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


                                       4



   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 fund invests. 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") and Global Depository Receipts ("GDRs") traded in the
   United States or on foreign exchanges. 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 trades are generally
   higher than commissions on United States exchanges, and while there are 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 indirectly bear
   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 fund, 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 most countries of Eastern Europe and Russia is highly
   speculative at this time. Political and economic reforms are too recent to
   establish a definite trend away from centrally planned economies and
   state-owned industries. In many of the countries of Eastern Europe and
   Russia, there is no stock exchange or formal market for securities. Such


                                       5



   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 result in significant risks and uncertainties
   when investing in Eastern Europe and Russia.

  . 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 experience sudden and
   large adjustments in their currency which, in turn, can have a disruptive and
   negative effect on foreign investors. For example, in late 1994 the Mexican
   peso lost more than one-third of its value relative to the dollar. In 1999,
   the Brazilian real lost 30% of its value against the U.S. dollar. Certain
   Latin American countries may impose restrictions on 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.

  . Japan

   Japan has experienced earthquakes and tidal waves of varying degrees of
   severity, and the risks of such phenomena, and damage resulting therefrom,
   continue to exist. Japan also has one of the world's highest population
   densities. A significant percentage of the total population of Japan is
   concentrated in the metropolitan areas of Tokyo, Osaka, and Nagoya.

   Economy The Japanese economy languished for much of the last decade. Lack of
   effective governmental action in the areas of tax reform to reduce high tax
   rates, banking regulation to address enormous amounts of bad debt, and
   economic reforms to attempt to stimulate spending are among the factors cited
   as possible causes of Japan's economic problems. The yen has had a history of
   unpredictable and volatile movements against the dollar; a weakening yen
   hurts U.S. investors holding yen-denominated securities. Finally, the
   Japanese stock market has experienced wild swings in value and has often been
   considered significantly overvalued.

   Energy Japan has historically depended on oil for most of its energy
   requirements. Almost all of its oil is imported, the majority from the Middle
   East. In the past, oil prices have had a major impact on the domestic
   economy, but more recently Japan has worked to reduce its dependence on oil
   by encouraging energy conservation and use of alternative fuels. In addition,
   a restructuring of industry, with emphasis shifting from basic industries to
   processing and assembly type industries, has contributed to the reduction of
   oil consumption. However, there is no guarantee this favorable trend will
   continue.


                                       6



   Foreign Trade Overseas trade is important to Japan's economy. Japan has few
   natural resources and must export to pay for its imports of these basic
   requirements. Because of the concentration of Japanese exports in highly
   visible products such as automobiles, machine tools, and semiconductors and
   the large trade surpluses ensuing therefrom, Japan has had difficult
   relations with its trading partners, particularly the U.S. It is possible
   that trade sanctions or other protectionist measures could impact Japan
   adversely in both the short term and long term.



 INVESTMENT PROGRAM
 -------------------------------------------------------------------------------

                               Types of Securities

   Set forth below is additional information about certain of the investments
   described in each 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 transaction 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
   instruments.

   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


                                       7



   hybrid instrument and which may not be readily foreseen by the purchaser,
   such as economic and political events, the supply of 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
   counterparty or issuer of the hybrid instrument would be an additional risk
   factor which the fund would have to consider and monitor. Hybrid instruments
   also may not be subject to regulation by 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. 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, 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.


                                       8



   In addition, T. Rowe Price could consider the following: (1) frequency of
   trades and quotes; (2) number of dealers and potential purchasers; (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 can be highly volatile and 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 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, Global Technology, Growth
   & Income, Health Sciences, Institutional Large-Cap Value, Institutional
   Small-Cap Stock, 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 and
   government 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-the
   nonpayment of interest or 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 events 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.


                                       9



   Special Risks of High-Yield Investing The fund may invest in low-quality
   bonds commonly referred to as "junk bonds." Junk bonds are regarded as
   predominantly speculative with respect to the issuer's continuing ability to
   meet principal and interest payments. Because investment in low- and
   lower-medium-quality bonds involves greater investment risk, to the extent
   the fund invests in such bonds, achievement of its investment objective will
   be more dependent on T. Rowe Price's credit analysis than would be the case
   if the fund was investing in higher-quality bonds. High-yield bonds may be
   more susceptible to real or perceived adverse economic conditions than
   investment-grade bonds. A projection of an economic downturn, or higher
   interest rates, for example, could cause a decline in high-yield bond prices
   because the advent of such events could lessen the ability of highly
   leveraged issuers to make principal and interest payments on their debt
   securities. In addition, the secondary trading market for high-yield bonds
   may be less liquid than the market for higher-grade bonds, which can
   adversely affect the ability of a fund to dispose of its portfolio
   securities. Bonds for which there is only a "thin" market can be more
   difficult to value inasmuch as objective pricing data may be less available
   and judgment may play a greater role in the valuation process.

   Fixed-income securities in which the fund may invest include, but are not
   limited to, those described below.

  . U.S. Government Obligations  Bills, notes, bonds, and other debt securities
   issued by the U.S. Treasury. These are direct obligations of the U.S.
   government and differ mainly in the length of their maturities.

  . U.S. Government Agency Securities  Issued or guaranteed by U.S.
   government-sponsored enterprises and federal agencies. These include
   securities issued by the Federal National Mortgage Association ("Fannie Mae"
   or "FNMA"), Government National Mortgage Association ("Ginnie Mae" or
   "GNMA"), 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, banker's acceptances, and other
   short-term debt obligations. Certificates of deposit are short-term
   obligations of commercial banks. A banker's 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 and Commercial Notes  Short-term promissory notes issued by
   corporations primarily to finance short-term credit needs. Certain notes may
   have floating or variable rates and may contain options, exercisable by
   either the buyer or the seller, that extend or shorten the maturity of the
   note.

  . 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 values decline prior to the
   settlement


                                       10



   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. 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 Fund

   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 GNMA, 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


                                       11



   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 ("FHLMC Act"). Freddie Mac Certificates represent a pro-rata interest
   in a group of mortgage loans 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. 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.


                                       12



  . 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 such 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 tranches 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 and from the structure of
   the deal (priority of the individual tranches). 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 Multi-Class Pass-Through Securities Unlike CMOs, U.S.
   Government Agency Multi-Class 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 multi-class 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 nongovernmental issuers. Pools of conventional
   residential or commercial 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


                                       13



   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. Interest only securities ("IOs") receive the interest
   portion of the cash flow while principal only securities ("POs") 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
   his/her 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; and size of the issue and the number of dealers who make a market
   in the IO or PO.


                             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.


                                       14



   Because pass-through certificates represent an ownership interest in the
   underlying assets, the holders thereof directly bear the risk of any defaults
   by the obligors on the underlying assets not covered by any 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, 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, 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.
   The collateral, in turn, is invested in short-term securities. While the
   securities are being lent, the fund will


                                       15



   continue to receive the equivalent of the interest or dividends paid by the
   issuer on the securities, as well as a portion of the interest on the
   investment of the collateral. Normally, the fund employs an agent to
   implement its securities lending program and the agent receives a fee from
   the fund for its services. 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 a possible default by the borrower,
   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.
   Additionally, the fund bears the risk that the reinvestment of collateral
   will result in a principal loss. Finally, there is also the risk that the
   price of the securities will increase while they are on loan and the
   collateral will not adequately cover their value.


                         Interfund Borrowing and Lending

   The fund is a party to an exemptive order received from the SEC on December
   8, 1998, amended on November 23, 1999, 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 rates 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. 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. Currently,
   two such money market funds are in operation: T. Rowe Price Reserve
   Investment Fund


                                       16



   ("RIF") and T. Rowe Price Government Reserve Investment Fund ("GRF"), each a

   series of the T. Rowe Price 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 nor GRF pays 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 FDIC or any other government
   agency. Although the funds seek to maintain a stable net asset value of $1.00
   per share, it is possible to lose money by investing in them.

   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, and the writer
   (seller) has the obligation to sell, 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


                                       17



   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 on its primary exchange 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 mean of closing bid and ask
   prices. 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


                                       18



   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 total assets. In
   calculating the 25% limit, the fund will offset the value of securities
   underlying 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. This 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.
   Alternatively, 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 total assets. In
   calculating the 25% limit, the fund will offset the value of securities
   underlying purchased puts and calls on identical securities or currencies
   with identical maturity dates.

   The premium received by the fund for writing covered put 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 on its
   primary exchange 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 mean of the closing bid and ask prices.


                             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.


                                       19



   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 in the portfolio of
   investments. This asset will be adjusted daily to the option's current market
   value, which will be the latest sale price on its primary exchange 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 mean of
   closing bid and ask prices. 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 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.

   The fund will not commit more than 5% of its assets to premiums when
   purchasing call and put options. The premium paid by the fund when purchasing
   a call option will be recorded as an asset of the fund in the portfolio of
   investments. This asset will be adjusted daily to the option's current market
   value, which will be the


                                       20



   latest sale price on its primary exchange 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 mean of closing bid and ask prices.


                        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 counter 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").


                                       21



   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 contracts
   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 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


                                       22



   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.

   Financial futures are valued daily at closing settlement prices. 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 a payment by the fund ("variation
   margin") to restore the margin account to the amount of the initial margin.

   Subsequent payments ("mark-to-market payments") 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. If the value of the open futures position increases in the
   case of a sale or decreases in the case of a purchase, the fund will pay the
   amount of the daily change in value to the broker. However, if the value of
   the open futures position decreases in the case of a sale or increases in the
   case of a purchase, the broker will pay the amount of the daily change in
   value to the fund.

   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 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.


                                       23



   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 mark-to-market payments 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 mark-to-market and variation
   margin payments. 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 or economic events. 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


                                       24



   fund would lose part or all of the benefit of increased value of those
   underlying instruments that it had 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 mark-to-market and 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. 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. Options on
   futures contracts are valued daily at the last sale price on its primary
   exchange at the time of 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 mean of closing bid and ask prices.

   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 of Transactions in 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,


                                       25



   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 for 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.



                                       26



   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 relative currency values 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 interest 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 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.


                                       27



    Federal Tax Treatment of Options, Futures Contracts, and Forward Foreign
                               Exchange Contracts

   The fund may enter into certain options, futures, forward foreign exchange
   contracts, and swaps, including options and futures on currencies, which will
   be treated as Section 1256 contracts or straddles.

   Transactions considered Section 1256 contracts will be considered to have
   been closed at the end of the fund's fiscal year and any gains or losses will
   be recognized for tax purposes at that time. Such gains or losses from the
   normal closing or settlement of such transactions will be characterized as
   60% long-term capital gain (taxable at a maximum rate of 20%) or loss and 40%
   short-term capital gain or loss regardless of the holding period of the
   instrument (ordinary income or loss for foreign exchange contracts). The fund
   will be required to distribute net gains on such transactions to shareholders
   even though it may not have closed the transaction and received cash to pay
   such distributions.

   Options, futures, forward foreign exchange contracts, and swaps, 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 options, futures, or foreign forward exchange
   contracts on currencies is qualifying income for purposes of the 90%
   requirement.

   Entering into certain options, futures contracts, swaps, or foreign forward
   contracts may result in the "constructive sale" of offsetting stocks or debt
   securities of the fund.

   The Internal Revenue Service has issued a notice proposing alternative
   methods for the inclusion or deduction of certain payments made under swap
   contracts. Although not anticipated, it is possible that final rules could
   result in changes to the amounts recorded by the fund, potentially impacting
   the tax results 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 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


                                       28



       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;

   All funds except Institutional Large-Cap Growth Fund

   (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, 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 its 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);

   All funds

   (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.


                                       29



       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 T. Rowe Price 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.


                                       30



   For Blue Chip Growth, Capital Opportunity, Developing Technologies,
   Diversified Small-Cap Growth, Financial Services, Global Technology, 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 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.

   The fund is governed by a Board of Directors that meets regularly to review
   fund investments, performance, expenses, and other business affairs. The
   Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price and T. Rowe Price International. The directors
   who are also employees or officers of T. Rowe Price are referred to as inside
   or interested directors. Each Board currently has three committees, described
   in the following paragraphs.

   The Committee of Independent Directors, which consists of all of the
   independent directors of the funds, is responsible for selecting candidates
   for election as independent directors to fill vacancies on each fund's Board.
   F. Pierce Linaweaver is chairman of the committee. The committee will
   consider written recommendations from shareholders for possible nominees.
   Shareholders should submit their recommendations to the secretary of the
   funds. The committee held no formal meetings during the last fiscal year.

   The Joint Audit Committee is comprised of David K. Fagin, Hanne M. Merriman,
   John G. Schreiber, and Paul M. Wythes, all independent directors. The Audit
   Committee holds two regular meetings during each fiscal year, at which time
   it meets with the independent accountants of the T. Rowe Price funds to
   review: (1) the services provided; (2) the findings of the most recent audit;
   (3) management's response to the findings of the most recent audit; (4) the
   scope of the audit to be performed; (5) the accountants' fees; and (6) any
   accounting or other questions relating to particular areas of the T. Rowe
   Price funds' operations or the operations of parties dealing with the T. Rowe
   Price funds, as circumstances indicate. The Audit Committee for the funds met
   three times in 2001. All members of the committee participated in the
   meetings.

   The fund's Executive Committee, consisting of the fund's interested
   directors, has been authorized by its respective Board of Directors to
   exercise all powers of the Board to manage the fund in the intervals between
   meetings of the Board, except the powers prohibited by statute from being
   delegated.


                                       31



   All funds


                             Independent Directors*



                                                                                     Number of
                                      Term of Office(a)                              Portfolios
                                      and Length of Time                              in Fund
                        Position(s)         Served        Principal Occupation(s)     Complex      Other Directorships of
  Name, Address, and     Held with                         During Past 5 Years(b)   Overseen by       Public Companies
    Date of Birth           Fund                                                      Director
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                   
 Calvin W. Burnett,     Director      Director since      President, Coppin              97       Provident Bank of
 Ph.D.                                later of            State College                           Maryland
 100 East Pratt Street                2001
 Baltimore, MD 21202                   or
 3/16/32                              inception of
                                      fund(c)
- ---------------------------------------------------------------------------------------------------------------------------
 Anthony W. Deering     Director      Director since      Director, Chairman             97       The Rouse Company
 100 East Pratt Street                later of            of the Board,
 Baltimore, MD 21202                  2001                President, and Chief
 1/28/45                               or                 Executive Officer,
                                      inception of        The Rouse
                                      fund(c)             Company, real estate
                                                          developers
- ---------------------------------------------------------------------------------------------------------------------------
 Donald W. Dick, Jr.    Director      Director since      Principal,                     97       None
 100 East Pratt Street                later of            EuroCapital
 Baltimore, MD 21202                  1982                Advisors, LLC, an
 1/27/43                               or                 acquisition and
                                      inception of        management
                                      fund(c)             advisory firm
- ---------------------------------------------------------------------------------------------------------------------------
 David K. Fagin         Director      Director since      Director, Dayton               97       Dayton Mining
 100 East Pratt Street                later of            Mining Corporation                      Corporation, Golden
 Baltimore, MD 21202                  1988                (6/98 to present),                      Star Resources Ltd.,
 4/9/38                                or                 Golden Star                             and Canyon
                                      inception of        Resources Ltd., and                     Resources, Corp.
                                      fund(c)             Canyon Resources,
                                                          Corp. (5/00 to
                                                          present); Chairman
                                                          and President, Nye
                                                          Corporation
 F. Pierce Linaweaver   Director      Director since      President, F. Pierce           97       None
 100 East Pratt Street                later of            Linaweaver &
 Baltimore, MD 21202                  2001                Associates, Inc.,
 8/22/34                               or                 consulting
                                      inception of        environmental &
                                      fund(c)             civil engineers
- ---------------------------------------------------------------------------------------------------------------------------
 Hanne M. Merriman      Director      Director since      Retail Business                97       Ann Taylor Stores
 100 East Pratt Street                later of            Consultant                              Corporation,
 Baltimore, MD 21202                  1994                                                        Ameren Corp.,
 11/16/41                              or                                                         Finlay Enterprises,
                                      inception of                                                Inc., The Rouse
                                      fund(c)                                                     Company, and US
                                                                                                  Airways Group, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
 John G. Schreiber      Director      Director since      Owner/President,               97       AMLI Residential
 100 East Pratt Street                later of            Centaur Capital                         Properties Trust,
 Baltimore, MD 21202                  2001                Partners, Inc., a real                  Host Marriott
 10/21/46                              or                 estate investment                       Corporation, and
                                      inception of        company; Senior                         The Rouse Company,
                                      fund(c)             Advisor and Partner,                    real estate developers
                                                          Blackstone Real
                                                          Estate Advisors, L.P.
- ---------------------------------------------------------------------------------------------------------------------------
 Hubert D. Vos          Director      Director since      Owner/President,               97       None
 100 East Pratt Street                later of            Stonington Capital
 Baltimore, MD 21202                  1986                Corporation, a
 8/2/33                                or                 private investment
                                      inception of        company
                                      fund(c)
- ---------------------------------------------------------------------------------------------------------------------------
 Paul M. Wythes         Director      Director since      Founding Partner of            97        Teltone Corporation
 100 East Pratt Street                later of            Sutter Hill Ventures,
 Baltimore, MD 21202                  1982                a venture capital
 6/23/33                               or                 limited partnership,
                                      inception of        providing equity
                                      fund(c)             capital to young
                                                          high technology
                                                          companies
                                                          throughout the
                                                          United States
- ---------------------------------------------------------------------------------------------------------------------------






                                       32



 * All information about the directors was current as of December 31, 2001.

 (a) Each director serves until election of a successor.

 (b) See years of incorporation in the following table.


                                       33





                  Incorporation Years
Corporation                         Year of Incorporation
- -----------                         ---------------------
                                
Balanced Fund                               1991
Blue Chip Growth Fund                       1993
Capital Appreciation Fund                   1986
Capital Opportunity Fund                    1994
Developing Technologies Fund                2000
Diversified Small-Cap Growth Fund           1997
Dividend Growth Fund                        1992
Equity Income Fund                          1985
Financial Services Fund                     1996
Global Technology Fund                      2000
Growth & Income Fund                        1982
Growth Stock Fund                           1950
Health Sciences Fund                        1995
Index Funds                                 1989
Institutional Equity Funds                  1996
Media & Telecommunications Fund             1993
Mid-Cap Growth Fund                         1992
Mid-Cap Value Fund                          1996
New America Growth Fund                     1985
New Era Fund                                1968
New Horizons Fund                           1960
Real Estate Fund                            1997
Science & Technology Fund                   1987
Small-Cap Stock Fund                        1988
Small-Cap Value Fund                        1988
Value Fund                                  1994






                                       34



                                Inside Directors*



                                                                        
                                   Term of                                Number of    O
                                   Office(                                Portfolios   ther
                                   a                                      in Fund      Director
                     Position(s)   )            Principal Occupation(s)   Complex      ships of
Name, Address, and   Held with     and Length   During Past 5 Years       Overseen     Public
Date of Birth        Fund          of Time      (b)                       by Director  Companies
                                   Served
- --------------------------------------------------------------------------------------------------






                                                                       
 James A. C. Kennedy     Director   Director since    Director and Vice         32     None
 100 East Pratt Street              later of 1992     President, T. Rowe
 Baltimore, MD 21202                or inception of   Price and T. Rowe
 8/15/53                            fund(c)           Price Group, Inc.


- -----------------------------------------------------------------------------------------------





                                                                                 
 John H. Laporte        Director   Director since    Vice President, T. Rowe Price       15     None
 100 East Pratt Street             later of          ;
 Baltimore, MD 21202               1985              Director and Vice President,
 7/26/45
                                   or inception      T. Rowe Price Group, Inc.;
                                   of fund(          President, New Horizons
                                   c                 Fund; Vice President,
                                   )                 Diversified Small-Cap Growth
                                                     Fund, Health Sciences Fund,
                                                     and New America Growth
                                                     Fund
- ---------------------------------------------------------------------------------------------------------





                                       35





                                                                                  
 James S. Riepe         Director   Director since    V                                    97     None
 100 East Pratt Street             later of          ice Chairman of the Board,
 Baltimore, MD 21202               1982              Director
 6/25/43                                             ,
                                   or inception       and
                                   of fund(          Vice President
                                   c                 ,
                                   )
                                                     T. Rowe Price and
                                                     T. Rowe
                                                     Price Group, Inc.; Chairman
                                                     of the Board and Director,
                                                     T. Rowe Price Investment
                                                     Services, Inc., T. Rowe Price
                                                     Retirement Plan Services, Inc.,
                                                     and T. Rowe Price Services,
                                                     Inc.; Chairman of the Board,
                                                     Director, President, and Trust
                                                     Officer, T. Rowe Price Trust
                                                     Company;
                                                     Director, T. Rowe
                                                     Price International
                                                     , T. Rowe
                                                     Price Global Asset
                                                     Management Limited, and
                                                     T. Rowe Price Global

                                                     Investment Services Limited
                                                     Chairman of the Board,
                                                     Institutional Equity Funds;
                                                     Vice President, all funds
- ----------------------------------------------------------------------------------------------------------





                                                                                  
 M. David Testa         Director   Director since    Vice Chairman of the Board,          97     None
 100 East Pratt Street             later of          Chief Investment Officer,
 Baltimore, MD 21202               1991              Director, and
 4/22/44                                             Vice President
                                   or inception      ,
                                   of fund(          T. Rowe Price Group, Inc.;
                                   c                 Chief Investment Officer,
                                   )                 Director, and
                                                     Vice President
                                                     ,
                                                     T. Rowe Price
                                                     ;


                                                     Chairman,
                                                     T. Rowe Price Global Asset
                                                     Management Limited;
                                                     Vice
                                                     President and Director,
                                                     T. Rowe Price Trust Company;
                                                     Director,
                                                     T
                                                     . Rowe Price Global
                                                     Investment Services Limited

                                                     and T. Rowe Price

                                                     International
                                                     President, Institutional Equity
                                                     Funds; Vice President,
                                                     Balanced Fund and Capital
                                                     Appreciation Fund
- ----------------------------------------------------------------------------------------------------------



 * All information about the directors was current as of December 31, 2001.

