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 Finance and Investment Analysis Case study assignment: some questions and 1 big question in the pdf. solve all the questions after reading the case study which is attached as 2 pdf files. The questions are also attached in the pdf. Please solve it correctly. 

9 – 2 8 5 – 0 4 2
R E V : J U L Y 1 0 , 2 0 0 3

________________________________________________________________________________________________________________

Professor Professor André F. Perold prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended
to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 1984 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.

A N D R É F . P E R O L D

At the T. Rowe Price Trading Desk (B)

Tuesday, August 21, 1984
12:21 p.m.

Greg: (in response to Michael’s offer of $23 1/2 for Avantek and $151/4 for Tandem):

“OK on Tandem, but my lowest on Avantek is $24.”

Michael: “OK.”

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285-042 At the T. Rowe Price Trading Desk (B)

2

Exhibit 1 Avantek Trade on August 21, 1984,
12:21 p.m.–Market Close

Time Price Shares (100s)

12:22 24 ¾ 125
12:23 24 1,830
12:23 24 1/8 1,000
12:23 24 ¼ 100
12:50 24 7/8 2

1.23 24 7/8 3
1:46 24 7/8 1
1:48 24 1/8 21
1:51 24 ¾ 30
2:07 24 5/8 1
2:10 24 5/8 5
2:20 24 5/8 1
2:38 24 5/8 10
2:39 24 5/8 8
2:39 24 ¾ 30
2:57 24 7/8 1
3:00 24 5/8 1
3:01 24 7/8 10
3:05 24 ¾ 5
3:08 24 ½ 5
3:15 24 ½ 4
3:15 24 ¾ 300
3:16 24 ¾ 1
3:39 24 ¾ 10
3:59 24 ½ 2

Source: T. Rowe Price Associates

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At the T. Rowe Price Trading Desk (B) 285-042

3

Exhibit 2 Tandem Trades on August 21, 1984, 12:21 p.m.—Market Close

Time Price Shares (100s) Time Price Shares (100s)

12:21 15 2,000 2:17 15 5
12:22 15 1,350 2:17 15 10
12:22 15 1/4 3,200 2:21 15 1
12:23 15 1/8 7 2:24 15 5
12:27 15 1/2 1 2:26 15 1/8 1
12:29 15 2 2:27 14 7/8 2
12:30 15 1/8 1 2:32 15 1
12:36 15 1/8 10 2:33 15 100
12:43 15 3 2:33 15 1
12:46 15 1/8 10 2:35 14 7/8 1
12:52 15 1 2:40 14 7/8 5
12:59 15 1/8 5 2:43 15 20
1:00 15 1/8 5 2:44 15 50
1:01 15 1/8 10 2:44 15 50
1:02 15 1/8 10 2:44 15 1/8 1
1:02 15 1/8 20 2:45 15 1/8 2
1:04 15 1/8 5 2:45 15 1/8 2
1:05 15 1/4 5 2:53 14 7/8 2
1:05 15 1/8 5 2:57 14 7/8 1
1:15 15 1/4 2 2:57 14 7/8 2
1:24 15 1/4 2 2:58 15 1/8 2
1:26 15 1/8 5 3:02 14 5/8 2
1:29 15 1/8 1 3:05 15 1
1:29 15 1/8 25 3:06 14 7/8 30
1:30 15 19 3:09 14 7/8 2
1:33 15 15 3:10 14 7/8 5
1:33 15 1/8 1 3:11 14 7/8 10
1:38 15 1/8 2 3:11 14 7/8 5
1:43 15 1/8 4 3:11 14 7/8 5
1:47 15 1/8 13 3:11 14 7/8 5
1:48 15 1/8 2 3:13 14 7/8 5
1:48 15 51 3:13 15 1
1:49 15 1/8 1 3:14 14 7/8 50
1:53 15 60 3:17 15 5
1:56 15 1/8 1 3:21 15 1
2:01 15 2 3:22 15 10
2:04 15 9 3:28 14 7/8 30
2:06 15 1/4 30 3:33 14 7/8 2
2:06 15 1/8 4 3:38 15 20
2:06 15 1/8 4 3:41 15 9
2:10 15 9 3:47 15 1
2:13 15 1/8 50 3:50 14 7/8 1
2:15 15 1/8 2 3:54 15 32
2:16 15 1 3:56 14 7/8 1
2:17 15 5 3:56 15 250
2:17 15 5 3:58 15 4

