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    The internet can substantially increase the ease and convenience of placing orders for securities. Online customers should not assume, however, that the Internet channel will always be available. Any computer system, whether it is yours, your Internet service provider's, or that of a financial services firm, may experience unscheduled outages or slowdowns for a variety of reasons. Although precautions are taken to enable systems to handle heavy use, neither T. Rowe Price, nor any other online financial service provider can promise complete reliability under all circumstances. Our system performance and that of others critical to the transaction process are subject to a variety of operational risks, including heavy stress during peak times and undetected hardware or software failures. The purpose of this message is to make sure online customers are aware of additional risks and suggest ways to reduce exposure to them.

    Online Access—T. Rowe Price maintains sophisticated systems and employs experienced registered personnel to process transactions submitted via the Internet. However, information processing and communications systems, both those of T. Rowe Price and third-party vendors, are subject to occasional congestion, technological problems or, in extreme cases, outages. Beyond our proprietary systems, third-party providers include Nasdaq systems, market centers that execute orders, and quotation services. The failure of a critical system for a significant period of time may limit our ability to rapidly process an internet transaction.

    In the Event of a Problem—Online customers typically employ the T. Rowe Price Account Access system to obtain account information and enter orders to trade securities. Should you experience problems accessing our website to enter a Brokerage order, for example, please call 1-800-225-7720 and place your order with a registered representative. If our website is down, we will honor our appropriate online commission rate for your order.

    Note: Please keep in mind that if our website is unavailable during market hours, phone lines may be very busy, and calls will be handled in the order received. It is possible that losses may be incurred due to access difficulty in periods of high internet traffic or extended telephone wait times, although every effort is made to mitigate these circumstances.

    Potential Delays—During what's referred to as a Fast Market, the stock market experiences significant volatility, and individual stocks may be subject to short-term price swings of unusually high magnitude. Wide price fluctuations and heavy trading are also characteristics of a Fast Market. The combination of high trading volume and rapid price movement creates risks beyond those always inherent in stock investing.

    High trading volumes may also delay the execution of an order and result in an execution price significantly different than when the order was placed. This is especially true with volatile stocks, including internet stocks, and secondary market trading in initial public offerings ("IPOs"). High volumes may affect the speed at which an execution takes place and at which quotation and transaction data are provided. Further, automated execution systems may be shut down during periods of high volatility. In this event, orders are executed manually, thereby exacerbating delays.

    Note: Customers should take extra care when attempting to cancel or replace orders during volatile periods. Delays in execution reporting may expose customers to the risk of double executions.

    Types of Orders—Brokerage customers should consider what type of order to place based on market conditions and investment objectives. Market orders are executed at the next available market price. Limit orders are executed only at a specified price or better. Please reference the appropriate help screen for information regarding benefits and risks associated with each type of order. Although the Internet is a convenient channel through which to place orders, customers should bear in mind that it is not a direct link to the exchanges or other market centers. All orders must be routed to such market centers for execution.

    Note: T. Rowe Price wants investors to make educated decisions, have reasonable expectations, and consider the inherent risks and rewards of electronic online investing. Please contact us if you have any questions or concerns. Additionally, for a regulatory perspective, you may want to review the FINRA website concerning electronic investing.

    Order Routing Disclosure

    Pursuant to SEC Rule 11Ac1-6, T. Rowe Price Investment Services, Inc. ("Price"), makes available for each calendar quarter a report of the routing of certain orders in securities covered under the rule. Since Price transmits all of its customer orders to Pershing, LLC, member NYSE/FINRA/SIPC, a subsidiary of the Bank of New York Mellon Corporation, as clearing broker, and Pershing in fact makes the routing decisions concerning those orders, we believe that Pershing is in the best position to prepare a quarterly report that reflects Pershing's routing practices of orders.

    To request either the most recent quarterly report or an account level report on trades placed in the last six months, please specify your desired report and send your request to:

    T. Rowe Price Brokerage Services
    Attn.: Customer Service
    P.O. Box 17435
    Baltimore, MD 21297-1435

    To access a report of our Order Routing Practices, type "T. Rowe Price" in the text box that appears after clicking on the following link.

    Commission Information

    The standard commission rate for online stock trades is $19.95 per share. For online option trades the rate is $19.95 plus $1.00 per contract.

    Brokerage customers who have executed more than 30 trades in the prior year, or qualify for Personal Services or Enhanced Personal Services with T. Rowe Price, are entitled to a commission rate of $9.95 for online trades and $9.95 plus $1.00 per contract for online option trades.

    For additional information, and a complete commission schedule, select the link below.

    Is each stock order submitted subject to a separate commission charge?

    Yes, effective July 2007. For example, if you place an order to buy 100 shares of MSFT at 10:20 a.m., and another order to buy 100 shares of MSFT at 2:30 p.m. and both trades execute, you will be charged a separate commission for each transaction ($19.95 or $9.95 per trade, contingent on whether you qualify for our lower commission tier).

    Are orders that are partially executed during the same trading day subject to separate commission charges for each partial execution?

    No. For example, if you place a limit order to buy 1,000 shares of GE, and the order is executed in two 500 share lots during the same day, you will only be charged one commission for both executions ($19.95 or $9.95 per trade, contingent on whether you qualify for our lower commission tier), since the original order presented to the market center was not modified or canceled.

    If I change the limit price or quantity of a partially executed order, will the new order be treated separately for commission purposes?

    Yes, you will be charged a commission on the initial partial execution and another commission if your edited order executes. For instance, you might place a limit order to buy 1,000 shares of IBM, and only 500 shares may execute initially. For the 500 share execution, you will be charged a commission. If you then change the price or quantity of the remaining open limit order, it's presented to the market center again as a new order and is therefore subject to another commission charge if executed ($19.95 or $9.95 per trade, contingent on whether you qualify for our lower commission tier).