 (a) Each director serves until election of a successor.

 (b) See years of incorporation in the table above.


                                       36



                                  Officers/(a)/



Name, Date of Birth, Address, and
Principal Occupations                       Position(s) Held With Fund
- -------------------------------------------------------------------------------
                                        
Francisco Alonso, 1/27/78                   Vice President, New Horizons Fund
Vice President, T. Rowe Price; formerly,
intern, Morgan Stanley Dean Witter
(2000); student, Miami University of Ohio
(2000)
- -------------------------------------------------------------------------------
Marcy L. Arnold, 8/5/59                     Vice President, Mid-Cap Value Fund,
Vice President, T. Rowe Price and T. Rowe   New Era Fund, and Small-Cap Stock
Price Group, Inc.                           Fund
- -------------------------------------------------------------------------------
Jeffrey A. Arricale, 4/11/71                Vice President, Financial Services
Employee, T. Rowe Price; formerly,          Fund
student, the Wharton School, University
of Pennsylvania (2001); manager,
assurance, KPMG LLP (1999)
- -------------------------------------------------------------------------------
Preston G. Athey, 7/17/49                   President, Small-Cap Value Fund;
Vice President, T. Rowe Price, T. Rowe      Vice President, Institutional
Price Group, Inc., and T. Rowe Price        Equity Funds and Small-Cap Stock
Trust Company                               Fund
- -------------------------------------------------------------------------------
Eugene F. Bair, 12/11/69                    Executive Vice President, Index
Assistant Vice President, T. Rowe Price;    Trust
formerly, Monument Investment Advisers
(1998); equity trader, Legg Mason Wood
Walker (1997)
- -------------------------------------------------------------------------------
Carol G. Bartha, 1/4/42                     Assistant Vice President, Growth
Employee, T. Rowe Price                     Stock Fund
- -------------------------------------------------------------------------------
Brian W.H. Berghuis, 10/12/58               President, Mid-Cap Growth Fund;
Vice President, T. Rowe Price and T. Rowe   Executive Vice President,
Price Group, Inc.                           Institutional Equity Funds; Vice
                                            President, New Horizons Fund
- -------------------------------------------------------------------------------
Laurie M. Bertner, 10/8/77                  Vice President, Health Sciences
Vice President, T. Rowe Price; formerly,    Fund
student at Emory University, Atlanta
(2000)
- -------------------------------------------------------------------------------
Stephen W. Boesel, 12/28/44                 President, Capital Appreciation
Vice President, T. Rowe Price, T. Rowe      Fund; Vice President, Balanced
Price Group, Inc., and T. Rowe Price        Fund, Equity Income Fund, Growth &
Trust Company                               Income Fund, Real Estate Fund, and
                                            Value Fund
- -------------------------------------------------------------------------------
Andrew M. Brooks, 2/16/56                   Vice President, Capital
Vice President, T. Rowe Price and T. Rowe   Appreciation Fund, Equity Income
Price Group, Inc.                           Fund, and Value Fund
- -------------------------------------------------------------------------------
Brace C. Brooks, 1/10/67                    Vice President, Small-Cap Stock
Vice President, T. Rowe Price and T. Rowe   Fund
Price Group, Inc.; formerly, senior
equity analyst, Johnston, Lemon & Co.
(1997)
- -------------------------------------------------------------------------------
Christopher W. Carlson, 1/27/67             Vice President, Developing
Vice President, T. Rowe Price Group,        Technologies Fund and New Horizons
Inc.; formerly, NASDAQ trader, Deutsche     Fund
Bank Alex. Brown (1997)
- -------------------------------------------------------------------------------
Joseph A. Carrier, 12/30/60                 Treasurer, all funds
Vice President, T. Rowe Price, T. Rowe
Price Group, Inc., and

T. Rowe Price Investment Services, Inc.
- -------------------------------------------------------------------------------
Arthur B. Cecil III, 9/15/42                Vice President, Capital
Vice President, T. Rowe Price and T. Rowe   Appreciation Fund, Equity Income
Price Group, Inc.                           Fund, and Growth & Income Fund

- -------------------------------------------------------------------------------
Kara Cheseby, 10/9/63                       Vice President, Media &
Vice President, T. Rowe Price and T. Rowe   Telecommunications Fund, Mid-Cap
Price Group, Inc.                           Value Fund, and Value Fund
- -------------------------------------------------------------------------------
                                            Vice President, Developing
Giri Devulapally, 11/18/67                  Technologies Fund, Dividend Growth
Vice President, T. Rowe Price and T. Rowe   Fund, Global Technology Fund,
Price Group, Inc.                           Growth & Income Fund, Growth Stock
                                            Fund, Media & Telecommunications
                                            Fund, New America Growth Fund, and
                                            Science & Technology Fund
- -------------------------------------------------------------------------------
Wendy R. Diffenbaugh, 10/2/53               Vice President, Balanced Fund and
Assistant Vice President, T. Rowe Price     Index Trust
- -------------------------------------------------------------------------------
Anna M. Dopkin, 9/5/67                      President, Financial Services Fund;
Vice President, T. Rowe Price and T. Rowe   Vice President, Growth Stock Fund,
Price Group, Inc.                           Institutional Equity Funds, Mid-Cap
                                            Growth Fund, and Real Estate Fund
- -------------------------------------------------------------------------------
Donald J. Easley, 11/28/71                  Vice President, Blue Chip Growth
Vice President, T. Rowe Price; formerly,    Fund, Global Technology Fund, and
credit analyst, Bank of New York (1998)     Science & Technology Fund
- -------------------------------------------------------------------------------
Henry M. Ellenbogen, 1/21/71                Vice President, Blue Chip Growth
Vice President, T. Rowe Price; formerly,    Fund, Media & Telecommunications
Executive Vice President, Business          Fund, Mid-Cap Growth Fund, and
Development, HelloAsia (2001);              Mid-Cap Value Fund
chief of staff, U.S. Representative Peter
Deutsch (1995)
- -------------------------------------------------------------------------------
Hugh M. Evans III, 5/17/66                  Vice President, Small-Cap Stock
Vice President, T. Rowe Price and T. Rowe   Fund and Small-Cap Value Fund
Price Group, Inc.
- -------------------------------------------------------------------------------
John R. Ford, 11/25/57                      Vice President, Growth Stock Fund
Vice President, T. Rowe Price and T. Rowe
Price Group, Inc.; Chief Investment
Officer, Director, and Vice President, T.
Rowe Price International
- -------------------------------------------------------------------------------
Robert N. Gensler, 10/18/57                 President, Global Technology Fund
Vice President, T. Rowe Price and T. Rowe   and Media & Telecommunications
Price Group, Inc.                           Fund; Vice President, Blue Chip
                                            Growth Fund, Developing
                                            Technologies Fund, Growth Stock
                                            Fund, Mid-Cap Growth Fund, and
                                            Science & Technology Fund
- -------------------------------------------------------------------------------
Eric M. Gerster, 3/23/71                    Vice President, Developing
Vice President, T. Rowe Price and T. Rowe   Technologies Fund, Global
Price Group, Inc.                           Technology Fund, Media &
                                            Telecommunications Fund, New
                                            America Growth Fund, New Horizons
                                            Fund, and Science & Technology Fund
- -------------------------------------------------------------------------------
David R. Giroux, 6/8/75                     Vice President, Dividend Growth
Vice President, T. Rowe Price and T. Rowe   Fund and Value Fund
Price Group, Inc.; formerly, commercial
credit analyst, Hillsdale County National
Bank (1997)
- -------------------------------------------------------------------------------
Jill L. Hauser, 6/23/58                     Vice President, Capital Opportunity
Vice President, T. Rowe Price and T. Rowe   Fund, Developing Technologies Fund,
Price Group, Inc.                           Global Technology Fund, and Science
                                            & Technology Fund
- -------------------------------------------------------------------------------
Francies W. Hawks, 2/2/44                   Assistant Vice President, New
Assistant Vice President, T. Rowe Price     Horizons Fund and Small-Cap Value
                                            Fund
- -------------------------------------------------------------------------------
Ann M. Holcomb, 1/16/72                     Executive Vice President, Index
Assistant Vice President, T. Rowe Price     Trust
- -------------------------------------------------------------------------------
Michael W. Holton, 9/25/68                  Vice President, Capital Opportunity
Vice President, T. Rowe Price and T. Rowe   Fund, Dividend Growth Fund,
Price Group, Inc.                           Financial Services Fund, and Growth
                                            & Income Fund
- -------------------------------------------------------------------------------
Henry H. Hopkins, 12/23/42                  Vice President, all funds
Director and Vice President, T. Rowe
Price Group, Inc.; Vice President, T.
Rowe Price, T. Rowe Price International,
Inc., and T. Rowe Price Retirement Plan
Services, Inc.; Vice President and
Director, T. Rowe Price Investment
Services, Inc., T. Rowe Price Services,
Inc., and T. Rowe Price Trust Company
- -------------------------------------------------------------------------------
Thomas J. Huber, 9/23/66                    President, Dividend Growth Fund;
Vice President, T. Rowe Price and T. Rowe   Vice President, Real Estate Fund
Price Group, Inc.
- -------------------------------------------------------------------------------
Stephen C. Jansen, 12/12/68                 Vice President, Global Technology
Vice President, T. Rowe Price, T. Rowe      Fund and Media & Telecommunications
Price Group, Inc., T. Rowe Price            Fund
International
- -------------------------------------------------------------------------------
Kris H. Jenner, 2/5/62                      President, Health Sciences Fund;
Vice President, T. Rowe Price and T. Rowe   Vice President, Blue Chip Growth
Price Group, Inc.                           Fund, Growth Stock Fund, Mid-Cap
                                            Growth Fund, New Horizons Fund, and
                                            Small-Cap Stock Fund
- -------------------------------------------------------------------------------
Lewis Johnson, 9/20/69                      Vice President, New Era Fund
Vice President, T. Rowe Price; formerly,
equity analyst intern, Capital Research
Company (1999); student, the Wharton
School, University of Pennsylvania
(1998); Vice President, American Yarn
Spinners Association (1998)
- -------------------------------------------------------------------------------
Krista M. Kennedy, 12/29/73                 Vice President, Diversified
Employee, T. Rowe Price; formerly,          Small-Cap Growth Fund
student, Tuck School of Business,
Dartmouth (2001); intern, Aetna Financial
Services (2001); investment associate,
Putman Investments (1999);
project coordinator, Thomson Financial
Services (1997)
- -------------------------------------------------------------------------------
Susan J. Klein, 4/18/50                     Vice President, Health Sciences
Vice President, T. Rowe Price               Fund and Small-Cap Value Fund
- -------------------------------------------------------------------------------
J. Jeffrey Lang, 1/10/62                    Vice President, all funds
Vice President, T. Rowe Price and T. Rowe
Price Trust Company
- -------------------------------------------------------------------------------
David M. Lee, 11/13/62                      President, Real Estate Fund; Vice
Vice President, T. Rowe Price and T. Rowe   President, Capital Appreciation
Price Group, Inc.                           Fund, Dividend Growth Fund, Growth
                                            & Income Fund, and New Era Fund
- -------------------------------------------------------------------------------
Christopher R. Leonard, 1/11/73             Vice President, Blue Chip Growth
Vice President, T. Rowe Price and T. Rowe   Fund, Health Sciences Fund, and New
Price Group, Inc.; formerly, research       America Growth Fund
associate, Morgan Stanley Dean Witter
(1997)
- -------------------------------------------------------------------------------
Nathaniel S. Levy, 7/13/62                  Vice President, Balanced Fund
Vice President, T. Rowe Price and T. Rowe
Price Group, Inc.
- -------------------------------------------------------------------------------
John D. Linehan, 1/21/65                    Vice President, Equity Income Fund,
Vice President, T. Rowe Price, T. Rowe      Institutional Equity Funds, New Era
Price Group, Inc., and T. Rowe Price        Fund, and Value Fund
International
- -------------------------------------------------------------------------------
Patricia B. Lippert, 1/12/53                Secretary, all funds
Assistant Vice President, T. Rowe Price
and T. Rowe Price Investment Services,
Inc.
- -------------------------------------------------------------------------------
Anh Lu, 6/11/68                             Vice President, Global Technology
Vice President, T. Rowe Price Group, Inc.   Fund and Science & Technology Fund
and T. Rowe Price International
- -------------------------------------------------------------------------------
Robert J. Marcotte, 3/6/62                  Vice President, Mid-Cap Growth Fund
Vice President, T. Rowe Price and T. Rowe   and New America Growth Fund
Price Group, Inc.
- -------------------------------------------------------------------------------
Jay S. Markowitz, 12/19/62                  Vice President, Health Sciences
Employee, T. Rowe Price; formerly,          Fund
transplant surgeon and Assistant
Professor of Surgery, Johns Hopkins
University School of Medicine (2001);
Assistant Professor of Surgery,
University of Medicine and Dentistry of
New Jersey (1997)
- -------------------------------------------------------------------------------
Gregory A. McCrickard, 10/19/58             President, Small-Cap Stock Fund;
Vice President, T. Rowe Price, T. Rowe      Executive Vice President,
Price Group, Inc., and T. Rowe Price        Institutional Equity Funds; Vice
Trust Company                               President, Mid-Cap Value Fund and
                                            Small-Cap Value Fund
- -------------------------------------------------------------------------------
David S. Middleton, 1/18/56                 Controller, all funds
Vice President, T. Rowe Price, T. Rowe
Price Group, Inc., and T. Rowe Price
Trust Company
- -------------------------------------------------------------------------------
Joseph M. Milano, 9/14/72                   Executive Vice President, New
Vice President, T. Rowe Price and T. Rowe   America Growth Fund; Vice
Price Group, Inc.                           President, Financial Services Fund,
                                            Global Technology Fund,
                                            Institutional Equity Funds, Mid-Cap
                                            Growth Fund, Mid-Cap Value Fund,
                                            New Horizons Fund, Small-Cap Stock
                                            Fund, and Small-Cap Value Fund
- -------------------------------------------------------------------------------
Raymond A. Mills, 12/3/60                   Vice President, Balanced Fund and
Vice President, T. Rowe Price, T. Rowe      Index Trust
Price Group, Inc., and T. Rowe Price
International
- -------------------------------------------------------------------------------
Mary C. Munoz, 12/2/62                      Vice President, Index Trust
Vice President, T. Rowe Price
- -------------------------------------------------------------------------------
Philip A. Nestico, 8/3/76                   Vice President, Capital Opportunity
Employee, T. Rowe Price; formerly,          Fund, Diversified Small-Cap Growth
student, Bucknell University (1998)         Fund, Financial Services Fund, and
                                            Real Estate Fund
- -------------------------------------------------------------------------------
Edmund M. Notzon III, 10/1/45               Vice President, Balanced Fund
Vice President, T. Rowe Price, T. Rowe
Price Group, Inc., T. Rowe Price
Investment Services, Inc., and T. Rowe
Price Trust Company
- -------------------------------------------------------------------------------
Charles M. Ober, 4/20/50                    President, New Era Fund; Vice
Vice President, T. Rowe Price and T. Rowe   President, Capital Appreciation
Price Group, Inc.                           Fund and Real Estate Fund
- -------------------------------------------------------------------------------
Curt J. Organt, 1/5/68                      Vice President, Mid-Cap Value Fund
Vice President, T. Rowe Price               and Small-Cap Stock Fund
- -------------------------------------------------------------------------------
Timothy R. Parker, 11/9/74                  Vice President, Blue Chip Growth
Employee, T. Rowe Price; formerly,          Fund and New Era Fund
student, Darden Graduate School,
University of Virginia (2001); investment
banking analyst, Robert W. Baird & Co.
Inc. (1999)
- -------------------------------------------------------------------------------
Charles G. Pepin, 4/23/66                   Vice President, Health Sciences
 Vice President, T. Rowe Price and T.       Fund, Institutional Equity Funds,
Rowe Price Group, Inc.                      Mid-Cap Value Fund, New Horizons
                                            Fund, Small-Cap Stock Fund, and
                                            Small-Cap Value Fund
- -------------------------------------------------------------------------------
Donald J. Peters, 7/3/59                    Vice President, Diversified
Vice President, T. Rowe Price and T. Rowe   Small-Cap Growth Fund and Dividend
Price Group, Inc.                           Growth Fund
- -------------------------------------------------------------------------------
D. James Prey III, 11/26/59                 Vice President, Global Technology
Vice President, T. Rowe Price and T. Rowe   Fund, Growth Stock Fund, Media &
Price Group, Inc.                           Telecommunications Fund, and
                                            Science & Technology Fund
- -------------------------------------------------------------------------------
Larry J. Puglia, 8/25/60                    President, Blue Chip Growth Fund;
Vice President, T. Rowe Price and T. Rowe   Vice President, Financial Services
Price Group, Inc.                           Fund and Growth Stock Fund
- -------------------------------------------------------------------------------
Karen M. Regan, 4/16/67                     Vice President, Blue Chip Growth
Assistant Vice President, T. Rowe Price     Fund, Dividend Growth Fund, and
                                            Growth & Income Fund
- -------------------------------------------------------------------------------
Brian C. Rogers, 6/27/55                    President, Equity Income Fund and
Director and Vice President, T. Rowe        Value Fund; Executive Vice
Price Group, Inc.; Vice President, T.       President, Institutional Equity
Rowe Price, T. Rowe Price International,    Funds; Vice President, Capital
and T. Rowe Price Trust Company             Appreciation Fund and Real Estate
                                            Fund
- -------------------------------------------------------------------------------
Jeffrey Rottinghaus, 2/20/70                Vice President, Developing
Employee, T. Rowe Price; formerly,          Technologies Fund, Global
student, the Wharton School, University     Technology Fund, Growth & Income
of Pennsylvania (2001); information         Fund, and Science & Technology Fund
technology consultant, Kelly-Lewey &
Associates (1999)
- -------------------------------------------------------------------------------
Philip W. Ruedi, 7/2/71                     Vice President, Mid-Cap Growth Fund
Vice President, T. Rowe Price and T. Rowe
Price Group, Inc.; formerly, investment
banking analyst, John Nuveen and Co.
(1997)
- -------------------------------------------------------------------------------
Robert W. Sharps, 6/10/71                   President, Growth & Income Fund;
Vice President, T. Rowe Price and T. Rowe   Vice President, Blue Chip Growth
Price Group, Inc.                           Fund, Financial Services Fund,
                                            Growth Stock Fund, and
                                            Institutional Equity Funds
- -------------------------------------------------------------------------------
John Carl A. Sherman, 9/3/72                Vice President, Health Sciences
Vice President, T. Rowe Price               Fund
International; formerly, analyst,
JPMorgan Securities (1998)
- -------------------------------------------------------------------------------
Robert W. Smith, 4/11/61                    President, Growth Stock Fund and
Vice President, T. Rowe Price, T. Rowe      New America Growth Fund; Executive
Price Group, Inc., and T. Rowe Price        Vice President, Institutional
International, Inc.                         Equity Funds; Vice President, Blue
                                            Chip Growth Fund, Growth & Income
                                            Fund, and Media &
                                            Telecommunications Fund
- -------------------------------------------------------------------------------
Michael F. Sola, 7/21/69                    President, Developing Technologies
Vice President, T. Rowe Price and T. Rowe   Fund and Science & Technology Fund;
Price Group, Inc.                           Vice President, Global Technology
                                            Fund, New Horizons Fund, and
                                            Small-Cap Stock Fund
- -------------------------------------------------------------------------------
William J. Stromberg, 3/10/60               President, Capital Opportunity
Vice President, T. Rowe Price and T. Rowe   Fund; Vice President, Dividend
Price Group, Inc.                           Growth Fund, Equity Income Fund,
                                            Financial Services Fund, and Real
                                            Estate Fund
- -------------------------------------------------------------------------------
Dean Tenerelli, 12/7/64                     Vice President, Media &
Vice President, T. Rowe Price Group, Inc.   Telecommunications Fund
and T. Rowe Price International
- -------------------------------------------------------------------------------
Mark J. Vaselkiv, 7/22/58                   Vice President, Balanced Fund
Vice President, T. Rowe Price and T. Rowe
Price Group, Inc.
- -------------------------------------------------------------------------------
J. David Wagner, 2/25/74                    Vice President, Financial Services
Vice President, T. Rowe Price; formerly,    Fund, Mid-Cap Value Fund, New Era
student, Darden Graduate School of          Fund, and Small-Cap Stock Fund
Business Administration, University of
Virginia (2000); associate analyst,
National Economic Research Associates
(1996)
- -------------------------------------------------------------------------------
John F. Wakeman, 11/25/62                   Executive Vice President, Mid-Cap
Vice President, T. Rowe Price and T. Rowe   Growth Fund; Vice President,
Price Group, Inc.                           Institutional Equity Funds and New
                                            Horizons Fund
- -------------------------------------------------------------------------------
David J. Wallack, 7/2/60                    President, Mid-Cap Value Fund; Vice
Vice President, T. Rowe Price and T. Rowe   President, Capital Appreciation
Price Group, Inc.                           Fund, Institutional Equity Funds,
                                            New Era Fund, Small-Cap Value Fund,
                                            and Value Fund
- -------------------------------------------------------------------------------
Dale E. West, 1/21/69                       Vice President, Media &
Vice President, T. Rowe Price Group, Inc.   Telecommunications Fund
and T. Rowe Price International;
formerly, student, Stanford University
MBA program (1998); Foreign Service
Officer, U.S. Information Agency,
Bucharest, Romania (1996)
- -------------------------------------------------------------------------------
Richard T. Whitney, 5/7/58                  President, Balanced Fund and Index
Vice President, T. Rowe Price, T. Rowe      Trust; Executive Vice President,
Price Group, Inc., T. Rowe Price Trust      Diversified Small-Cap Growth Fund;
Company, and T. Rowe Price International    Vice President, Capital Opportunity
                                            Fund and Institutional Equity Funds
- -------------------------------------------------------------------------------
Paul W. Wojcik, 11/28/70                    President, Diversified Small-Cap
Vice President, T. Rowe Price and T. Rowe   Growth Fund
Price Group, Inc.
- -------------------------------------------------------------------------------
R. Candler Young, 9/28/71                   Vice President, Growth & Income
Vice President, T. Rowe Price and T. Rowe   Fund, Mid-Cap Growth Fund, New
Price Group, Inc.; formerly, Investment     America Growth Fund, and New
Banking Summer Associate, Goldman Sachs &   Horizons Fund
Co. (1998); Equity Research Analyst,
Donaldson, Lufkin & Jenrette (1997)
- -------------------------------------------------------------------------------
Wenhua Zhang, 3/14/70                       Vice President, Developing
Employee, T. Rowe Price; formerly,          Technologies Fund, Global
student, the Wharton School, University     Technology Fund, and Small-Cap
of Pennsylvania (2001); Swiss Reinsurance   Stock Fund
Company (1999)
- -------------------------------------------------------------------------------






                                       37





                                       38





                                       39





                                       40





                                       41





                                       42





(a)
  Unless otherwise indicated, the officers have been employees of T. Rowe Price
  or T. Rowe Price International for at least five years.