Source: T. Rowe Price Associates

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285-042 At the T. Rowe Price Trading Desk (B)

4

Exhibit 3 Performance of Various Stock Indexes on August 21, 1984

Dow Jones Industrials +1.87%

S&P 500 +1.75%

Wilshire 500 +1.56%

Computer Technology Index +2.34%

New Horizons Fund +1.23%

Source: T. Rowe Price Associates

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9 – 2 8 5 – 0 4 1
R E V : J U L Y 1 0 , 2 0 0 3

________________________________________________________________________________________________________________

Professor Professor André F. Perold prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended
to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 1984 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.

A N D R É F . P E R O L D

At the T. Rowe Price Trading Desk (A)

Tuesday, August 21, 1984

It was 9:58 a.m. and the markets were about to open. Greg Donovan, one of two traders for the T.
Rowe Price New Horizons Fund (and accounts holding similar securities) was going over the list of
buys and sells that he was hoping to execute during the day. Greg saw his most difficult task being
the sale of a large block of Avantek shares. Avantek traded in the Over The Counter Market (OTC)
and had been around $25/share during the previous few weeks, after being as low as $18 in May.
(Exhibit lA). The T. Rowe Price analyst covering the company thought that an earnings
disappointment was imminent, and that news to that effect would cause the stock’s price to plummet
back into the teens. The analyst liked the stock on a long-term basis, however, and only wanted to
trim down T. Rowe Price’s current position of around 600,000 shares. Greg’s instructions were to sell
183,000 shares at a price no lower than $23.

At 10:30 the Dow was up $7.50. Greg looked at the screen of his NASDAQ machine and saw that
Kidder Peabody was the highest bidder for Avantek at $24 5/8. Several brokers were at $24 ½ bid,
with yet several others, including Goldman Sachs, at $24 3/8. (These bids were all for only 100
shares.) Goldman, knowing that T. Rowe Price had a large position in Avantek, had called earlier that
morning to say that it was a buyer of the stock in sizeable quantities. Goldman was the largest and
most preeminent OTC dealer, and would regularly offer to deal in large positions (50,000 shares or
more) for its own account.

Greg decided to try Kidder first. Kidder historically had not committed much of its capital to the
OTC market, but recently had decided to try to become a more prominent player. It seemed to Greg
that he might get a better execution from Kidder since they would gain visibility on a trade of this
magnitude and they might even be willing to lose a little money on the trade. In addition, T. Rowe
Price liked Kidder’s research, and here was an opportunity to compensate them, in part, for that
service.1 Greg in any event often looked for opportunities to trade with brokers other than Goldman
Sachs since T. Rowe Price tended to get the best execution from Goldman, and typically did a
disproportionately large share of its trading through that firm.

1 In OTC trades, dealers earned revenues purely from bid-ask spreads, i.e., by finding a buyer willing to pay an asking price
and a seller willing to receive a bid price (hopefully lower than the asking price), and pocketing the difference. Trades executed
on the NYSE and AMEX involved payment of brokerage commissions with 10¢/share being typical for a large institution.

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285-041 At the T. Rowe Price Trading Desk (A)

2

At 10:40 Greg somewhat nervously picked up the phone.

Greg (talking to Steve, a Kidder trader): “Hi Steve, I see you’re interested in some Avantek. How
much do you want to buy?”

Steve: “Let me see. I’ll call you right back.”

Two minutes later:

Steve: “I can do 12,000 shares at [24] 5/8.”

Greg: “I am interested in a more medium sized quantity. Can you do better?”

Steve: “I don’t really think so. But, let me look again. Don’t do anything until I get back to
you.”

Ten minutes later:

Steve: “Look, the best I can do is 20,000 shares.”

Greg: “That’s not enough. It seems as if I am going to have to go elsewhere. Is that OK?”

Steve: (After a pause) “If I do more, say up to 35,000 shares, will you then deal?”

Greg: “No, that’s still not enough. I’m just going to have to go elsewhere. OK?”

Steve: “I suppose you’ll have to.”

