Occasionally, the management team and the Board of Directors of a T. Rowe Price mutual fund decide it is in the best interest of current shareholders to close a fund to new investors. Two primary factors may spur this decision:
- Strong recent performance or the popularity of the asset class can lead to large amounts of new cash being invested in the fund. The managers may be unable to deploy these cash flows effectively by finding attractive new investments. As a result, a large cash position in the fund can weigh on returns of both newcomers and existing shareholders.
- Mutual funds may become unable to perform their mission if they grow too large—this is particularly true of funds targeting smaller-capitalization stocks or a limited investment universe. Large funds might be prevented from buying additional shares in a company given ownership constraints. Managers also may find it difficult to buy or sell significant amounts of a stock given limits on how many shares are usually traded.
With these considerations in mind, on May 28, 2010, at 4p.m. ET, the Mid-Cap Growth Fund and the Mid-Cap Value Fund will be closed to new investors. However, existing shareholders in these mutual funds may continue to buy, exchange, and sell shares in accordance with our existing fund policies.
Individuals interested in investing in mutual funds with similar risk/return profiles to the above-mentioned funds might want to consider the following alternatives:
The T. Rowe Price New America Growth Fund (PRWAX) seeks to provide long-term capital growth by investing in sectors that T. Rowe Price believes will be the fastest growing or that have the greatest growth potential in the U.S.
The T. Rowe Price Growth Stock Fund (PRGFX) invests in stocks of well-established growth companies focused primarily on U.S. stocks but also may invest up to 30% of total assets in foreign securities.
These funds are intended for long-term investors who can accept a greater level of price volatility. Each of these funds has a different management team and uses a different investment strategy than does the Mid-Cap Growth Fund.
The T. Rowe Price Value Fund (TRVLX) invests in common stocks believed to be undervalued. Stocks of large U.S. companies are expected to predominate, but small-company stocks, convertible securities, bonds, and foreign securities also may be included in the portfolio.
The T. Rowe Price Equity Income Fund (PRFDX) invests primarily in dividend-paying stocks of large-cap companies that the fund manager believes are undervalued. The fund's focus on large-cap and dividend-paying stocks makes it one of our most conservative equity funds.
These funds are intended for long-term investors who can accept a greater level of price volatility. Each of these funds has a different management team and uses a different investment strategy than does the Mid-Cap Value Fund.
All funds are subject to market risk including possible loss of principal.
A closing should have no direct impact on performance. Indeed, we close funds precisely to avoid the potential for large cash flows to begin to adversely affect performance for existing shareholders. At this time, we feel there has been no adverse impact on our ability to invest in specific securities; we are acting preemptively. In terms of historical experience, the performance of funds that grow larger and eventually close varies depending on different factors. T. Rowe Price is firmly committed to the interests of existing shareholders as opposed to the gathering of assets for its own sake.
Controlled growth in assets over time can be managed effectively, and we have been relatively successful to date in doing so. With our extensive in-house research capabilities, we envision no difficulty finding attractive investment opportunities within our investment universe for moderated cash inflows at this time.
The time is indefinite—there is no predetermined target date to reopen these funds. Closed T. Rowe Price funds will reopen when we believe that all incoming cash can be effectively invested without altering a fund's investment program.
At this time, we do not foresee the need to close any other funds.