    Are orders that are partially executed across multiple trading days subject to a separate commission charge for each day the order partially executes?

    Yes. If you place a limit order to buy 1,000 shares of GE, and only 500 execute the first day, you will be charged a commission for the first day's execution and an additional commission for each subsequent day's execution ($19.95 or $9.95 per trade, contingent on whether you qualify for our lower commission tier).

    Bond Investing

    Stocks usually capture most of the headlines, but fixed income investments also represent a significant share of the financial markets. Bonds, which are long-term fixed income securities, are a significant portion of this market. While stocks have outperformed bonds over the past 70 years, bonds have also provided strong average annual compound returns over time, keeping investors well ahead of inflation.

    The Account Access system does not currently offer bond trading functionality or an online bond inventory; however, representatives are available if you wish to purchase bonds or discuss inventories. For details, contact a registered Brokerage representative at 1-800-225-7720, weekdays from 8 a.m. to 8 p.m. ET.

    The following tutorial offers a useful introduction to bond investing. In addition, a number of websites feature valuable bond information. A link to the Bond Market Association site is provided below for your convenience.

    Bonds Represent Loans Made to Various Borrowers

    While stocks are shares of ownership in a corporation, bonds are debt securities (IOUs) issued by borrowers to lenders (investors). They represent a promise made by borrowers to pay interest throughout the term of the loan and repay the amount of the loan on a certain date.

    What distinguishes bonds from other fixed income securities is the length of time the loan remains in effect. Treasury bills and other money market securities mature in a year or less. Bonds have longer-term maturities. All sorts of borrowers, including the U.S. government, states and municipalities, and corporations, issue bonds.

    Fixing Your Sights on Fixed Income

    The interest paid on bonds is usually a fixed dollar amount, but it can also vary in the case of variable rate securities. Many investors confuse the coupon rate with the bond's actual yield or its yield to maturity. You should understand the differences before you invest.

    Coupon Rate

    The coupon rate is expressed as a percentage of par value, normally $1,000. Since most bonds pay interest semiannually, a bond with an 8% coupon rate will pay you $40 twice a year, for a total of $80 per year ($1,000 x .08 = $80). The coupon rate on a particular type of security ordinarily rises as maturities lengthen and also as the credit quality decreases. Among taxable investments, U.S. Treasury securities carry the lowest coupon rates because the federal government is the nation's most creditworthy borrower.

    Current Yield

    While the coupon rate is fixed, the current yield fluctuates with rising and falling interest rates. A bond paying $80 interest per year yields 8% at par value. But if interest rates rose causing the bond's price to fall to $900, the yield would rise to 8.9%; had the price risen to a premium over par, say to $1,100, the yield would have dropped to 7.3%. You can easily figure out the current yield by dividing the interest paid each year by the current price of the bond.

    Yield to Maturity

    If you hold a bond until it matures, the bond's compound annual rate of return is made up of two components: interest income and capital gain or loss. An 8% bond bought at a price of $900 and held until it matures in 10 years would generate income of $800 and a capital gain of $100. Your average annual return, assuming all interest payments are reinvested at the same rate, is called the yield to maturity. You can get this yield from your broker or figure it out yourself with the help of a calculator.

    Bond Prices Move in the Opposite Direction of Interest Rates

    Since a bond's coupon is fixed, its price must move up and down with changes in interest rates in order to keep its yield in line with current rates. If you bought a bond with an 8% coupon and rates subsequently rose to 10% for similar bonds, your bond would normally decline in price to offer a yield close to the new rate to attract new investors.

    The table below shows how values of bonds with various maturities change when interest rates rise or fall by one percentage point. The table assumes a 6% coupon and $1,000 par value for each bond.

     
    Bond maturity (in years) Rates fall 1% and the bond's value rises to… Rates rise 1% and the bond's value rises to…
    1 $1,009.64 $990.50
    3   1,027.54   973.36
    5   1,043.76   958.42
    10   1,077.95   928.94
    30   1,154.54   875.28

    This chart is for illustrative purposes only and does not represent the performance of an investment in any T. Rowe Price fund. The example shows value changes apart from fluctuations caused by other market conditions or factors.

    A bond's duration, rather than its maturity, is a better measure of the way interest rate swings affect bond prices. Duration takes into account the time value of cash flows generated over the life of a bond, discounting future interest and principal payments to arrive at a value expressed in years. So the price of a bond with a duration of five years can be expected to rise about 5% for each one percentage point drop in interest rates and fall about 5% for each one percentage point rise in rates.

    Lending Your Money to the Country's Largest Institutions

    Borrowing and lending money is a major business made up of a wide array of borrowers and lenders. The primary issuers of debt securities in the U.S. include:

    The U.S. Government

    Treasury bonds and bonds issued by the Government National Mortgage Association (Ginnie Maes or GNMAs) are backed by the full faith and credit of the U.S. government and represent the lowest risk of default.

    In addition, while bonds issued by various government-sponsored enterprises are not direct obligations of the U.S. Treasury, they are generally regarded as having the "moral" backing of the U.S. government and, therefore, carry a low credit risk. These include securities issued by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal Farm Credit Bank, and the Federal Home Loan Bank. The interest on U.S. Treasuries and some agency bonds is exempt from state and local income taxes, but not from federal taxes.

    States and Local Municipalities

    State and local governments are heavy issuers of bonds (municipal bonds or "munis"). Their credit ratings vary according to the borrower's creditworthiness, but they have historically experienced low default rates. The highest ratings are usually assigned to general obligation (GO) bonds, which are backed by the taxing power of the state or local government. Revenue bonds, issued to finance various public projects, are another large component of this market.

    The interest on most municipal bonds is exempt from federal income tax and also from state and local taxes if you invest in bonds within your home state. However, the income from some bonds issued to finance private projects, such as airports and sports facilities, may be subject to the alternative minimum tax (AMT). Also, any profit realized from the sale of munis bought at a discount from par may be taxed as ordinary income rather than as a capital gain. Therefore, you should check with your tax adviser before investing in private purpose or market discount bonds.