                           Director Compensation Table

   The fund does not pay pension or retirement benefits to its officers or
   directors. Also, any director of the fund who is an officer or employee of T.
   Rowe Price or T. Rowe Price International 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(b)
- --------------------------------  --------------------------------------------  ---------------------------------
- -------------------------------------------------------------------------------------------------------------------
                                                                          
Balanced Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                262                           $110,000
Anthony W. Deering/c/                                                      262                            110,000
Donald W. Dick, Jr.                                                 1,803                              110,000
David K. Fagin                                                      2,553                              112,000
F. Pierce Linaweaver/c/                                                    311                            113,000
Hanne M. Merriman                                                        2,521                            110,000
John G. Schreiber/c/                                                       311                            113,000
Hubert D. Vos                                                       2,594                              111,000
Paul M. Wythes                                                      1,742                              113,000
- -------------------------------------------------------------------------------------------------------------------
Blue Chip Growth Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                715                           $110,000
Anthony W. Deering/c/                                                      715                            110,000
Donald W. Dick, Jr.                                                 3,973                              110,000
David K. Fagin                                                      7,057                              112,000
F. Pierce Linaweaver/c/                                                    911                            113,000
Hanne M. Merriman                                                        6,925                            110,000
John G. Schreiber/c/                                                       911                            113,000
Hubert D. Vos                                                       7,186                              111,000
Paul M. Wythes                                                      4,324                              113,000
- -------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                223                           $110,000
Anthony W. Deering/c/                                                      223                            110,000
Donald W. Dick, Jr.                                                 1,499                              110,000
David K. Fagin                                                      1,974                              112,000
F. Pierce Linaweaver/c/                                                    263                            113,000
Hanne M. Merriman                                                        1,947                            110,000
John G. Schreiber/c/                                                       263                            113,000
Hubert D. Vos                                                       1,986                              111,000
Paul M. Wythes                                                      1,558                              113,000
- -------------------------------------------------------------------------------------------------------------------
Capital Opportunity Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                100                           $110,000
Anthony W. Deering/c/                                                      100                            110,000
Donald W. Dick, Jr.                                                   863                              110,000
David K. Fagin                                                        998                              112,000
F. Pierce Linaweaver/c/                                                    102                            113,000
Hanne M. Merriman                                                          997                            110,000
John G. Schreiber/c/                                                       102                            113,000
Hubert D. Vos                                                       1,000                              111,000
Paul M. Wythes                                                        867                              113,000
- -------------------------------------------------------------------------------------------------------------------
Developing Technologies Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                 95                           $110,000
Anthony W. Deering/c/                                                       95                            110,000
Donald W. Dick, Jr.                                                   932                              110,000
David K. Fagin                                                        940                              112,000
F. Pierce Linaweaver/c/                                                     96                            113,000
Hanne M. Merriman                                                          940                            110,000
John G. Schreiber/c/                                                        96                            113,000
Hubert D. Vos                                                         940                              111,000
Paul M. Wythes                                                        933                              113,000
- -------------------------------------------------------------------------------------------------------------------
Diversified Small-Cap Growth Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                 99                           $110,000
Anthony W. Deering/c/                                                       99                            110,000
Donald W. Dick, Jr.                                                   958                              110,000
David K. Fagin                                                        987                              112,000
F. Pierce Linaweaver/c/                                                    101                            113,000
Hanne M. Merriman                                                          986                            110,000
John G. Schreiber/c/                                                       101                            113,000
Hubert D. Vos                                                         987                              111,000
Paul M. Wythes                                                        961                              113,000
- -------------------------------------------------------------------------------------------------------------------
Dividend Growth Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                158                           $110,000
Anthony W. Deering/c/                                                      158                            110,000
Donald W. Dick, Jr.                                                 1,263                              110,000
David K. Fagin                                                      1,553                              112,000
F. Pierce Linaweaver/c/                                                    178                            113,000
Hanne M. Merriman                                                        1,541                            110,000
John G. Schreiber/c/                                                       178                            113,000
Hubert D. Vos                                                       1,566                              111,000
Paul M. Wythes                                                      1,299                              113,000
- -------------------------------------------------------------------------------------------------------------------
Equity Income Fund
Calvin W. Burnett, Ph.D./c/                                                833                           $110,000
Anthony W. Deering/c/                                                      833                            110,000
Donald W. Dick, Jr.                                                 5,351                              110,000
David K. Fagin                                                      8,666                              112,000
F. Pierce Linaweaver/c/                                                    931                            113,000
Hanne M. Merriman                                                        8,601                            110,000
John G. Schreiber/c/                                                       931                            113,000
Hubert D. Vos                                                       8,921                              111,000
Paul M. Wythes                                                      5,682                              113,000
- -------------------------------------------------------------------------------------------------------------------
Equity Index 500 Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                416                           $110,000
Anthony W. Deering/c/                                                      416                            110,000
Donald W. Dick, Jr.                                                 2,656                              110,000
David K. Fagin                                                      4,128                              112,000
F. Pierce Linaweaver/c/                                                    485                            113,000
Hanne M. Merriman                                                        4,082                            110,000
John G. Schreiber/c/                                                       485                            113,000
Hubert D. Vos                                                       4,215                              111,000
Paul M. Wythes                                                      2,813                              113,000
- -------------------------------------------------------------------------------------------------------------------
Extended Equity Market Index Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                 99                           $110,000
Anthony W. Deering/c/                                                       99                            110,000
Donald W. Dick, Jr.                                                   959                              110,000
David K. Fagin                                                        991                              112,000
F. Pierce Linaweaver/c/                                                    101                            113,000
Hanne M. Merriman                                                          989                            110,000
John G. Schreiber/c/                                                       101                            113,000
Hubert D. Vos                                                         992                              111,000
Paul M. Wythes                                                        963                              113,000
- -------------------------------------------------------------------------------------------------------------------
Financial Services Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                121                           $110,000
Anthony W. Deering/c/                                                      121                            110,000
Donald W. Dick, Jr.                                                 1,074                              110,000
David K. Fagin                                                      1,202                              112,000
F. Pierce Linaweaver/c/                                                    127                            113,000
Hanne M. Merriman                                                        1,198                            110,000
John G. Schreiber/c/                                                       127                            113,000
Hubert D. Vos                                                       1,210                              111,000
Paul M. Wythes                                                      1,087                              113,000
- -------------------------------------------------------------------------------------------------------------------
Global Technology Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                100                           $110,000
Anthony W. Deering/c/                                                      100                            110,000
Donald W. Dick, Jr.                                                 1,530                              110,000
David K. Fagin                                                      1,043                              112,000
F. Pierce Linaweaver/c/                                                    148                            113,000
Hanne M. Merriman                                                        1,011                            110,000
John G. Schreiber/c/                                                       148                            113,000
Hubert D. Vos                                                       1,030                              111,000
Paul M. Wythes                                                      1,581                              113,000
- -------------------------------------------------------------------------------------------------------------------
Growth & Income Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                317                           $110,000
Anthony W. Deering/c/                                                      317                            110,000
Donald W. Dick, Jr.                                                 2,179                              110,000
David K. Fagin                                                      3,259                              112,000
F. Pierce Linaweaver/c/                                                    367                            113,000
Hanne M. Merriman                                                        3,225                            110,000
John G. Schreiber/c/                                                       367                            113,000
Hubert D. Vos                                                       3,329                              111,000
Paul M. Wythes                                                      2,299                              113,000
- -------------------------------------------------------------------------------------------------------------------
Growth Stock Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                528                           $110,000
Anthony W. Deering/c/                                                      528                            110,000
Donald W. Dick, Jr.                                                 3,245                              110,000
David K. Fagin                                                      5,230                              112,000
F. Pierce Linaweaver/c/                                                    643                            113,000
Hanne M. Merriman                                                        5,153                            110,000
John G. Schreiber/c/                                                       643                            113,000
Hubert D. Vos                                                       5,336                              111,000
Paul M. Wythes                                                      3,476                              113,000
- -------------------------------------------------------------------------------------------------------------------
Health Sciences Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                180                           $110,000
Anthony W. Deering/c/                                                      180                            110,000
Donald W. Dick, Jr.                                                 1,333                              110,000
David K. Fagin                                                      1,671                              112,000
F. Pierce Linaweaver/c/                                                    199                            113,000
Hanne M. Merriman                                                        1,659                            110,000
John G. Schreiber/c/                                                       199                            113,000
Hubert D. Vos                                                       1,689                              111,000
Paul M. Wythes                                                      1,371                              113,000
- -------------------------------------------------------------------------------------------------------------------
Institutional Large-Cap Growth Fund(d)
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                 93                           $110,000
Anthony W. Deering/c/                                                       93                            110,000
Donald W. Dick, Jr.                                                    93                              110,000
David K. Fagin                                                         96                              112,000
F. Pierce Linaweaver/c/                                                     98                            113,000
Hanne M. Merriman                                                           92                            110,000
John G. Schreiber/c/                                                        98                            113,000
Hubert D. Vos                                                          95                              111,000
Paul M. Wythes                                                         98                              113,000
- -------------------------------------------------------------------------------------------------------------------
Institutional Large-Cap Value Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                 93                           $110,000
Anthony W. Deering/c/                                                       93                            110,000
Donald W. Dick, Jr.                                                   923                              110,000
David K. Fagin                                                        925                              112,000
F. Pierce Linaweaver/c/                                                     93                            113,000
Hanne M. Merriman                                                          925                            110,000
John G. Schreiber/c/                                                        93                            113,000
Hubert D. Vos                                                         925                              111,000
Paul M. Wythes                                                        924                              113,000
- -------------------------------------------------------------------------------------------------------------------
Institutional Mid-Cap Equity Growth Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                120                           $110,000
Anthony W. Deering/c/                                                      120                            110,000
Donald W. Dick, Jr.                                                 1,059                              110,000
David K. Fagin                                                      1,174                              112,000
F. Pierce Linaweaver/c/                                                    126                            113,000
Hanne M. Merriman                                                        1,170                            110,000
John G. Schreiber/c/                                                       126                            113,000
Hubert D. Vos                                                       1,180                              111,000
Paul M. Wythes                                                      1,072                              113,000
- -------------------------------------------------------------------------------------------------------------------
Institutional Small-Cap Stock Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                117                           $110,000
Anthony W. Deering/c/                                                      117                            110,000
Donald W. Dick, Jr.                                                 1,038                              110,000
David K. Fagin                                                      1,132                              112,000
F. Pierce Linaweaver/c/                                                    122                            113,000
Hanne M. Merriman                                                        1,129                            110,000
John G. Schreiber/c/                                                       122                            113,000
Hubert D. Vos                                                       1,137                              111,000
Paul M. Wythes                                                      1,047                              113,000
- -------------------------------------------------------------------------------------------------------------------
Media & Telecommunications Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                154                           $110,000
Anthony W. Deering/c/                                                      154                            110,000
Donald W. Dick, Jr.                                                 1,271                              110,000
David K. Fagin                                                      1,571                              112,000
F. Pierce Linaweaver/c/                                                    170                            113,000
Hanne M. Merriman                                                        1,560                            110,000
John G. Schreiber/c/                                                       170                            113,000
Hubert D. Vos                                                       1,588                              111,000
Paul M. Wythes                                                      1,304                              113,000
- -------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                698                           $110,000
Anthony W. Deering/c/                                                      698                            110,000
Donald W. Dick, Jr.                                                 3,808                              110,000
David K. Fagin                                                      6,670                              112,000
F. Pierce Linaweaver/c/                                                    824                            113,000
Hanne M. Merriman                                                        6,586                            110,000
John G. Schreiber/c/                                                       824                            113,000
Hubert D. Vos                                                       6,790                              111,000
Paul M. Wythes                                                      4,067                              113,000
- -------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                135                           $110,000
Anthony W. Deering/c/                                                      135                            110,000
Donald W. Dick, Jr.                                                 1,096                              110,000
David K. Fagin                                                      1,277                              112,000
F. Pierce Linaweaver/c/                                                    206                            113,000
Hanne M. Merriman                                                        1,228                            110,000
John G. Schreiber/c/                                                       206                            113,000
Hubert D. Vos                                                       1,259                              111,000
Paul M. Wythes                                                      1,173                              113,000
- -------------------------------------------------------------------------------------------------------------------
New America Growth Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                201                           $110,000
Anthony W. Deering/c/                                                      201                            110,000
Donald W. Dick, Jr.                                                 1,544                              110,000
David K. Fagin                                                      2,082                              112,000
F. Pierce Linaweaver/c/                                                    230                            113,000
Hanne M. Merriman                                                        2,063                            110,000
John G. Schreiber/c/                                                       230                            113,000
Hubert D. Vos                                                       2,113                              111,000
Paul M. Wythes                                                      1,606                              113,000
- -------------------------------------------------------------------------------------------------------------------
New Era Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                194                           $110,000
Anthony W. Deering/c/                                                      194                            110,000
Donald W. Dick, Jr.                                                 1,465                              110,000
David K. Fagin                                                      1,924                              112,000
F. Pierce Linaweaver/c/                                                    215                            113,000
Hanne M. Merriman                                                        1,910                            110,000
John G. Schreiber/c/                                                       215                            113,000
Hubert D. Vos                                                       1,948                              111,000
Paul M. Wythes                                                      1,511                              113,000
- -------------------------------------------------------------------------------------------------------------------
New Horizons Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                585                           $110,000
Anthony W. Deering/c/                                                      585                            110,000
Donald W. Dick, Jr.                                                 3,530                              110,000
David K. Fagin                                                      5,742                              112,000
F. Pierce Linaweaver/c/                                                    696                            113,000
Hanne M. Merriman                                                        5,668                            110,000
John G. Schreiber/c/                                                       696                            113,000
Hubert D. Vos                                                       5,868                              111,000
Paul M. Wythes                                                      3,771                              113,000
- -------------------------------------------------------------------------------------------------------------------
Real Estate Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                 99                           $110,000
Anthony W. Deering/c/                                                       99                            110,000
Donald W. Dick, Jr.                                                   949                              110,000
David K. Fagin                                                        972                              112,000
F. Pierce Linaweaver/c/                                                    101                            113,000
Hanns M. Merriman                                                          970                            110,000
John G. Schreiber/c/                                                       101                            113,000
Hubert D. Vos                                                         972                              111,000
Paul M. Wythes                                                        953                              113,000
- -------------------------------------------------------------------------------------------------------------------
Science & Technology Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                623                           $110,000
Anthony W. Deering/c/                                                      623                            110,000
Donald W. Dick, Jr.                                                 4,163                              110,000
David K. Fagin                                                      7,457                              112,000
F. Pierce Linaweaver/c/                                                    793                            113,000
Hanne M. Merriman                                                        7,343                            110,000
John G. Schreiber/c/                                                       793                            113,000
Hubert D. Vos                                                       7,650                              111,000
Paul M. Wythes                                                      4,532                              113,000
- -------------------------------------------------------------------------------------------------------------------
Small-Cap Stock Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                368                           $110,000
Anthony W. Deering/c/                                                      368                            110,000
Donald W. Dick, Jr.                                                 2,177                              110,000
David K. Fagin                                                      3,203                              112,000
F. Pierce Linaweaver/c/                                                    427                            113,000
Hanne M. Merriman                                                        3,164                            110,000
John G. Schreiber/c/                                                       427                            113,000
Hubert D. Vos                                                       3,243                              111,000
Paul M. Wythes                                                      2,283                              113,000
- -------------------------------------------------------------------------------------------------------------------
Small-Cap Value Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                274                           $110,000
Anthony W. Deering/c/                                                      274                            110,000
Donald W. Dick, Jr.                                                 1,726                              110,000
David K. Fagin                                                      2,397                              112,000
F. Pierce Linaweaver/c/                                                    339                            113,000
Hanne M. Merriman                                                        2,353                            110,000
John G. Schreiber/c/                                                       339                            113,000
Hubert D. Vos                                                       2,411                              111,000
Paul M. Wythes                                                      1,820                              113,000
- -------------------------------------------------------------------------------------------------------------------
Total Equity Market Index Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                111                           $110,000
Anthony W. Deering/c/                                                      111                            110,000
Donald W. Dick, Jr.                                                 1,015                              110,000
David K. Fagin                                                      1,094                              112,000
F. Pierce Linaweaver/c/                                                    116                            113,000
Hanne M. Merriman                                                        1,090                            110,000
John G. Schreiber/c/                                                       116                            113,000
Hubert D. Vos                                                       1,097                              111,000
Paul M. Wythes                                                      1,025                              113,000
- -------------------------------------------------------------------------------------------------------------------
Value Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                213                           $110,000
Anthony W. Deering/c/                                                      213                            110,000
Donald W. Dick, Jr.                                                 1,502                              110,000
David K. Fagin                                                      1,991                              112,000
F. Pierce Linaweaver/c/                                                    251                            113,000
Hanne M. Merriman                                                        1,965                            110,000
John G. Schreiber/c/                                                       251                            113,000
Hubert D. Vos                                                       2,004                              111,000
Paul M. Wythes                                                      1,560                              113,000
- -------------------------------------------------------------------------------------------------------------------






                                       43





                                       44





                                       45





                                       46





                                       47





                                       48





                                       49





                                       50



 (a) Amounts in this column are based on accrued compensation for fiscal year
   2001.

 (b) Amounts in this column are based on compensation received for fiscal
   year 2001. The T. Rowe Price complex included 97 funds as of December 31,
   2001.

 (c) Newly elected to fund Board as of October 24, 2001.
 (d) Expenses estimated for the period October 31, 2001 through December 31,
   2001.


                 Directors' Holdings in the T. Rowe Price Funds

   The following table sets forth the T. Rowe Price fund holdings of the
   independent and inside directors, as of December 31, 2001.