Greg was upset with himself. He had hoped to be able to do a large trade with Kidder. However,
all Steve had done was to try to get him on the “hook,” and he was not going to bite. The “hook”
referred to a situation where if you did one trade with a dealer and had more of the same stock to
trade, then by the implicit rules of the game you would have to give that dealer a right of first refusal
on what remained. The dealer typically would have taken part of the other side of the trade on his or
her own account, a position that would be endangered if you then went and offloaded the rest of
your position elsewhere. Greg was afraid that, if he did do an initial trade with Steve, the price of
this lightly traded stock might fall by as much as one or even several dollars as Steve scurried around
looking for more buyers knowing that he most likely had Greg on the hook for a lot more. Not all
was lost at this point, however. By getting Steve to answer affirmatively when he had asked if he
could go elsewhere, Greg had at least obtained an implicit commitment from Steve not to tell other
traders of T. Rowe Price’s intention to sell a large quantity of Avantek. At least, not immediately.

At this point Greg felt that his only option was to call Michael, a trader at Goldman Sachs. He
wanted to move quickly and knew that Goldman would be willing to do the whole deal for its own
account if necessary, as evidenced in particular by the early morning phone call. The problem was
that Greg now had to tell Michael that Steve already knew about the deal. Thus, since Goldman’s
position would now be riskier, Michael was unlikely to give him as good a price as he might have
had Greg gone to him first.

Greg decided that perhaps the best way to approach Michael was to offer him a swap. For several
weeks New Horizons had been adding to an already substantial long-term position in Tandem (also
traded OTC) and Greg had done several of these trades through Michael. In fact, Goldman had
mentioned that morning that they knew of a seller of Tandem. New Horizons and related accounts
were interested in acquiring up to another 320,000 shares of this stock in the near term. It was up to

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At the T. Rowe Price Trading Desk (A) 285-041

3

Greg to choose how and when to acquire it. Greg’s decision was to offer Michael both the Tandem
purchase and the Avantek sale as a package deal.

At 11:25 he placed the call. At this point Kidder still showed up on the screen at $24 5/8 bid on
Avantek, with Goldman at $24 3/8. During the course of the morning, small lots of Avantek stock
had traded at levels as high as $24 7/8. (Exhibit 1C). Tandem, being much more active, had traded
in small lots in the range $15 1/4–$14 7/8, with a 10,000 share block having just traded at $14 7/8.
(Exhibit 2C). Currently, the lowest asking price for Tandem was $15 1/8 (Kidder, Salomon, Merrill),
with Goldman asking $15 3/8. The Dow was up $11.81 for the day so far on moderate volume.

Greg: “I’d like to do a swap of 183,000 Avantek for 320,000 Tandem.”

Michael: “Now those are the kinds of deals I just love! Is it a package deal? A one shot deal?
What? I like one shot deals.”

Greg: “One shot.” Then, apologetically: “Listen, I’ve already talked to Kidder but didn’t give
him any numbers. I did it because they’re good on research. But, he only wanted to
bid for medium size.”

Michael: “I’ll get back to you.”

15 minutes later, Michael called back to say that the Tandem side of the deal was easy to do, but
that the Avantek part was harder; no prices as yet. He called back once again at 12:22.

Michael: “I can do Avantek at $23 ½ and Tandem at $15 1/4.”

Background

T. Rowe Price Associates, Inc. was an independent investment counseling firm, founded in 1937
and located in Baltimore, Maryland. In 1984, the firm had $15.5 billion under management. This was
divided about equally between fixed income and equities, and also about equally among 12 mutual
funds on one hand and separately managed accounts on the other, the latter consisting mostly of
large corporate pension plan accounts.

The New Horizons Fund was founded in 1960 and, in 1984, was the largest and oldest emerging
growth mutual fund in the United States. The Fund’s objectives were to invest in companies in the
early stages of their corporate life cycle, before they became widely recognized. On June 30, 1984, the
Fund had $1.2 billion in assets, of which 88% was invested in the common shares of 161 companies
with five year EPS growth rates estimated to be at least 25% per year. The remaining 12% was in
short-term fixed income securities.

Investment decisions for the New Horizons Fund were made by an investment advisory
committee consisting of the president of the Fund, a trader (Greg), and five analysts who spent most
of their time researching emerging growth companies. The analysts each managed a portion of the
Fund corresponding to their areas of expertise, and could make individual stock selection decisions
without prior committee approval. They were also responsible for coordinating and overseeing the
trading in their stocks. The committee actively allocated the Fund’s assets across these analysts, and
based its decisions on their and the president’s collective judgments. The committee generally sought
stocks with greater growth potential, better fundamentals, and lower relative valuations.

