<PAGE>
T ROWE PRICE LOGO
- ------------------------------------------------------------------------------
T. ROWE PRICE ASSOCIATES, INC., 100 EAST PRATT STREET, BALTIMORE, MD 21202
James S. Riepe
Managing Director
Dear Shareholder:
All of the T. Rowe Price mutual funds will hold shareholder meetings in
1994 to elect directors, ratify the selection of independent accountants, and
approve amendments to a number of investment policies.
The T. Rowe Price funds are not required to hold annual meetings each year
if the only items of business are to elect directors or ratify accountants. In
order to save fund expenses, most of the funds have not held annual meetings
for a number of years. There are, however, conditions under which the funds
must ask shareholders to elect directors, and one is to comply with a
requirement that a minimum number have been elected by shareholders, not
appointed by the funds' boards. Since the last annual meetings of the T. Rowe
Price funds, several directors have retired and new directors have been added.
In addition, a number of directors will be retiring in the near future.
Given this situation, we believed it appropriate to hold annual meetings
for all the T. Rowe Price funds in 1994. At the same time, we reviewed the
investment policies of all of the funds for consistency and to assure the
portfolio managers have the flexibility they need to manage your money in
today's fast changing financial markets. The changes being recommended, which
are explained in detail in the enclosed proxy material, DO NOT ALTER THE
FUNDS' INVESTMENT OBJECTIVES OR BASIC INVESTMENT PROGRAMS.
In many cases the proposals are common to several funds, so we have
combined certain proxy statements to save on fund expenses. For those of you
who own more than one of these funds, the combined proxy may also save you the
time of reading more than one document before you vote and mail your ballots.
The proposals which are specific to an individual fund are easily identifiable
on the Notice and in the proxy statement discussion. If you own more than one
fund, please note that EACH FUND HAS A SEPARATE CARD. YOU SHOULD VOTE AND SIGN
EACH ONE, then return all of them to us in the enclosed postage-paid envelope.
Your early response will be appreciated and could save your fund the
substantial costs associated with a follow-up mailing. We know we are asking
you to review a rather formidable proxy statement, but this approach
represents the most efficient one for your fund as well as for the other
funds. Thank you for your cooperation. If you have any questions, please call
us at 1-800-225-5132.
Sincerely,
SIGNATURE
James S. Riepe
Director, Mutual Funds Division
CUSIP#779575109/fund#052
CUSIP#741486104/fund#059
CUSIP#779576107/fund#045
CUSIP#77957S109/fund#049
CUSIP#779902105/fund#056
<PAGE>
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
NOTICE OF MEETING OF SHAREHOLDERS
JUNE 8, 1994
The Annual Meeting of Shareholders of the T. Rowe Price Tax-Exempt Money
Fund, Inc. ("Money Fund"), T. Rowe Price Tax-Free High Yield Fund, Inc. ("High
Yield Fund"), T. Rowe Price Tax-Free Income Fund, Inc. ("Income Fund"), T.
Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc. ("Insured
Intermediate Fund") and T. Rowe Price Tax-Free Short-Intermediate Fund, Inc.
("Short-Intermediate Fund") (each a "Fund" and collectively the "Funds"), each
a Maryland corporation, will be held jointly on Wednesday, June 8, 1994, at
8:30 o'clock a.m., Eastern time, at the offices of the Funds, 100 East Pratt
Street, Baltimore, Maryland 21202. The following matters will be acted upon at
that time:
1. FOR THE SHAREHOLDERS OF EACH FUND: To elect directors for the Fund in
which you invest to serve until the next annual meeting, if any, or
until their successors shall have been duly elected and qualified;
2. FOR THE SHAREHOLDERS OF EACH FUND:
A. To amend each Fund's fundamental policies on investing in municipal
securities;
B. To amend each Fund's fundamental policies to increase its ability
to engage in borrowing transactions;
C. To amend each Fund's fundamental policies on industry
concentration;
D. To amend each Fund's fundamental policies to increase its ability
to engage in lending transactions;
E. To amend each Fund's fundamental policies to increase the
percentage of Fund assets which may be invested in the securities
of any single issuer;
F. To amend each Fund's fundamental policies to permit the Fund to
purchase more than 10% of an issuer's voting securities;
G. To amend each Fund's fundamental policies concerning real estate;
H. To change from a fundamental policy to an operating policy each
Fund's policy on investing in equity securities;
FOR THE SHAREHOLDERS OF THE HIGH YIELD, INCOME, INSURED INTERMEDIATE
AND SHORT-INTERMEDIATE FUNDS:
I. To amend each Fund's fundamental policies on investing in
commodities and futures contracts to permit greater flexibility in
futures trading;
FOR THE SHAREHOLDERS OF THE HIGH YIELD, INCOME, MONEY AND
SHORT-INTERMEDIATE FUNDS:
J. To amend each Fund's fundamental policies on the issuance of senior
securities;
CUSIP#779575109/fund#052
CUSIP#741486104/fund#059
CUSIP#779576107/fund#045
CUSIP#77957S109/fund#049
CUSIP#779902105/fund#056
<PAGE>
K. To amend each Fund's fundamental policies regarding the
underwriting of securities;
L. To change from a fundamental to an operating policy each Fund's
policy on control of portfolio companies;
M. To change from a fundamental to an operating policy each Fund's
policy on investing in other investment companies;
N. To change from a fundamental to an operating policy each Fund's
policy on purchasing securities on margin;
O. To change from a fundamental to an operating policy each Fund's
policy on pledging assets;
P. To change from a fundamental to an operating policy each Fund's
policy on investing in oil and gas programs;
Q. To change from a fundamental to an operating policy each Fund's
policy on investing in options;
R. To change from a fundamental to an operating policy each Fund's
policy on ownership of portfolio securities by officers and
directors;
S. To change from a fundamental to an operating policy each Fund's
policy on purchasing illiquid securities;
T. To change from a fundamental to an operating policy each Fund's
policy on short sales; and
U. To change from a fundamental to an operating policy each Fund's
policy on unseasoned issuers.
3. FOR THE SHAREHOLDERS OF EACH FUND: To ratify or reject the selection of
the firms of Coopers & Lybrand as the independent accountants for the
Money, High Yield and Insured Intermediate Funds and Price Waterhouse
as the independent accountants for the Income and Short-Intermediate
Funds for the three-month fiscal year ending May 31, 1994 and the
fiscal year ending May 31, 1995;
4. FOR THE SHAREHOLDERS OF THE INCOME AND MONEY FUNDS: To amend each
Fund's Articles of Incorporation to delete the policy on pricing
securities; and
5. To transact such other business as may properly come before the meeting
and any adjournments thereof.
LENORA V. HORNUNG
Secretary
April 25, 1994
100 East Pratt Street
Baltimore, Maryland 21202
YOUR VOTE IS IMPORTANT
SHAREHOLDERS ARE URGED TO DESIGNATE THEIR CHOICES ON EACH OF THE MATTERS TO BE
ACTED UPON AND TO DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOUR
PROMPT RETURN OF THE PROXY WILL HELP ASSURE A QUORUM AT THE MEETING AND AVOID
THE ADDITIONAL FUND EXPENSE OF FURTHER SOLICITATION.
<PAGE>
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
MEETING OF SHAREHOLDERS--JUNE 8, 1994
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
by the T. Rowe Price Tax-Exempt Money Fund, Inc. ("Money Fund"), T. Rowe Price
Tax-Free High Yield Fund, Inc. ("High Yield Fund"), T. Rowe Price Tax-Free
Income Fund, Inc. ("Income Fund"), T. Rowe Price Tax-Free Insured Intermediate
Bond Fund, Inc. ("Insured Intermediate Fund") and T. Rowe Price Tax-Free
Short-Intermediate Fund, Inc. ("Short-Intermediate Fund") (each a "Fund" and
collectively the "Funds"), each a Maryland corporation, for use at the Annual
Meeting of Shareholders of each Fund to be held jointly on June 8, 1994, and
at any adjournments thereof.
Shareholders may vote only on matters which concern the Fund or Funds in
which they hold shares. Shareholders are entitled to one vote for each full
share, and a proportionate vote for each fractional share, of the Fund held as
of the record date. Under Maryland law, shares owned by two or more persons
(whether as joint tenants, co-fiduciaries, or otherwise) will be voted as
follows, unless a written instrument or court order providing to the contrary
has been filed with the Fund: (1) if only one votes, that vote will bind all;
(2) if more than one votes, the vote of the majority will bind all; and (3) if
more than one votes and the vote is evenly divided, the vote will be cast
proportionately.
In order to hold the meeting, a majority of each Fund's shares entitled to
be voted must have been received by proxy or be present at the meeting. In the
event that a quorum is present but sufficient votes in favor of one or more of
the Proposals are not received by the time scheduled for the meeting, the
persons named as proxies may propose one or more adjournments of the meeting
to permit further solicitation of proxies. Any such adjournment will require
the affirmative vote of a majority of the shares present in person or by proxy
at the session of the meeting adjourned. The persons named as proxies will
vote in favor of such adjournment if they determine that such adjournment and
additional solicitation is reasonable and in the interests of each Fund's
shareholders. The shareholders of each Fund vote separately with respect to
each Proposal.
The individuals named as proxies (or their substitutes) in the enclosed
proxy card (or cards if you own shares of more than one Fund or have multiple
accounts) will vote in accordance with your directions as indicated thereon if
your proxy is received properly executed. You may direct the proxy holders to
vote your shares on a Proposal by checking the appropriate box "For" or
"Against," or instruct them not to vote those shares on the Proposal by
checking the "Abstain" box. Alternatively, you may simply sign, date and
return your proxy card(s) with no specific instructions as to the Proposals.
If you properly execute your proxy card and give no voting instructions with
respect to a Proposal, your shares will be voted for the Proposal. Any proxy
may be revoked at any time prior to its exercise by filing with the Fund a
written notice of revocation, by delivering a duly executed proxy bearing a
later date, or by attending the meeting and voting in person.
<PAGE>
Absentions and "broker non-votes" (as defined below) are counted for
purposes of determining whether a quorom is present for purposes of convening
the meeting. "Broker non-votes" are shares held by a broker or nominee for
which an executed proxy is received by the Fund, but are not voted as to one
or more Proposals because instructions have not been received from the
beneficial owners or persons entitled to vote and the broker or nominee does
not have discretionary voting power. If a Proposal must be approved by a
percentage of votes cast on the Proposal, abstentions and broker non-votes
will not be counted as "votes cast" on the Proposal and will have no effect on
the result of the vote. If the Proposal must be approved by a percentage of
voting securities present at the meeting, abstentions will be considered to be
voting securities that are present and will have the effect of being counted
as votes against the proposal. Broker non-votes will not be counted for any
purpose in connection with calculating the vote on such a Proposal.
VOTE REQUIRED: A PLURALITY OF ALL VOTES CAST AT THE MEETING BY EACH FUND
IS SUFFICIENT TO APPROVE PROPOSAL 1 FOR EACH FUND. A MAJORITY OF THE VOTES
CAST IS SUFFICIENT TO APPROVE PROPOSAL 3 FOR EACH FUND. APPROVAL OF PROPOSAL 4
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF EACH OF THE
INCOME AND MONEY FUNDS' OUTSTANDING SHARES. APPROVAL OF ALL REMAINING
PROPOSALS OF EACH FUND REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF THE
LESSER OF (A) 67% OF THE SHARES PRESENT AT THE MEETING IN PERSON OR BY PROXY
(if the holders of 50% OR MORE OF THE OUTSTANDING VOTING SECURITIES ARE
PRESENT OR REPRESENTED BY PROXY), OR (B) A MAJORITY OF EACH FUND'S OUTSTANDING
SHARES.
If the proposed amendments to each Fund's fundamental investment policies
are approved, they will become effective on or about July 1, 1994. If a
proposed amendment to a Fund's fundamental investment policies is not
approved, that policy will remain unchanged. If the proposed amendment to the
Income and Money Funds' Articles of Incorporation is approved, it will become
effective on or about July 1, 1994. If the proposed amendment to the Articles
of Incorporation is not approved, each Fund's Articles will remain unchanged.