    Corporations

    Companies issue bonds to finance various operations as an alternative to issuing stock. Bonds sold to the public by blue chip corporations enjoy higher credit ratings than other corporate bonds. Companies must pay interest on their bonds before paying dividends to stockholders. In the event of bankruptcy or liquidation of the company, bondholders also have priority over shareholders. Therefore, investment-grade corporate bonds are generally regarded as less risky and less volatile than stocks.

    Most major corporations, including utilities, financial, and industrial companies, issue some form of bonds. Some of these bonds may be convertible into shares of common stock, giving them potential for capital appreciation. Some corporate bonds are secured by assets of the company, while others are unsecured debentures, backed only by the creditworthiness of the issuing corporation.

    Rating the Borrowers

    The credit ratings of bonds are important because they largely determine how much incremental interest bond issuers must pay to borrow money and also provide investors with a measure of credit risk. The two major rating agencies are Standard & Poor's and Moody's, which have similar but not identical rating systems.

    Bond yields reflect a borrower's ability to make timely payments of interest and principal. Therefore, U.S. Treasury bonds generally have lower yields than agency and corporate bonds with similar maturities. Likewise, investment-grade corporate bonds yield less than high yield (noninvestment-grade) bonds because of their higher credit quality. Municipal bonds have lower yields than taxable bonds to reflect their tax advantages, but the credit quality of individual munis determines their relative yields within the tax-exempt sector.

    You should also know that high yield bonds sometimes perform more like stocks than like investment-grade bonds. While bonds usually rise and fall with fluctuations in interest rates, high yield bonds are vulnerable to adverse economic trends and shortfalls in corporate earnings. These bonds have a much greater risk of default and tend to be more volatile and less liquid than higher-rated bonds.

    Moody's and Standard & Poor's Rating Codes

    These rating systems are similar, although not identical. The chart is the key to reading the ratings:

     
    Moody's S&P Rating
    AAA AAA Highest quality
    AA AA High quality
    A A Upper-medium quality
    BAA BBB Medium grade
    BA BB Somewhat speculative
    B B Low grade, speculative
    CAA CCC Low grade, default possible
    CA CC Low grade, partial recovery possible
    C C Default, recovery unlikely
    D D In default
    Buying and Selling Bonds in a Competitive Marketplace
    Treasuries

    Treasury bills, notes, and bonds can be purchased for a minimum of $1,000. You can buy them from brokerage firms, government securities dealers, some banks, or directly from the Federal Reserve at regularly scheduled auctions.

    Municipals

    Munis are normally available in minimum denominations of $5,000, regardless of maturity. Liquidity varies with the nature of the obligation and the credit quality. However, the spread between bid and ask prices can be greater for transactions below $100,000. The payment of interest and principal on some municipal bonds is insured by private muni bond insurers, supplying them with additional credit enhancement.

    Corporates

    You can buy most corporate bonds in denominations of $1,000, either in the secondary market or at par when the bonds are first issued. A small percentage of bonds, known as baby bonds, have been issued in smaller units of less than $1,000 par value.

    Like stocks, corporate bonds are listed or unlisted. The more actively traded bonds of major corporations are listed on the New York and American bond exchanges, and you can track their prices in the financial pages of leading newspapers. However, the vast majority are unlisted and trade over the counter via telephone or computer negotiations between dealers. You have to call your broker for price quotes.

    While many municipal and corporate bonds are callable, meaning that the issuer has the right to redeem them prior to maturity, only a small percentage of Treasury bonds have call features. Ordinarily, bonds are called when interest rates decline below the rate the bonds are paying so that issuers can refinance their debt at the lower rates. You should check out call provisions before you buy a bond since you might have to reinvest the proceeds at a lower interest rate if it is called.

    Determining the Best Type of Bonds for You

    What are the best kinds of bonds for you? That depends on a number of factors, including your investment objectives, your income, and the level of risk you are willing to assume. The two major types of risk are market and credit risk.

    Market Risk

    We discussed earlier how much a bond's price would rise or fall in response to a change in interest rates. One of the major risks you face as a bond investor is that interest rates will rise after you buy a bond, causing its price to fall. If you are prepared to hold your bond to maturity, this risk is eliminated.

    Credit Risk

    This is the risk that a bond issuer will default—fail to make timely payments of interest and principal. The higher the credit quality, the lower the risk. If the creditworthiness of the issuer declines after you buy a bond, its price will likely fall to provide a higher yield to attract new investors, and you could take a loss on your investment. Also, lower credit quality bonds tend to be less liquid than higher-rated bonds.

    Be Sure to Weigh All the Risks

    You should weigh the inherent risks of each type of bond before you invest. "Reaching for yield," that is, buying bonds because they pay the highest amount of interest, is often a fundamental mistake of bond investors since high yields usually mean greater risk.

    Before buying bonds, consider the following checklist:

    Time Horizon

    How long will you be holding your bonds? You can control market risk to a great extent by "laddering" maturities—buying bonds with short, intermediate, and longer maturities. Keep in mind that the longer the maturity, the more vulnerable a bond is to changes in interest rates.

    Tax Bracket

    Whether you should own taxable or tax-exempt bonds depends on your tax bracket. The best approach is to figure out your net yield on taxable (or partly tax-exempt) bonds after federal, state, and local income taxes are accounted for and compare it with the yield you would receive on tax-exempt securities.

    Diversification

    Diversifying your holdings works as well with bonds as with stocks. By dividing your fixed income assets among various types of bonds with different maturities, you reduce your overall level of risk and the volatility of your portfolio as well.

    Understand that bonds provide a balance to stocks and should complement them in most portfolios. They provide steady income and are less volatile under normal conditions. For investors with short time horizons and low tolerance for risk, fixed income securities should be the primary investment vehicle. The amount of income you want, the length of time you need it for, and the level of risk you are willing to assume to obtain it are all factors in determining the makeup of your fixed income investments.