                              Burnett  Deering     Dick     Fagin    Linaweaver  Merriman  Schreiber    Vos       Wythes
- -----------------------------------------------------------                                                     ----------
                                                                                     
    Aggregate Holdings,
    -------------------         $1-     over      over      over       over       over       over      over      over
         All Funds            $10,000  $100,000  $100,000  $100,000   $100,000   $100,000  $100,000   $100,000  $100,000
         ---------
- --------------------------------------------------------------------------------------------------------------------------
 Balanced Fund                 None      None      None      None $50,001-$100,000 None      None       None       None

- --------------------------------------------------------------------------------------------------------------------------
 Blue Chip Growth Fund         None      None   $1-$10,0$10,001-$50,000   None         over      None       None       None
                                                                                     $100,000
- ------------------------------------------------------------------------------------------------------------------------------
 Blue Chip Growth              None      None      None        None            None         None      None       None       None
 Fund-Advisor Class
- -----------------------------------------------------------------------------------------------------------------------------------
 Blue Chip Growth Portfolio    None      None      None        None            None         None      None       None       None
- -----------------------------------------------------------------------------------------------------------------------------------
 California Tax-Free Bond      None      None      None        None            None         None      None       None       None
 Fund
- -----------------------------------------------------------------------------------------------------------------------------------
 California Tax-Free Money     None      None      None        None            None         None      None       None       None
 Fund
- -----------------------------------------------------------------------------------------------------------------------------------
 Capital Appreciation Fund     None      None      over        None            None      $10,001-$50,000   None       None     None
                                                 $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Capital Opportunity Fund      None      None      None        None            None           None         None       None     None
- ------------------------------------------------------------------------------------------------------------------------------------
 Corporate Income Fund         None      None      None        None            None           None         None       None     None
- ------------------------------------------------------------------------------------------------------------------------------------
 Developing Technologies       None      None      None        None            None           None         None       None     None
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Diversified Small-Cap         None      None      None        None            None           None         None       None     None
 Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Dividend Growth Fund          None      None      None   $10,001-$50,000      None      $10,001-$50,000   None       None     None

- ------------------------------------------------------------------------------------------------------------------------------------
 Emerging Europe &             None      None      None        None            None           None         None       None     None
 Mediterranean Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Emerging Markets Bond Fund    None      None      None        None            None           None         None       None     None
- ------------------------------------------------------------------------------------------------------------------------------------
 Emerging Markets Stock Fund   None      None      None        None            None           None         None       None     None
- ------------------------------------------------------------------------------------------------------------------------------------
 Equity Income Fund            None      None$50,001-$100,$50,001-$100,000     None      $50,001-$100,000  None  $10,001-$50,00None

- ------------------------------------------------------------------------------------------------------------------------------------
 Equity Income Fund-Advisor    None      None         None            None            None            None         None       None
 Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Equity Income Portfolio       None      None         None            None            None            None         None       None
- ------------------------------------------------------------------------------------------------------------------------------------
 Equity Index 500 Fund         None      None         None            None            None       over $100,000     None       None

- ------------------------------------------------------------------------------------------------------------------------------------
 Equity Index 500 Portfolio    None      None         None            None            None            None         None       None
- ------------------------------------------------------------------------------------------------------------------------------------
 European Stock Fund           None      over    $10,001-$50,000 $10,001-$50,000      None            None         None       None
                                       $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Extended Equity Market        None      None         None            None            None            None         None       None
 Index Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Financial Services Fund       None      None    $10,001-$50,000      None            None            None         None       None

- ------------------------------------------------------------------------------------------------------------------------------------
 Florida Intermediate          None      None         None            None            None            None         None       None
 Tax-Free Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Georgia Tax-Free Bond Fund    None      None         None            None            None            None         None       None
- ------------------------------------------------------------------------------------------------------------------------------------
 Global Stock Fund             None      None         None            None            None            None         None       None
- ------------------------------------------------------------------------------------------------------------------------------------
 Global Technology Fund        None      None         None            None            None            None         None       None
- ------------------------------------------------------------------------------------------------------------------------------------
 GNMA Fund                     None      None         None            None            None            None         over       None
                                                                                                                 $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Government Reserve            None      None         None            None            None            None         None       None
 Investment Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Growth & Income Fund          None      None      $1-$10,000         None            None            None         over       No$10,
                                                                                                                 $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Growth Stock Fund             None      None    $10,001-$50,000      None       $10,001-$50,000      None         None       None

- ------------------------------------------------------------------------------------------------------------------------------------
 Growth Stock Fund-Advisor     None      None         None            None            None            None         None       None
 Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Health Sciences Fund          None      None    $10,001-$50,000      None            None            None         None $50,001-$100

- ------------------------------------------------------------------------------------------------------------------------------------
 Health Sciences Portfolio     None      None         None            None            None            None         None       None
- ------------------------------------------------------------------------------------------------------------------------------------
 High Yield Fund             $1-$10,000  None    $10,001-$50,000      None            None            None         over       None
                                                                                                                 $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 High Yield Fund-Advisor        None      None         None            None            None            None         None      None
 Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Institutional Foreign          None      None         None            None            None            None         None      None
 Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Institutional Large-Cap        None      None         None            None            None            None         None      None
 Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Institutional Large-Cap        None      None         None            None            None            None         None      None
 Value Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Institutional Mid-Cap          None      None         None            None            None            None         None      None
 Equity Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Institutional Small-Cap        None      None         None            None            None            None         None      None
 Stock Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 International Bond Fund        None      None   $50,001-$100,000      None            None            None         None      None

- ------------------------------------------------------------------------------------------------------------------------------------
 International Bond             None      None         None            None            None            None         None      None
 Fund-Advisor Class
- ------------------------------------------------------------------------------------------------------------------------------------
 International Discovery        None$50,001-$100,0$10,001-$50,000      None       over $100,000        None         None      None
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 International Equity Index     None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 International Growth &         None         None            None            None            None            None         None    No
 Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 International Stock Fund    $1-$10,000 over $100,000        None       over $100,000        None            None         None    No

- ------------------------------------------------------------------------------------------------------------------------------------
 International Stock            None         None            None            None            None            None         None    No
 Fund-Advisor Class
- ------------------------------------------------------------------------------------------------------------------------------------
 International Stock            None         None            None            None            None            None         None    No
 Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
 Japan Fund                     None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 Latin America Fund             None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 Limited-Term Bond Portfolio    None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 Maryland Short-Term            None         None            None            None            None            None         None    No
 Tax-Free Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Maryland Tax-Free Bond Fund    None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 Maryland Tax-Free Money        None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Media & Telecommunications     None    $10,001-$50,000      None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Mid-Cap Growth Fund            None         None         $1-$10,000    $10,001-$50,000      None            None         No$10,001-

- ------------------------------------------------------------------------------------------------------------------------------------
 Mid-Cap Growth Fund-Advisor    None         None            None            None            None            None         None    No
 Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Mid-Cap Growth Portfolio       None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 Mid-Cap Value Fund             None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 New America Growth Fund        None         None            None            None       over $100,000   $10,001-$50,000   None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 New America Growth             None         None            None            None            None            None         None    No
 Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
 New Asia Fund                  None         None            None       $10,001-$50,000      None            None         None    No

- ------------------------------------------------------------------------------------------------------------------------------------
 New Era Fund                   None         None            None            None            None            None         No$10,001-

- ------------------------------------------------------------------------------------------------------------------------------------
 New Horizons Fund           $1-$10,000      None       $10,001-$50,000   $1-$10,000    over $100,000   $10,001-$50,000   No$10,001-

- ------------------------------------------------------------------------------------------------------------------------------------
 New Income Fund                None         None      $50,001-$100,000      None            None            None         over    No
                                                                                                                        $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 New Jersey Tax-Free Bond       None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 New York Tax-Free Bond Fund    None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 New York Tax-Free Money        None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Personal Strategy Balanced     None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Personal Strategy Balanced     None         None            None            None            None            None         None    No
 Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
 Personal Strategy Growth       None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Personal Strategy Income       None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Prime Reserve Fund          $1-$10,000      None       over $100,000        None         $1-$10,000   $50,001-$100,0$10,001-$50,0No

- ------------------------------------------------------------------------------------------------------------------------------------
 Prime Reserve Fund-PLUS        None         None            None            None            None            None           None
 Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Prime Reserve Portfolio        None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Real Estate Fund               None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Reserve Investment Fund        None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Science & Technology Fund      None    over $100,000        None            None            None       $10,001-$50,000     No$10,00
- ------------------------------------------------------------------------------------------------------------------------------------
 Science & Technology           None         None            None            None            None            None           None
 Fund-Advisor Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Short-Term Bond Fund           None         None            None      $50,001-$100,000      None            None           over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Small-Cap Stock Fund           None         None         $1-$10,000    $10,001-$50,000      None            None           No$10,00

- ------------------------------------------------------------------------------------------------------------------------------------
 Small-Cap Stock                None         None            None            None            None            None           None
 Fund-Advisor Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Small-Cap Value Fund           None         None            None            None            None            None           No$10,00

- ------------------------------------------------------------------------------------------------------------------------------------
 Small-Cap Value                None         None            None            None            None            None           None
 Fund-Advisor Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Spectrum Growth Fund           None         None            None            None            None       over $100,000       None

- ------------------------------------------------------------------------------------------------------------------------------------
 Spectrum Income Fund           None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Spectrum International Fund    None         None            None            None            None       $10,001-$50,000     None
- ------------------------------------------------------------------------------------------------------------------------------------
 Summit Cash Reserves Fund      None         None            None       over $100,000        None            None           over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Summit GNMA Fund               None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Summit Municipal Income        None         None            None            None            None            None           over
 Fund                                                                                                                     $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Summit Municipal               None         None            None            None            None            None           over
 Intermediate Fund                                                                                                        $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Summit Municipal Money         None         None            None            None            None      $50,001-$100,000     None
 Market Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Efficient Balanced Fund    None         None            None      $50,001-$100,000      None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Efficient Growth Fund      None         None            None       $10,001-$50,000      None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Efficient Multi-Cap        None         None            None            None            None            None           None
 Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Exempt Money Fund          None         None            None            None            None            None           over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Exempt Money Fund-PLUS     None         None            None            None            None            None           None
 Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Free High Yield Fund       None         None            None            None            None            None           over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Free Income Fund           None         None            None            None            None            None           over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Free Intermediate Bond     None         None            None            None            None            None           None
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Free Short-Intermediate    None         None            None            None            None            None           None
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Total Equity Market Index      None         None            None            None            None            None           None
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 U.S. Bond Index Fund           None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 U.S. Treasury Intermediate     None         None       over $100,000        None            None            None           over
 Fund                                                                                                                     $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 U.S. Treasury Long-Term        None         None            None            None            None            None           over
 Fund                                                                                                                     $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 U.S. Treasury Money Fund       None         None            None            None            None            None           over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Value Fund                     None         None       $10,001-$50,000      None            None      $50,001-$100,000     over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Value Fund-Advisor Class       None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Virginia Tax-Free Bond Fund    None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------






                                       51





                                       52





                                       53





                                       54





                                       55





                            Kennedy           Laporte           Riepe            Testa
- --------------------------------------------------------------------------------------------
                                                               
 Aggregate Holdings,
 -------------------
      All Funds          over $100,000     over $100,000    over $100,000   over $100,000
      ---------
- --------------------------------------------------------------------------------------------
 Balanced Fund                None              None        over $100,000        None
- --------------------------------------------------------------------------------------------
 Blue Chip Growth Fund        None              None            None             None
- --------------------------------------------------------------------------------------------
 Blue Chip Growth             None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Blue Chip Growth             None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 California Tax-Free          None              None            None             None
 Bond Fund
- --------------------------------------------------------------------------------------------
 California Tax-Free          None              None            None             None
 Money Fund
- --------------------------------------------------------------------------------------------
 Capital Appreciation    over $100,000     over $100,000    over $100,000        None
 Fund
- --------------------------------------------------------------------------------------------
 Capital Opportunity    $10,001-$50,000   $50,001-$100,000      None             None
 Fund
- --------------------------------------------------------------------------------------------
 Corporate Income Fund        None              None            None             None
- --------------------------------------------------------------------------------------------
 Developing                   None         over $100,000        None             None
 Technologies Fund
- --------------------------------------------------------------------------------------------
 Diversified Small-Cap        None              None            None             None
 Growth Fund
- --------------------------------------------------------------------------------------------
 Dividend Growth Fund    over $100,000          None            None             None
- --------------------------------------------------------------------------------------------
 Emerging Europe &            None              None            None             None
 Mediterranean Fund
- --------------------------------------------------------------------------------------------
 Emerging Markets Bond        None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Emerging Markets             None              None            None         over $100,000
 Stock Fund
- --------------------------------------------------------------------------------------------
 Equity Income Fund     $10,001-$50,000         None        over $100,000        None
- --------------------------------------------------------------------------------------------
 Equity Income                None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Equity Income                None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 Equity Index 500 Fund        None              None            None             None
- --------------------------------------------------------------------------------------------
 Equity Index 500             None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 European Stock Fund          None        $10,001-$50,000       None             None
- --------------------------------------------------------------------------------------------
 Extended Equity              None              None            None             None
 Market Index Fund
- --------------------------------------------------------------------------------------------
 Financial Services      over $100,000          None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Florida Intermediate         None              None            None             None
 Tax-Free Fund
- --------------------------------------------------------------------------------------------
 Georgia Tax-Free Bond        None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Global Stock Fund            None              None            None             None
- --------------------------------------------------------------------------------------------
 Global Technology            None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 GNMA Fund                    None              None            None             None
- --------------------------------------------------------------------------------------------
 Government Reserve           None              None            None             None
 Investment Fund
- --------------------------------------------------------------------------------------------
 Growth & Income Fund         None              None        over $100,000        None
- --------------------------------------------------------------------------------------------
 Growth Stock Fund            None              None            None             None
- --------------------------------------------------------------------------------------------
 Growth Stock                 None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Health Sciences Fund    over $100,000          None            None         over $100,000
- --------------------------------------------------------------------------------------------
 Health Sciences              None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 High Yield Fund              None              None        over $100,000        None
- --------------------------------------------------------------------------------------------
 High Yield                   None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Institutional Foreign        None              None            None             None
 Equity Fund
- --------------------------------------------------------------------------------------------
 Institutional                None              None            None             None
 Large-Cap Growth Fund
- --------------------------------------------------------------------------------------------
 Institutional                None              None            None             None
 Large-Cap Value Fund
- --------------------------------------------------------------------------------------------
 Institutional Mid-Cap        None              None            None             None
 Equity Growth Fund
- --------------------------------------------------------------------------------------------
 Institutional                None              None            None             None
 Small-Cap Stock Fund
- --------------------------------------------------------------------------------------------
 International Bond           None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 International Bond           None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 International          $50,001-$100,000   over $100,000     $1-$10,000      over $100,000
 Discovery Fund
- --------------------------------------------------------------------------------------------
 International Equity         None              None            None             None
 Index Fund
- --------------------------------------------------------------------------------------------
 International Growth         None              None            None             None
 & Income Fund
- --------------------------------------------------------------------------------------------
 International Stock     over $100,000     over $100,000    over $100,000    over $100,000
 Fund
- --------------------------------------------------------------------------------------------
 International Stock          None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 International Stock          None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 Japan Fund                   None              None        over $100,000        None
- --------------------------------------------------------------------------------------------
 Latin America Fund      over $100,000          None            None             None
- --------------------------------------------------------------------------------------------
 Limited-Term Bond            None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 Maryland Short-Term          None              None            None             None
 Tax-Free Bond Fund
- --------------------------------------------------------------------------------------------
 Maryland Tax-Free            None         over $100,000        None             None
 Bond Fund
- --------------------------------------------------------------------------------------------
 Maryland Tax-Free            None              None            None             None
 Money Fund
- --------------------------------------------------------------------------------------------
 Media &
 Telecommunications      over $100,000          None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Mid-Cap Growth Fund     over $100,000     over $100,000        None         over $100,000
- --------------------------------------------------------------------------------------------
 Mid-Cap Growth               None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Mid-Cap Growth               None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 Mid-Cap Value Fund      over $100,000          None            None             None
- --------------------------------------------------------------------------------------------
 New America Growth           None         over $100,000        None             None
 Fund
- --------------------------------------------------------------------------------------------
 New America Growth           None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 New Asia Fund           over $100,000     over $100,000     $1-$10,000          None
- --------------------------------------------------------------------------------------------
 New Era Fund            over $100,000          None            None             None
- --------------------------------------------------------------------------------------------
 New Horizons Fund            None         over $100,000        None         over $100,000
- --------------------------------------------------------------------------------------------
 New Income Fund              None        $10,001-$50,000       None             None
- --------------------------------------------------------------------------------------------
 New Jersey Tax-Free          None              None            None             None
 Bond Fund
- --------------------------------------------------------------------------------------------
 New York Tax-Free            None              None            None             None
 Bond Fund
- --------------------------------------------------------------------------------------------
 New York Tax-Free            None              None            None             None
 Money Fund
- --------------------------------------------------------------------------------------------
 Personal Strategy            None              None            None             None
 Balanced Fund
- --------------------------------------------------------------------------------------------
 Personal Strategy            None              None            None             None
 Balanced Portfolio
- --------------------------------------------------------------------------------------------
 Personal Strategy            None              None            None             None
 Growth Fund
- --------------------------------------------------------------------------------------------
 Personal Strategy            None              None            None             None
 Income Fund
- --------------------------------------------------------------------------------------------
 Prime Reserve Fund      over $100,000    $10,001-$50,000   over $100,000   $10,001-$50,000
- --------------------------------------------------------------------------------------------
 Prime Reserve                None              None            None             None
 Fund-PLUS Class
- --------------------------------------------------------------------------------------------
 Prime Reserve                None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 Real Estate Fund             None              None            None             None
- --------------------------------------------------------------------------------------------
 Reserve Investment           None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Science & Technology         None         over $100,000    over $100,000        None
 Fund
- --------------------------------------------------------------------------------------------
 Science & Technology         None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Short-Term Bond Fund         None              None        over $100,000        None
- --------------------------------------------------------------------------------------------
 Small-Cap Stock Fund    over $100,000          None            None             None
- --------------------------------------------------------------------------------------------
 Small-Cap Stock              None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Small-Cap Value Fund         None              None        over $100,000    over $100,000
- --------------------------------------------------------------------------------------------
 Small-Cap Value              None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Spectrum Growth Fund         None              None            None             None
- --------------------------------------------------------------------------------------------
 Spectrum Income Fund         None              None            None             None
- --------------------------------------------------------------------------------------------
 Spectrum                     None              None            None             None
 International Fund
- --------------------------------------------------------------------------------------------
 Summit Cash Reserves    over $100,000     over $100,000    over $100,000    over $100,000
 Fund
- --------------------------------------------------------------------------------------------
 Summit GNMA Fund             None              None            None             None
- --------------------------------------------------------------------------------------------
 Summit Municipal             None              None            None             None
 Income Fund
- --------------------------------------------------------------------------------------------
 Summit Municipal             None              None            None         over $100,000
 Intermediate Fund
- --------------------------------------------------------------------------------------------
 Summit Municipal        over $100,000          None        over $100,000        None
 Money Market Fund
- --------------------------------------------------------------------------------------------
 Tax-Efficient                None              None            None             None
 Balanced Fund
- --------------------------------------------------------------------------------------------
 Tax-Efficient Growth         None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Tax-Efficient                None              None            None             None
 Multi-Cap Growth Fund
- --------------------------------------------------------------------------------------------
 Tax-Exempt Money Fund   over $100,000          None            None             None
- --------------------------------------------------------------------------------------------
 Tax-Exempt Money             None              None            None             None
 Fund-PLUS Class
- --------------------------------------------------------------------------------------------
 Tax-Free High Yield          None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Tax-Free Income Fund         None              None            None        $10,001-$50,000
- --------------------------------------------------------------------------------------------
 Tax-Free Intermediate        None              None            None             None
 Bond Fund
- --------------------------------------------------------------------------------------------
 Tax-Free
 Short-Intermediate           None              None        over $100,000        None
 Fund
- --------------------------------------------------------------------------------------------
 Total Equity Market          None              None        over $100,000        None
 Index Fund
- --------------------------------------------------------------------------------------------
 U.S. Bond Index Fund         None              None            None             None
- --------------------------------------------------------------------------------------------
 U.S. Treasury                None              None            None             None
 Intermediate Fund
- --------------------------------------------------------------------------------------------
 U.S. Treasury                None              None            None             None
 Long-Term Fund
- --------------------------------------------------------------------------------------------
 U.S. Treasury Money          None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Value Fund              over $100,000     over $100,000    over $100,000    over $100,000
- --------------------------------------------------------------------------------------------
 Value Fund-Advisor           None              None            None             None
 Class
- --------------------------------------------------------------------------------------------
 Virginia Tax-Free            None              None            None             None
 Bond Fund
- --------------------------------------------------------------------------------------------






                                       56





                                       57



 PRINCIPAL HOLDERS OF SECURITIES
 -------------------------------------------------------------------------------
   As of July 31, 2002, the officers and directors of the fund, as a group,
   owned less than 1% of the outstanding shares of the fund.

   As of July 31, 2002, the following shareholders of record owned more than 5%
   of the outstanding shares of any share class of the fund:

   Balanced (53.65%), Capital Appreciation (19.18%), Equity Income (25.05%),
   Extended Equity Market Index (16.57%), Growth & Income (26.47%), Growth Stock
   (23.16%), New America Growth (32.11%), New Era (5.59%), New Horizons
   (31.14%), Science & Technology (21.66%), and Small-Cap Value Funds (20.36%):


   T. Rowe Price Trust Company, Inc./a/, Attn.: TRPS Institutional Control
   Department, P.O. Box 17215, Baltimore, Maryland 21297-1215;

   /a/ T. Rowe Price Trust Company is a wholly owned subsidiary of T. Rowe Price
       Associates, Inc., which is a wholly owned subsidiary of T. Rowe Price
       Group, Inc., each a Maryland corporation. T. Rowe Price


                                       58



       Trust Company is not the beneficial owner of these shares. Such shares
       are held of record by T. Rowe Price Trust Company and are voted by
       various retirement plans and retirement participants.