Each Fund will pay a portion of the costs of the meeting, including the
solicitation of proxies, allocated on the basis of the number of shareholder
accounts of each Fund. Persons holding shares as nominees will be reimbursed,
upon request, for their reasonable expenses in sending solicitation materials
to the principals of the accounts. In addition to the solicitation of proxies
by mail, directors, officers, and/or employees of each Fund or of its
investment manager, T. Rowe Price Associates, Inc. ("T. Rowe Price"), may
solicit proxies in person or by telephone.
The approximate date on which this Proxy Statement and form of proxy is
first being mailed to shareholders of each Fund is April 25, 1994.
<PAGE>
1. ELECTION OF DIRECTORS
The following table sets forth information concerning each of the nominees
for director indicating the particular Board(s) on which the nominee has been
asked to serve. Each nominee has agreed to hold office until the next annual
meeting (if any) or his/her successor is duly elected and qualified. With the
exception of Ms. Whittemore and Messrs. Black and Burnett, each of the
nominees is a member of the present Board of Directors of each Fund and has
served in that capacity since originally elected by the shareholders. Mr.
Burnett was elected a director of each Fund by its Board of Directors on
January 19, 1993. A shareholder using the enclosed proxy form can vote for all
or any of the nominees of the Board of Directors or withhold his or her vote
from all or any of such nominees. IF THE PROXY CARD IS PROPERLY EXECUTED BUT
UNMARKED, IT WILL BE VOTED FOR ALL OF THE NOMINEES. Should any nominee become
unable or unwilling to accept nomination or election, the persons named in the
proxy will exercise their voting power in favor of such other person or
persons as the Board of Directors of the Fund may recommend. There are no
family relationships among these nominees.
The membership of the five Boards will not be identical following election
at the meeting. Specifically, certain individuals who are interested persons
of T. Rowe Price are being elected to only one of the Funds. Shareholders are
being asked to elect the Board of Directors of their respective Fund only.
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
Fund All Other Price
Shares Beneficially Funds' Shares
Name, Address, Date of Owned, Directly or Beneficially Owned
Birth of Nominee and Indirectly, as of Directly as of
Position with Fund Principal Occupations/(1)/ 2/28/94/(2)/ 2/28/94
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert P. Black Retired; formerly President, Money Fund: -- 3,223
10 Dahlgren Road Federal Reserve Bank of Richmond; High Yield Fund:--
Richmond, VA 23233 Director/Trustee of nine other T. Income Fund:--
12/21/27 Rowe Price Income Funds/Trusts Insured Intermediate
[bullet]Initial election Fund: --
as Director of: Money Short-Intermediate
Fund, High Yield Fund, Fund:--
Income Fund, Insured
Intermediate Fund and
Short-Intermediate Fund
Calvin W. Burnett, Ph.D. President, Coppin State College; Money Fund: -- 5,054
2500 West North Avenue Director, Maryland Chamber of High Yield Fund:--
Baltimore, MD 21216 Commerce and Provident Bank of Income Fund: --
3/16/32 Maryland; President, Baltimore Insured Intermediate
[bullet]Director since Area Council Boy Scouts of Fund: --
1993 of: Money Fund, High America; Vice President, Board of Short-Intermediate
Yield Fund, Income Fund, Directors, The Walters Art Fund:--
Insured Intermediate Fund Gallery; and a Director/Trustee
and Short-Intermediate of the 11 other T. Rowe Price
Fund Income Funds/Trusts
*George J. Collins President, Managing Director and Money Fund: 76,295 358,337
100 East Pratt Street Chief Executive Officer, T. Rowe High Yield Fund:
Baltimore, MD 21202 Price Associates, Inc.; Director, 3,056
7/31/40 Rowe Price-Fleming International, Income Fund: 7,428
[bullet]Chairman of the Inc., T. Rowe Price Trust Insured Intermediate
Board and member of Company, and T. Rowe Price Fund: 3,179
Executive Committee: Money Retirement Plan Services, Inc.; Short-Intermediate
Fund (1980), High Yield Chairman of the Board of nine Fund: 7,063
Fund (1985), Income Fund other T. Rowe Price Funds/Trusts;
(1976) and President, Vice President, and/or
Short-Intermediate Fund Director of five other T. Rowe
(1983) Price Funds
[bullet]Insured
Intermediate Fund:
Director since 1992
Anthony W. Deering Director, President and Chief Money Fund: 2,626 86,457
10275 Little Patuxent Operating Officer, The Rouse High Yield Fund: 67
Parkway Company, real estate developers, Income Fund: 184
Columbia, MD 21044 Columbia, Maryland; Advisory Insured Intermediate
1/28/45 Director, Kleinwort, Benson Fund: --
[bullet]Director: Money (North America) Corporation, a Short-Intermediate
Fund (1983), High Yield registered broker-dealer, and a Fund: 186
Fund (1985), Income Fund Director/Trustee of the 11 other
(1983), Insured T. Rowe Price Income
Intermediate Fund (1992) Funds/Trusts, Institutional
and Short-Intermediate International Funds, Inc. and T.
Fund (1983) Rowe Price International Funds,
Inc.
F. Pierce Linaweaver President, F. Pierce Linaweaver & Money Fund: -- 56,274
The Legg Mason Tower Associates, Inc.; formerly High Yield Fund: --
Suite 2700 (1987--1991) Executive Vice Income Fund: --
111 South Calvert Street President, EA Engineering, Insured Intermediate
Baltimore, MD 21202 Science, and Technology, Inc. and Fund: --
8/22/34 (1987--1990) President, EA Short-Intermediate
[bullet]Director: Money Engineering, Inc.; Fund: --
Fund (1983), High Yield Director/Trustee of the 11 other
Fund (1985), Income Fund T. Rowe Price Income Funds/Trusts
(1979), Insured
Intermediate Fund (1992)
and Short-Intermediate
Fund (1983)
*Mary J. Miller Managing Director, T. Rowe Price Short-Intermediate 26,541
100 East Pratt Street Associates, Inc.; President, Vice Fund: 8,888
Baltimore, MD 21202 President or Executive Vice
7/19/55 President of seven other T. Rowe
[bullet]Short-Intermediate Price tax-free Funds
Fund: President and member
of Executive Committee
since 1991
*William T. Reynolds Managing Director, T. Rowe Price Money Fund: 16,568 84,987
100 East Pratt Street Associates, Inc.; Vice President, High Yield Fund: 509
Baltimore, MD 21202 President and/or Trustee of three Income Fund: 1,230
5/26/48 other T. Rowe Price tax-free Insured Intermediate
[bullet]Money Fund: Vice Funds Fund: 540
President and member of Short-Intermediate
Executive Committee since Fund: 846
1991
[bullet]President and
member of Executive
Committee: High Yield Fund
(1989) and Income Fund
(1990)
[bullet]Initial election
as Director of: Insured
Intermediate Fund
(President since 1992) and
Short-Intermediate Fund
*James S. Riepe Managing Director, T. Rowe Price Money Fund: 207,226 201,842
100 East Pratt Street Associates, Inc.; President and High Yield Fund:
Baltimore, MD 21202 Director, T. Rowe Price 48,071
6/25/43 Investment Services, Inc.; Income Fund: 36,990
[bullet]Vice President and Chairman of the Board, T. Rowe Insured Intermediate
member of Executive Price Services, Inc., T. Rowe Fund: 2,438
Committee: Money Fund Price Trust Company, T. Rowe Short-Intermediate
(1983), High Yield Fund Price Retirement Plan Services, Fund: 47,243
(1985), Income Fund (1983) Inc., and four T. Rowe Price
and Short-Intermediate Trust Funds; Vice President and
Fund (1983) Director/Trustee of 25 other T.
[bullet]Insured Rowe Price Funds/Trusts;
Intermediate Fund: Director, Rhone-Poulenc Rorer,
Director since 1992 Inc.
John G. Schreiber President, Schreiber Investments, Money Fund: 70,581 307,000
1115 East Illinois Road a real estate investment company; High Yield Fund:
Lake Forest, IL 60045 Director and formerly 8,158
10/21/46 (1/80--12/90) Executive Vice Income Fund: 10,252
[bullet]Director since President, JMB Realty Insured Intermediate
1992 of: Money Fund, High Corporation, a national real Fund: --
Yield Fund, Income Fund, estate investment manager and Short-Intermediate
Insured Intermediate Fund developer; Director/Trustee of Fund: 18,861
and Short-Intermediate the 11 other T. Rowe Price Income
Fund Funds/Trusts
Anne Marie Whittemore Partner, law firm of McGuire, Money Fund: -- 475
One James Center Woods, Battle & Boothe; formerly, High Yield Fund: --
901 East Cary Street Chairman and Director, Federal Income Fund: --
Richmond, VA 23219-4030 Reserve Bank of Richmond; Insured Intermediate
3/19/46 Director, Owens & Minor, Inc., Fund: --
[bullet]Initial election USF&G Corporation, Old Dominion Short-Intermediate
as Director of: Money University, and nominated to the Fund: --
Fund, High Yield Fund, Board of James River Corporation;
Income Fund, Insured Member, Richmond Bar Association
Intermediate Fund and and American Bar Association
Short-Intermediate Fund
<FN>
* Nominees considered "interested persons" of T. Rowe Price.
(1) Except as otherwise noted, each individual has held the office indicated, or other offices in
the same company, for the last five years.
(2) In addition to the shares owned beneficially and of record by each of the nominees, the amounts
shown reflect the proportionate interests of Messrs. Collins, Reynolds and Riepe in 144,373,
5,908, 14,008 and 6,157 shares of the Money, High Yield, Income and Insured Intermediate Funds,
respectively, and Ms. Miller and Messrs. Collins and Riepe in 11,483 shares of the
Short-Intermediate Fund which are owned by a wholly-owned subsidiary of the Funds' investment
manager, T. Rowe Price.
</TABLE>
<PAGE>
John Sagan, a director of the Insured Intermediate Fund since 1992 and the
other Funds since 1986, has retired from the Board of each Fund and will not
be standing for reelection. As of February 28, 1994, Mr. Sagan beneficially
owned, directly or indirectly, 6,129 shares of the High Yield Fund.
Mr. W. Ernest Issel, a director of the Income Fund from 1976 to 1983, has
been named by the Fund's Board of Directors as a director emeritus. The
position of director emeritus is honorary only and does not confer any
responsibility or voting authority.
The directors of each Fund who are officers or employees of T. Rowe Price
receive no remuneration from the Fund. For the fiscal year ended February 28,
1994, Messrs. Burnett, Deering, Linaweaver, Sagan, and Schreiber, received
from the Money, High Yield, Income, Insured Intermediate and
Short-Intermediate Funds' directors' fees aggregating $15,000, $18,000,
$26,000, $7,000 and $13,000, including expenses, respectively. The fee paid to
each such director is calculated in accordance with the following fee
schedule: a fee of $25,000 per year as the initial fee for the first T. Rowe
Price Fund/Trust on which a director serves; a fee of $5,000 for each of the
second, third, and fourth T. Rowe Price Funds/Trusts on which a director
serves; a fee of $2,500 for each of the fifth and sixth T. Rowe Price
Funds/Trusts on which a director serves; and a fee of $1,000 for each of the
seventh and any additional T. Rowe Price Funds/Trusts on which a director
serves. Those nominees indicated by an asterisk (*) are persons who, for
purposes of Section 2(a)(19) of the Investment Company Act of 1940 are
considered "interested persons" of T. Rowe Price. Each such nominee is deemed
to be an "interested person" by virtue of his officership, directorship,
and/or employment with T. Rowe Price. Messrs. Burnett, Deering, Linaweaver,
Sagan, and Schreiber are the current independent directors of each Fund.
The T. Rowe Price Funds have established a Joint Audit Committee, which is
comprised of at least one independent director representing each of the Funds.