    Brokerage Insights articles provide background information on many aspects of investing. T. Rowe Price Brokerage, a division of T. Rowe Price Investment Services, Inc., member NASD/SIPC, offers a full range of products and services to help investors achieve their goals. The charts in this article are for illustrative purposes only and are not intended to represent the performance of any T. Rowe Price fund. Past performance cannot guarantee future results.

    Margin Requirements

    As excerpted from the T. Rowe Price Margin Application and Agreement.

    All requirements are based on the current market value (CMV) of the positions in your Brokerage account. T. Rowe Price may, as it deems necessary, increase requirements at any time for a particular account, or position, after consideration of the account size, liquidity, security concentration, or creditworthiness. If an account fails to meet maintenance requirements, some or all positions held in the account may be liquidated. The minimum initial requirement for margin accounts with debit balances is $2,000.00. No margin will be extended on foreign over-the-counter (OTC) securities unless they are part of the National Market System (NMS).

     
    Security Class Initial Requirement of CMV Maintenance Requirement of CMV
    Stocks*    
    Listed or Fed-Approved OTC Equity 50% of net amount Greater of 30% of CMV or $3.00 per share
    Other Equity and All Warrants 100% of net amount 100% of CMV
    Short Sale Equity 50% of net proceeds Greater of 35% of short CMV or $5.00 per share
    Mutual Funds    
    When Issued Transactions (cash account only) Greater of 25% of net amount or $2,000, not to exceed 100% of net amount Greater of 25% of net amount or $2,000, not to exceed 100% of market value
    Mutual Funds and Unit Investment Trusts 100% of net amount and purchase must be made initially in cash account 100% of net amount for 30 days from settlement date, greater of 50% of CMV or $3.00 per share
    Bonds**
    Corporate Bonds***
       
    Convertible Bonds 50% of net amount 30% of CMV
    Interest-Paying Corporate Debt (rated no lower than Moody's BAA or S&P BBB) Greater of 30% of net amount or 10% of face amount Greater of 35% of CMV or 10% of face amount
    Zero Coupon Bonds (rated no lower than Moody's BAA or S&P BBB including CATS, TIGRS, etc.) Greater of 30% of net amount or 10% of face amount 25% of CMV
    Municipal Bonds    
    Interest-Paying Municipal Bonds (rated no lower than Moody's) 30% of net amount 25% of CMV
    Municipal Zero-Coupon Bonds (rated no lower than Moody's BAA or S&P BBB) Greater of 30% of net amount or 10% of face amount Greater of 35% of CMV or 10% of face amount
    Government Securities    
    Bills, Notes, and Bonds 10% of net amount % of CMV based on years to maturity:
    20 or more years................8%

    10 yrs but < 20 yrs...................7%

    5 yrs but < 10 years................6%

    3 yrs but < 5 years................5%

    1 yr but < 3 years................4%

    < 1 year............3%
    Agencies and Pass-Throughs (e.g., GNMA, FNMA) 15% of net amount 10% of CMV
    Zero Coupon Bonds 10% of face amount Greater of 7% of CMV or 7% of face amount
    Other Bonds 100% of net amount 100% of CMV
    * Stocks trading below $5.00 per share are subject to a 100% margin requirement.
    ** No margin transactions on interest-paying bonds trading below $40 per bond or on zero-coupon bonds trading below $10 per bond.
    *** Listed plus Fed-approved OTC.
    Margin Guidelines and Disclosure
    What You Should Know About Margin and Short Selling

    For some investors, a fair amount of mystery surrounds the concept of margin. However, margin is no more mysterious than any other form of leverage or debt. You can borrow money to buy a home, a car, or a boat or to pay college tuition or finance a wedding. Mortgages and home equity lines of credit are loans secured by real estate. Other types of loans such as credit card debt are unsecured, with only the borrower's credit history reassuring the lender that the money will be repaid. Margin is a secured loan, with stocks, bonds, and other securities serving as collateral.

    Borrowing Against Your Portfolio

    Many investors think of margin only when buying stocks—for example, borrowing against the value of their securities to buy additional shares of a stock. In reality, margin can be used for all sorts of reasons. Using margin to finance various financial needs (such as a car, boat, or college tuition) may make sense when it is cheaper to borrow against your securities than from other sources, as long as you are aware of the risks involved. Margin approval is also required for customers who would like to trade risky option positions or investors who want to sell securities short in a brokerage account. The risks depend on several factors, including the kinds of securities you borrow against, the number of issues in your portfolio, the amount you borrow, and others.

    T. Rowe Price Initial Margin Disclosure Statement

    Before trading stocks in a margin account, you should carefully review the Margin Agreement provided by T. Rowe Price. Consult a representative at 1-800-225-7720 regarding any questions or concerns you may have with your margin account(s). When you purchase securities, you may pay for the securities in full, or you may borrow part of the purchase price from your brokerage firm. If you choose to borrow funds from your firm, you must first open a margin account. The securities purchased are the firm's collateral for the loan to you. If the securities in your account decline in value, so does the value of the collateral supporting your loan, and, as a result, the firm can take action, such as issuing a margin call and/or selling securities or other assets in any of your accounts held with the firm in order to maintain the required equity in the account.

    It is important that you fully understand the risks involved in trading securities on margin. These risks include the following.

    You can lose more funds than you deposit in the margin account. A decline in the value of securities that are purchased on margin may require you to provide additional funds to the firm that has made the loan to avoid the forced sale of the securities or assets in your account(s).

    The firm can force the sale of securities or other assets in your account(s). If the equity in your account falls below the maintenance margin requirements or the firm's higher "house" requirements, the firm can sell the securities or other assets in any of your accounts held at the firm to cover the margin deficiency. You also will be responsible for any shortfall in the account after such a sale.