   Blue Chip Growth Fund (39.82%): T. Rowe Price Retirement Plan Services/b/ TR
   Blue Chip Growth Fund, Attn.: Asset Reconciliations, P.O. Box 17215,
   Baltimore, Maryland 21297-1215;

   /b/ T. Rowe Price Retirement Plan Services is a wholly owned subsidiary of T.
       Rowe Price Associates, Inc., which is a wholly owned subsidiary of T.
       Rowe Price Group, Inc., each a Maryland corporation. T. Rowe Price
       Retirement Plan Services is not the beneficial owner of these shares.
       Such shares are held of record by T. Rowe Price Retirement Plan Services
       and are voted by various retirement plans and retirement participants.

   Capital Appreciation (6.88%), Financial Services (6.67%), Mid-Cap Growth
   (10.43%), Mid-Cap Value (6.04%), New Era (7.12%), and Small-Cap Value Funds
   (6.50%): Charles Schwab & Co. Inc., Reinvest Account, Attn.: Mutual Fund
   Department, 101 Montgomery Street, San Francisco, California 94104-4122;

   Capital Opportunity (5.85%) and Value Funds (23.07%): T. Rowe Price Trust
   Company, Inc., Attn.: Installation Team for TRPS Institutional Control
   Department, P.O. Box 17125, Baltimore, Maryland 21297-1125;

   Developing Technologies Fund (10.93%): Trustees of T. Rowe Price, 401k Plus
   Plan, Attn.: Financial Reporting Department, P.O. Box 89000, Baltimore,
   Maryland 21289-0001;

   Dividend Growth Fund (17.49%): T. Rowe Price Trust Company, Inc., Dividend
   Growth Fund (DGF), Attn.: Asset Reconciliation, P.O. Box 17215, Baltimore,
   Maryland 21297-1215;

   Equity Index 500 Fund (38.85%): T. Rowe Price Trust Company, Inc., Attn.: RPS
   Control Department, 10090 Red Run Boulevard, Owings Mills, Maryland
   21117-4842;

   Growth & Income (13.62%), New Era (5.10%), New Horizons (10.38%), and Mid-Cap
   Value Funds (16.28%): Pirateline & Company, T. Rowe Price Associates, Attn.:
   Fund Accounting Department, 100 East Pratt Street, Baltimore, Maryland
   21202-1009;

   Institutional Large-Cap Growth Fund (100.00%): T. Rowe Price Associates/c/,
   Attn.: Financial Reporting Department, 100 East Pratt Street, Baltimore,
   Maryland 21202-1009;

   /c/ T. Rowe Price Associates is a wholly owned subsidiary of T. Rowe Price
       Group, Inc., each a Maryland corporation. Securities owned by T. Rowe
       Price Associates are the result of its contribution to the fund at the
       fund's inception in order to provide the fund with sufficient capital to
       invest in accordance with its investment program. At the level of
       ownership indicated, T. Rowe Price Associates would be able to determine
       the outcome of most issues that were submitted to shareholders for vote.

   Institutional Large-Cap Value Fund (100.00%): T. Rowe Price Finance Inc./d/,
   802 West Street, Suite 301, Wilmington, Delaware 19801-1526;

   /d/ T. Rowe Price Finance is a wholly owned subsidiary of T. Rowe Price
       Associates, Inc., which is a wholly owned subsidiary of T. Rowe Price
       Group, Inc., each a Maryland corporation. Securities owned by T. Rowe
       Price Finance are the result of its contribution to the fund at the
       fund's inception in order to provide the fund with sufficient capital to
       invest in accordance with its investment program. At the level of
       ownership indicated, T. Rowe Price Finance would be able to determine the
       outcome of most issues that were submitted to shareholders for vote.

   Institutional Mid-Cap Equity Growth Fund: Atlantic Trust Company NA (8.81%),
   Attn.: Kathy Trull, 100 Federal Street, 37th Floor, Boston, Massachusetts
   02110-1802; Atlantic Trust Company NA (11.43%), Attn.: Kathy Trull, 100
   Federal Street, 37th Floor, Boston, Massachusetts 02110-1802; Stichting
   Pensioenfonds (7.98%), Van de Koninklijke Nedlloyd, P.O. Box 1982, 3000 B Z
   Rotterdam, The Netherlands; Mellon Trust Co. TR Nexfor Master Investment
   Trust Funds, 161 Bay Street, P.O. Box 500, Toronto, Ontario Canada M5J2S8;
   Band & Company (5.37%), c/o Firstar Bank, P.O. Box 1787, Milwaukee, Wisconsin
   53201-1787;


                                       59



   Institutional Small-Cap Stock Fund: Brookline Contributory Retirement Systems
   (5.36%), 333 Washington Street, Brookline, Massachusetts 02445-6853; Northern
   Trust Co. TR Illinois Tool Works Pension Trust U/A DTD 1/8/90 (11.87%),
   Attn.: Robert T. Callahan, 3600 West Lake Avenue, Glenview, Illinois
   60025-1215; Deutsche Trust Bank Limited FBO Tokkin Fund No. 5064 (12.67%),
   Sanno Park Tower 2-11-1, Nagatacho Chiyoda KU, Tokyo, Japan 100-6172; Sigler
   & Co. Cust, Smithsonian Institution (18.46%), Chase Manhattan Bank, Mark R.
   Pensec, AVP, 4 New York Plaza 2nd Floor, New York, New York 10004-2413;

   Media & Telecommunications Fund (7.09%): T. Rowe Price Trust Company, Inc.,
   Media & Telecommunications Fund, DST #121, P.O. Box 17215, Baltimore,
   Maryland 21297-1215;

   Mid-Cap Growth Fund (17.34%): T. Rowe Price Trust Company, Inc., Attn.: Asset
   Reconciliations, P.O. Box 17215, Baltimore, Maryland 21297-1215;

   Mid-Cap Value Fund: National Financial Services for the Exclusive Benefit of
   Our Customers (6.50%), 200 Liberty, One Financial Center 5th Floor, New York,
   New York 10281-1003;

   New America Growth Fund (9.15%): Wilmington Trust Co. TR, FBO Continental
   Airlines Inc., DCP Plan A/C #49277-0, c/o Mutual Funds, P.O. Box 8971,
   Wilmington, Delaware 19899-8971;

   Real Estate Fund (6.67%): T. Rowe Price Retirement Plan Services, Inc.,
   Kimley-Horn Retirement Savings PL, Plan #105315, NB-Custom Blended Fund #122
   REF, P.O. Box 17215, Baltimore, Maryland 21297-1215;

   Small-Cap Stock Fund: T. Rowe Price Trust Company, Inc. (17.95%), T. Rowe
   Price OTC Fund, Attn.: RPS Control Department, P.O. Box 17215, Baltimore,
   Maryland 21297-1215; Norwest Bank Company NA TR FBO State of Minnesota
   Deferred Compensation Plan, Minnesota State Deferred Compensation Plan Trust
   (7.14%), c/o Great West Life Recordkeeper, 8515 East Orchard Road, Attn.:
   2T2, Englewood, Colorado 80111-5037.



 INVESTMENT MANAGEMENT SERVICES
 -------------------------------------------------------------------------------
   Services
   Under the Management Agreement, T. Rowe Price provides the fund with
   discretionary investment services. Specifically, T. Rowe Price is responsible
   for supervising and directing the investments of the fund in accordance with
   the fund's investment objectives, program, and restrictions as provided in
   its prospectus and this Statement of Additional Information. T. Rowe Price is
   also responsible for effecting all security transactions on behalf of the
   fund, including the negotiation of commissions and the allocation of

   principal business and portfolio brokerage. . In addition to these services,
   T. Rowe Price provides the fund with certain corporate administrative
   services, including: maintaining the fund's corporate existence and corporate
   records; registering and qualifying fund shares under federal laws;
   monitoring the financial, accounting, and administrative functions of the
   fund; maintaining liaison with the agents employed by the fund such as the
   fund's custodian and transfer agent; assisting the fund in the coordination
   of such agents' activities; and permitting T. Rowe Price's employees to serve
   as officers, directors, and committee members of the fund without cost to the
   fund.

   The Management Agreement also provides that T. Rowe Price, its directors,
   officers, employees, and certain other persons performing specific functions
   for the fund will only be liable to the fund for losses resulting from
   willful misfeasance, bad faith, gross negligence, or reckless disregard of
   duty.

   Approval of Management Agreements
   The Management Agreements of the funds are reviewed each year by the funds'
   Boards of Directors to determine whether the agreements should be renewed for
   a one-year period or not. Renewal of the agreements requires the majority
   vote of the Board of Directors, including a majority of the independent
   directors. Each fund board consists of a majority of independent directors.

   In approving the continuation of the investment management agreements for
   each fund for the current year, the Board reviewed reports prepared by T.
   Rowe Price, materials provided by fund counsel and counsel to the


                                       60



   independent directors, as well as other information. The Board considered the
   nature and quality of the investment management services provided to the fund
   by T. Rowe Price under the investment management agreements and the personnel
   who provide these services, including the historical performance of the fund
   compared to its benchmark index and its peer group of similar investment
   companies. In addition, the Board considered other services provided to the
   fund by T. Rowe Price and its affiliates, such as administrative services,
   shareholder services, fund accounting, assistance in meeting legal and
   regulatory requirements, and other services necessary for the fund's
   operation.

   The Board considered the fees paid to T. Rowe Price for investment management
   services, as well as compensation paid to T. Rowe Price or its affiliates for
   other non-advisory services provided to the fund. In connection with its
   review of the fees paid to T. Rowe Price and its affiliates, the Board
   reviewed information provided by Lipper Inc. comparing the fund's advisory
   fee rate and overall expense ratio with those of comparable funds. Where
   applicable, the Board considered that the fund's advisory fee structure
   reflects breakpoints, which permit fee reductions resulting from economies of
   scale. Additionally and where applicable, the Board considered the
   contractual fee waivers and expense reimbursements agreed to by T. Rowe
   Price.

   The Board also considered the costs incurred and the benefits received by T.
   Rowe Price and its affiliates, including the profitability of T. Rowe Price
   from providing advisory services to the fund. In reviewing data concerning
   the profitability of T. Rowe Price, the Board examined, among other
   components, the cost allocation methodology utilized in the presentation. In
   addition, the Board considered other potential benefits to T. Rowe Price,
   such as the research services T. Rowe Price receives from brokers in return
   for allocating fund brokerage in a "soft dollar" arrangement.

   Based on the information reviewed and the discussions, the Board concluded
   that it was satisfied with the nature and quality of the services provided by
   T. Rowe Price to the fund and that the management fee rate was reasonable in
   relation to such services. The independent directors of the fund were
   assisted by independent legal counsel in their deliberations.

   All funds except Equity Index 500, Extended Equity Market Index, Total Equity
   Market Index, Institutional Large-Cap Growth, Institutional Large-Cap Value,
   Institutional Mid-Cap Equity Growth, and Institutional Small-Cap Stock Funds

   Management Fee
   The fund pays 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 next.

   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:


                                                                                 
                                       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


                                       61



   particular day, the net assets of each Price Fund are determined in
   accordance with the fund's prospectus as of the close of business on the
   previous business day on which the fund was open for business.

   The monthly Fund Fee ("Monthly Fund Fee") is the sum of the daily Fund Fee
   accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee
   Accrual for any particular day is computed by multiplying the fraction of one
   (1) over the number of calendar days in the year by the individual Fund Fee
   Rate 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%
Developing Technologies Fund          0.60%
Diversified Small-Cap Growth Fund     0.35%
Dividend Growth Fund                  0.20%
Equity Income Fund                    0.25%
Financial Services Fund               0.35%
Global Technology Fund                0.45%
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%
Science & Technology Fund             0.35%
Small-Cap Stock Fund                  0.45%
Small-Cap Value Fund                  0.35%
Value Fund                            0.35%





   Equity Index 500 Fund
   The fund pays T. Rowe Price an annual investment management fee in monthly
   installments of 0.15% of the average daily net asset value of the fund.

   Extended Equity Market Index and Total Equity Market Index Funds
   The Management Agreement between each fund and T. Rowe Price provides that
   each fund pays T. Rowe
   Price an annual fee of 0.40%. The agreement also provides that T. Rowe Price
   will pay all expenses of each fund's operations, except interest, taxes,
   brokerage commissions, and other charges incident to the purchase, sale, or
   lending of the fund's portfolio securities, directors' fees, and expenses
   (including counsel fees and expenses) and such non-recurring or extraordinary
   expenses that may arise, including the costs of actions, suits, or
   proceedings to which the fund is a party and the expenses the fund may incur
   as a result of its obligation to provide indemnification to its officers,
   directors, and agents. However, the Board of Directors for the funds reserves
   the right to impose additional fees against shareholder accounts to defray
   expenses which would otherwise be paid by T. Rowe Price under the management
   agreement. The Board does not anticipate levying such charges; such a fee, if
   charged, may be retained by the fund or paid to T. Rowe Price.


                                       62



   Institutional Large-Cap Growth Fund
   The fund pays T. Rowe Price an annual investment management fee in monthly
   installments of 0.55% of the average daily net asset value of the fund.

   Institutional Large-Cap Value Fund
   The fund pays T. Rowe Price an annual investment management fee in monthly
   installments of 0.55% of the average daily net asset value of the fund.

   Institutional 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.

   Institutional Small-Cap Stock Fund
   The fund pays T. Rowe Price an annual investment management fee in monthly
   installments of 0.65% of the average daily net asset value of the fund.


                     Expense Limitations and Reimbursements

   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 (other than interest, taxes, brokerage, and other expenditures that
   are capitalized in accordance with generally accepted accounting principles
   and extraordinary expenses) which would cause the fund's ratio of expenses to

   average net assets to exceed the indicated percentage limitation. . (The
   expense limitation for the Advisor Class relates to operating expenses other
   than management fees and certain other portfolio level expenses such as fees
   for custody, outside directors, and auditors.) 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, 2002 -
Blue Chip Growth Fund-Advisor Class                                December 31, 2003                   December 31, 2005
                                                                   September 30, 2002 -
Blue Chip Growth Fund-R Class                                      April 30, 2004                      April 30, 2006
                                                                   August 31, 2000 -
Developing Technologies                                            December 31, 2002         1.50%     December 31, 2004
                                                                   May 1, 2002 - April
Diversified Small-Cap Growth(a)                                    30, 2004                            April 30, 2006
                                                                   January 1, 2002 -
Equity Income Fund-Advisor Class(b)                                December 31, 2003                   December 31, 2005
                                                                   September 30, 2002 -
Equity Income Fund-R Class                                         April 30, 2004                      April 30, 2006
                                                                   January 1, 2001 -
Equity Index 500(c)                                                December 31, 2003                   December 31, 2005
                                                                   September 29, 2000 -
Global Technology                                                  December 31, 2002         1.50%     December 31, 2004
                                                                   January 1, 2002 -
Growth Stock Fund-Advisor Class                                    December 31, 2003                   December 31, 2005
                                                                   September 30, 2002 -
Growth Stock Fund-R Class                                          April 30, 2004                      April 30, 2006
                                                                   October 31, 2001 -
Institutional Large-Cap Growth                                     December 31, 2002                   December 31, 2004
                                                                   January 1, 2002 -
Institutional Large-Cap Value(d)                                   December 31, 2003                   December 31, 2005
                                                                   January 1, 2002 -
Institutional Small-Cap Stock(e)                                   December 31, 2003                   December 31, 2005
                                                                   January 1, 2002 -
Mid-Cap Growth Fund-Advisor Class(f)                               December 31, 2003                   December 31, 2005
                                                                   September 30, 2002 -
Mid-Cap Growth Fund-R Class                                        April 30, 2004                      April 30, 2006
                                                                   September 30, 2002 -
Mid-Cap Value Fund-Advisor Class                                   April 30, 2004                      April 30, 2006
                                                                   September 30, 2002 -
Mid-Cap Value Fund-R Class                                         April 30, 2004                      April 30, 2006
                                                                   January 1, 2002 -
Real Estate(g)                                                     December 31, 2003                   December 31, 2005
                                                                   January 1, 2002 -
Science & Technology Fund-Advisor Class(h)                         December 31, 2003                   December 31, 2005
                                                                   January 1, 2002 -
Small-Cap Stock Fund-Advisor Class(i)                              December 31, 2003                   December 31, 2005
                                                                   January 1, 2002 -
Small-Cap Value Fund-Advisor Class(j)                              December 31, 2003                   December 31, 2005
Value Fund-Advisor Class(k)                                        January 1, 2002 -                   December 31, 2005
                                                                   December 31, 2003
- --------------------------------------------------------------------------------------------------------------------------






                                       63



 (a) The Diversified Small-Cap Growth Fund previously operated under a
   1.25% limitation that expired December 31, 2000. The reimbursement
   period for this limitation extends through December 31, 2002.

 (b) The Equity Income Fund-Advisor Class previously operated under a 1.00%
   limitation that expired December 31, 2001. The reimbursement period for
   this limitation extends through December 31, 2003.

 (c) The Equity Index 500 Fund previously operated under a 0.35% limitation
   that expired December 31, 2000. The reimbursement period for this
   limitation extends through December 31, 2002.

 (d) The Institutional Large-Cap Value Fund previously operated under a
   0.65% limitation that expired December 31, 2001. The reimbursement
   period for this limitation extends through December 31, 2003.

 (e) The Institutional Small-Cap Stock Fund previously operated under a
   0.75% limitation that expired December 31, 2001. The reimbursement
   period for this limitation extends through December 31, 2003.

 (f) The Mid-Cap Growth Fund-Advisor Class previously operated under a
   1.10% limitation that expired December 31, 2001. The reimbursement
   period for this limitation extends through December 31, 2003.

 (g) The Real Estate Fund previously operated under a 1.00% limitation that
   expired December 31, 2001. The reimbursement period for this limitation
   extends through December 31, 2003.

 (h) The Science & Technology Fund-Advisor Class previously operated under
   a 1.15% limitation that expired December 31, 2001. The reimbursement
   period for this limitation extends through December 31, 2003.

 (i) The Small-Cap Stock Fund-Advisor Class previously operated under a
   1.20% limitation that expired December 31, 2001. The reimbursement
   period for this limitation extends through December 31, 2003.

 (j) The Small-Cap Value Fund-Advisor Class previously operated under a
   1.15% limitation that expired December 31, 2001. The reimbursement
   period for this limitation extends through December 31, 2003.

 (k) The Value Fund-Advisor Class previously operated under a 1.10%
   limitation that expired December 31, 2001. The reimbursement period for
   this limitation extends through December 31, 2003.


   Each of the above-referenced fund's Management Agreement also provides that
   one or more additional expense limitation periods (of the same or different
   time periods) may be implemented after the expiration of the current expense
   limitation, and that with respect to any such additional limitation period,
   the fund may reimburse T. Rowe Price, provided the reimbursement does not
   result in the fund's aggregate expenses exceeding the additional expense
   limitation.

   Pursuant to the Developing Technologies Fund's current expense limitation,
   $122,000 of management fees were not accrued by the fund for the period ended
   December 31, 2001. At December 31, 2001, unaccrued fees and other expenses in
   the amount of $199,000 remain subject to reimbursement by the fund through
   December 31, 2004.

   Pursuant to the Diversified Small-Cap Growth Fund's previous expense
   limitation, $114,000 of unaccrued fees remain subject to reimbursement by the
   fund through December 31, 2002.

   Pursuant to the Equity Index 500 Fund's previous expense limitation,
   $1,822,000 of management fees were not accrued by the fund for the year ended
   December 31, 2001. At December 31, 2001, unaccrued fees in the amount of
   $1,822,000 remain subject to reimbursement by the fund through December 31,
   2003.

   Pursuant to the Global Technology Fund's current expense limitation, $185,000
   of management fees were not accrued by the fund for the year ended December
   31, 2001.

   Pursuant to the Institutional Large-Cap Growth Fund's current expense
   limitation, $2,000 of management fees were not accrued by the fund for the
   period ended December 31, 2001, and $15,000 of other fund expenses


                                       64



   were borne by the manager. At December 31, 2001, unaccrued fees and other
   expenses in the amount of $17,000 remain subject to reimbursement by the fund
   through December 31, 2004.

   Pursuant to the Institutional Large-Cap Value Fund's current expense
   limitation, $13,000 of management fees were not accrued by the fund for the
   period ended December 31, 2001, and $89,000 of other fund expenses were borne
   by the manager. At December 31, 2001, unaccrued fees and other expenses in
   the amount of $179,000 remain subject to reimbursement by the fund through
   December 31, 2003.

   Pursuant to the Institutional Small-Cap Stock Fund's current expense
   limitation, $76,000 of previously unaccrued management fees were accrued as
   expenses of the fund for the period ended December 31, 2001.

   Pursuant to the Real Estate Fund's current expense limitation, $140,000 of
   management fees were not accrued by the fund for the year ended December 31,
   2001. At December 31, 2001, unaccrued fees and other expenses in the amount
   of $284,000 remain subject to reimbursement by the fund through December 31,
   2003.