Mr. Deering, a director of each Fund, is a member of the Committee. The other
members are Leo C. Bailey, Donald W. Dick, Jr., and Hubert D. Vos. These
directors also receive a fee of $500 for each Committee meeting attended. The
Audit Committee holds two regular meetings during each fiscal year, at which
time it meets with the independent accountants of the T. Rowe Price Funds to
review: (1) the services provided; (2) the findings of the most recent audit;
(3) management's response to the findings of the most recent audit; (4) the
scope of the audit to be performed; (5) the accountants' fees; and (6) any
accounting questions relating to particular areas of the T. Rowe Price Funds'
operations or the operations of parties dealing with the T. Rowe Price Funds,
as circumstances indicate.
The Board of Directors of each Fund has an Executive Committee which is
authorized to assume all the powers of the Board to manage the Fund, in the
intervals between meetings of the Board, except the powers prohibited by
statute from being delegated.
The Board of Directors of each Fund has a Nominating Committee, which is
comprised of all the T. Rowe Price Funds' independent directors. The
Nominating Committee, which functions only in an advisory capacity, is
responsible for reviewing and recommending to the full Board candidates for
election as independent directors to fill vacancies on the Board of Directors.
The Nominating Committee will consider written recommendations from
shareholders for possible nominees. Shareholders should submit their
recommendations to the Secretary of the Fund. Members of the Nominating
Committee met informally during the last full fiscal year, but the Committee
as such held no formal meetings.
Each Fund's Board of Directors held seven meetings during the last full
fiscal year. Each director standing for reelection attended 75% or more of the
aggregate of (i) the total number of meetings of the Board of Directors (held
during the period for which he was a director), and (ii) the total number of
meetings held by all committees of the Board on which he served.
<PAGE>
EACH FUND
2. APPROVAL OR DISAPPROVAL OF CHANGES TO THE FUNDS' FUNDAMENTAL INVESTMENT
POLICIES
The Investment Company Act of 1940 (the "1940 Act") requires investment
companies such as the Funds to adopt certain specific investment policies that
can be changed only by shareholder vote. An investment company may also elect
to designate other policies that may be changed only by shareholder vote. Both
types of policies are often referred to as "fundamental policies." Certain of
the Funds' fundamental policies have been adopted in the past to reflect
regulatory, business or industry conditions that are no longer in effect.
Accordingly, each Fund's Board of Directors has approved, and has authorized
the submission to each Fund's shareholders for their approval, the amendment
and/or reclassification of certain of the fundamental policies applicable to
each Fund.
The proposed amendments would (i) conform the fundamental policies of each
Fund to ones which are expected to become standard for all T. Rowe Price
Funds, (ii) simplify and modernize the limitations that are required to be
fundamental by the 1940 Act and (iii) eliminate as fundamental any limitations
that are not required to be fundamental by that Act. The Board believes that
standardized policies will assist the Funds and T. Rowe Price in monitoring
compliance with the various investment restrictions to which the T. Rowe Price
Funds are subject. By reducing to a minimum those limitations that can be
changed only by shareholder vote, the Funds would be able to minimize the
costs and delay associated with holding frequent annual shareholders'
meetings. Finally, the Directors also believe that T. Rowe Price's ability to
manage the Funds' assets in a changing investment environment will be enhanced
and that investment management opportunities will be increased by these
changes.
In the following discussion "the Fund" is intended to refer to each Fund.
A. PROPOSAL TO SIMPLIFY THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON INVESTING
IN MUNICIPAL SECURITIES
MONEY AND INSURED INTERMEDIATE FUNDS
In order to call itself a tax-free mutual fund, the Fund, in accordance
with Securities and Exchange Commission ("SEC") positions, must have a
fundamental policy that, during periods of normal market conditions, it will
invest its assets so that (i) at least 80% of the Fund's income would be
tax-exempt (the "80% Income Test") or (ii) at least 80% of the Fund's net
assets would be invested in tax-exempt securities (the "80% Assets Test"). The
Fund has adopted the 80% Income Test as well as a test relating to the amount
of its total assets which may be invested in securities subject to the
alternative minimum tax. To conform its policy in this area to one which is
expected to become standard for all T. Rowe Price tax-free funds, the Board of
Directors has proposed that the Fund modify its current policy on investing in
securities subject to the alternative minimum tax. The Board believes that
standardized policies will assist the Fund and T. Rowe Price in monitoring
compliance with the various investment restrictions to which the T. Rowe Price
Funds are subject. The change, if adopted, is not expected to change the
Fund's investment program. Under both the current and proposed policies, the
Fund is permitted to have less than 80% of its income exempt from federal
income tax under abnormal market conditions. In such cases, the Fund is
allowed to invest in taxable securities similar in credit quality and maturity
to the tax-free securities it normally invests in.
<PAGE>
The Fund's current fundamental policies on investing in municipal
securities are as follows:
EACH FUND
"[As a fundamental policy, the Fund will not, under normal conditions:]
Purchase any security, if as a result, less than 80% of the Fund's income
would be exempt from federal income taxes. The Fund will not invest more
than 20% of its net assets in obligations which pay interest subject to
the alternative minimum tax on individuals provided that such restriction
may be modified as a result of changes in federal law. (Income from
securities subject to the alternative minimum tax is excluded from the
computation.)"
As amended, the Fund's fundamental policy would be simplified and would be
as follows:
"[As a matter of fundamental policy, the Fund may not:] During periods of
normal market conditions, purchase any security if, as a result, less than
80% of the Fund's income would be exempt from federal income tax. The
income included under the 80% test does not include income from securities
subject to the alternative minimum tax ;"
The Board of Directors recommends that shareholders vote FOR the proposal.
HIGH YIELD, INCOME AND SHORT-INTERMEDIATE FUNDS
In order to call itself a tax-free mutual fund, the Fund, in accordance
with SEC positions, must have a fundamental policy that, during periods of
normal market conditions, it will invest its assets so that (i) at least 80%
of the Fund's income would be tax-exempt (the "80% Income Test") or (ii) at
least 80% of the Fund's net assets would be invested in tax-exempt securities
(the "80% Assets Test"). Although not necessary under applicable law, the Fund
has adopted both tests. To simplify compliance responsibilities, the Board of
Directors has proposed that the Fund rely on the 80% Income Test only and that
the 80% Assets Test be eliminated. Also, in accordance with SEC positions,
under both the current and proposed policies, the income included under the
80% Income Test would not include income from securities subject to the
alternative minimum tax. Under both the current and proposed policies, the
Fund is permitted to have less than 80% of its income exempt from federal
income tax under abnormal market conditions. In such cases, the Fund is
allowed to invest in taxable securities similar in credit quality and maturity
to the tax-free securities it normally invests in. The change, if adopted, is
not expected to change the Fund's investment program.
The Fund's current fundamental policies on investing in municipal
securities are as follows:
EACH FUND
"The Fund may not purchase any security if, as a result, less than 80% of
the Fund's income would be exempt from federal income tax; except that the
Fund may temporarily invest more than 20% of its total assets in taxable
obligations during periods of abnormal market conditions, when it might be
deemed advantageous to shareholders to do so because market conditions
dictate a defensive posture in taxable obligations. The Fund will not
invest more than 20% of its net assets in obligations which pay interest
subject to the alternative minimum tax on individuals provided that such
restriction may be modified as a result of changes in federal law. In
addition, at least 80% of the Fund's total assets (exclusive of cash)
during any fiscal year will be invested in securities whose income is
exempt from federal income taxes. (Income from securities subject to the
alternative minimum tax is excluded from the computation.)"
<PAGE>
As amended, the Fund's fundamental policy would be simplified and would be
as follows:
"[As a matter of fundamental policy, the Fund may not:] During periods of
normal market conditions, purchase any security if, as a result, less than
80% of the Fund's income would be exempt from federal income tax. The
income included under the 80% test does not include income from securities
subject to the alternative minimum tax;"
The Board of Directors recommends that shareholders vote FOR the proposal.
B. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY TO INCREASE ITS
ABILITY TO ENGAGE IN BORROWING TRANSACTIONS
MONEY, HIGH YIELD, INCOME AND SHORT-INTERMEDIATE FUNDS
Because the Fund may occasionally need to borrow money to meet substantial
shareholder redemption or exchange requests when available cash is not
sufficient to satisfy these needs, the Board of Directors has proposed an
amendment to the Fund's fundamental policy which would permit the Fund greater
flexibility to engage in borrowing transactions. The current restriction is
not required by applicable law. The new restriction would (1) allow the Fund
to borrow larger amounts of money; (2) borrow from other T. Rowe Price Funds
or persons to the extent permitted by applicable law; and (3) clarify that the
Fund's restriction on borrowing does not prohibit the Fund from entering into
other proper investments and transactions. The new restriction would also
conform the Fund's policy on borrowing to one which is expected to become
standard for all T. Rowe Price Funds. The Board believes that standardized
policies will assist the Fund and T. Rowe Price in monitoring compliance with
the various investment restrictions to which the T. Rowe Price Funds are
subject. The Board has directed that such proposals be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of borrowing is as
follows:
MONEY, INCOME AND SHORT-INTERMEDIATE FUNDS
"[As a matter of fundamental policy, the Fund may not:] Borrow money,
except (i) the Fund may borrow from banks as a temporary measure for
extraordinary or emergency purposes, and then only from banks in amounts
not exceeding the lesser of 10% of its total assets valued at cost or 5%
of its total assets valued at market; (ii) the Short-Intermediate and
Money Funds may enter into reverse repurchase agreements; (iii) the
Short-Intermediate and Income Funds may also enter into futures contracts
as set forth in [its fundamental policy on futures]; and (iv) the Fund may
not purchase additional securities when money borrowed exceeds 5% of the
Fund's total assets;"
<PAGE>
HIGH YIELD FUND
"[As a matter of fundamental policy, the Fund may not:] Borrow money,
except the Fund may (i) borrow from banks as a temporary measure for
extraordinary or emergency purposes, and then only from banks in amounts
not exceeding 15% of its total assets. The Fund will not borrow in order
to increase income (leveraging), but only to facilitate redemption
requests which might otherwise require untimely disposition of portfolio
securities; (ii) enter into reverse repurchase agreements; (iii) enter
into futures contracts as set forth in [its fundamental policy on
futures]; and (iv) not purchase additional securities when money borrowed
exceeds 5% of the Fund's total assets;"
As amended, the Fund's fundamental policy on borrowing would be as
follows:
"[As a matter of fundamental policy, the Fund may not:] Borrow money
except that the Fund may (i) borrow for non-leveraging, temporary or
emergency purposes and (ii) engage in reverse repurchase agreements and
make other investments or engage in other transactions, which may involve
a borrowing, in a manner consistent with the Fund's investment objective
and program, provided that the combination of (i) and (ii) shall not
exceed 33 1/3% of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which come to exceed this
amount will be reduced in accordance with applicable law. The Fund may
borrow from banks, other Price Funds or other persons to the extent
permitted by applicable law;"
In addition, the Board of Directors intends to adopt the 5% limitation on
purchasing additional securities when money borrowed exceeds 5% as an
operating policy which may be changed by the Board of Directors without
further shareholder approval. The operating policy would be as follows:
"[As a matter of operating policy, the Fund will not:] Purchase additional
securities when money borrowed exceeds 5% of the Fund's total assets;"
If approved, the primary effect of the proposals would be to allow the
Fund to: (1) borrow up to 33 1/3% (or such higher amount permitted by law) of
its total assets (including the amount borrowed) less liabilities (other than
borrowings) as opposed to the current lesser limitation; (2) borrow from other
mutual funds advised by T. Rowe Price or Rowe Price-Fleming International,
Inc. ("T. Rowe Price Funds") and other persons; and (3) enter into other
investments consistent with the Fund's investment objective and program.
<PAGE>
33 1/3% LIMITATION
The increase in the amount of money which the Fund could borrow is
primarily designed to allow the Fund greater flexibility to meet shareholder
redemption requests should the need arise. As is the case under its current
policy, the Fund would not borrow to increase income through leveraging. It is
possible the Fund's ability to borrow a larger percentage of its assets could
adversely affect the Fund if the Fund were unable to liquidate sufficient
securities, or the Fund were forced to liquidate securities at unfavorable
prices, to pay back the borrowed sums. However, the Directors believe the
risks of such possibilities are outweighed by the greater flexibility the Fund
would have in borrowing. The increased ability to borrow should permit the
Fund, if it were faced with substantial shareholder redemptions, to avoid
liquidating securities at unfavorable prices or times to a greater degree than
would be the case under the current policy.