T. Rowe Price employed six equity traders in all, including the head trader who had been with the
firm for 25 years. Greg was a Vice President and had thus far spent 6 years at the firm, having

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285-041 At the T. Rowe Price Trading Desk (A)

4

previously had 10 years of trading experience at other investment management institutions. In
addition to serving on the investment advisory committee of the New Horizons Fund, he had some
discretion to trade in stocks already owned by the Fund. For example, he could of his own accord
increase an existing holding if there was a seller desperate enough to accept a very low price.

In 1983, the equity trading desk did about 23,000 trades across all accounts, averaging $36,000 per
trade, totaling $8.1 billion, and split 50-50 between purchases and sales. The market capitalizations of
the companies traded averaged $5.5 billion. The New Horizons Fund accounted for 18% of this
trading in companies with market capitalizations averaging $750 million. (See Exhibit 5.)

Recent Developments Relating to Avantek and Tandem

T. Rowe Price’s initial position in Avantek dated back to 1978 with the purchase of 320,000 shares
at $1 3/4 (split adjusted) by the New Horizons Fund. The firm’s position in this stock increased over
the years, reaching 871,000 shares on March 31, 1984 (see Exhibit 1D). The bulk of this increase
occurred in portfolios other than New Horizons. Some selling and repurchasing took place during
these years based on occasional near-term fundamental concerns on the part of the
Aerospace/Defense analyst covering the company.

In June, 1984, this analyst traveled to California to meet with the managements of several New
Horizons Fund holdings. Upon his return, he issued an update on Avantek with the stock then
trading at $23 1/8. He concluded that “On balance, I was very satisfied by my visit to AVAK. . . .
I continue to be a buyer of AVAK below $18 and a seller at $24.”

With the surge in the stock market in early August, Avantek rose above $24, and the New
Horizons Fund and related accounts sold about 200,000 shares of Avantek between $24–$25 on
August 2nd and August 3rd.2 No further selling took place prior to August 21, 1984, when, based on
further research by the analyst, a sell recommendation was written with the stock at $24 5/8. Excerpts
are as follows:

The pricing on low noise amplifiers (LNA) for the home satellite television (TVRO) market
continues to collapse. . . . I expect that the margin squeeze will cause third quarter EPS to fall
below the $0.21 reported in the June quarter, which would be a major disappointment. I have
revised my third-quarter estimate downward to $0.18 from $0.23. Although the TVRO
problem may be a reflection of the seasonal summer slowdown, I see no way the company can
make up the earnings in the fourth quarter. With the drop in my estimate for the year, and the
possibility of a protracted profit squeeze in TVRO, AVAK’s valuation goes from rich to
ridiculous. I recommend immediate sale.

The problem here is that Wall Street has very high expectations for AVAK. Everyone is
looking for a 50% EPS gain this year, followed by 35% or more next year. It is too early to tell
what will happen in 1985, since military components margins could rise dramatically, but 1984
will not meet the consensus estimate of $0.90 without a miracle in TVRO. In any case, the good
news is in the stock. This is a well-managed company with good products in good markets. It
is my judgment that the stock price today is out of line with AVAK’s prospects. I recommend
sale, with an eye to repurchasing in the $18–$19 range.

2 Related accounts had sold approximately 70,000 shares between March 31 and July 31 for reasons unrelated to any research
recommendations.

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At the T. Rowe Price Trading Desk (A) 285-041

5

Regarding Tandem, the New Horizons Fund and related accounts began accumulating a position
in the stock in late 1981 and early 1982, and reached a position of over a million shares at an average
cost of approximately $22 per share by the end of 1982. Based on some short-term fundamental
concerns, this position was reduced in the first quarter of 1983 by about 200,000 shares at an average
sale price of $28–$29 per share. The analyst however remained intrigued in the longer term with
Tandem’s niche market position in fault-tolerant computers and continued to like Tandem’s
long-term growth prospects. The remaining position was held through the balance of 1983 and the
stock performed quite well closing the year at $35 1/8. The Company, however, experienced
fundamental problems in the first half of 1984 relating to revenue shortfalls and the stock plummeted
from $35 1/8 to a low of $13 in August 1984. On August 1 the analyst issued the following comments
on Tandem, with the stock at $13 7/8.

