Brisk Cash Flow Forces T. Rowe Fund Closures

February 23, 2004 ( - As an example of too much of a good thing, T. Rowe Price has shuttered two more of its most popular mutual funds to new investors to keep an asset flood from hurting the funds or existing shareholders.

The Baltimore fund firm closed its High Yield Fund and the Small-Cap Stock Fund as of February 20, and its Mid-Cap Growth Fund on December 8, the Baltimore Business Journal reported. The three funds received a total of about $3.4 billion in cash flow during 2003. The T. Rowe Price Small-Cap Value Fund closed May 24, 2002, for similar reasons.

Existing investors will still be able to invest money and roll over IRA accounts into the funds, according to the company.

“Given the recent pace of cash flows into these funds, we feel it is necessary to take this action so that we can continue to manage the assets responsibly and maintain the integrity of the funds’ investment programs,” said James Riepe, T. Rowe vice chairman

The High Yield Fund, which has about $4 billion in assets, invests primarily in high-yield corporate bonds – also known as junk bonds – income-producing convertible securities and preferred stocks.

Mark Vaselkiv, the fund’s manager, said last year the fund grew its assets from $2.4 billion to $3.9 billion, with $930 million in new cash flow. But he said the size of the entire high-yield bond market is likely to shrink as the economy improves. So the change in the market combined with investor demand could put a “strain on our ability to invest cash inflows efficiently,” Vaselkiv told the Business Journal.

The Small-Cap Stock Fund grew from $3.4 billion to $5.2 billion last year, with $535 million in new cash flow. Greg McCrickard, the fund’s manager, told the newspaper that it can be difficult to invest large cash inflows in small-cap stocks because they are thinly traded and large investment could influence stock prices.

“We have intention of altering the fund’s investment program — by purchasing larger capitalization stocks, for example — to accommodate the pace of cash inflows,” McCrickard said.