BORROWING FROM OTHER PRICE FUNDS
Current law prohibits the Fund from borrowing from other T. Rowe Price
Funds. However, if the proposed amendments to the Fund's fundamental
investment policy on borrowing are approved by shareholders, the Fund may
apply to the SEC for an exemption from this prohibition. There is, of course,
no assurance that the SEC would act favorably on such a request. If the SEC
did grant such an order, the Fund could be allowed to borrow from other T.
Rowe Price Funds. T. Rowe Price believes that the ability to engage in
borrowing transactions with the participating T. Rowe Price Funds as part of a
program, referred to as the "interfund lending program," may allow the Fund to
obtain lower interest rates on money borrowed for temporary or emergency
purposes. Any existing T. Rowe Price Fund participating in the interfund
lending program would only do so upon approval of its shareholders.
As noted above, when the Fund is required to borrow money, it currently
may do so only from banks. When the Fund borrows money from banks, it
typically pays interest on those borrowings at a rate that is higher than
rates available contemporaneously from investments in repurchase agreements.
If the proposed amendment is approved (and an SEC exemptive order were
granted), eligible T. Rowe Price Funds would be permitted to participate in an
interfund lending program to allow various of the T. Rowe Price Funds, through
a master loan agreement, to lend available cash to and borrow from other T.
Rowe Price Funds. Each lending fund could lend available cash to another T.
Rowe Price Fund only when the interfund rate was higher than repurchase
agreement rates or rates on other comparable short-term investments. Each
borrowing fund could borrow through the interfund lending program only when
the interfund loan rate was lower than available bank loan rates.
In determining to recommend the proposed amendment to shareholders for
approval, T. Rowe Price and the Directors considered the possible risks to the
Fund from participation in the interfund lending program. T. Rowe Price does
not view the difference in rates available on bank borrowings and repurchase
agreements or other short-term investments as reflecting a material difference
in the quality of the risk of the transactions, but rather as an indication of
the ability of banks to earn a higher rate of interest on loans than they pay
on repurchase agreements or other short-term investments. There is a risk that
a lending fund could experience a delay in obtaining prompt repayment of a
loan and, unlike repurchase agreements, the lending fund would not necessarily
have received collateral for its loan, although it could require that
collateral be provided as a condition for making a loan. A delay in obtaining
prompt payment could cause a lending fund to miss an investment opportunity or
to incur costs to borrow money to replace the delayed payment. There is also a
risk that a borrowing fund could have a loan recalled on one day's notice. In
these circumstances, the borrowing fund might have to borrow from a bank at a
higher interest cost if money to lend were not available from another T. Rowe
Price Fund. The Directors consider that the benefits to the Fund of
participating in the program outweigh the possible risks to the Fund from such
participation.
<PAGE>
In order to permit the Fund to engage in interfund lending transactions,
regulatory approval of the SEC is required because, among other reasons, the
transactions may be considered to be among affiliated parties. If the proposed
amendment is approved by shareholders, the proposed interfund lending program
would be implemented only to the extent permitted by rule or by order of the
SEC and to the extent that the transactions were otherwise consistent with the
investment objectives and limitations of each participating T. Rowe Price
Fund. If exemptive relief from the SEC is not granted, the Fund, as previously
noted, will not be able to engage in the interfund lending program even though
shareholders have approved the proposal. As noted, no prediction can be made
as to whether the SEC would grant such relief.
Shareholders are being asked to approve an amendment to the Fund's
fundamental policy on borrowing in this proposal. Shareholders are also being
asked to vote separately on an amendment to the Fund's fundamental policy on
lending (see pages 20-23). If both amendments are adopted, the Fund, subject
to its investment objective and policies, will be able to participate in the
interfund lending program as both a lender and a borrower. If only one of the
two proposals is adopted, then the Fund's participation in the interfund
lending program will be confined to either lending or borrowing, depending on
which amendment is approved.
The Directors believe the proposed amendment may benefit the Fund by
facilitating its flexibility to explore cost-effective alternatives to satisfy
its borrowing requirements and by borrowing money from other T. Rowe Price
Funds. Implementation of interfund borrowing would be accomplished consistent
with applicable regulatory requirements, including the provisions of any order
the SEC might issue to the Fund and to other T. Rowe Price Funds.
OTHER CHANGES
The other proposed changes in the Fund's fundamental policy--to allow the
Fund to borrow from persons in addition to banks and other T. Rowe Price Funds
to the extent consistent with applicable law--and to engage in transactions
other than reverse repurchase agreements which may involve a borrowing--are
simply designed to permit the Fund the greatest degree of flexibility
permitted by law in pursuing its investment program. As noted above, the Fund
will not use its increased flexibility to borrow to engage in transactions
which could result in leveraging the Fund. All activities of the Fund are, of
course, subject to the 1940 Act and the rules and regulations thereunder as
well as various state securities laws.
INCOME FUND
REVERSE REPURCHASE AGREEMENTS
To facilitate portfolio liquidity, it is possible the Fund could enter
into reverse repurchase agreements. In a repurchase agreement, the Fund would
purchase securities from a bank or broker-dealer (Counterparty) with the
agreement that the Counterparty would repurchase the securities at a later
date. Reverse repurchase agreements are ordinary repurchase agreements in
which a fund is a seller of, rather than the purchaser of, securities and
agrees to repurchase them at an agreed upon time and price. Reverse repurchase
agreements can avoid certain market risks and transaction costs associated
with an outright sale and repurchase. Reverse repurchase agreements, however,
may be viewed as borrowings. To the extent they are, the proposed amendment
would clarify that the Fund's restrictions on borrowing would not prohibit the
Fund from entering into a reverse repurchase agreement.
The Board of Directors recommends that shareholders vote FOR the proposal.
<PAGE>
INSURED INTERMEDIATE FUND
Because the Fund may occasionally need to borrow money to meet substantial
shareholder redemption or exchange requests when available cash is not
sufficient to satisfy these needs, the Board of Directors has proposed an
amendment to the Fund's fundamental policy which would permit the Fund greater
flexibility to engage in borrowing transactions. The current restriction is
not required by applicable law. The new restriction would (1) allow the Fund
to borrow larger amounts of money; (2) borrow from persons in addition to
other T. Rowe Price Funds or banks to the extent permitted by applicable law;
and (3) clarify that the Fund's restriction on borrowing does not prohibit the
Fund from entering into other proper investments and transactions. The new
restriction would also conform the Fund's policy on borrowing to one which is
expected to become standard for all T. Rowe Price Funds. The Board believes
that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such proposals be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of borrowing is as
follows:
"[As a matter of fundamental policy, the Fund may not:] Borrow money,
except (i) the Fund may borrow from banks or other Price Funds for
non-leveraging, temporary purposes in amounts not exceeding (a) 30% of its
total assets to meet redemption requests which might otherwise require
untimely disposition of portfolio securities; or (b) 5% of its total
assets for emergency, administrative or other proper purposes. Interest
paid on any such borrowings will reduce net investment income; (ii) the
Fund may enter into reverse repurchase agreements; (iii) the Fund may also
enter into futures contracts as set forth in [its fundamental policy on
futures]; and (iv) the Fund may not purchase additional securities when
money borrowed exceeds 5% of the Fund's total assets;"
As amended, the Fund's fundamental policy on borrowing would be as
follows:
"[As a matter of fundamental policy, the Fund may not:] Borrow money
except that the Fund may (i) borrow for non-leveraging, temporary or
emergency purposes and (ii) engage in reverse repurchase agreements and
make other investments or engage in other transactions, which may involve
a borrowing, in a manner consistent with the Fund's investment objective
and program, provided that the combination of (i) and (ii) shall not
exceed 33 1/3% of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which come to exceed this
amount will be reduced in accordance with applicable law. The Fund may
borrow from banks, other Price Funds or other persons to the extent
permitted by applicable law;"
In addition, the Board of Directors intends to adopt the 5% limitation on
purchasing additional securities when money borrowed exceeds 5% as an
operating policy which may be changed by the Board of Directors without
further shareholder approval. The operating policy would be as follows:
<PAGE>
"[As a matter of operating policy, the Fund will not:] Purchase additional
securities when money borrowed exceeds 5% of the Fund's total assets;"
If approved, the primary effect of the proposals would be to allow the
Fund to: (1) borrow up to 33 1/3% (or such higher amount permitted by law) of
its total assets (including the amount borrowed) less liabilities (other than
borrowings) as opposed to the current limitation of 30%; (2) borrow from
persons in addition to banks and other mutual funds advised by T. Rowe Price
or Rowe Price-Fleming International, Inc. ("T. Rowe Price Funds"); (3) enter
into other investments consistent with the Fund's investment objective and
program; and (4) eliminate the distinction between the amount which may be
borrowed to meet redemption requests (currently 30%) and the amount which may
be borrowed for other purposes (currently 5%).
33 1/3% LIMITATION
The increase in the amount of money which the Fund could borrow is
primarily designed to allow the Fund greater flexibility to meet shareholder
redemption requests should the need arise. As is the case under its current
policy, the Fund would not borrow to increase income through leveraging. It is
possible the Fund's ability to borrow a larger percentage of its assets could
adversely affect the Fund if the Fund were unable to liquidate sufficient
securities, or the Fund were forced to liquidate securities at unfavorable
prices, to pay back the borrowed sums. However, the Directors believe the
risks of such possibilities are outweighed by the greater flexibility the Fund
would have in borrowing. The increased ability to borrow should permit the
Fund, if it were faced with substantial shareholder redemptions, to avoid
liquidating securities at unfavorable prices or times to a greater degree than
would be the case under the current policy.
OTHER CHANGES
The other proposed changes in the Fund's fundamental policy--(1) to allow
the Fund to borrow from persons in addition to banks and other T. Rowe Price
Funds to the extent consistent with applicable law; (2) to engage in
transactions other than reverse repurchase agreements which may involve a
borrowing; and (3) to apply the Fund's 33 1/3% limitation on borrowing to all
Fund borrowings regardless of their purpose (as opposed to the current policy
which permits only 5% to be borrowed for purposes other than meeting
redemption requests)--are simply designed to permit the Fund the greatest
degree of flexibility permitted by law in pursuing its investment program. As
noted above, the Fund will not use its increased flexibility to borrow to
engage in transactions which could result in leveraging the Fund. All
activities of the Fund are, of course, subject to the 1940 Act and the rules
and regulations thereunder as well as various state securities laws.
The Board of Directors recommends that shareholders vote FOR the proposal.
<PAGE>
C. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON INDUSTRY
CONCENTRATION
MONEY, HIGH YIELD, INCOME AND SHORT-INTERMEDIATE FUNDS
The Board of Directors has proposed amendments to the Fundamental
Investment Policy of the Fund on industry concentration. The first amendment
would change the limit of the Fund's total assets which may be invested in the
securities of issuers in the same industry from "25% or more" to "more than
25%." This is merely a technical change which would conform the Fund's policy
to the standard policy on concentration of other T. Rowe Price Funds. The
other amendments would eliminate as an exception to the policy against
concentration investment in certificates of deposit and bankers' acceptances.