    The firm can sell your securities or other assets without contacting you. Some investors mistakenly believe that a firm must contact them for a margin call to be valid and that the firm cannot liquidate securities or other assets in their accounts to meet the call unless the firm has contacted them first. This is not the case. Most firms will attempt to notify their customers of margin calls, but they are not required to do so. However, even if a firm has contacted a customer and provided a specific date by which the customer can meet a margin call, the firm can still take necessary steps to protect its financial interests, including immediately selling the securities without notice to the customer.

    You are not entitled to choose which securities or other assets in your account(s) are liquidated or sold to meet a margin call. Because the securities are collateral for the margin loan, the firm has the right to decide which security to sell in order to protect its interests.

    The firm can increase its "house" maintenance margin requirements at any time and is not required to provide you with advance written notice. These changes in firm policy often take effect immediately and may result in the issuance of a maintenance margin call. Your failure to satisfy the call may cause the firm to liquidate or sell securities in your account(s).

    You are not entitled to an extension of time on a margin call. While an extension of time to meet margin requirements may be available to customers under certain conditions, a customer does not have a right to the extension.

    Establishing a Margin Account

    Margin trading involves risks and may not be suitable for everyone. Only customers who have read the Margin Agreement, completed the Margin Application, and have met certain suitability requirements may trade on margin through T. Rowe Price Brokerage.

    Before you can borrow on margin, you must complete a margin application. The margin application requires you to provide your financial information and investment experience. By signing the agreement, you state, among other things, that you are of legal age, agree to hypothecate (pledge) your securities as collateral, and agree to pay a variable rate of interest for your margin loan. To download a margin agreement and application, click the following link:

    General Margin Policies

    T. Rowe Price Brokerage accounts are carried by clearing firm Pershing LLC, member NYSE/FINRA/SIPC ("Pershing"). The amount of credit extended by Pershing, and the terms of such extension, are governed by rules of the Federal Reserve Board and the New York Stock Exchange. Within the guidelines of these rules, subject to adjustment required by changes in such rules and our business judgment, Pershing has established certain policies with respect to margin accounts.

    For information on the margin policies, you should refer to the Brokerage/Brokerage IRA Account Handbook (provided when your account was established), or call a representative at 1-800-225-7720 for a copy.

    You can borrow against stocks that are listed on a national securities exchange or Nasdaq with a minimum initial value of $5.00 per share. You may also borrow against bonds, and in some instances, against the mutual funds in your account.

    The Initial margin requirement for most securities, including most equities, is 50%.

    Maintenance: Margin requirements mandate that your account equity remain above a minimum percentage of the total value of your portfolio. These maintenance levels vary according to the price and quality of your holdings. It is Pershing's general policy to require margin account holders to maintain equity in their accounts equal to 30% of the current market value (or $3 per share for common stock, whichever is greater). Requirements for low-priced stocks and low-quality bonds are normally higher. Some securities may be ineligible for margin credit from time to time or subject to higher margin requirements.

    For general information and a current list of stocks subject to a higher or 100% margin requirement.

    Managing Your Risk

    While margining securities can be speculative, it is possible to manage your level of risk. The major risk is that the value of the margin collateral (i.e., the securities backing the loan) will decline sharply in value, leaving you with dwindling or even negative equity. In a margin account, if the total value of your securities falls below a certain level, you will receive a margin call requiring you either to deposit more money or securities into your account, or to sell all or part of your securities. To reduce the risk of a margin call, you should consider the following:

    • Borrow Against Relatively Stable Securities—The riskiest securities to margin are volatile stocks that do not pay dividends. Stocks with the potential to fall sharply in a market sell-off can erode your equity quickly. If you trade on margin, consider borrowing against less volatile securities such as short-term Treasuries and other high-grade bonds whose interest payments help offset the cost of borrowing.
    • Borrow Against a Diversified Portfolio—Even high-grade bonds can run into occasional turbulence. A portfolio diversified among a broad variety of asset classes-stocks, bonds, mutual funds, and money market securities—provides a greater margin of comfort. With diversification, losses in one type of security may be offset by gains in others. An account with a large debit balance against only one or two securities is considered to be concentrated and therefore at greater risk to market fluctuation.
    • Don't Borrow the Maximum Amount Allowed—You can ordinarily borrow up to 50% of the market value of stocks and more than that on most bonds. However, the more you borrow, the greater the risk of a margin call if the overall value of your portfolio declines. To protect yourself, borrow only a portion of the loan value of your securities.
    Margin Can Work for You or Against You

    Margin leverage cuts both ways; it can dramatically enhance returns when the securities in the portfolio appreciate and it can significantly hurt returns when the securities in the portfolio depreciate. All examples are hypothetical and exclude commissions and margin interest, which would add to losses and reduce gains shown below.

    Margin Can Work For You

    Example: Let's assume you bought $50,000 worth of securities on margin. You deposited $25,000, which is the initial 50% requirement. You therefore borrowed from T. Rowe Price the other $25,000.  
         
      Portfolio Value $50,000
      Margin Loan (Debit Balance) - $25,000
      Account Equity $25,000
    Example: Let's assume your timing was perfect and the total market value of your portfolio rose to $60,000 after you made the purchases.  
         
      Portfolio Value $60,000
      Margin Loan - $25,000
      Account Equity $35,000

    Fortunately for you, your debit balance will remain constant, but the equity in the account increases by $10,000. You would have a $10,000 profit on your $25,000 investment, for a return of 40% or $10,000/$25,000 = 40%. In contrast, if you had paid for your shares in full and deposited $50,000 in your account, you would not have needed to borrow any money from T. Rowe Price. If you watched your portfolio increase by $10,000, your return would have been only 20%
    or $10,000/$50,000 = 20%.