Tandem (TNDM) has once again disappointed with its latest quarterly EPS report and its
stock has sharply retreated to mid-1980 price levels. . . . I have reduced my FY1984 EPS
estimate from $1.01 to $0.80 and my FY1985 estimate from $1.60 to $1.25. I have also reduced
my secular growth rate assumption from 35% to 25%. In spite of the prevailing gloom about
the company, I remain encouraged by TNDM’s product capability, balance sheet strength, and
much improved financial control. I believe TNDM will produce excellent investment returns
from current levels over the next 12–24 months but would not expect TNDM to outperform
other cyclically sensitive technology stocks near term. . . . At current price levels, I suggest
another serious look, with the price being right but timing perhaps still premature.

New Horizons Fund and related accounts began adding to positions in Tandem in late July,
accumulating another 600,000 shares prior to August 21st, 1984.

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285-041 At the T. Rowe Price Trading Desk (A)

6

Exhibit 1A Avantek Price and Volumea Charts—February to August 1984

Source: Datastream

Avantek Price and Daily Volume Chart

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Jan-84 Feb-84 Mar-84 May-84 Jun-84 Jul-84 Aug-84

0

5

10

15

20

25

30

Volume (le ft axis)

Price (right axis)

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At the T. Rowe Price Trading Desk (A) 285-041

7

Exhibit 1B Daily Price Ranges and Volume for Avantek—July 26, 1984 to August 20, 1984

Date High Low Volume (100s shares)

July 26 21 5/8 21 1/4 125
27 21 3/4 21 1/4 439
30 21 5/8 21 1/2 668
31 22 3/8 21 3/8 1,053

Aug. 1 22 1/2 21 3/4 7,588
2 23 5/8 22 1/8 4,550
3 25 1/4 23 3/4 4,576
6 25 1/2 24 1/2 1,159
7 24 3/4 23 7/8 638
8 24 1/2 23 1/2 632
9 24 5/8 23 1/2 407

10 25 1/2 24 3/4 1,522
13 24 3/4 24 555
14 25 1/2 24 1/2 1,003
15 25 1/4 24 7/8 410
16 25 1/8 24 1/8 587
17 24 3/4 24 1,245
20 24 3/4 24 1/2 116

Source: Datastream

Exhibit 1C Avantek Trades on August 21, 1984—10:00 a.m. to 12:20 p.m.

Time Price Shares (100s)

10:17 24 1/2 5
10:53 24 1/2 4
10:53 24 3/4 10
11:03 24 7/8 5
11:03 24 7/8 45
11:33 24 5/8 25
11:41 24 7/8 1

Source: T. Rowe Price Associates

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285-041 At the T. Rowe Price Trading Desk (A)

8

Exhibit 1D Large Institutional Holdings and Activity in Avantek on March 31, 1984a
(Price = $19 7/8, 18.7 million shares outstanding)

3 Month Change

in Shares Shares Held
Dollar Value
($ millions)

T. Rowe Price Associates 38,735 871,410 $ 17.3

Jennison Associates Capital 315,000 657,600 13.1

Allstate Insurance Co. 313,100 622,700 12.4

IDS Growth Fund, Inc. – 500,000 9.9

Morgan Stanley, Inc. 124,344 440,844 9.2

Harris Trust & Savings Bank (59,000) 416,000 8.3

Campbell Advisors, Inc. 140,300 407,400 8.1

Lincoln First Banks, Inc. – 406,500 8.1

University of Rochester – 404,000 8.0

Eberstadt Asset Management, Inc. 121,800 371,500 7.4

John Hancock Mutual Life 78,300 362,000 7.2

Bank of Boston Corp. 31,405 263,655 5.2

Aetna Life & Casualty Co. (61,500) 255,000 5.1

Capital Research & Management 233,000 233,000 4.6

State Street Research & Management (89,100) 204,900 4.1

IDS New Dimensions Fund 32,500 200,000 4.0

Investors Research Corp. 175,000 175,000 3.5

Dean Witter Reynolds Intercap 35,600 125,600 2.5

United Virginia Bankshares (92,800) 102,450 2.0

Kemper Financial Services (181,900) 94,300 1.9

Republicbank Corp. (96,100) 15,785 0.3

Torchmark Corporation (60,000) – –

Rothschild Asset Management (61,000) – –

Gardner & Preston Moss (86,270) – –

JW Seligman & Co. (655,000) – –

Total 196,414 7,129,644 142.1

Source: “The Spectrum 3,” Computer Directions Advisors, Silver Springs, Maryland.

aThis was the most recently available data on August 21, 1984.