Since the Fund's policy against concentration was adopted, it has not proved
necessary to rely on these exceptions. Finally, the amendment would allow the
Fund to adopt a policy which is expected to become a standard policy regarding
industry concentration for all T. Rowe Price tax-free funds. The Board has
directed that such amendments be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policy in the area of industry
concentration is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase any
security if, as a result, 25% or more of the value of the Fund's total
assets would be invested in the securities of issuers having their
principal business activities in the same industry, except that this
limitation does not apply to: (i) securities issued or guaranteed by the
U.S. Government, or any of its agencies or instrumentalities; (ii)
municipal securities; or (iii) certificates of deposit, or bankers'
acceptances issued by domestic banks, however, as an operating policy, the
Fund does not intend to concentrate in certificates of deposit or bankers'
acceptances. For the purpose of this restriction, industrial development
bonds issued by nongovernmental users shall not be deemed municipal
securities;"
As amended, the Fund's fundamental policy on industry concentration would
be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer if, as a result, more than 25% of the value of
the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry;"
<PAGE>
The amended policy does not include any reference to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities or
municipal securities as exceptions to the general prohibition against industry
concentration. This is because the U.S. government and state governments and
their subdivisions are not industries (a position confirmed by the SEC).
Therefore, there is no need to make specific reference to these securities in
the policy. The amended policy also makes no reference to industrial
development bonds issued by nongovernmental users being an exception to the
definition of municipal securities. The position of the SEC is that industrial
development bonds issued by nongovernmental users are not municipal securities
for purposes of investment policies on concentration. As a result of this
position, the current and proposed policy of the Fund against concentrating in
any one industry prohibit the Fund from investing more than 25% of its total
assets in industrial development bonds issued by nongovernmental users in the
same industry. As long as this remains the position of the SEC, the Fund will
continue to adhere to this restriction as a matter of operating policy.
However, should the SEC change its position, the Fund's Board of Directors
could authorize the Fund to invest more than 25% of its total assets in these
securities without seeking shareholder vote.
The Board of Directors recommends that shareholders vote FOR the proposal.
INSURED INTERMEDIATE FUND
The Board of Directors has proposed amendments to the Fundamental
Investment Policy of the Fund on industry concentration. The amendments would
allow the Fund to adopt a policy which is expected to become a standard policy
regarding industry concentration for all T. Rowe Price tax-free funds. The
Board has directed that such amendments be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of industry
concentration is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer if, as a result, more than 25% of the value of
the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry (other
than obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities or municipal securities). For the purpose of this
restriction, industrial development bonds issued by nongovernmental users
will not be considered to be municipal securities;"
As amended, the Fund's fundamental policy on industry concentration would
be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer if, as a result, more than 25% of the value of
the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry;"
The amended policy does not include any reference to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities or
municipal securities as exceptions to the general prohibition against industry
concentration. This is because the U.S. government and state governments and
their subdivisions are not industries (a position confirmed by the SEC).
Therefore, there is no need to make specific reference to these securities in
the policy. The amended policy also makes no reference to industrial
development bonds issued by nongovernmental users being an exception to the
definition of municipal securities. The position of the SEC is that industrial
development bonds issued by nongovernmental users are not municipal securities
for purposes of investment policies on concentration. As a result of this
position, the current and proposed policy of the Fund against concentrating in
any one industry prohibit the Fund from investing more than 25% of its total
assets in industrial development bonds issued by nongovernmental users in the
same industry. As long as this remains the position of the SEC, the Fund will
continue to adhere to this restriction as a matter of operating policy.
However, should the SEC change its position, the Fund's Board of Directors
could authorize the Fund to invest more than 25% of its total assets in these
securities without seeking shareholder vote.
The Board of Directors recommends that shareholders vote FOR the proposal.
<PAGE>
D. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY REGARDING THE
MAKING OF LOANS
MONEY, HIGH YIELD, INCOME AND SHORT-INTERMEDIATE FUNDS
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund in order to: (i) increase the amount of its
assets which may be subject to its lending policy; (ii) authorize the Fund to
participate as a lender in an interfund lending program involving the funds
advised by T. Rowe Price or Rowe Price-Fleming International, Inc. (the "T.
Rowe Price Funds"); and (iii) make certain other clarifying changes. The new
restriction would also conform the Fund's policy on lending to one which is
expected to become standard for all T. Rowe Price Funds. The Board believes
that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such amendment be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of making loans is as
follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Make loans
although the Fund may (i) purchase issues of debt securities, acquire
privately negotiated loans to municipal borrowers, and enter into
repurchase agreements, and (ii) lend portfolio securities provided that no
such loan may be made if, as a result, the aggregate of such loans would
exceed 30% of the value of the Fund's total assets;"
As amended, the Fund's fundamental policy on loans would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Make loans,
although the Fund may (i) lend portfolio securities and participate in an
interfund lending program with other Price Funds provided that no such
loan may be made if, as a result, the aggregate of such loans would exceed
331/3% of the value of the Fund's total assets; (ii) purchase money market
securities and enter into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt securities and purchase
debt;"
33 1/3% RESTRICTION
The Fund's current fundamental policy on lending restricts the Fund to
lending no more than 30% of the value of the Fund's total assets. The new
policy would raise this amount to 33 1/3% of the value of the Fund's total
assets. The purpose of this change is to conform the Fund's policy to one that
is expected to become standard for all T. Rowe Price Funds and to permit the
Fund to lend its assets to the maximum extent permitted under applicable law.
The Board of Directors does not view this change as significantly raising the
level of risk to which the Fund would be subject.
<PAGE>
INTERFUND LENDING PROGRAM
The proposed amendments to the Fund's fundamental policy would allow the
Fund to participate in an interfund lending program with other T. Rowe Price
Funds. The nature of this program and the risks associated with the Fund's
participation are set forth under "Borrowing from Other Price Funds" beginning
on page 14. Shareholders are being asked to consider, and vote separately, on
the Fund's participation in the interfund lending program as a borrower and as
a lender.
The Directors believe that the interfund lending program: (i) may benefit
the Fund by providing it with greater flexibility to engage in lending
transactions; and (ii) would facilitate the Fund's ability to earn a higher
return on short-term investments by allowing it to lend cash to other T. Rowe
Price Funds. Implementation of interfund lending would be accomplished
consistent with applicable regulatory requirements, including the provisions
of any order the SEC might issue to the Fund and to other T. Rowe Price Funds.
The Fund has not yet applied for such an order and there is no guarantee any
such order would be granted, even if applied for.
OTHER CHANGES
The proposed new policy on lending would specifically refer to the Fund's
ability to purchase money market securities. These are investments which the
Fund is permitted to make already and this change to the Fund's fundamental
policy is intended to be clarifying only.
The Fund's current policy allows the Fund to purchase debt securities and
acquire privately negotiated loans to municipal borrowers. The proposed new
policy would allow the Fund to purchase publicly-distributed or
privately-placed debt securities and purchase debt. These changes are not
intended to reflect a change in the types of investments the Fund can make.
Under the proposed policy, consistent with its investment objective and
policies, as under the existing policy, the Fund would be able to purchase all
or part of a privately-negotiated loan, whether or not such loan was
considered a security. A privately-negotiated loan could arise as a result of
direct negotiations between the Fund and a municipality without participation
of other investors or any financial intermediary. The loan would be viewed as
an investment and its terms, e.g., interest rate and priority, could be
substantially the same as those available in a privately-placed debt security
or a publicly-offered bond.
Finally, for purposes of this restriction, the Fund will consider the
acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
Because such transactions by the Fund could be viewed as a loan by the Fund to
the maker of the note, the Board of Directors has determined to clarify this
matter by including these transactions as an exception to the Fund's general
prohibition against making loans.
The Board of Directors recommends that shareholders vote FOR the proposal.
<PAGE>
INSURED INTERMEDIATE FUND
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund in order to (i) increase the amount of its
assets which may be subject to its lending policy and (ii) clarify that the
Fund could purchase the entire or any portion of the debt of a borrower. The
new restriction would also conform the Fund's policy on lending to one which
is expected to become standard for all T. Rowe Price Funds. The Board believes
that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such amendment be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of making loans is as
follows:
"[As a matter of fundamental policy, the Fund may not:] Make loans,
although the Fund may (i) purchase money market securities and enter into
repurchase agreements; (ii) acquire publicly-distributed bonds,
debentures, notes and other debt securities and purchase debt securities
at private placement; (iii) lend portfolio securities; and (iv)
participate in an interfund lending program with other Price Funds
provided that no such loan may be made if, as a result, the aggregate of
such loans would exceed 30% of the value of the Fund's total assets;"
As amended, the Fund's fundamental policy on loans would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Make loans,
although the Fund may (i) lend portfolio securities and participate in an
interfund lending program with other Price Funds provided that no such
loan may be made if, as a result, the aggregate of such loans would exceed
33 1/3% of the value of the Fund's total assets; (ii) purchase money
market securities and enter into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt securities and purchase
debt;"
33 1/3% RESTRICTION
The Fund's current fundamental policy on lending restricts the Fund to
lending no more than 30% of the value of the Fund's total assets. The new
policy would raise this amount to 33 1/3% of the value of the Fund's total
assets. The purpose of this change is to conform the Fund's policy to one that
is expected to become standard for all T. Rowe Price Funds and to permit the
Fund to lend its assets to the maximum extent permitted under applicable law.
The Board of Directors does not view this change as significantly raising the
level of risk to which the Fund would be subject.
PURCHASE OF DEBT
The Fund's fundamental policy on lending allows the Fund to purchase debt
securities as an exception to the general limitation on making loans. However,
the policy could be interpreted as not providing a similar exception for the
purchase of straight debt, e.g., a loan to a municipal borrower which might
not be considered a debt security. The amended policy would clarify that the
purchase of this kind of debt is permissible. Because the purchase of straight
debt could be viewed as a loan by the Fund to the issuer of the debt, the
Board of Directors has determined to clarify this matter by including the
purchase of debt as an exception to the Fund's general prohibition against
making loans. The purchase of debt might be subject to greater risks of
illiquidity and unavailability of public information than would be the case
for an investment in a publicly held security. The primary purpose of this
proposal is to conform the Fund's fundamental policy in this area to one that
is expected to become standard for all T. Rowe Price Funds. However, the Board
of Directors believes that increased standardization will help promote
operational efficiencies and facilitate monitoring of compliance with the
Fund's investment restrictions.
<PAGE>
OTHER CHANGES
Finally, for purposes of this restriction, the Fund will consider the
acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
Because such transactions by the Fund could be viewed as a loan by the Fund to
the maker of the note, the Board of Directors has determined to clarify this
matter by including these transactions as an exception to the Fund's general
prohibition against making loans.
The Board of Directors recommends that shareholders vote FOR the proposal.
E. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY TO INCREASE THE
PERCENTAGE OF FUND ASSETS WHICH MAY BE INVESTED IN ANY ONE ISSUER
MONEY, HIGH YIELD AND INCOME FUNDS
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund to conform such policies to Section 5(b)(1) of
the 1940 Act and to permit the Fund greater flexibility to invest in
securities considered by T. Rowe Price to present attractive investment
opportunities. Under the amended policy, the Fund would be limited, with
respect to 75% of its total assets, to investing no more than 5% of its total
assets in the securities of any one issuer. However, no such limitation would
apply with respect to the remaining 25% of the Fund's assets. It should be
understood that the proposed amendment, by permitting the Fund to invest a
greater percentage of its assets with a single issuer, could increase the risk
to the Fund in the event of adverse developments affecting the securities of
such issuer. In addition, as under the current policy, the new restrictions
would apply to repurchase agreements. The Board has directed that such
amendment be submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of investing in the
securities of a single issuer is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase any
security if, as a result, more than 5% of the value of its total assets
would be invested in the securities of a single issuer (including
repurchase agreements with any one entity), except securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities or securities which are backed by the full faith and
credit of the United States Government. For purposes of this limitation
and that set forth in [its fundamental policy on share ownership of any
one issuer], the Fund will regard the entity which has the ultimate
responsibility for the payment of interest and principal as the issuer;"
<PAGE>
As amended, the Fund's fundamental policy on investing in the securities
of a single issuer would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, with respect to 75% of the value of its total
assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S. government, or any of its agencies or
instrumentalities;"
The proposed amendments will not affect the status of the Fund as a
diversified investment company under the 1940 Act. However, the proposed
amendments would allow the Fund to invest a significantly larger portion of
its assets in the securities of a single issuer. Thus, for example, the Fund
could invest 25% of its total assets in the securities of a single issuer, or
10% of its total assets in securities of one issuer and 15% of its total
assets in securities of another issuer. This would cause the Fund's net asset
value per share to be more affected by changes in the value of, and market,
credit and business developments with respect to, the securities of such
issuer(s). In addition, if the Fund were to have a substantial portion of its
assets invested in the securities of a single issuer, the liquidity of the
Fund's investment in that issuer could be reduced. However, the Fund's Board
of Directors believes the Fund should have the increased flexibility to pursue
its investment program which the proposed amendment would allow.