      New Portfolio Value $60,000
      Original Cost of Securities - $50,000
      Profit $10,000

    Margin Can Work Against You

    Example: Let's assume you have the original portfolio of marginable securities in the example above with an original market value of $50,000 with a debit balance of $25,000.  
         
      Portfolio Value $50,000
      Margin Loan - $25,000
      Account Equity $25,000
         
      50% Equity  

    If the market falls and the value of your portfolio depreciates to $35,000, your margin debit balance remains constant, which dramatically decreases the equity in the account.

      Portfolio Value $35,000
      Margin Loan - $25,000
      Account Equity $10,000
         
      10,000/35,000 = 28.6%  

    Your equity is reduced to $10,000, or 28.6% of the market value. This is not an acceptable percentage of equity because it has fallen below Pershing's margin maintenance requirements. You will receive a margin call and will be required to either deposit additional funds into your account or sell enough securities to bring your account into compliance.

    Short Sellers Must Trade on Margin

    Selling short is one of the more speculative strategies since it is a bet against the market or a particular stock. It involves selling a security (usually a stock) you do not currently own in the hope it will decline in value, allowing you to buy it at a lower price and realize a profit.

    If the security increases in value, you could lose more than the amount you have invested in the account. This is the most tangible risk for a short seller, since by definition, short selling—selling first and buying later—is the reverse of the normal buy/sell process.

    When you sell short, T. Rowe Price borrows the stock to deliver to you. However, if T. Rowe Price is unable to continue to borrow the shares, we have the right to buy your shares at the current market price and close your short sale, possibly creating a loss in your account. For this reason, if you are tempted to sell short, it is best to do so with stocks that trade actively in a liquid market.

    Maintenance requirements are usually higher for short sales (35%, or $5.00 per share, whichever is greater), but the math works differently. With a short position, your equity declines if the short stock rises in value, and your equity increases if the share price declines.

    Example: Let's assume you sold short 1,000 shares of stock at $50 per share and deposited $25,000 in your account as collateral. Again, our hypothetical example excludes commissions, which would reduce the returns shown.  
         
      Short-Sale Proceeds $50,000
      Equity/Cash Collateral - $25,000
      Total Cash in Account $75,000

    If the share price declined to $40 after your short sale, your position would look like this...

      Short-Sale Proceeds $50,000
      Cash in Account - $25,000
      Total Cash in Account $75000
         
      Cost of Closing Position at $40 $40,000
      Account Equity $35,000

    In this instance, you would have a profit of $10,000 on your $25,000 investment and could close out the position with a 40% return on your investment.

    Example: Next, assume that the stock price rose to $60 after you sold it short instead of dropping as you expected.  
         
      Short-Sale Proceeds $50,000
      Cash in Account - $25,000
      Total Cash in Account $75000
         
      Cost of Closing Position at $60 $60,000
      Account Equity $15,000
         
      $15,000/$60,000 = 25% equity  

    Your margin short position would have fallen below 35%, and you will either have to buy the stock at the higher price for a loss or deposit additional funds into your account (in this case, $6,000 to bring the equity up to 35% of $60,000).

    Day Trading

    The FINRA and NYSE issued industry-wide regulations regarding day trading. A day trade is defined as the purchase and sale (or sale and purchase in a short account) of the same security on the same day in an account. This does not apply to the sale of a position held from the previous day or the purchase to cover a short position held from the previous day. Day traders buy and sell stocks throughout the day in the hope that their stocks will climb or fall in value, for the seconds, minutes, or hours that they own the stock, allowing them to lock in quick profits. Day traders usually buy on borrowed money in a margin account, hoping that they will reap higher profits through leverage but run the risk of higher losses too.

    Day traders are classified in one of two ways:

    Pattern Day Trader

    A trader who executes four or more day trades within five business days.

    Occasional Day Trader

    A trader whose day-trading activity does not meet the above criteria.

    Minimum equity requirements are based on an account's liquidating equity, contingent on the category of day trader.

    • The minimum equity for an occasional day trader is $2,000.
    • The minimum equity for a pattern day trader is $25,000.

    For additional information about rules governing day-trading requirements, contact a T. Rowe Price Brokerage representative at 1-800-225-7720.

    Margin Loan Rates

    In a margin account, interest is charged for any credit extended to you, either for a purchase of securities or a withdrawal of cash made against the collateral of securities. T. Rowe Price Brokerage margin loan rates are based on the size of the debit balance and pegged to the prevailing base lending rate charged by Pershing, our clearing firm.

    The Pershing Base Lending Rate is set with reference to commercially recognized interest rates, industry conditions relating to the extension of credit, and general credit market conditions. The rate will change without prior notice. When the rate changes during an interest period, interest will be calculated according to the number of days each rate is in effect during that period. If the rate of interest charged to you is changed for any other reason, you will be notified at least 30 days in advance.

    The interest period begins on the 20th of each month and ends on the 19th of the following month. Accordingly, the interest charges for the period, as shown on your monthly statement, are based only on the daily net debit and credit balances for the period. For example, if you have a $5,000.00 debit balance with the Pershing loan rate at 5.00%, the interest rate charged will be 6.75%, and equate to a monthly margin interest charge of $33.75.