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At the T. Rowe Price Trading Desk (A) 285-041

9

Exhibit 2A Tandem Price and Volumea Charts–January to August 1984

Source: Datastream

Exhibit 2B Daily Price and Volume Ranges for Tandem—July 26, 1984 to August 20, 1984

Date High Low Volume (100s shares)

July 26 16 7/8 13 3/8 26,807
27 15 3/4 14 1/4 14,909
30 15 3/4 13 1/4 7,759
31 14 1/4 13 11,108

Aug. 1 15 3/8 14 1/4 11,240
2 15 5/8 15 1/8 9,057
3 16 3/4 15 1/4 13,443
6 18 16 7,646
7 17 1/2 16 1/8 4,615
8 16 3/4 16 6,506
9 16 3/4 16 4,849

10 17 5/8 16 5/8 10,791
13 17 13 1/2 7,596
14 15 3/8 14 1/2 4,708
15 15 5/8 14 1/2 2,392
16 15 1/2 15 5,806
17 15 3/8 14 3/8 4,084
20 14 7/8 13 3/4 3,209

Source: Datastream

Tandem Price and Daily Volume Chart

0

10,000

20,000

30,000

40,000

50,000

60,000

Jan-84 Feb-84 Mar-84 May-84 Jun-84 Jul-84 Aug-84

0

5

10

15

20

25

30

35

40

45

Volume (left axis)

Price (right axis)

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285-041 At the T. Rowe Price Trading Desk (A)

10

Exhibit 2C Tandem Trades on August 21, 1984—10:00 a.m. to 12:20 p.m.

Time Price Shares (100s) Time Price Shares (100s)

10:00 15 25 10:35 15 5
10:01 14 7/8 10 10:36 15 5
10:01 14 7/8 5 10:37 15 1
10:03 14 7/8 3 10:41 15 4
10:03 14 7/8 5 10:43 15 1
10:03 15 1/8 50 10:43 15 3
10:05 15 3 10:43 15 5
10:05 15 1/8 10 10:44 15 1/8 10
10:06 14 3/4 10 10:44 15 1/8 10
10:06 15 1/8 5 10:48 15 3
10:06 15 1/8 3 10:49 15 25
10:06 15 1/8 5 10:54 14 7/8 1
10:07 15 1 11:00 14 7/8 32
10:07 15 1/8 5 11:01 15 2
10:07 15 2 11:04 15 4
10:07 15 1/8 13 11:05 15 2
10:07 15 10 11:09 15 1
10:08 15 1/8 10 11:09 15 3
10:09 15 1/8 10 11:09 15 2
10:11 15 1/8 20 11:18 15 5
10:11 15 1/8 20 11:25 14 7/8 100
10:12 15 1/8 9 11:28 15 5
10:14 15 1/8 10 11:30 15 5
10:20 15 1/8 30 11:32 14 7/8 270
10:22 15 1/8 100 11:32 15 217
10:22 15 1/4 49 11:32 15 5
10:23 15 1/8 25 11:33 15 10
10:25 15 1/8 5 11:36 15 1
10:26 15 1/4 3 11:37 15 10
10:26 15 1/4 3 11:42 15 10
10:26 15 1/8 10 11:44 15 10
10:27 15 1/8 5 11:44 15 1/8 2
10:27 15 1/4 10 11:48 15 1
10:31 15 1/8 250 11:49 15 1/8 10
10:32 15 1/8 2 11:49 15 1/8 20
10:32 15 1/8 18 11:49 15 20
10:32 15 10 11:49 15 1/8 2
10:21 15 10 11:53 15 1/8 2
10:34 15 1/8 3 11:54 15 1/8 4

12:15 15 1/8 1

Source: T. Rowe Price Associates

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Exhibit 2D Institutional Holdings in Tandem on March 31, 1984a

3 Month Change

in Shares Shares Held
Dollar Value
($millions)