OTHER CHANGES
The proposed amended policy makes no reference to "securities backed by
the full faith and credit of the United States Government" as an exception to
the prohibition against owning more than 5% of the securities of any issuer.
Because the current and proposed restriction have an exception for securities
guaranteed by the United States Government, there is no need for the "backed
by" exception. Additionally, the proposed policy does not state that the Fund
will regard the entity which has ultimate responsibility for the payment of
interest and principal as the issuer. This statement reflects a position of
the SEC and the Fund will continue to adhere to it. However, should the SEC
change its position, the Fund would be able to change its policy without
seeking further shareholder approval. Finally, there are certain investments
which may be treated as being U.S. government securities although they are
issued by another person. For example, subject to applicable limits imposed by
the SEC, the Fund will consider municipal securities refunded by U.S.
government securities to be U.S. government securities for purposes of this
policy.
The Board of Directors recommends that shareholders vote FOR the proposal.
INSURED INTERMEDIATE FUND
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund to conform the Fund's policy in this area to
one which is expected to become standard for all diversified T. Rowe Price
Funds. The Board believes that standardized policies will assist the Fund and
T. Rowe Price in monitoring compliance with the various investment
restrictions to which the T. Rowe Price Funds are subject. The Board has
directed that such amendment be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policy in the area of investing in the
securities of a single issuer is as follows:
<PAGE>
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, with respect to 75% of its total assets, more
than 5% of the value of the Fund's total assets would be invested in the
securities of a single issuer (except securities issued or guaranteed by
the U.S. government, or any of its agencies or instrumentalities or
securities collateralized by any such securities);"
As amended, the Fund's fundamental policy on investing in the securities
of a single issuer would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, with respect to 75% of the value of its total
assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S. government, or any of its agencies or
instrumentalities;"
The proposal makes no reference to "securities collateralized by U.S.
government securities" as an exception to the general policy. However, there
are certain investments which may be treated as being U.S. government
securities although they are issued by another person. For example, subject to
applicable limits imposed by the SEC, the Fund will consider municipal
securities refunded by U.S. government securities to be U.S. government
securities for purposes of this policy.
The Board of Directors recommends that shareholders vote FOR the proposal.
SHORT-INTERMEDIATE FUND
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund to conform the Fund's policy in this area to
one which is expected to become standard for all diversified T. Rowe Price
Funds. The Board believes that standardized policies will assist the Fund and
T. Rowe Price in monitoring compliance with the various investment
restrictions to which the T. Rowe Price Funds are subject. The Board has
directed that such amendment be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policy in the area of investing in the
securities of a single issuer is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase any
security if, as a result, with respect to 75% of the value of the Fund's
total assets, more than 5% of the value of its total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities or securities which are backed by the full faith and
credit of the United States Government. For purposes of this limitation
and that set forth in [its fundamental policy on share ownership of any
one issuer], the Fund will regard the entity which has the ultimate
responsibility for the payment of interest and principal as the issuer; "
As amended, the Fund's fundamental policy on investing in the securities
of a single issuer would be as follows:
<PAGE>
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, with respect to 75% of the value of its total
assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S. government, or any of its agencies or
instrumentalities;"
The proposed amended policy makes no reference to "securities backed by
the full faith and credit of the United States Government" as an exception to
the prohibition against owning more than 5% of the securities of any issuer.
Because the current and proposed restriction have an exception for securities
guaranteed by the United States Government, there is no need for the "backed
by" exception. Additionally, the proposed policy does not state that the Fund
will regard the entity which has ultimate responsibility for the payment of
interest and principal as the issuer. This statement reflects a position of
the SEC and the Fund will continue to adhere to it. However, should the SEC
change its position, the Fund would be able to change its policy without
seeking further shareholder approval. Finally, there are certain investments
which may be treated as being U.S. government securities although they are
issued by another person. For example, subject to applicable limits imposed by
the SEC, the Fund will consider municipal securities refunded by U.S.
government securities to be U.S. government securities for purposes of this
policy.
The Board of Directors recommends that shareholders vote FOR the proposal.
F. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY REGARDING
PURCHASING MORE THAN 10% OF AN ISSUER'S VOTING SECURITIES
MONEY, HIGH YIELD, INCOME AND SHORT-INTERMEDIATE FUNDS
The Board of Directors has proposed an amendment to the Fundamental
Investment Policy of the Fund to conform such policy to Section 5(b)(1) of the
1940 Act. Under the amended policy, the Fund would be restricted from owning
more than 10% of an issuer's outstanding voting securities only with respect
to 75% of the value of its total assets, as opposed to 100% under the current
policy. Although the proposal, if adopted, is not likely to affect the Fund's
basic investment program, it would provide the Fund with greater flexibility
in pursuing this program than is currently the case. This flexibility could be
accompanied by somewhat greater risk with respect to the securities of certain
issuers, however, the Fund's Board believes the Fund should have the maximum
flexibility permitted by law in pursuit of its objective. In addition, the
proposal, if adopted, would conform the Fund's policy in this area to one
which is expected to become standard for all diversified T. Rowe Price Funds.
The Directors believe that increased standardization will help promote
efficiencies and facilitate monitoring of compliance with the Fund's
investment restrictions. The Board has directed that such change be submitted
to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of purchasing more than
10% of an issuer's voting securities is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase any
security if, as a result more than 10% of the outstanding voting
securities of any issuer would be held by the Fund, except securities
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities;"
<PAGE>
As amended, the Fund's fundamental policy in the area of purchasing more
than 10% of an issuer's voting securities would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, with respect to 75% of the value of the Fund's
total assets, more than 10% of the outstanding voting securities of any
issuer would be held by the Fund (other than obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities);"
The proposed amendments will not affect the status of the Fund as a
diversified investment company under the 1940 Act. However, the proposed
amendments would permit the Fund to take a larger position in the voting and
other securities of issuers than under the current investment limitation.
Thus, for example, the Fund would purchase 100% of the voting securities of
one or more issuers. This would cause the Fund's net asset value per share to
be more affected by changes in the value of, and market, credit and business
developments with respect to, the securities of such issuers. In addition, if
the Fund were to own a substantial percentage of an issuer's voting or other
securities, there is a risk that the liquidity of those securities would be
reduced. However, the Fund's Board of Directors believes the Fund should have
the increased flexibility to pursue its investment program which the proposed
amendment would allow. It should be noted that, elsewhere in this proxy, the
Fund is seeking authority to change its current fundamental policy prohibiting
investment in equity securities to an operating policy permitting the Fund to
invest up to 10% of its total assets in equity securities.
The Board of Directors recommends that shareholders vote FOR the proposal.
INSURED INTERMEDIATE FUND
The Board of Directors has proposed an amendment to the Fundamental
Investment Policy of the Fund to conform such policy to Section 5(b)(1) of the
1940 Act. The amendment would allow the Fund to adopt a policy which is
expected to become a standard policy in this area for all T. Rowe Price Funds.
The Board believes that standardized policies will assist the Fund and T. Rowe
Price in monitoring compliance with the various investment restrictions to
which the T. Rowe Price Funds are subject. The Board has directed that such
change be submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of purchasing more than
10% of an issuer's voting securities is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, with respect to 75% of the value of the Fund's
total assets, more than 10% of the outstanding voting securities of any
issuer would be held by the Fund (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
securities collateralized by any such securities);"
<PAGE>
As amended, the Fund's fundamental policy in the area of purchasing more
than 10% of an issuer's voting securities would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, with respect to 75% of the value of the Fund's
total assets, more than 10% of the outstanding voting securities of any
issuer would be held by the Fund (other than obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities);"
The Board of Directors recommends that shareholders vote FOR the proposal.
G. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICIES CONCERNING
REAL ESTATE
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund to conform the Fund's fundamental policy on
investing in real estate to a policy that is expected to become standard for
all T. Rowe Price Funds. The Board believes that standardized policies will
assist the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
proposed amendment is not expected to affect the investment program of the
Fund or instruments in which the Fund invests. The Fund will not purchase or
sell real estate. In addition, although no such investment is anticipated, the
proposed amendment would clarify that the Fund may invest in securities of
companies engaged in the real estate business. The Board has directed that
such amendments be submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of investing in real
estate is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
real estate (although it may purchase municipal securities and other debt
securities secured by real estate or interests therein);"
As amended, the Fund's fundamental policy on investing in real estate
would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
real estate unless acquired as a result of ownership of securities or
other instruments (but this shall not prevent the Fund from investing in
securities or other instruments backed by real estate or securities of
companies engaged in the real estate business);"
The Board of Directors recommends that shareholders vote FOR the proposal.
<PAGE>
H. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
PURCHASING EQUITY SECURITIES
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on purchasing equity securities be eliminated and replaced
with an operating policy to allow the Fund to invest up to 10% of its total
assets in equity securities which pay tax-exempt dividends and which are
otherwise consistent with the Fund's objective. Fundamental policies may be
changed only by shareholder vote, while operating policies may be changed by
the Board of Directors without shareholder approval. The Fund's policy
regarding equity securities is not required by applicable law to be
fundamental.
The purpose of the proposal is to provide the Fund with greater
flexibility in implementing its investment program in a manner consistent with
its investment objective. Under the proposed new policy, the Fund (other than
the Money Fund) could purchase, for example, the preferred stock of certain
closed-end investment companies which invest in municipal securities and pay
dividends which are exempt from federal income tax. In accordance with SEC
positions, the Money Fund would only be permitted to purchase equity
securities of other open-end tax-exempt money market funds which pay
tax-exempt dividends. The proposal would also conform the Fund's policy on
purchasing equity securities to one which is expected to become standard for
all T. Rowe Price tax-free funds. The Board believes that standardized
policies will assist the Fund and T. Rowe Price in monitoring compliance with
the various investment restrictions to which the T. Rowe Price Funds are
subject. The Board has directed that the proposal be submitted to shareholders
for approval or disapproval.
The Fund's current fundamental policy in the area of purchasing equity
securities is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase equity
securities, or securities convertible into equity securities;"
The operating policy on purchasing equity securities, to be adopted by the
Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase any equity
security or security convertible into an equity security provided that the
Fund (other than the Money Fund) may invest up to 10% of its total assets
in equity securities which pay tax-exempt dividends and which are
otherwise consistent with the Fund's investment objective and further
provided, that the Money Fund may invest up to 10% of its total assets in
equity securities of other tax-exempt open-end money market funds;"
At times, there have been attractive opportunities in the market to
purchase equity securities. For example, in recent years a number of
closed-end investment companies have come to market which invest in municipal
securities and issue preferred stock that pays dividends exempt from federal
income tax. Additionally, the Fund might find it worthwhile to invest in
certain open-end investment companies which hold municipal securities. Because
the Fund would incur duplicate management fees when making such investments,
it would only invest in other investment companies when, after taking account
of such additional fees, the investment would be beneficial to the Fund.
Investments in other investment companies are also subject to certain
limitations under the 1940 Act and applicable state law. The dividends from
such investments will be eligible for inclusion in the portion of the Fund's
income used to satisfy the 80% tax-free income test previously referred to.
<PAGE>
Other types of equity securities may be developed in the future which
present additional opportunities for the Fund. If the proposed operating
policy is adopted, the Fund would be able to respond to these opportunities,
including increasing the amount of its assets which it could invest in equity
securities, without seeking further shareholder approval.
The Board of Directors recommends that shareholders vote FOR the proposal.