     
    Debit Balance Percentage Above Pershing's Base Lending Rate
    $0–$9,999 1.75% above the Pershing base lending rate
    $10,000–$29,999 1.25% above the Pershing base lending rate
    $30,000–$49,999 0.75% above the Pershing base lending rate
    $50,000 and over 0.25% above the Pershing base lending rate
    Method of Margin Interest Computation

    At the close of each interest period during which credit was extended to you, the interest charge is computed by multiplying the average daily debit balance by the applicable schedule rate and by the number of days during which a debit balance was outstanding and then dividing by 360. If there has been a change in the Pershing Base Lending Rate, separate computations will be made with respect to each rate of charge for the appropriate number of days of each rate during the interest period. If not paid, the interest charge for credit extended to your account at the close of the interest period is added to the opening debit balance for the next interest period. With the exception of credit balances in your short account, all other credit and debit balances will be combined daily, and interest will be charged on the resulting average daily net debit balances for the interest period. If there is a debit in your cash account and your account is also a margin account, interest will be calculated on the combined debit balance and charged to your margin account. Any credit balance in your short account is disregarded because such credit collateralized the stock borrowed for delivery against the short sale. Such credit is disregarded even if you are long the same position in your margin account. If the security that you sold short appreciates in market price over the selling price, interest will be charged on the appreciation in value. Correspondingly, if the security that you sold short depreciates in market price, the interest charge will be reduced since the average debit balance will decline. This practice is known as "market to the market." Weekly, a closing price is used to determine any appreciation or depreciation of the security sold short. If your account is short shares of stock on the record date of a dividend or other distribution (however, such a short position occurs), on the following business day, your account will be charged the amount of the dividend or other distribution.

    To Borrow or Not to Borrow?

    Whether you decide to borrow money or not is a personal decision, based on your particular financial needs and individual circumstances. Borrowing on margin is always risky since you are using your own securities for collateral.

    Trading on margin, short selling, and day trading are highly speculative. Before proceeding, you should be fully aware of the risks involved and should review your financial position, investment objectives, and tolerance for risk. If you decide to use margin, be sure to follow the guidelines outlined earlier to reduce your risk as much as possible.

    For additional information about margin rules and regulations, access the following section on the NASD website: Understanding Margin Accounts:

    This article is intended to provide background information on margin guidelines only. T. Rowe Price Brokerage, a division of T. Rowe Price Investment Services, Inc., member FINRA/SIPC, offers a full range of products and services to help investors achieve their goals.

    The examples shown are for illustrative purposes only and do not represent the performance of any T. Rowe Price investment. This information is provided as an educational tool and is not a recommendation of any of the investment strategies presented.

    Mutual Fund Disclosure
    Load Fund Information

    There has been a lot of information published recently regarding mutual fund trading and related disclosure requirements. The following brief tutorial and accompanying links to educational materials are provided to clarify common load fund issues.

    T. Rowe Price funds are all no-load funds—which means you will not pay a load (or fee) to purchase shares. While load funds are not available online through the T. Rowe Price Mutual Fund Gateway, you may purchase an array of load funds directly through a Brokerage representative. Load funds typically charge a load (or fee) either at time of purchase or when shares are redeemed, depending on fund class.

    A number of mutual fund share classes, from hundreds of fund families, are available through T. Rowe Price Brokerage, with both front- and back-end load options. For details, contact a registered Brokerage representative at 1-800-225-7720, weekdays from 8 a.m. to 8 p.m. ET.

    Visit Investor Alerts, hosted by FINRA, via the following links.

    Mutual Fund Disclosure Statement
    Breakpoint Discounts and Other Disclosures Relating to Mutual Fund Fees and Revenue Sharing

    Before investing in mutual funds, it is important that you understand the sales charges, expenses, and management fees that you will be charged as well as the breakpoint discounts to which you may be entitled. Understanding these charges and breakpoint discounts will assist you in identifying the best investment for your particular needs and may help you reduce the cost of your investment. This disclosure document will give you general background information about these charges and discounts; however, sales charges, expenses, management fees, and breakpoint discounts vary from mutual fund to mutual fund. Therefore, you should discuss these matters with a T. Rowe Price ("Price") representative and review each mutual fund's prospectus and statement of additional information (which are available from Price) to obtain the specific information regarding the charges and breakpoint discounts associated with a particular mutual fund.

    Sales Charges

    Investors who purchase mutual funds must make certain choices, including which funds to purchase and which share class is most advantageous in light of their specific investing needs. Each mutual fund has a specified investment strategy. You need to consider whether the mutual fund's investment strategy is compatible with your investment objectives. Additionally, many mutual funds offer different share classes. Although each share class represents a similar interest in the mutual fund's portfolio, the mutual fund will charge you different fees and expenses depending upon your choice of share class. As a general rule, Class A shares carry a "front end" sales charge or "load" that is deducted from your investment at the time you buy the fund shares. This sales charge is a percentage of your total purchase. As explained below, many mutual funds offer volume discounts to the front-end sales charge assessed on Class A shares at certain predetermined levels of investment, which are called "breakpoint discounts." In contrast, Class B and C shares usually do not carry any front-end sales charges. Instead, investors who purchase Class B or C shares pay asset-based sales charges, which may be higher or lower that the charges associated with Class A shares. Investors that purchase Class B or C shares may also be required to pay a sales charge known as a contingent deferred sales charge when they sell their shares, depending upon the rules of the particular fund.

    Breakpoint Discounts

    Most mutual funds offer investors a variety of ways to qualify for breakpoint discounts on the sales charge associated with the purchase of Class A shares. In general, most mutual funds provide breakpoint discounts to investors who make large purchases at one time. The extent of the discount depends upon the size of the purchase. Generally, as the amount of the purchase increases, the percentage used to determine the sales load decreases. In fact, the entire sales charge may be waived for investors that make very large purchases of Class A shares. Mutual fund prospectuses contain tables that illustrate the available breakpoint discounts and the investment levels at which breakpoint discounts apply. Additionally, most mutual funds allow investors to qualify for breakpoint discounts based upon current holdings from prior purchases through Rights of Accumulation and from future purchases upon Letters of Intent. Mutual funds have different rules regarding the availability of Rights of Accumulation and Letters of Intent. Therefore, you should discuss these matters with Price and review the mutual fund's prospectus and statement of additional information to determine the specific terms upon which a mutual fund offers Rights of Accumulation and Letters of Intent.