                           Management Fee Compensation

   The following chart sets forth the total management fees, if any, paid to T.
   Rowe Price by each fund, during the last three fiscal years:


                           Fund                                  2001            2000             1999
                           ----                                  ----            ----             ----
                                                                                   
Balanced                                                     $ 8,542,000     $ 9,675,000      $ 9,154,000
Blue Chip Growth*                                             41,035,000      45,037,000       34,536,000
Capital Appreciation                                           7,570,000       4,963,000        5,793,000
Capital Opportunity                                              559,000         686,000          763,000
Developing Technologies                                           62,000             (b)              (a)
Diversified Small-Cap Growth                                     480,000         679,000          292,000
Dividend Growth                                                3,676,000       4,010,000        6,522,000
Equity Income*                                                57,395,000      58,470,000       75,676,000
Equity Index 500                                               3,554,000       6,234,000        8,301,000
Extended Equity Market Index**                                   300,000         354,000          131,000
Financial Services                                             2,122,000       1,388,000        1,266,000
Global Technology                                                569,000         274,000              (a)
Growth & Income                                               14,691,000      18,013,000       20,605,000
Growth Stock*                                                 27,400,000      33,072,000       29,222,000
Health Sciences                                                5,675,000       4,403,000        2,038,000
Institutional Large-Cap Growth                                       (b)             (a)              (a)
Institutional Large-Cap Value                                        (b)             (b)              (a)
Institutional Mid-Cap Equity Growth                            1,704,000       1,896,000        1,238,000
Institutional Small-Cap Stock                                  1,624,000         432,000              (a)
Media & Telecommunications                                     4,885,000       7,174,000        3,144,000
Mid-Cap Growth*                                               42,179,000      39,493,000       27,412,000
Mid-Cap Value                                                  2,445,000       1,495,000        1,427,000
New America Growth                                             8,612,000      11,988,000       13,511,000
New Era                                                        6,414,000       6,223,000        6,131,000
New Horizons                                                  36,074,000      45,642,000       33,020,000
Real Estate                                                      207,000         589,000              (b)
Science & Technology*                                         46,472,000      89,979,000       47,361,000
Small-Cap Stock*                                              20,306,000      15,623,000       10,276,000
Small-Cap Value*                                              11,370,000       8,294,000        9,213,000
- ------------------------------------------------------------------------------------------------------------
Total Equity Market Index**                                      766,000         863,000          512,000
Value*                                                         8,231,000       5,644,000        5,699,000
- ------------------------------------------------------------------------------------------------------------





                                       65



  (a) Prior to commencement of operations.

  (b) Due to the fund's expense limitation in effect at that time, no
     management fees were paid by the fund to T. Rowe Price.

  *  The fund has two classes of shares. The management fee is allocated to
     each class based on relative net assets.

  ** All-inclusive fee including Investment Management Fees and
     Administrative Expenses.

   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 such fund, are funds in which Spectrum Fund invests (collectively all
   such funds "Underlying Price Funds").

   Each Agreement provides that, if the Board of Directors 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.

   All funds except Extended Equity Market Index and Total Equity Market Index
   Funds

   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 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
   Street, Baltimore, MD 21202. Additionally, T. Rowe Price, under a separate
   agreement with the fund, provides accounting services to the fund.

   The funds paid the expenses shown in the following table for the fiscal year
   ended December 31, 2001, to T. Rowe Price and its affiliates.


                                       66





                               Transfer Agent and    Retirement     Accounting
            Fund              Shareholder Services  Subaccounting    Services
            ----              --------------------    Services       --------
                                                      --------
                                                          
Balanced                           $  812,000        $ 4,385,000     $ 86,000
Blue Chip Growth                    6,167,000         10,809,000       76,000
Blue Chip Growth
Fund-Advisor Class                      1,000                  0        3,000
Capital Appreciation                  900,000          1,310,000       64,000
Capital Opportunity                   218,000             32,000       64,000
Developing Technologies                70,000         (*)              64,000
Diversified Small-Cap Growth          250,000              1,000       64,000
Dividend Growth                       988,000            532,000       64,000
Equity Income                       7,516,000         11,264,000       99,000
Equity Income Fund-Advisor
Class                                   3,000                  0          (*)
Equity Index 500                    3,570,000          3,500,000       65,000
Extended Equity Market Index          174,000             58,000       65,000
Financial Services                    528,000             59,000       64,000
Global Technology                     497,000         (*)              84,000
Growth & Income                     2,360,000          2,648,000       84,000
Growth Stock                        3,087,000          4,560,000      104,000
Health Sciences                     1,817,000            220,000       64,000
Institutional Large-Cap
Growth                                    (*)                  0       11,000
Institutional Large-Cap
Value                                   1,000                  0       64,000
Institutional Mid-Cap Equity
Growth                                  1,000                  0       64,000
Institutional Small-Cap
Stock                                   2,000                  0       64,000
Media & Telecommunications          1,795,000            196,000       64,000
Mid-Cap Growth                      3,627,000          5,621,000       80,000
Mid-Cap Growth Fund-Advisor
Class                                   3,000                  0          (*)
Mid-Cap Value                         740,000             58,000       64,000
New America Growth                  1,185,000          1,950,000       64,000
New Era                               930,000            254,000       64,000
New Horizons                        3,634,000          6,604,000       84,000
Real Estate                           139,000              9,000       64,000
Science & Technology                9,908,000          5,137,000       72,000
Science & Technology
Fund-Advisor Class                      1,000                  0        7,000
Small-Cap Stock                     1,379,000          2,239,000       98,000
Small-Cap Stock Fund-Advisor
Class                                   4,000                  0        1,000
Small-Cap Value                     1,071,000          1,741,000       79,000
Small-Cap Value Fund-Advisor
Class                                   1,000                  0          (*)
Total Equity Market Index             399,000             12,000       64,000
Value                               1,066,000          1,365,000       79,000
Value Fund-Advisor Class                1,000                  0          (*)
- -------------------------------------------------------------------------------




  (*) Less than $1,000.


                                       67



 SERVICES BY OUTSIDE PARTIES
 -------------------------------------------------------------------------------
   The shares of some fund shareholders are held in omnibus accounts maintained
   by various third parties, including retirement plan sponsors, insurance
   companies, banks, and broker-dealers. The fund has adopted an administrative
   fee payment ("AFP") program that authorizes the fund to make payments to
   these third parties. The payments are made for transfer agent, recordkeeping,
   and other administrative services provided by, or on behalf of, the third
   parties with respect to such shareholders and the omnibus accounts. Under the

   AFP program, the funds paid the amounts set forth below to various third
   parties in calendar year 2001.



                              
Balanced Fund                     $  146,413
Blue Chip Growth Fund                750,963
Capital Appreciation Fund             52,598
Capital Opportunity Fund               1,207
Dividend Growth Fund                   4,474
Equity Income Fund                   711,597
Equity Index 500 Fund                108,344
Financial Services Fund                9,513
Growth & Income Fund                  71,544
Growth Stock Fund                     97,325
Health Sciences Fund                  30,863
Media & Telecommunications Fund          504
Mid-Cap Growth Fund                1,602,030
Mid-Cap Value Fund                     8,268
New America Growth Fund              115,482
New Era Fund                          38,459
New Horizons Fund                    914,498
Science & Technology Fund            525,912
Small-Cap Stock Fund                 668,769
Small-Cap Value Fund                 197,468
Value Fund                            50,018




   Each Advisor Class has adopted an Advisor Class administrative fee payment
   program ("Advisor Class AFP") under which various intermediaries, including
   intermediaries receiving 12b-1 payments, may receive payments from the
   Advisor Class in addition to 12b-1 fees for providing various recordkeeping
   and transfer agent type services to the Advisor classes and/or shareholders
   thereof. These services include, but are not limited to: transmission of net
   purchase and redemption orders; maintenance of separate records for
   shareholders reflecting purchases, redemptions, and share balances; mailing
   of shareholder confirmations and periodic statements; and telephone services
   in connection with the above. Under the Advisor Class AFP program, the funds
   paid the amounts set forth below to various third parties in calendar year
   2001.



                                      
Blue Chip Growth Fund-Advisor Class       $1,026,704
Equity Income Fund-Advisor Class             112,600
Mid-Cap Growth Fund-Advisor Class             15,391
Science & Technology Fund-Advisor Class    2,153,287
Small-Cap Stock Fund-Advisor Class            60,806
Small-Cap Value Fund-Advisor Class            31,931
Value Fund-Advisor Class                      17,257






                                       68



   Each R Class has adopted an R Class administrative fee payment program ("R
   Class AFP") under which various intermediaries, including intermediaries
   receiving 12b-1 payments, may receive payments from the R Class in addition
   to 12b-1 fees for providing various recordkeeping and transfer agent type
   services to the R classes and/ or shareholders thereof. These services
   include, but are not limited to: transmission of net purchase and redemption
   orders; maintenance of separate records for shareholders reflecting
   purchases, redemptions, and share balances; mailing of shareholder
   confirmations and periodic statements; and telephone services in connection
   with the above.

   Control of Investment Advisor
   T. Rowe Price Group, Inc., ("Group") owns 100% of the stock of T. Rowe Price
   Associates, Inc. Group was formed in 2000 as a holding company for the T.
   Rowe Price-affiliated companies.



 DISTRIBUTOR FOR THE FUNDS
 -------------------------------------------------------------------------------
   Investment Services, a Maryland corporation formed in 1980 as a wholly owned
   subsidiary of T. Rowe Price, serves as the fund's distributor for all T. Rowe
   Price mutual funds on a continuous basis. 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.

   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 Price funds, pursuant to an
   Underwriting Agreement ("Underwriting Agreement"), which provides that the
   funds (other than Extended Equity Market Index Fund and Total Equity Market
   Index Fund) will pay all fees and expenses in connection with: necessary
   state filings; preparing, setting in type, printing, and mailing of
   prospectuses and reports to shareholders; and issuing shares, including
   expenses of confirming purchase orders. For Extended Equity Market Index Fund
   and Total Equity Market Index Fund, these expenses are the responsibility of
   Investment Services.

   The Underwriting Agreement also 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 for each fund, 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 fund 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. No compensation is paid to Investment
   Services.

   Blue Chip Growth, Equity Income, Growth Stock, Mid-Cap Growth, Mid-Cap Value,
   Science & Technology, Small-Cap Stock, Small-Cap Value, Value Advisor and R
   Classes


                   Distribution and Shareholder Services Plans

   The fund Directors have adopted a Plan pursuant to Rule 12b-1 with respect to
   each Advisor Class and each R Class (collectively "Class"). Each Plan
   provides that the Class may compensate Investment Services or such other
   persons as the fund or Investment Services designates, to finance any or all
   of the distribution, shareholder servicing, maintenance of shareholder
   accounts, and/or other administrative services with respect to the Class
   shares. It is expected that most, if not all, payments under the Plans will
   be made (either directly, or indirectly through Investment Services) to
   brokers, dealers, banks, insurance companies, and intermediaries other than
   Investment Services. Under the Plans, each Advisor Class pays a fee at the
   annual rate of up to 0.25% of that class's average daily net assets and each
   R Class pays a fee at the annual rate of up to 0.50% of that class's average
   daily net assets. Normally, the full amount of the fee is paid to the
   intermediary on shares sold through that intermediary. However, a lesser
   amount may be paid based on the level of services provided.


                                       69



   Intermediaries may use the payments for, among other purposes, compensating
   employees engaged in sales and/or shareholder servicing of the Class, as well
   as for a wide variety of other purposes associated with supporting,
   distributing, and servicing the Class shares. The amount of fees paid by a
   Class during any year may be more or less than the cost of distribution and
   other services provided to the Class and its investors. NASD rules limit the
   amount of annual distribution and service fees that may be paid by a mutual
   fund and impose a ceiling on the cumulative distribution fees paid. The Plans
   comply with these rules.

   The Plans require that Investment Services provide, or cause to be provided,
   a quarterly written report identifying the amounts expended by each Class and
   the purposes for which such expenditures were made, to the fund Directors for
   their review.

   Prior to approving the Plans, the funds considered various factors relating
   to the implementation of the Plans and determined that there is a reasonable
   likelihood that the Plans will benefit each fund, its Class, and the Class's
   shareholders. The fund Directors noted that to the extent the Plans allow a
   fund to sell Class shares in markets to which it would not otherwise have
   access, the Plans may result in additional sales of fund shares. This may
   enable a fund to achieve economies of scale that could reduce expenses. In
   addition, certain ongoing shareholder services may be provided more
   effectively by intermediaries with which shareholders have an existing
   relationship.

   The Plans are renewable from year to year with respect to each fund, so long
   as the continuance is approved at least annually (1) by the vote of a
   majority of the fund Directors and (2) by a vote of the majority of the Rule
   12b-1 Directors, cast in person at a meeting called for the purpose of voting
   on such approval. The Plans may not be amended to increase materially the
   amount of fees paid by any Class thereunder unless such amendment is approved
   by a majority vote of the outstanding shares of such Class and by the fund
   Directors in the manner prescribed by Rule 12b-1 under the 1940 Act. The
   Plans are terminable with respect to a Class at any time by a vote of a
   majority of the Rule 12b-1 Directors or by a majority vote of the outstanding
   shares in the Class.

   Advisor Class

   The following payments for the period ended December 31, 2001 were made to
   third-party intermediaries, including broker-dealers and insurance companies,
   for the distribution, shareholder servicing, maintenance of shareholder
   accounts, and/or other administration services under the Advisor Class 12b-1
   Plans.



                                      
Blue Chip Growth Fund-Advisor Class          $  729,000
Equity Income Fund-Advisor Class                 81,000
Mid-Cap Growth Fund-Advisor Class                14,000
Science & Technology Fund-Advisor Class       1,319,000
Small-Cap Stock Fund-Advisor Class               51,000
Small-Cap Value Fund-Advisor Class               25,000
Value Fund-Advisor Class                         12,000





   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,
   London, pursuant to which


                                       70



   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, London is Woolgate
   House, Coleman Street, London, EC2P 2HD, England.



 CODE OF ETHICS
 -------------------------------------------------------------------------------
   The fund, its investment adviser (T. Rowe Price), and its principal
   underwriter (T. Rowe Price Investment Services), have a written Code of
   Ethics which requires persons with access to investment information ("Access
   Persons") to obtain prior clearance before engaging in personal securities
   transactions. In addition, all Access Persons must report their personal
   securities transactions within 10 days of their execution. Access Persons
   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, Access Persons are prohibited from profiting from short-term
   trading (e.g., purchases and sales involving the same security within 60
   days). Any person becoming an Access Person must file a statement of personal
   securities holdings within 10 days of this date. All Access Persons are
   required to file an annual statement with respect to their personal
   securities holdings. 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
   and the use of affiliates to assist in routing orders for execution.


                      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 where such rates are negotiable. 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.

   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


                                       71



   market-makers reflect the spread between the bid and asked prices. Securities
   may also be purchased from underwriters at prices which include underwriting
   fees.

   Equity and Fixed-Income Securities
   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 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. In addition, such services may include computers
   and related hardware.

   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.

   Subject to its policy on directed brokerage (see below), 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.


                               Directed Brokerage

   In 2002, the T. Rowe Price Funds that invest in domestic equity securities
   adopted a commission recapture program. Under the program, a percentage of
   commissions generated by the portfolio transactions of those funds is rebated
   to the funds by the brokers and used to pay for certain fund operating
   expenses.


                                       72



              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. Therefore, research may not necessarily
   benefit all accounts paying commissions to such brokers. Accordingly, while
   T. Rowe Price cannot readily determine the extent to which commission rates
   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 fund participates. Research is used overall to benefit such
   accounts which purchase in the offering.


                         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 business
   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 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


                                       73



   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 relative sizes of the participating client portfolios or the
   relative sizes of the participating client orders depending upon the market
   involved. 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., available
   cash, industry or issuer concentration, duration, and credit exposure).


                                      Other

   For the last three fiscal years, 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.



                               2001                2000                1999
         Fund           Commissions    %    Commissions    %    Commissions     %
         ----           -----------    -    -----------    -    -----------     -
                                                           
Balanced                $ 1,203,000  10.9%  $   399,000  11.5%  $   720,000   10.6%
Blue Chip Growth          7,972,000  39.8     7,485,000  58.5     7,088,000   45.8
Capital Appreciation      2,345,000  14.1     1,305,000  32.5     1,142,000   38.4
Capital Opportunity         101,000  31.5       121,000  24.5       298,000   28.9
Developing
Technologies                 72,000  10.9        42,000   3.1             *      *
Diversified Small-Cap
Growth                       55,000   2.4       105,000   1.3        75,000    1.5
Dividend Growth             640,000  66.5     1,070,000  72.0     1,420,000   57.5
Equity Income             7,344,000  26.2     8,687,000  47.3     9,653,000   45.3
Equity Index 500            193,000   0.8       331,000   0.8       378,000    0.0
Extended Equity Market
Index                        42,000   0.1        51,000   0.0        27,000    0.4
Financial Services          539,000  51.4       348,000  56.3       507,000   20.1
Global Technology           510,000  45.4       362,000  15.9             *      *
Growth & Income           4,538,000  49.5     6,522,000  57.4     2,428,000   35.8
- ------------------------------------------------------------------------------------
Growth Stock              8,332,000  52.7    10,878,000  41.3     8,923,000   42.5
Health Sciences           2,732,000  60.4     2,560,000  30.3       593,000   33.1
Institutional
Large-Cap Growth              2,000   6.7             *     *             *      *
Institutional
Large-Cap Value               5,000  18.1         3,000  58.9             *      *
Institutional Mid-Cap
Equity Growth               565,000             547,000  25.1       654,000   34.7
Institutional
Small-Cap Stock             265,000  33.9       128,000  41.4             *      *
Media &
Telecommunications        3,993,000           3,517,000  36.5     2,041,000   12.9
Mid-Cap Growth           11,886,000  18.3     8,893,000  22.9    12,136,000   35.1
Mid-Cap Value             1,050,000  75.5       272,000  61.8       303,000   37.1
New America Growth        1,823,000  36.4     3,730,000  29.1     4,556,000   17.1
New Era                   1,411,000  40.4     2,352,000  32.5     2,122,000   52.3
New Horizons              7,929,000   7.1    13,876,000   3.8    12,816,000    4.2
Real Estate                 114,000  36.8        51,000  27.8        59,000   37.4
Science & Technology     15,035,000          13,388,000  39.5     9,172,000   33.9
Small-Cap Stock           2,865,000  38.0     2,214,000  38.4     2,851,000   26.6
Small-Cap Value           1,656,000  50.0       891,000  49.5       998,000   46.1
Total Equity Market
Index                        40,000   0.0        30,000   0.0        45,000    0.0
Value                     2,221,000  55.1     1,330,000  74.6     1,847,000   52.0
- ------------------------------------------------------------------------------------






                                       74



 (*) Prior to commencement of operations.

   On December 31, 2001, the Balanced Fund held stock of American Express, Bank
   of America, Goldman Sachs Group, Morgan Stanley Dean Witter, J.P. Morgan
   Chase, Credit Suisse Group, and Deutsche Bank AG, with values of $5,632,000,
   $12,064,000, $2,319,000, $7,809,000, $7,456,000, $1,152,000, and $1,531,000,
   respectively. The fund also held bonds of American Express, Goldman Sachs
   Group, Morgan Stanley Dean Witter, and J.P. Morgan Chase, with values of
   $1,227,000, $4,133,000, $4,238,000, and $5,473,000, respectively. On December
   31, 2000, the fund held stock of Goldman Sachs Group, UBS, Chase Manhattan,
   and Morgan Stanley Dean Witter, with values of $2,674,000, $5,251,000,
   $9,320,000, and $11,063,000, respectively. The fund also held bonds of
   Goldman Sachs Group, Lehman Brothers, Morgan Stanley, and UBS, with values of
   $4,181,000, $1,535,000, $3,986,000, and $1,021,000, respectively. On December
   31, 1999, the fund held stock of Goldman Sachs and Morgan Stanley, with
   values of $2,355,000 and $9,964,000, respectively. The fund also held bonds
   of Morgan Stanley, Lehman Brothers, and Paine Webber, with values of
   $3,853,000, $5,278,000, and $3,650,000, respectively.

   On December 31, 2001, the Blue Chip Growth Fund held stock of Goldman Sachs
   Group, Merrill Lynch, and Morgan Stanley Dean Witter, with values of
   $30,144,000, $22,412,000, and $61,534,000, respectively. On December 31,
   2000, the fund held stock of Charles Schwab, Goldman Sachs Group, and Morgan
   Stanley Dean Witter, with values of $14,188,000, $22,457,000, and
   $64,985,000, respectively. On December 31, 1999, the fund held stock of
   Goldman Sachs, Bank America, and Morgan Stanley, with values of $11,425,000,
   $23,588,000, and $57,957,000, respectively.

   On December 31, 2001, the Capital Opportunity Fund held stock of J.P. Morgan
   Chase and Merrill Lynch, with values of $334,000 and $438,000, respectively.
   On December 31, 2000, the fund held stock of FleetBoston Financial, Goldman
   Sachs Group, and Morgan Stanley Dean Witter, with values of $447,000,
   $332,000, and $699,000, respectively. On December 31, 1999, the fund held
   stock of Bank of America and Morgan Stanley, with values of $703,000 and
   $879,000, respectively.