ALL FUNDS EXCEPT MONEY FUND
I. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICIES ON INVESTING
IN COMMODITIES AND FUTURES CONTRACTS TO PROVIDE GREATER FLEXIBILITY IN
FUTURES TRADING
HIGH YIELD, INCOME AND SHORT-INTERMEDIATE FUNDS
The Board of Directors has proposed amendments to the Fundamental
Investment Policies of the Fund to provide the Fund with greater flexibility
in buying and selling futures contracts. The provisions of the Fund's current
fundamental investment policies in this area are not required by applicable
law and the Directors believe the Fund's investment manager, T. Rowe Price,
should have greater flexibility to enter into futures contracts consistent
with the Fund's investment objective and program and as market and regulatory
developments require and permit without the necessity of seeking further
shareholder approval. The new restriction would also conform the Fund's policy
on commodities and futures to one which is expected to become standard for all
T. Rowe Price Funds (other than money market funds). The Board believes that
standardized policies will assist the Fund and T. Rowe Price in monitoring
compliance with the various investment restrictions to which the T. Rowe Price
Funds are subject. The Board has directed that such amendments be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policies in the area of investing in
commodities and futures are as follows:
EACH FUND
COMMODITIES
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
commodities or commodity contracts; except that it may enter into futures
contracts and options on futures contracts, subject to [its fundamental
policy on futures];"
<PAGE>
EACH FUND
FUTURES CONTRACTS
"[As a matter of fundamental policy, the Fund may not:] Enter into a
futures contract, although it may enter into a futures contract or an
option on a futures contract only if, as a result thereof, (i) the then
current aggregate futures market prices of securities required to be
delivered under open futures contract sales plus the then current
aggregate purchase prices of securities required to be purchased under
open futures contract purchases would not exceed 30% of the Fund's total
assets (taken at market value at the time of entering into the contract)
and (ii) no more than 5% of the Fund's total assets (taken at market value
at the time of entering into the contract) would be committed to margin or
premiums on options on such futures contracts; provided, however, that in
the case of an option which is in-the-money at the time of purchase, the
in-the-money amount as defined under certain CFTC regulations may be
excluded in computing such 5%;"
As amended, the Fund's fundamental policy on investing in commodities and
futures would be combined and would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
physical commodities; except that it may enter into futures contracts and
options thereon;"
In addition, the Board of Directors intends to adopt the following
operating policy, which may be changed by the Board of Directors without
further shareholder approval.
"[As a matter of operating policy, the Fund will not:] Purchase a futures
contract or an option thereon if, with respect to positions in futures or
options on futures which do not represent bona fide hedging, the aggregate
initial margin and premiums on such options would exceed 5% of the Fund's
net asset value (the "New Operating Policy");"
If approved, the primary effects of the amendments would be to: (i)
eliminate the restriction that the Fund may not enter into a futures contract
if, as a result, more than 30% of the Fund's total assets would be represented
by such contracts (the "30% Limitation"); and (ii) replace the restriction
that the Fund may not commit more than 5% of its total assets to initial
margin on futures contracts or premiums on options (the "5% Limitation") with
the New Operating Policy. Although not specifically described in the amended
restriction, the Fund would have the ability to invest in instruments which
have the characteristics of futures and securities. Although it has no current
intention of doing so, the new policy would also permit the Fund to enter into
any type of futures contract, not just those described in its current
prospectus. The risks of such futures could differ from the risks of the
Fund's currently permitted futures activity.
THE 30% LIMITATION
In response to a prior position of the SEC, the Fund has limited trading
in futures to having no more than 30% of its assets represented by futures
contracts. The SEC no longer takes this position. Although the Fund has no
current intention of engaging in substantial trading in futures, this
situation could change, and the Directors believe the best interest of the
Fund would be served by removing this requirement from the Fund's fundamental
policy on futures. Removal of the 30% Limitation could allow the Fund, subject
to applicable margin requirements, to hedge 100% of the value of its portfolio
and to enter into futures contracts and options thereon to a greater degree
than is currently permitted. All trading in futures by the Fund would be
subject to applicable SEC and Commodity Futures Trading Commission ("CFTC")
rules and applicable state law.
<PAGE>
THE 5% LIMITATION
The 5% Limitation was previously required by rules of the CFTC in order
for the Fund to be excluded from status as a commodity pool operator under
applicable CFTC regulations, even if the Fund used futures for hedging
purposes only. The CFTC no longer applies the 5% test to bona fide hedging
activities, which is generally the type of futures activity in which the Fund
engages. Although applicable state law may still require compliance with
similar limitations, the Board of Directors believes the best interest of the
Fund would be served by replacing the 5% Limitation with the New Operating
Policy. This would provide the Fund with the flexibility to adapt to changes
in CFTC regulations and any state laws without seeking further shareholder
approval.
The Board of Directors recommends that shareholders vote FOR the proposal.
INSURED INTERMEDIATE FUND
The Board of Directors has proposed amendments to the Fund's Fundamental
Investment Policies on commodities and futures. The principal purpose of the
proposals is to conform the Fund's policies on commodities and futures with
policies which are expected to become standard for all T. Rowe Price Funds
(other than money market funds). The Board has directed that such amendments
be submitted to shareholders for approval or disapproval.
The Fund's current fundamental policies in the area of investing in
commodities and futures are as follows:
COMMODITIES
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
commodities or commodity contracts; except that it may enter into futures
contracts and options on futures contracts, subject to [its fundamental
policy on futures]; and invest in instruments which have the
characteristics of both futures contracts and securities;"
FUTURES CONTRACTS
"[As a matter of fundamental policy, the Fund may not:] Enter into a
futures contract or an option thereon, although the Fund may enter into
financial futures contracts or options on financial futures contracts;"
As amended, the Fund's fundamental policies on investing in futures and
commodities would be combined and would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
physical commodities; except that it may enter into futures contracts and
options thereon;"
In addition, the Board of Directors intends to adopt the following
operating policy, which may be changed by the Board of Directors without
further shareholder approval.
"[As a matter of operating policy, the Fund will not:] Purchase a futures
contract or an option thereon if, with respect to positions in futures or
options on futures which do not represent bona fide hedging, the aggregate
initial margin and premiums on such options would exceed 5% of the Fund's
net asset value (the "New Operating Policy");"
<PAGE>
If adopted, the primary effect of the amendment would be to remove the
restriction in the current policies the Fund may only enter into financial
futures. Although not specifically described in the amended fundamental
restriction, the Fund would continue to have the ability to invest in
instruments which have the characteristics of futures and securities.
The Fund has no current intention of investing in other types of futures.
However, the new policy, if adopted, would allow it to do so. The risks of any
such futures activity could differ from the risks of the Fund's currently
permitted futures activity. As noted, the principal purpose of seeking the
proposed change in the Fund's fundamental policies is to conform such policies
to ones which are expected to become standard for all T. Rowe Price Funds. The
Board of Directors believes that standardized policies will assist the Fund
and T. Rowe Price in monitoring compliance with the various investment
restrictions to which the T. Rowe Price Funds are subject.
The Board of Directors recommends that shareholders vote FOR the proposal.
PROPOSALS J-U PERTAIN ONLY TO THE MONEY, HIGH YIELD, INCOME AND
SHORT-INTERMEDIATE FUNDS
J. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON THE ISSUANCE
OF SENIOR SECURITIES
The Fund's Board of Directors has proposed an amendment to the Fund's
Fundamental Investment Policy on issuing senior securities which would allow
the Fund to issue senior securities to the extent permitted under the 1940
Act. The new policy, if adopted, would provide the Fund with greater
flexibility in pursuing its investment objective and program and would conform
the Fund's policy in this area to one which is expected to become standard for
all T. Rowe Price Funds. The Board believes that standardized policies will
assist the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that such amendment be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of issuing senior
securities is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Issue any class of
securities senior to any other class of securities. (For the purpose of
this restriction, the purchase and sale of futures contracts and options
thereon and collateral arrangements with respect to margin for futures
contracts and options thereon are not deemed to be the issuance of senior
securities.);"
As amended, the Fund's fundamental policy on issuing senior securities
would be as follows:
<PAGE>
"[As a matter of fundamental policy, the Fund may not:] Issue senior
securities except in compliance with the Investment Company Act of 1940;"
The 1940 Act limits a Fund's ability to issue senior securities or engage
in investment techniques which could be deemed to create a senior security.
Although the definition of a "senior security" involves complex statutory and
regulatory concepts, a senior security is generally thought of as a class of
security preferred over shares of the Fund with respect to the Fund's assets
or earnings. It generally does not include temporary or emergency borrowings
by the Fund (which might occur to meet shareholder redemption requests) in
accordance with federal law and the Fund's investment limitations. Various
investment techniques that obligate the Fund to pay money at a future date
(e.g., the purchase of securities for settlement on a date that is longer than
required under normal settlement practices) occasionally raise questions as to
whether a "senior security" is created. The Fund utilizes such techniques only
in accordance with applicable regulatory requirements under the 1940 Act.
Although the Fund has no current intention of issuing senior securities, the
proposed change will clarify the Fund's authority to issue senior securities
in accordance with the 1940 Act without the need to seek shareholder approval.
Although, not set forth in the proposed policy, the Fund (other than the Money
Fund) would continue to be able to purchase and sell futures contracts and
options thereon.
The Board of Directors recommends that shareholders vote FOR the proposal.
K. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY REGARDING
UNDERWRITING
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund on underwriting to conform such policy to one
which is expected to become standard for all T. Rowe Price Funds. The Board
believes that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The proposed change, if adopted, is not expected
to lead to any changes in the manner in which the Fund conducts its business.
The Board of Directors has directed that such amendments be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of underwriting is as
follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Underwrite any
issue of securities, except to the extent that the purchase of municipal
securities, or other permitted investments, directly from the issuer
thereof (or from an underwriter for an issuer) and the later disposition
of such securities in accordance with the Fund's investment program may be
deemed to be an underwriting;"
As amended, the Fund's fundamental policy on underwriting would be as
follows:
"[As a matter of fundamental policy, the Fund may not:] Underwrite
securities issued by other persons, except to the extent that the Fund may
be deemed to be an underwriter within the meaning of the Securities Act of
1933 in connection with the purchase and sale of its portfolio securities
in the ordinary course of pursuing its investment program;"
The Board of Directors recommends that shareholders vote FOR the proposal.
<PAGE>
L. PROPOSAL TO CHANGE THE DESIGNATION OF THE FUND'S FUNDAMENTAL INVESTMENT
POLICY ON INVESTING FOR CONTROL OF PORTFOLIO COMPANIES
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing for control of portfolio companies be changed
from a fundamental policy to an identical operating policy. Fundamental
policies may only be changed with shareholder approval, while operating
policies may be changed by vote of the Board of Directors without shareholder
approval. The Fund has no current intention of investing in companies for the
purpose of obtaining or exercising control. However, the policy is not
required to be fundamental under the 1940 Act. The purpose of the proposal is
to conform the Fund's policy in this area to one which is expected to become
standard for all T. Rowe Price Funds. The Board believes that standardized
policies will assist the Fund and T. Rowe Price in monitoring compliance with
the various investment restrictions to which the T. Rowe Price Funds are
subject. The Board has directed that such change be submitted to shareholders
for approval or disapproval.
The Fund's current fundamental policy in the area of investing for control
of portfolio companies is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Invest in
companies for the purpose of exercising management or control;"
As changed, the Fund's operating policy on investing for control of
portfolio companies would be as follows:
"[As a matter of operating policy, the Fund may not:] Invest in companies
for the purpose of exercising management or control;"
The Board of Directors recommends that shareholders vote FOR the proposal.
<PAGE>
M. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
INVESTING IN THE SECURITIES OF OTHER INVESTMENT COMPANIES
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on investing in the securities of other investment companies be
eliminated and replaced with a more permissive operating policy. Fundamental
policies may be changed only by shareholder vote, while operating policies may
be changed by vote of the Board of Directors without shareholder approval. The
current policy of the Fund is not required by applicable law to be
fundamental. Under the new operating policy, and provided a proposal to permit
the Fund to invest in equity securities set forth elsewhere in this proxy is
also approved, the Fund could invest in the securities of other investment
companies in a manner consistent with the Fund's investment program. Such
securities could include, for example, for the Funds other than the Money
Fund, preferred stock of certain closed-end investment companies which invest
in municipal securities. In accordance with SEC positions, the Money Fund
would only purchase the securities of other investment companies to the extent
they are tax-free open-end money market funds which pay tax-exempt dividends.