American Security Bank 151,700 4,117,700 125.1

Jennison Associates Capital (256,600) 3,788,670 115.1

Sanford C. Bernstein & Co. 1,587,815 1,587,815 48.2

Donaldson Lufkin & Jenrette (341,500) 1,506,100 45.8

Kemper Financial Services 375,000 1,272,800 38.7

Investors Research Corp. 278,400 965,300 29.3

IDS Growth Fund, Inc. – 880,000 26.7

Century Capital Associates (460,200) 870,400 26.4

Brokaw Capital Mgmt. Co. (13,010) 866,995 26.3

T. Rowe Price Associates (428,900) 863,245 26.2

Weiss Peck & Greer 714,175 21.7

United Missouri Bank/KC – 678,000 20.6

Rosenberg Capital Management (51,300) 662,300 20.1

Citicorp (60,572) 571,070 17.3

Capital Research & Management 40,700 530,700 16.1

Endowment Management & Research 454,200 454,200 13.8

Eberstadt Asset Management, Inc. (100,000) 425,000 12.9

Frontier Capital Management, Co. (55,000) 418,200 12.7

Bankers Trust NY Corp. 401,350 12.2

McCowan Associates, Inc. 392,000 11.9

FMR Corp. (714,800) 241,900 7.3

Investors Variable Payment Fund (200,000) 200,000 6.1

Morgan Stanley, Inc. (74,717) 166,424 5.1

CIGNA Corporation (115,000) 109,100 3.3

Lincoln National Corp. (122,925) 31,200 0.9

Lehman Brothers Kuhn Loeb (210,000) – 0.0

Total (316,709) 22,714,644 580.9

Source: “The Spectrum 3,” Computer Directions Advisors, Silver Springs, Maryland.

aThis was the most recently available data on August 21, 1984.

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Exhibit 3 Miscellaneous Financial Data on Avantek and Tandem—(1983 to 1984)

Avantek Tandem

P/E Ratio 30 33
P/Book Ratio 4.9 1.9
5-year EPS growth rate 27% 50%
Dividends None None
Revenues ($ million) 119 464
Long-term debt/capitalization 2.3% 6.7%

Source: T. Rowe Price Associates

Exhibit 4 The 25 Largest Holdings in the New Horizons Fund—June 30, 1984

Company Initial Purchase Market Value (000) Percent of Fund

Molex 1973 $ 24,663 2.1%
Home Depot 1983 24,087 2.0
Service Corporation International 1982 21,743 1.9
Liz Claiborne 1982 20,193 1.7
Analog Devices 1980 19,340 1.6
Toys “R” Us 1979 16,840 1.4
LIN Broadcasting 1981 16,147 1.4
Manor Care 1981 15,528 1.3
United Stationers 1982 14,368 1.2
Granger Associates 1983 13,887 1.2
Network Systems 1980 13,483 1.1
Kelly Services 1978 13,471 1.1
Intergraph 1981 12,932 1.1
Micom 1981 12,749 1.1
ACCO World 1983 12,445 1.1
Anixter Bros. 1983 12,371 1.1
Safety-Kleen 1983 12,218 1.0
Unitrode 1982 11,981 1.0
Viacom International 1979 11,446 1.0
Circuit City Stores 1983 11,415 1.0
Barry Wright 1982 11,267 1.0
Nordstrom 1978 10,971 0.9
Payless Cashways 1975 10,961 0.9
Esterline 1983 10,298 0.9
National Education 1982 10,265 0.9

Total $365,069 31.0%

Source: T. Rowe Price Associates

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Exhibit 5 New Horizons Fund Trading Characteristics

1983

First Half
1983

Second Half
1984

First Half

Dollars Traded ($ million) $806 $652 $411
Percent Purchases 40% 50% 44%
Total Trades (000s) 4 3 2
Average Trade Size ($000s)

Purchases $178 $202 $136
Sales $208 $237 $260

Average Market Cap ($ billion) $ 0.9 $ 0.6 $ 0.4

Source: T. Rowe Price Associates

Exhibit 6 Performance Record of the New Horizons Fund

Annualized Compounded Returns for Periods Ending June 30, 1984

New Horizons S&P 500

5 years 18.6% 14.0%
10 15.3 11.3
15 8.6 7.8
20 13.4 7.5
24 10.9 8.5

Source: T. Rowe Price Associates

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