                                       75



   On December 31, 2001, the Diversified Small-Cap Growth Fund held stock of
   Investment Technology Group with a value of $369,000. On December 31, 1999,
   the fund held stock of Investment Technology Group with a value of $144,000.

   On December 31, 2001, the Dividend Growth Fund held stock of Morgan Stanley
   Dean Witter with a value of $4,755,000. On December 31, 2000, the fund held
   stock of Chase Manhattan and Morgan Stanley Dean Witter, with values of
   $3,181,000 and $3,566,000, respectively.

   On December 31, 2001, the Equity Income Fund held stock of J.P. Morgan Chase
   with a value of $106,578,000. On December 31, 2000, the fund held stock of
   J.P. Morgan with a value of $142,330,000. On December 31, 1999, the fund held
   stock of J.P. Morgan with a value of $126,625,000.

   On December 31, 2001, the Equity Income Portfolio held stock of J.P. Morgan
   Chase with a value of $8,018,000. On December 31, 1999, the portfolio held
   stock of Goldman Sachs and Morgan Stanley, with values of $565,000 and
   $47,000, respectively.

   On December 31, 2001, the Equity Index 500 Fund held stock of J.P. Morgan
   Chase, Lehman Brothers, Merrill Lynch, and Morgan Stanley Dean Witter, with
   values of $23,468,000, $5,386,000, $14,208,000 and $20,230,000, respectively.
   On December 31, 2000, the fund held stock of Bank America, Chase Manhattan,
   Morgan Stanley Dean Witter, and J.P. Morgan, with values of $25,682,000,
   $20,472,000, $30,539,000, and $9,253,000, respectively. On December 31, 1999,
   the fund held stock of Lehman Brothers with a value of $4,130,000.

   On December 31, 2001, the Extended Equity Market Index Fund held stock of
   Goldman Sachs Group, Investment Technology Group, Jeffries Group, and Knight
   Trading Group, with values of $487,000, $53,000, $34,000, and $35,000,
   respectively. On December 31, 2000, the fund held stock of Goldman Sachs
   Group, Investment Technology Group, and Knight Trading Group, with values of
   $364,000, $38,000, and $46,000, respectively. On December 31, 1999, the fund
   held stock of Donaldson, Lufkin & Jenrette with a value of $68,000.

   On December 31, 2001, the Financial Services Fund held stock of Goldman Sachs
   Group, Legg Mason, Merrill Lynch, and Morgan Stanley Dean Witter, with values
   of $10,175,000, $2,849,000, $4,691,000, and $1,399,000, respectively. On
   December 31, 2000, the fund held stock of Goldman Sachs Group, Merrill Lynch,
   and Morgan Stanley Dean Witter, with values of $12,373,000, $1,023,000, and
   $10,699,000, respectively. On December 31, 1999, the fund held stock of
   Goldman Sachs with a value of $2,261,000.

   On December 31, 2001, the Growth & Income Fund held stock of FleetBoston
   Financial, Goldman Sachs Group, J.P. Morgan Chase, and Morgan Stanley Dean
   Witter, with values of $30,543,000, $13,449,000, $29,989,000, and
   $31,886,000, respectively. On December 31, 2000, the fund held stock of Bear
   Stearns, Bank of America, and Morgan Stanley Dean Witter, with values of
   $7,096,000, $12,845,000, and $33,285,000, respectively. On December 31, 1999,
   the fund held stock of Bear Stearns and Morgan Stanley Dean Witter, with
   values of $22,156,000 and $28,550,000, respectively.

   On December 31, 2001, the Growth Stock Fund held stock of Morgan Stanley Dean
   Witter and Merrill Lynch, with values of $31,606,000 and $38,048,000,
   respectively. On December 31, 2000, the fund held stock of Morgan Stanley
   Dean Witter with a value of $42,002,000. On December 31, 1999, the fund held
   stock of Mellon Bank with a value of $19,703,000.

   On December 31, 2001, the Total Equity Market Index Fund held stock of
   Goldman Sachs Group, Investment Technology Group, Jeffries Group, J.P. Morgan
   Chase, Knight Trading Group, Lehman Brothers, Merrill Lynch, and Morgan
   Stanley Dean Witter, with values of $269,000, $23,000, $13,000, $1,087,000,
   $23,000, $261,000, $667,000, and $923,000, respectively. On December 31,
   2000, the fund held stock of Morgan Stanley Dean Witter, Goldman Sachs Group,
   Bank of America, J.P. Morgan, Chase Manhattan, Knight Trading Group, and
   Investment Technology Group, with values of $1,252,000, $214,000, $1,043,000,
   $381,000, $822,000, $22,000, and $17,000, respectively. On December 31, 1999,
   the fund held stock of Goldman Sachs, Lehman Brothers, and Donaldson, Lufkin
   & Jenrette, with values of $151,000, $119,000, and $73,000, respectively.


                                       76



   On December 31, 2001, the Institutional Large-Cap Value Fund held stock of
   Bank of America and Merrill Lynch, with values of $63,000 and $52,000,
   respectively.

   On December 31, 2001, the New America Growth Fund held stock of Goldman Sachs
   Group and Morgan Stanley Dean Witter, with values of $12,521,000 and
   $12,027,000, respectively. On December 31, 2000, the fund held stock of
   Goldman Sachs Group and Morgan Stanley Dean Witter, with values of
   $10,694,000 and $33,681,000, respectively.

   On December 31, 2001, the Value Fund held stock of Merrill Lynch with a value
   of $13,030,000. On December 31, 2000, the fund held stock of Bank of America
   with a value of $8,028,000. On December 31, 1999, the fund held stock of Bank
   of America with a value of $7,528,000.

   The portfolio turnover rate for each fund for the last three fiscal years was
   as follows:


               Fund                     2001          2000           1999
               ----                     ----          ----           ----
                                                        
Balanced                                 36.0%         16.5%          20.7%
Blue Chip Growth                         48.3          50.9           41.3
Capital Appreciation                     25.1          32.4           28.3
Capital Opportunity                      53.6          64.7          133.1
Developing Technologies(b)              107.5         232.6*           (a)
Diversified Small-Cap Growth             30.3          66.0           49.4
Dividend Growth                          34.9          35.7           37.8
Equity Income                            17.3          21.9           21.8
Equity Index 500                          4.0           9.1            5.2
Extended Equity Market Index             31.3          30.5           23.4
Financial Services                       54.8          32.5           37.1
Global Technology                       189.2         123.6*           (a)
Growth & Income(c)                       65.9          80.3           20.3
Growth Stock                             64.1          74.3           55.8
Health Sciences                          74.6         110.6           81.9
Institutional Large-Cap Growth           98.2*          (a)            (a)
Institutional Large-Cap Value           106.3          58.4*           (a)
Institutional Mid-Cap Equity Growth      48.6          67.5           55.4
Institutional Small-Cap Stock            26.9          15.8*           (a)
Media & Telecommunications(b)           241.1         197.5           57.6
Mid-Cap Growth                           43.0          53.6           53.3
Mid-Cap Value                            57.5          31.9           26.8
New America Growth(d)                    52.1          81.4           39.7
New Era                                  17.9          28.5           32.5
New Horizons                             27.4          47.2           44.7
Real Estate                              37.2          19.0           26.9
Science & Technology                    143.6         134.1          128.0
Small-Cap Stock                          16.5          32.8           42.3
Small-Cap Value                          16.8          14.4            7.3
Total Equity Market Index                 8.6           7.6            3.2
Value                                    42.2          55.9           67.8
- -------------------------------------------------------------------------------



    *  Annualized.

    (a) Prior to commencement of operations.

    (b) The funds' high portfolio turnover was due to extreme volatility in
       the companies in which the funds invest.


                                       77



    (c) The increase in the fund's portfolio turnover rate from 1999 to
       2000 was the result of the fund's new portfolio manager emphasizing
       a greater balance between growth and value stocks and significant
       market volatility.

    (d) The increase in the fund's portfolio turnover rate from 1999 to
       2000 was primarily the result of the fund's decision effective May
       1, 2000, to adopt a broader investment focus and invest in companies
       believed to be in the fastest growing sectors of the economy. This
       involved selling some existing holdings and replacing them with
       other ones.


   All funds


 PRICING OF SECURITIES
 -------------------------------------------------------------------------------
   All funds except Equity Index 500, Extended Equity Market Index, and Total
   Equity Market Index Funds

   Equity securities listed or regularly traded on a securities exchange or in
   the over-the-counter market are valued at the last quoted sale price, or
   official closing price for certain markets, 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 are valued at the
   mean of the latest bid and ask prices for domestic securities and the last
   quoted sale price for international securities. Other equity securities are
   valued at a price within the limits of the latest bid and ask prices deemed
   by the Board of Directors, or by persons delegated by the Board, best to
   reflect fair value.

   Debt securities are generally traded in the over-the-counter market.
   Securities with original maturities of one year or more are valued using
   prices furnished by dealers who make markets in such securities or by an
   independent pricing service, which considers yield or price of bonds of
   comparable quality, coupon, maturity, and type, as well as prices quoted by
   dealers who make markets in such securities. Securities with original
   maturities less than one year are valued at amortized cost in local currency,
   which approximates fair value when combined with accrued interest.

   Assets and liabilities denominated in foreign currencies are translated into
   U.S. dollar values each day at the prevailing exchange rate, using the mean
   of the bid and ask prices of such currencies against U.S. dollars quoted by a
   major bank. Purchases and sales of securities, income, and expenses are
   translated into U.S. dollars at the prevailing exchange rate on the dates of
   such transactions. The effect of changes in foreign exchange rates on
   realized and unrealized security gains and losses is reflected as a component
   of such gains and losses.

   Equity Index 500, Extended Equity Market Index, and Total Equity Market Index
   Funds

   :Equity securities listed or regularly traded on a securities exchange or in
   the over-the-counter market are valued at the last quoted sale 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 are valued at the mean of the latest bid and ask prices. Other
   equity securities are valued at a price within the limits of the latest bid
   and ask prices deemed by the Board of Directors, or by persons delegated by
   the Board, best to reflect fair value.

   All funds

   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 (including options on futures
   contracts) are valued at the mean of the closing bid and ask prices.
   Financial futures contracts are valued at closing settlement prices.

   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).


                                       78



 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, and Real Estate 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 applicable to corporate shareholders.
   . Long-term capital gain distributions paid from the fund are never eligible
   for the dividend received deduction. For tax purposes, it does not make any
   difference whether dividends and capital gain distributions are paid in cash
   or in additional shares. Each 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
   its tax year-end) to avoid a federal income tax.

   At the time of your purchase, the fund's net asset value may reflect

   undistributed income , capital gains, or net unrealized appreciation of
   securities held by the fund. A subsequent distribution to you of such
   amounts, although constituting a return of your investment, would be taxable
   either as dividend or capital gain distributions. For federal income tax
   purposes, the fund is permitted to carry forward its net realized capital
   losses, if any, for eight years and realize net capital gains up to the
   amount of such losses without being required to pay taxes on, or distribute,
   such gains.

   If, in any taxable year, the fund should not qualify as a regulated
   investment company under the Code: (1) the fund would be taxed at normal
   corporate rates on the entire amount of its taxable income, if any, without a
   deduction for dividends or other distributions to shareholders; and (2) 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


                                       79



   ordinary dividends (regardless of whether they would otherwise have been
   considered capital gain dividends) and the fund may qualify for the 70%

                deduction for dividends received by corporations.



                        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 engaged in a
   business in the U.S. and the gains are connected with that business, or the
   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 for U.S. tax purposes.
   Such foreign investment funds or trusts have been the only or primary way to
   invest in certain countries. In addition to bearing their proportionate share
   of the fund's expenses (management fees and operating expenses), shareholders
   will also indirectly bear similar expenses of such foreign investment funds
   or 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 period of
   time will vary from the average.


                                       80





                  Cumulative Performance Percentage Change
                           Periods ended 12/31/01
           Fund              1 Yr.    5 Yrs.   10 Yrs.   % Since     Inception
           ----              -----    ------   -------   -------     ---------
                                                        Inception      Date
                                                        ---------      ----
                                                     
Balanced                      -3.98%   49.12%  155.13%  42,677.36%   12/31/39
Blue Chip Growth             -14.42    64.52    --         234.00    06/30/93
Blue Chip Growth
Fund-Advisor Class           -14.42    --       --         -21.39    03/31/00
Capital Appreciation          10.26    77.27   233.25      575.59    06/30/86
Capital Opportunity          -10.10    24.79    --         122.64    11/30/94
Developing Technologies      -30.58    --       --         -49.94    08/31/00
Diversified Small-Cap
Growth                        -9.81    --       --          17.18    06/30/97
Dividend Growth               -3.64    55.04    --         212.36    12/30/92
Equity Income                  1.64    67.96   269.46      804.16    10/31/85
Equity Income Fund-Advisor
Class                          1.51    --       --          18.38    03/31/00
Equity Index 500             -12.17    63.84   226.56      323.27    03/30/90
Extended Equity Market
Index                         -9.55    --       --          14.67    01/30/98
Financial Services            -3.13   112.57    --         141.05    09/30/96
Global Technology            -36.07    --       --         -52.50    09/29/00
Growth & Income               -2.17    50.28   221.57      868.53    12/21/82
Growth Stock                  -9.79    78.17   250.92   30,189.56    04/11/50
Health Sciences               -5.97   125.80    --         186.21    12/29/95
Institutional Large-Cap
Growth                        --       --       --          14.00    10/31/01
Institutional Large-Cap
Value                          4.44    --       --          20.71    03/31/00
Institutional Mid-Cap
Equity Growth                 -1.18    91.71    --         122.58    07/31/96
Institutional Small-Cap
Stock                          7.26    --       --          14.80    03/31/00
Media &
Telecommunications(a)         -6.93   132.90    --         227.89    10/13/93
Mid-Cap Growth                -0.98    90.08    --         427.37    06/30/92
Mid-Cap Growth Fund-Advisor
Class                         -1.10    --       --          -3.30    03/31/00
Mid-Cap Value                 14.36    87.28    --         117.81    06/28/96
New America Growth           -11.89    26.90   162.56      651.36    09/30/85
New Era                       -4.35    39.56   159.28    2,411.80    01/20/69
New Horizons                  -2.84    47.38             9,816.24    06/03/60
Real Estate                    8.87    --       --          30.22    10/31/97
Science & Technology         -41.19    12.64   241.88      593.91    09/30/87
Science & Technology
Fund-Advisor Class           -41.19    --       --         -65.34    03/31/00
Small-Cap Stock                6.81    77.43   288.04                06/01/56
Small-Cap Stock
Fund-Advisor Class             6.60    --       --          13.84    03/31/00
Small-Cap Value               21.94    65.47   291.78      429.74    06/30/88
Small-Cap Value
Fund-Advisor Class            21.84    --       --          41.04    03/31/00
Total Equity Market Index    -11.20    --       --          20.90    01/30/98
Value                          1.60    77.29    --         228.50    09/30/94
Value Fund-Advisor Class       1.45    --       --          16.78    03/31/00
- -------------------------------------------------------------------------------




 (a) The five-year and inception figures are based partly on the fund's
   performance as a closed-end investment company traded on the New York
   Stock Exchange until July 28, 1997, when it was converted to an open-end
   mutual fund.


                                       81





                   Average Annual Compound Rates of Return
                           Periods ended 12/31/01
            Fund              1 Yr.    5 Yrs.   10 Yrs.   % Since    Inception
            ----              -----    ------   -------   -------    ---------
                                                         Inception     Date
                                                         ---------     ----
                                                     
Balanced                       -3.98%   8.32%    9.82%     10.27%    12/31/39
Blue Chip Growth              -14.42   10.47    --         15.24     06/30/93
Blue Chip Growth
Fund-Advisor Class            -14.42   --       --        -12.82     03/31/00
Capital Appreciation           10.26   12.13    12.79      13.11     06/30/86
Capital Opportunity           -10.10    4.53    --         11.96     11/30/94
Developing Technologies       -30.58   --       --        -40.49     08/31/00
Diversified Small-Cap Growth   -9.81   --       --          3.58     06/30/97
Dividend Growth                -3.64    9.17    --         13.49     12/30/92
Equity Income                   1.64   10.93    13.96      14.59     10/31/85
Equity Income Fund-Advisor
Class                           1.51   --       --         10.10     03/31/00
Equity Index 500              -12.17   10.38    12.56      13.06     03/30/90
Extended Equity Market Index   -9.55   --       --          3.55     01/30/98
Financial Services             -3.13   16.28    --         18.24     09/30/96
Global Technology             -36.07   --       --        -44.77     09/29/00
Growth & Income                -2.17    8.49    12.39      12.67     12/21/82
Growth Stock                   -9.79   12.25    13.38      11.68     04/11/50
Health Sciences                -5.97   17.69    --         19.14     12/29/95
Institutional Large-Cap
Growth                         --      --       --        (a)        10/31/01
Institutional Large-Cap
Value                           4.44   --       --         11.33     03/31/00
Institutional Mid-Cap Equity
Growth                         -1.18   13.90    --         15.91     07/31/96
Institutional Small-Cap
Stock                           7.26   --       --          8.19     03/31/00
Media &
Telecommunications(b)          -6.93   18.42    --         15.55     10/13/93
Mid-Cap Growth                 -0.98   13.71    --         19.12     06/30/92
Mid-Cap Growth Fund-Advisor
Class                          -1.10   --       --         -1.89     03/31/00
Mid-Cap Value                  14.36   13.37    --         15.18     06/28/96
New America Growth            -11.89    4.88    10.13      13.21     09/30/85
New Era                        -4.35    6.89    10.00      10.28     01/20/69
New Horizons                   -2.84    8.07    13.75      11.69     06/03/60
Real Estate                     8.87   --       --          6.54     10/31/97
Science & Technology          -41.19    2.41    13.08      14.56     09/30/87
Science & Technology
Fund-Advisor Class            -41.19   --       --        -45.34     03/31/00
Small-Cap Stock                 6.81   12.15    14.52      14.14     06/01/56
Small-Cap Stock Fund-Advisor
Class                           6.60   --       --          7.67     03/31/00
Small-Cap Value                21.94   10.60    14.63      13.14     06/30/88
Small-Cap Value Fund-Advisor
Class                          21.84   --       --         21.66     03/31/00
Total Equity Market Index     -11.20   --       --          4.96     01/30/98
Value                           1.60   12.13    --         17.82     09/30/94
Value Fund-Advisor Class        1.45   --       --          9.25     03/31/00
- -------------------------------------------------------------------------------




 (a) No figure is provided because the fund's performance is for a period
   of less than one year.


                                       82



 (b) The five-year and inception figures are based partly on the fund's
   performance as a closed-end investment company traded on the New York
   Stock Exchange until July 28, 1997, when it was converted to an open-end
   mutual fund.


                         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),
   or 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 advantaged product, may be illustrated by graphs, charts, etc.; (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; (6) the fund may disclose the performance of other funds
   or accounts managed by T. Rowe Price in a manner similar to the fund; and (7)
   the blended total returns or performance rankings of the funds may be
   disclosed.


                               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

   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 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 T. Rowe Price funds, including the Advisor Classes, are considered to be
   "no-load" funds. They impose no front-end or back-end sales loads. However,
   the Advisor Classes do charge 12b-1 fees. Under applicable National
   Association of Securities Dealers Regulation, Inc. ("NASDR") regulations,
   mutual funds that have no front-end or deferred sales charges and whose total
   asset-based charges for sales-related expenses and/or service fees (as
   defined by NASDR) do not exceed 0.25% of average net assets per year may be
   referred to as no-load funds.


                               Redemptions in Kind

   The fund has filed a notice of election under Rule 18f-1 of the 1940 Act.
   This permits the fund to effect redemptions in kind and in cash as set forth
   in its prospectus.


                                       83



   In the unlikely event a shareholder were to receive an in-kind redemption of
   portfolio securities of the fund, it would be the responsibility of the
   shareholder to dispose of the securities. The shareholder would be at risk
   that the value of the securities would decline prior to their sale, that it
   would be difficult to sell the securities, and that brokerage fees could be
   incurred.


                     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 1940 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 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 Directors have provide that as to any matter with
   respect to which a separate vote of any class is required by the 1940 Act
   such requirement as to a separate vote by that class shall apply in lieu of
   any vote requirements established by the Maryland General Corporation


                                       84




   Law. Otherwise,  holders of each class of capital stock are not entitled to
   vote as a class on any matter. Accordingly, the preferences, rights, and
   other characteristics attaching to any class of shares 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 funds."

   The Declaration of Trust permits the Board of Trustees to issue an unlimited
   number of full and fractional shares of a single class. The Declaration of
   Trust also provides that the Board of Trustees may issue additional series or
   classes of shares. Each share represents an equal proportionate beneficial
   interest in the fund. In the event of the liquidation of the fund, each share
   is entitled to a pro-rata share of the net assets of the fund.