    Rights of Accumulation

    Many mutual funds allow investors to count the value of previous purchases of the same fund, or another fund within the same fund family, with the value of the current purchase to qualify for breakpoint discounts. Moreover, mutual funds may allow investors to count existing holdings in multiple accounts, such as individual retirement accounts (IRAs) or accounts at other financial organizations to qualify for breakpoint discounts. Therefore, if you have accounts at other financial organizations and wish to take advantage of the balances in these accounts to qualify for a breakpoint discount, you must advise Price about those balances. You may need to provide documentation establishing the holdings in those other accounts to Price if you wish to rely upon balances in accounts at another firm. In addition, many mutual funds allow investors to count the value of holdings in accounts of certain related parties, such as spouses or children, to qualify for breakpoint discounts. Each mutual fund has different rules that govern when relatives may rely upon each other's holdings to qualify for breakpoint discounts. You should consult with Price or review the mutual fund's prospectus or statement of additional information to determine what these rules are for the fund family in which you are investing. If you wish to rely upon the holdings of related parties to qualify for a breakpoint discount, you should advise Price about these accounts. You may need to provide documentation to Price if you wish to rely upon balances in accounts at another firm. Mutual funds also follow different rules to determine the value of existing holdings. Some funds use the current net asset value (NAV) of existing investments in determining whether an investor qualifies for a breakpoint discount. However, a small number of funds use the historical cost, which is the cost of the initial purchase, to determine eligibility for breakpoint discounts. If the mutual fund uses historical costs, you may need to provide account records, such as confirmation statements or monthly statements, to qualify for a breakpoint discount based upon previous purchases. You should consult with Price and review the mutual fund's prospectus and statement of additional information to determine whether the mutual fund uses either NAV or historical costs to determine breakpoint eligibility.

    Letters of Intent

    Most mutual funds allow investors to qualify for breakpoint discounts by signing a Letter of Intent, which commits the investor to purchasing a specified amount of Class A shares within a defined period of time, usually 13 months. For instance, if an investor plans to purchase $50,000 worth of Class A shares over a period of 13 months, but each individual purchase would not qualify for a breakpoint discount, the investor could sign a Letter of Intent at the time of the first purchase and receive the breakpoint discount associated with the $50,000 investment on the first and all subsequent purchases. Additionally, some funds offer retroactive Letters of Intent that allow investors to rely upon purchases in the recent past to qualify for a breakpoint discount. However, if an investor fails to invest the amount required by the Letter of Intent, the fund is entitled to retroactively deduct the correct sales charges based upon the amount that the investor actually invested. If you intend to make several purchases within a 13-month period, you should consult Price and the mutual fund prospectus to determine if it would be beneficial for you to sign a Letter of Intent. As you can see, understanding the availability of breakpoint discounts is important because it may allow you to purchase Class A shares at a lower price. The availability of breakpoint discounts may save you money and may also affect your decision regarding the appropriate share class in which to invest. Therefore, you should discuss the availability of breakpoint discounts with Price and carefully review the mutual fund prospectus and its statement of additional information, which you can get from Price, when choosing among the share classes offered by a mutual fund.

    Mutual Fund Fees and Revenue Sharing

    Pershing may receive certain operational servicing fees from funds in lieu of clearance charges assessed to your financial organization. These payments from mutual funds may be shared with Price and may be a significant source of revenue for Price. In addition, Pershing may receive fees from funds for compensation for certain recordkeeping and other administrative tasks Pershing performs in connection with your account. Should you have any questions in this regard, please contact Price.

    CMO Disclosure

    It is important to understand the relationship of mortgage loans to mortgage-backed securities. Mortgage loans are pooled together to create mortgage securities, and these pooled securities create Collateralized Mortgage Obligations, commonly referred to as CMOs.

    In addition to a wealth of information about fixed income markets, the Securities Industry and Financial Markets Association (SIFMA) provides important disclosure material about investing in CMOs. This disclosure should be reviewed by potential investors prior to purchasing a CMO. Please refer to the SIFMA site, via the links below, for additional information, or contact a T. Rowe Price Brokerage representative at 1-800-225-7720.

    Related Links to Regulatory Sites

    There are a number of informative websites hosted by regulatory agencies or educational concerns, which offer a wide range of subject matter relevant to investors who routinely access their accounts and place transactions via online brokerage systems. T. Rowe Price Brokerage encourages customers to leverage the following resources for reference and educational material.

    Financial Industry Regulatory Authority (FINRA)

    As the largest nongovernmental regulator for all securities firms doing business in the United States, the primary role of FINRA is to enforce equitable rules of securities trading, standardize industry practices, and provide a representative body to consult with the government and investors on matters of common interest. FINRA was created in July 2007 through the consolidation of NASD and the member regulation, enforcement, and arbitration functions of the New York Stock Exchange.

    Securities and Exchange Commission (SEC)

    The SEC regulates U.S. financial markets, and administers statues designed to promote full public disclosure and protect the investing public against malpractice in the securities markets.

    Securities Investor Protection Corporation (SIPC)

    T. Rowe Price is a member of SIPC, which protects assets of securities customers of its member firms up to $500,000 (including $250,000 claims for cash). For an explanatory brochure and additional useful information, click the link below.

    American Stock Exchange (AMEX)

    The AMEX processes the third highest volume of trading in the U.S. The AMEX also houses the trading of options on many NYSE traded stocks and recently merged with the Nasdaq.

    New York Stock Exchange (NYSE)

    The NYSE is the oldest and largest stock exchange in the U.S., located at 11 Wall Street in New York City.

    National Association of Securities Dealers Automated Quotations System

    Nasdaq is the computerized system that provides broker-dealers with price quotations for OTC securities, as well as for many NYSE-listed securities.

    Bond Market Association

    Provides information about fixed income markets.

    Options Clearing Corporation

    Provides information regarding rules and requirements for options transactions, including specific discussions related to the impact of corporate actions.

    Investing Online Resource Center (IORC)

    Funded by the North American Securities Administrators Association (NASAA), the IORC is a noncommercial organization dedicated solely to serving the individual consumer who invests online or is considering doing so.