T. Rowe Price closes $3.9 billion high-yield fund

By Reshmi Basu

New York, Feb. 23 - T. Rowe Price Group, Inc. closed its High Yield Fund to new investors on Friday, saying heavy cash inflows, heightened investor demands and potential bond upgrades were making it increasingly difficult to manage the fund.

In 2003, the high-yield fund grew 62% to $3.9 billion from $2.4 billion, including more than $930 million in new cash flows.

The company said the rapid pace of inflows along with market conditions and investor demands were not conducive to efficiently managing the fund.

The volume of the entire high-yield asset fund is likely to contract given the upgrade of high-yield issuers to investment-grade status as the economy picks up, and also because of a rosier credit market which allows companies to retire high-coupon bonds, said Mark J. Vaselkiv, the fund's manager, in a news release.

"This change in the market, combined with record demand from investors for non-investment-grade bonds in this low interest rate environment, could put a strain on our ability to invest cash inflows efficiently," said Vaselkiv.

The company said the avalanche of cash flows could potentially strain the fund's diversification strategy and also result in reduced liquidity.

"The larger deals in our market are concentrated in telecommunications and utilities where we have reached our desired exposure," said Vaselkiv. "If cash flows continue at this pace, it could eventually strain our research capabilities and result in an over-diversified fund with a less-effective investment strategy.

"Also, holding larger positions reduces liquidity and it is important that we are able to maintain our active sell discipline," Vaselkiv added.

The high-yield fund invests primarily in a diversified portfolio of high-yield corporate bonds, income-producing convertible securities, and preferred stocks

T. Rowe Price also closed its Small-Cap Stock Fund, which expanded to $5.2 billion from $3.4 billion last year as a result of market appreciation and $535 million in new cash flow.

Both funds will continue to accept additional investments from current shareholders and direct rollovers from qualified retirement investment plans.

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