   Shareholders are entitled to one vote for each full share held (and
   fractional votes for fractional shares held) and will vote in the election of
   or removal of trustees (to the extent hereinafter provided) and on other
   matters submitted to the vote of shareholders. There will normally be no
   meetings of shareholders for the purpose of electing trustees unless and
   until such time as less than a majority of the trustees holding office have
   been elected by shareholders, at which time the trustees then in office will
   call a shareholders' meeting for the election of trustees. Pursuant to
   Section 16(c) of the 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 nonassessable, except as set forth below. The Trust may be
   terminated (i) upon the sale of its assets to another diversified, open-end
   management investment company, if approved by the vote of the holders of
   two-thirds of the outstanding shares of the Trust, or (ii) upon liquidation
   and distribution of the assets of the Trust, if approved by the vote of the
   holders of a majority of the outstanding shares of the Trust. If not so
   terminated, the Trust will continue indefinitely.


                                       85



   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 in 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
 -------------------------------------------------------------------------------
   Shearman & Sterling, whose address is 599 Lexington Avenue, New York, New
   York 10022, 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 listed below for the periods ended
   December 31, 2001, and the report of independent accountants are included in
   each fund's Annual Report for the periods ended December 31,
   2001. A copy of each Annual and Semiannual Report accompanies this Statement
   of Additional Information. The following financial statements and the report
   of independent accountants appearing in each Annual Report for the periods
   ended December 31, 2001, and the unaudited Semiannual Report for the six
   months ended June 30, 2002, are incorporated into this Statement of
   Additional Information by reference (references are to page numbers in the
   Reports):


                                       86





                          ANNUAL REPORT REFERENCES:
                                 EQUITY       FINANCIAL  NEW AMERICA  NEW ERA
                                 INCOME       SERVICES   GROWTH       -------
                                 ------       --------   ------
                                                          
Financial Highlights, December                    1           1
31, 2001                              8           0           0         10
Statement of Net Assets,
December 31, 2001                   10-17       11-13       11-16       11-15
Statement of Operations, year
ended
December 31, 2001                    18          14          17          16
Statement of Changes in Net
Assets, years ended December
31, 2001, and December 31, 2000     19-20        15          18          17
Notes to Financial Statements,
December 31, 2001                   21-25       16-19       19-22       18-22
Report of Independent
Accountants                          26          20          23          23






                                    DIVIDEND  GROWTH   BLUE CHIP  CAPITAL
                                    GROWTH    STOCK    GROWTH     OPPORTUNITY
                                    ------    -----    ------     -----------
                                                      
Financial Highlights, December 31,
2001                                   9         9        11           8
Statement of Net Assets, December
31, 2001                             10-16     10-16     13-19        9-20
Statement of Operations, year
ended
December 31, 2001                      17       17        20           21
Statement of Changes in Net
Assets, years ended
December 31, 2001, and December
31, 2000                               18       18       21-22         22
Notes to Financial Statements,
December 31, 2001                    19-22     19-24     23-27        23-26
Report of Independent Accountants      23       25        28           27






                                              MID-CAP  REAL    INSTITUTIONAL
                                     VALUE    VALUE    ESTATE  MID-CAP EQUITY
                                     -----    -----    ------  GROWTH
                                                               ------
                                                   
Financial Highlights, December 31,
2001                                    8        9       9           7
Statement of Net Assets, December
31, 2001                              10-16    10-16   10-12         8-10
Statement of Operations, year ended
December 31, 2001                      17       17       13           11
Statement of Changes in Net Assets,
years ended
December 31, 2001, and December 31,
2000                                  18-19     18       14           12
Notes to Financial Statements,
December 31, 2001                     20-24    19-22   15-18        13-14
Report of Independent Accountants      25       23       19           15






                                       87





                                       EXTENDED      TOTAL EQUITY
                                       EQUITY        MARKET INDEX
                                       MARKET INDEX  ------------
                                       ------------
                                               
Financial Highlights, December 31,
2001                                        2             2
Portfolio of Investments,
December 31, 2001                          3-86           3-68
Statement of Assets and Liabilities,
December 31, 2001                           87            69
Statement of Operations, year ended
December 31, 2001                           88             70
Statement of Changes in Net Assets,
years ended December 31, 2001, and
December 31, 2000                           89             71
Notes to Financial Statements,
December 31, 2001                         90-93          72-75
Report of Independent Accountants           94             76






                                           DIVERSIFIED   GROWTH      HEALTH
                                           SMALL-CAP     & INCOME    SCIENCES
                                           GROWTH        --------    --------
                                           ------
                                                            
Financial Highlights, December 31, 2001         9            9          9
Statement of Net Assets, December 31,
2001                                          10-23        10-15       10-15
Statement of Operations, year ended
December 31, 2001                               24           16          16
Statement of Changes in Net Assets, years
ended
December 31, 2001, and December 31, 2000        25           17          17
Notes to Financial Statements, December
31, 2001                                      26-29        18-22       18-22
Report of Independent Accountants               30           23          23






                                                    GLOBAL       DEVELOPING
                                                    TECHNOLOGY   TECHNOLOGIES
                                                    ----------   ------------
                                                           
Financial Highlights, December 31, 2001                  8            8
Statement of Net Assets, December 31, 2001             9-13           9-13
Statement of Operations, December 31, 2001              14             14
Statement of Changes in Net Assets, periods ended
December 31, 2001, and December 31, 2000                15             15
Notes to Financial Statements, December 31, 2001       16-20         16-19
                                                         2
Report of Independent Accountants                        1            20






                                       88





                                                  SCIENCE &     EQUITY
                                                  TECHNOLOGY    INDEX 500
                                                  ----------    ---------
                                                          
Financial Highlights, December 31, 2001                8             1
Statement of Net Assets, December 31, 2001           10-14          2-20
                                                                     2
Statement of Operations, December 31, 2001             15            1
Statement of Changes in Net Assets, years ended                      2
December 31, 2001, and December 31, 2000             16-17           2
                                                                     2
Notes to Financial Statements, December 31, 2001     18-22          3-28
Report of Independent Accountants                      23            29






                                                 NEW       CAPITAL     MID-CAP
                                       BALANCED  HORIZONS  APPRECIATIONGROWTH
                                       --------  --------          ----------
                                                           
Financial Highlights, December 31,                                        1
2001                                      10        11         8          2
Portfolio of Investments, December
31, 2001                                11-39     12-22       9-15       14-19
Statement of Assets and Liabilities,
December 31, 2001                         40        23         16          20
Statement of Operations, year ended
December 31, 2001                         41        24         17          21
Statement of Changes in Net Assets,
years ended
December 31, 2001, and December 31,
2000                                      42        25         18        22-23
Notes to Financial Statements,
December 31, 2001                       43-47     26-29      19-22       24-28
Report of Independent Accountants         48        30         23          29






                                                  SMALL-CAP  MEDIA &
                                                  STOCK      TELECOMMU-
                                                  -----      NICATIONS
                                                             ---------
                                                       
Financial Highlights, December 31, 2001              10          7
Portfolio of Investments, December 31, 2001         12-22        8-10
Statement of Assets and Liabilities,
December 31, 2001                                    23           11
Statement of Operations, year ended
December 31, 2001                                    24           12
Statement of Changes in Net Assets, years ended
December 31, 2001, and December 31, 2000            25-26         13
Notes to Financial Statements, December 31, 2001    27-31       14-17
Report of Independent Accountants                    32           18






                                       89





                                                  INSTITUTIONAL  SMALL-CAP
                                                  LARGE-CAP      VALUE
                                                  VALUE          -----
                                                  -----
                                                           
Financial Highlights, December 31, 2001                 5             8
Portfolio of Investments, December 31, 2001            6-8           10-21
Statement of Assets and Liabilities, December
31,
2001                                                    9              22
Statement of Operations, year ended December 31,
2001                                                   10              23
Statement of Changes in Net Assets, years ended
December 31, 2001, and December 31, 2000               11            24-25
Notes to Financial Statements, December 31, 2001      12-13          26-30
Report of Independent Accountants                      14              31






                                          INSTITUTIONAL
                                          SMALL-CAP STOCK
                                          ---------------
                                       
Financial Highlights, December 31, 2001          6
Statement of Net Assets, December 31,
2001                                            7-11
Statement of Operations, December 31,
2001                                             12
Statement of Changes in Net Assets,
December 31, 2001                                13
Notes to Financial Statements, December
31, 2001                                        14-15
                                                 1
Report of Independent Accountants                6






                                          INSTITUTIONAL
                                          LARGE-CAP GROWTH
                                                    ------
                                       
Financial Highlights, December 31, 2001         4
Statement of Net Assets, December 31,
2001                                            5-6
Statement of Operations, for the period
ended December 31, 2001                          7
Statement of Changes in Net Assets, for
the period ended December 31, 2001               8
Notes to Financial Statements, December
31, 2001                                        9-10
                                                1
Report of Independent Accountants               1






                                       90





                                 BLUE CHIP      EQUITY INCOME
                                 GROWTH         FUND-ADVISOR    VALUE FUND-
                                 FUND-ADVISOR   CLASS           ADVISOR CLASS
                                 CLASS          -----           -------------
                                 -----
                                                       
Financial Highlights, December
31, 2001                              12              9               9
                                                      10
Statement of Net Assets,                              -1
December 31, 2001                    13-19            7              10-16
Statement of Operations, year                         1
ended December 31, 2001               20              8               17
Statement of Changes in Net
Assets, for the periods ended
December 31, 2001, and December                       1
31, 2000                             21-22           9-20            18-19
                                                      2
Notes to Financial Statements,                        1
December                                              -
31, 2001                             23-27            25             20-24
Report of Independent                  2                              2
Accountants                            8              26              5







                                                 MID-CAP        SMALL-CAP STOCK
                                                 GROWTH FUND-   FUND-
                                                 ADVISOR CLASS  ADVISOR CLASS
                                                 -------------  -------------
                                                          
                                                       1
Financial Highlights, December 31, 2001                3             11
                                                       1
                                                       4
                                                      -1
Portfolio of Investments, December 31, 2001            9             12-22
Statement of Assets and Liabilities, December
31, 2001                                              20              23
Statement of Operations, year ended December           2
31, 2001                                               1              24
Statement of Changes in Net Assets, for the
periods ended December 31, 2001, and December         22
31, 2000                                              -23            25-26
                                                       2
                                                       4
Notes to Financial Statements, December 31,           -2
2001                                                   8             27-31
                                                       2
Report of Independent Accountants                      9              32






                                                            SMALL-CAP VALUE
                                                            FUND-ADVISOR CLASS
                                                                         -----
                                                         
Financial Highlights, December 31, 2001                            9
Portfolio of Investments, December 31, 2001                       10-21
Statement of Assets and Liabilities, December 31, 2001              22
Statement of Operations, year ended December 31, 2001               23
Statement of Changes in Net Assets, for the periods ended
December 31, 2001, and December 31, 2000                          24-25
Notes to Financial Statements, December 31, 2001                  26-30
Report of Independent Accountants                                   31





                                       91





                                                            SCIENCE &
                                                            TECHNOLOGY
                                                            FUND-ADVISOR
                                                            CLASS
                                                            -----
                                                         
Financial Highlights, December 31, 2001                           9
Statement of Net Assets, December 31, 2001                       10-14
Statement of Operations, year ended December 31, 2001             15
Statement of Changes in Net Assets, for the periods ended
December 31, 2001, and December 31, 2000                         16-17
Notes to Financial Statements, December 31, 2001                 18-22
Report of Independent Accountants                                 23






                   UNAUDITED SEMIANNUAL REPORT REFERENCES:
                                 EQUITY       FINANCIAL  NEW AMERICA  NEW ERA
                                 INCOME       SERVICES   GROWTH       -------
                                 ------       --------   ------
                                                          
Financial Highlights, June 30,
2002                                  9          10           9          9
Statement of Net Assets, June
30, 2002                            11-18       11-14       10-14       10-15
Statement of Operations, year
ended
June 30, 2002                        19          15          15          16
Statement of Changes in Net
Assets, years ended June 30,
2002, and June 30, 2001             20-21        16          16          17
Notes to Financial Statements,
June 30, 2002                       22-25       17-20       17-19       18-21






                                    DIVIDEND  GROWTH   BLUE CHIP  CAPITAL
                                    GROWTH    STOCK    GROWTH     OPPORTUNITY
                                    ------    -----    ------     -----------
                                                      
Financial Highlights, June 30,
2002                                   10        9        11           8
Statement of Net Assets, June 30,
2002                                 11-17     11-17     13-20        9-20
Statement of Operations, year
ended
June 30, 2002                          18       18        21           21
Statement of Changes in Net
Assets, years ended
June 30, 2002, and June 30, 2001       19       19        22           22
Notes to Financial Statements,
June 30, 2002                        20-23     20-23     23-27        23-26






                                              MID-CAP  REAL    INSTITUTIONAL
                                     VALUE    VALUE    ESTATE  MID-CAP EQUITY
                                     -----    -----    ------  GROWTH
                                                               ------
                                                   
Financial Highlights, June 30, 2002     8        9       9           7
Statement of Net Assets, June 30,
2002                                  10-17    10-17   10-12         8-11
Statement of Operations, year ended
June 30, 2002                          18       18       13           12
Statement of Changes in Net Assets,
years ended
June 30, 2002, and June 30, 2001       19       19       14           13
Notes to Financial Statements, June
30, 2002                              20-23    20-23   15-18        14-15






                                       92





                                       EXTENDED
                                       EQUITY
                                       MARKET INDEX
                                       ------------
                                    
Financial Highlights, June 30, 2002         2
Portfolio of Investments,
June 30, 2002                               3-71
Statement of Assets and Liabilities,
June 30, 2002                               72
Statement of Operations, year ended
June 30, 2002                                73
Statement of Changes in Net Assets,
years ended June 30, 2002, and
June 30, 2001                                74
Notes to Financial Statements,
June 30, 2002                              75-78






                                           DIVERSIFIED   GROWTH      HEALTH
                                           SMALL-CAP     & INCOME    SCIENCES
                                           GROWTH        --------    --------
                                           ------
                                                            
Financial Highlights, June 30, 2002             9            10         9
Statement of Net Assets, June 30, 2002        10-22        11-17       10-15
Statement of Operations, year ended
June 30, 2002                                   23           18          16
Statement of Changes in Net Assets, years
ended
June 30, 2002, and June 30, 2001                24           19          17
Notes to Financial Statements, June 30,
2002                                          25-28        20-23       18-21






                                          GLOBAL            DEVELOPING
                                          TECHNOLOGY        TECHNOLOGIES
                                          ----------        ------------
                                                      
Financial Highlights, June 30, 2002              8                   8
Statement of Net Assets, June 30, 2002          9-12               9-13
Statement of Operations, June 30, 2002           13                 14
Statement of Changes in Net Assets,
periods ended June 30, 2002, and June
30, 2001                                         14                 15
Notes to Financial Statements, June 30,
2002                                           15-18               16-19






                                       SCIENCE &    EQUITY       TOTAL EQUITY
                                       TECHNOLOGY   INDEX 500    MARKET INDEX
                                       ----------   ---------    ------------
                                                        
Financial Highlights, June 30, 2002                                    2
Statement of Net Assets, June 30,
2002                                      10-14        3-21           3-60
Statement of Operations, June 30,
2002                                       15           22             61
Statement of Changes in Net Assets,
years ended June 30, 2002, and June
30, 2001                                   16           23             62
Notes to Financial Statements, June
30, 2002                                  17-21        24-28         63-66






                                       93





                                                 NEW       CAPITAL     MID-CAP
                                      BALANCED   HORIZONS  APPRECIATIONGROWTH
                                      --------   --------          ----------
                                                           
Financial Highlights, June 30, 2002      11         11         8          12
Portfolio of Investments, June 30,
2002                                    12-40     12-22       9-16       14-20
Statement of Assets and Liabilities,
June 30, 2002                            41         23         17          21
Statement of Operations, year ended
June 30, 2002                            42         24         18          22
Statement of Changes in Net Assets,
years ended
June 30, 2002, and June 30, 2001         43         25         19          23
Notes to Financial Statements, June
30, 2002                                44-47     26-29      20-23       24-27






                                                 SMALL-CAP
                                                 STOCK
                                                 -----
                                              
Financial Highlights, June 30, 2002                 11
Portfolio of Investments, June 30, 2002             13-23
Statement of Assets and Liabilities,
June 30, 2002                                        24
Statement of Operations, year ended
June 30, 2002                                        25
Statement of Changes in Net Assets, years ended
June 30, 2002, and June 30, 2001                     26
Notes to Financial Statements, June 30, 2002        27-30






                                                    SMALL-CAP
                                                    VALUE
                                                    -----
                                                 
Financial Highlights, June 30, 2002                      7
Portfolio of Investments, June 30, 2002                  9-20
Statement of Assets and Liabilities, June 30, 2002        21
Statement of Operations, year ended June 30, 2002         22
Statement of Changes in Net Assets, years ended
June 30, 2002, and June 30, 2001                          23
Notes to Financial Statements, June 30, 2002            25-29






                                       94





                                           INSTITUTIONAL    MEDIA &
                                           SMALL-CAP STOCK  TELECOMMU-
                                           ---------------  NICATIONS
                                                            ---------
                                                      
Financial Highlights, June 30, 2002               6             8
Statement of Net Assets, June 30, 2002          7-11            9-11
Statement of Operations, June 30, 2002           12              12
Statement of Changes in Net Assets, June
30, 2002                                         13              13
Notes to Financial Statements, June 30,
2002                                            14-15          14-16






                                          INSTITUTIONAL   INSTITUTIONAL
                                          LARGE-CAP       LARGE-CAP
                                          GROWTH          VALUE
                                          ------          -----
                                                    
Financial Highlights, June 30, 2002             5               5
Statement of Net Assets, June 30, 2002         6-7              6-8
Statement of Operations, for the period
ended June 30, 2002                             8                9
Statement of Changes in Net Assets, for
the period ended June 30, 2002                  9                10
Notes to Financial Statements, June 30,
2002                                          10-11            11-12






                                 BLUE CHIP      EQUITY INCOME
                                 GROWTH         FUND-ADVISOR    VALUE FUND-
                                 FUND-ADVISOR   CLASS           ADVISOR CLASS
                                 CLASS          -----           -------------
                                 -----
                                                       
Financial Highlights, June 30,
2002                                  12              10              9
Statement of Net Assets, June
30, 2002                             13-20          11-18            10-17
Statement of Operations, year
ended June 30, 2002                   21              19              18
Statement of Changes in Net
Assets, for the periods ended
June 30, 2002, and June 30,
2001                                  22            20-21             19
Notes to Financial Statements,
June 30, 2002                        23-27          22-25            20-23






                                       95






                                                 MID-CAP        SMALL-CAP STOCK
                                                 GROWTH FUND-   FUND-
                                                 ADVISOR CLASS  ADVISOR CLASS
                                                 -------------  -------------
                                                          
                                                                      1
Financial Highlights, June 30, 2002                   13              2
Portfolio of Investments, June 30, 2002              14-20           13-23
Statement of Assets and Liabilities, June 30,
2002                                                  21              24
Statement of Operations, year ended June 30,
2002                                                  22              25
Statement of Changes in Net Assets, for the
periods ended June 30, 2002, and June 30, 2001        23              26
Notes to Financial Statements, June 30, 2002         24-27           27-30






                                                            SMALL-CAP VALUE
                                                            FUND-ADVISOR CLASS
                                                                         -----
                                                         
Financial Highlights, June 30, 2002                                8
Portfolio of Investments, June 30, 2002                            9-20
Statement of Assets and Liabilities, June 30, 2002                  21
Statement of Operations, year ended June 30, 2002                   22
Statement of Changes in Net Assets, for the periods ended
June 30, 2002, and June 30, 2001                                    23
Notes to Financial Statements, June 30, 2002                      24-29





                                                 SCIENCE &      GROWTH
                                                 TECHNOLOGY     STOCK
                                                 FUND-ADVISOR   FUND-ADVISOR
                                                 CLASS               -------
                                                 -----          CLASS
                                                                -----
                                                          
Financial Highlights, June 30, 2002                                  10
Statement of Net Assets, June 30, 2002               10-14           11-17
Statement of Operations, year ended June 30,
2002                                                  15              18
Statement of Changes in Net Assets, for the
periods ended June 30, 2002, and June 30, 2001        16              19
Notes to Financial Statements, June 30, 2002         17-21           20-23






 RATINGS OF CORPORATE DEBT SECURITIES
 -------------------------------------------------------------------------------

                         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 known as high-grade
   bonds.

   A-Bonds rated A possess many favorable investment attributes and are to be
   considered as upper medium-grade obligations.

   Baa-Bonds rated Baa are considered as medium-grade obligations, i.e., they
   are neither highly protected nor poorly secured. Interest payments and
   principal security appear adequate for the present but certain protective


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   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
   characterizes 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 repayment of
   principal or payment of interest.

   Ca-Bonds rated Ca represent obligations which are speculative in a high
   degree. Such issues are often in default or have other marked shortcomings.

   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, CC, and C 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 C 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 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 are 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.


                                       97



   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 and
   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-Bonds rated BB, B, CCC, CC, and C are regarded on
   balance as predominantly speculative with respect to the issuer's capacity to
   pay 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.


                                       98