These securities may, at times, provide attractive investment opportunities
for the Fund. In addition the proposed change is intended to conform the
Fund's policy in this area to one which is expected to become standard for all
T. Rowe Price Funds. The Board believes that standardized policies will assist
the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. Because
the Fund would incur duplicate management fees when making such investments,
it would only invest in other investment companies when, after taking account
of such additional fees, the investment would be beneficial to the Fund. The
Board has directed that such change be submitted to shareholders for approval
or disapproval.
The Fund's current fundamental policy in the area of investing in the
securities of other investment companies is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities of other investment companies, except in connection with a
merger, consolidation, acquisition, or reorganization;"
The operating policy on investing in the securities of other investment
companies, to be adopted by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase securities
of open-end or closed-end investment companies except in compliance with
the Investment Company Act of 1940 and applicable state law provided that,
the Money Fund may only purchase the securities of other tax-exempt
open-end money market funds;"
The proposed change would permit the Fund to invest in the securities of
other investment companies to the maximum extent permitted under the 1940 Act
and applicable state law, as described below, without further shareholder
approval. However, the Fund would only purchase such securities in a manner
consistent with its investment objective and program. Under the 1940 Act, the
Fund is subject to various restrictions in purchasing the securities of
closed-end and open-end investment companies. The 1940 Act limits the Fund,
immediately after a purchase, to (1) investing no more than 10% of its total
assets in the securities of other investment companies; (2) owning no more
than 3% of the total outstanding voting stock of any other investment company;
and (3) having no more than 5% of its total assets invested in securities of
another investment company. Additionally, in the case of a closed-end
investment company, the Fund, and all other mutual funds having T. Rowe Price
as an investment manager, are limited to owning no more than 10% of the total
outstanding voting stock of any closed-end company.
<PAGE>
The 1940 Act provides an alternative set of restrictions if the Fund were
to exceed certain of these percentage limitations. Under the alternative, the
Fund could invest any or all of its assets in other investment companies,
provided the Fund and all of its affiliates, immediately after a purchase, did
not own more than 3% of the total outstanding stock of the other investment
company. Under this alternative restriction, the rate at which the Fund could
redeem its investment in the other investment companies in which it invests
might be restricted which could result in a situation where the Fund would not
be able to redeem a portfolio security when it appears to T. Rowe Price to be
in the best interest of the Fund to do so. T. Rowe Price would consider the
effect on the Fund's liquidity and the Fund's ability to timely dispose of
securities, before purchasing the securities of another investment company.
Certain states impose further limitations on the purchase by the Fund of
the securities of other investment companies. At the present time, these
restrictions could prohibit the Fund, with certain exceptions, from: (i)
purchasing or retaining the securities of any open-end investment company;
(ii) purchasing the securities of any closed-end investment company except
through a purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the customary broker's
commission or when the purchase is part of a plan of merger, consolidation,
reorganization or acquisition; and (iii) investing more than 10% of its assets
in one or more investment companies.
It is possible the requirements of the 1940 Act or the states regarding
the Fund's investment in the securities of closed-end and open-end investment
companies could change, or that the Fund could obtain a waiver of their
application. The Board of Directors believes the Fund should have the ability
to respond to potential changes in these areas without the necessity of
holding a further meeting of shareholders.
The Board of Directors recommends that shareholders vote FOR the proposal.
N. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
PURCHASING SECURITIES ON MARGIN
MONEY FUND
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on purchasing securities on margin be changed from a fundamental policy
to an operating policy. Fundamental policies may be changed only by
shareholder vote, while operating policies may be changed by the Board of
Directors without shareholder approval. The only effect of the proposal would
be to change the Fund's fundamental policy on margin to an operating policy.
The Board has directed that such amendment be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of purchasing securities
on margin is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities on margin, except for use of short-term credit necessary for
clearance of purchases of portfolio securities;"
As amended, the Fund's operating policy on purchasing securities on margin
would be as follows:
<PAGE>
"[As a matter of operating policy, the Fund may not:] Purchase securities
on margin, except for use of short-term credit necessary for clearance of
purchases of portfolio securities;"
The Board of Directors recommends that shareholders vote FOR the proposal.
HIGH YIELD, INCOME AND SHORT-INTERMEDIATE FUNDS
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on purchasing securities on margin be changed from a fundamental policy
to an operating policy. Fundamental policies may be changed only by
shareholder vote, while operating policies may be changed by the Board of
Directors without shareholder approval. The purpose of the proposal is to
allow the Fund greater flexibility in responding to market and regulatory
developments by providing the Board of Directors with the authority to make
changes in the Fund's policy on margin without further shareholder approval.
The new restriction would also conform the Fund's policy on margin to one
which is expected to become standard for all T. Rowe Price Funds (except the
money market funds). The Board believes that standardized policies will assist
the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that such amendment be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of purchasing securities
on margin is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities on margin, except for use of short-term credit necessary for
clearance of purchases of portfolio securities; except that the High
Yield, Income and Short-Intermediate Funds may make initial and
maintenance margin deposits in connection with options contracts, futures
contracts, and options on futures contracts, subject to [its fundamental
policy on futures];"
As amended, the Fund's operating policy on purchasing securities on margin
would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase securities
on margin, except (i) for use of short-term credit necessary for clearance
of purchases of portfolio securities and (ii) it may make margin deposits
in connection with futures contracts or other permissible investments;"
The Fund's current policy and the proposed operating policy prohibit the
purchase of securities on margin but allow the Fund to use such short-term
credit as is necessary for clearance of purchases of portfolio securities and
make margin deposits in connection with futures contracts. The proposed
operating policy also would acknowledge that the Fund is permitted to make
margin deposits in connection with other investments in addition to futures.
Such investments might include, but are not limited to, written options where
the Fund could be required to put up margin with a broker as security for the
Fund's obligation to deliver the security on which the option is written. The
Fund is already permitted to write options and a vote against this proposal
would not change this authority.
The Board of Directors recommends that shareholders vote FOR the proposal.
<PAGE>
O. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON PLEDGING
ITS ASSETS
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on pledging its assets be eliminated and replaced with an operating
policy. Fundamental policies may be changed by shareholder vote, while
operating policies may be changed by vote of the Board of Directors without
shareholder approval. Applicable law does not require the current percentage
limitation set forth in the policy and does not require such policy to be
fundamental. The new operating policy would allow the Fund to pledge up to 33
1/3% of its total assets (an increase from the current restriction) in
connection with Fund indebtedness and permissible investments. The Board of
Directors believes it is advisable to provide the Fund with greater
flexibility in pursuing its investment objective and program and responding to
regulatory and market developments. The new restriction would also conform the
Fund's policy on pledging its assets to one which is expected to become
standard for all T. Rowe Price Funds. The Board believes that standardized
policies will assist the Fund and T. Rowe Price in monitoring compliance with
the various investment restrictions to which the T. Rowe Price Funds are
subject. The Board has directed that such proposals be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of pledging its assets
is as follows:
MONEY FUND
"[As a matter of fundamental policy, the Fund may not:] Mortgage, pledge,
hypothecate or, in any other manner, transfer as security for indebtedness
any security owned by the Fund, except as may be necessary in connection
with permissible borrowings, in which event such mortgaging, pledging, or
hypothecating may not exceed 15% of the Fund's assets, valued at cost;
provided, however, that as a matter of operating policy, which may be
changed without shareholder approval, the Fund will limit any such
mortgaging, pledging, or hypothecating to 10% of its net assets, valued at
market, in order to comply with certain state investment restrictions;"
HIGH YIELD, INCOME AND SHORT-INTERMEDIATE FUNDS
"[As a matter of fundamental policy, the Fund may not:] Mortgage, pledge,
hypothecate or, in any other manner, transfer as security for indebtedness
any security owned by the Fund, except (i) as may be necessary in
connection with permissible borrowings, in which event such mortgaging,
pledging, or hypothecating may not exceed 15% of the Fund's assets, valued
at cost; provided, however, that as a matter of operating policy, which
may be changed without shareholder approval, the Fund will limit any such
mortgaging, pledging, or hypothecating to 10% of its net assets, valued at
market, in order to comply with certain state investment restrictions; and
(ii) the Fund may enter into futures contracts;"
<PAGE>
The operating policy on pledging of assets, to be adopted by the Fund,
would be as follows:
"[As a matter of operating policy, the Fund may not:] Mortgage, pledge,
hypothecate or, in any manner, transfer any security owned by the Fund as
security for indebtedness except as may be necessary in connection with
permissible borrowings or investments and then such mortgaging, pledging
or hypothecating may not exceed 33 1/3% of the Fund's total assets at the
time of the borrowing or investment;"
The operating policy would allow the Fund to pledge 33 1/3% of its total
assets instead of the current 15% as set forth in the Fund's fundamental
policy (and 10% as set forth in the Fund's current operating policy). The new
policy, in addition to allowing pledging in connection with indebtedness,
would clarify the Fund's ability to pledge its assets in connection with
permissible investments. It is not contemplated that the Money Fund would
pledge its assets under any circumstances other than in connection with
permissible borrowings. Pledging could arise for the other Funds under various
circumstances including when a Fund purchases certain types of securities on a
when-issued or forward basis. As an operating policy, the Board of Directors
could modify the proposed policy on pledging in the future as the need arose,
without seeking further shareholder approval.
Pledging assets to other parties is not without risk. Because assets that
have been pledged to other parties may not be readily available to the Fund,
the Fund may have less flexibility in liquidating such assets if needed.
Therefore, the new policy, by allowing the Fund to pledge a greater portion of
its assets, could, to a greater extent than the current policy, impair the
Fund's ability to meet current obligations, or impede portfolio management. On
the other hand, these potential risks should be considered together with the
potential benefits, such as increased flexibility to borrow and the increased
ability of the Fund to pursue its investment program.
The Board of Directors recommends that shareholders vote FOR the proposal.
P. TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON INVESTING IN OIL
AND GAS PROGRAMS
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing in oil and gas programs be eliminated and
replaced with a substantially similar operating policy. Fundamental policies
may be changed only by shareholder vote, while operating policies may be
changed by the Board of Directors without shareholder approval. The current
policy of the Fund is not required by applicable law to be fundamental. The
purpose of the proposal is to conform the Fund's policy on investing in oil
and gas programs to one which is expected to become standard for all T. Rowe
Price Funds. The Board believes that standardized policies will assist the
Fund and T. Rowe Price in monitoring compliance with the various investment
restrictions to which the T. Rowe Price Funds are subject. The Board has
directed that the proposal be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policy in the area of investing in oil and
gas programs is as follows:
<PAGE>
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase
participations or other direct interests or enter into leases with respect
to oil, gas, other mineral exploration or development programs;"
The operating policy on investing in oil and gas programs, to be adopted
by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase
participations or other direct interests or enter into leases with respect
to, oil, gas or other mineral exploration or development programs;"
The Board of Directors recommends that shareholders vote FOR the proposal.
Q. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON OPTIONS
MONEY FUND
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing in options be eliminated and replaced with a
substantially similar operating policy. Fundamental policies may be changed
only by shareholder vote, while operating policies may be changed by vote of
the Board of Directors without shareholder approval. The new restriction would
conform the Fund's policy on investing in options to one which is expected to
become standard for all T. Rowe Price Funds. The Board believes that
standardized policies will assist the Fund and T. Rowe Price in monitoring
compliance with the various investment restrictions to which the T. Rowe Price
Funds are subject. The Board has directed that such change be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of investing in options
is as follows:
"[As a matter of fundamental policy, the Fund may not:] Invest in puts,
calls, straddles, spreads, or any combination thereof, except that the
Fund may purchase securities with rights to put securities to the seller
in accordance with its investment program;"
The operating policy on investing in options, to be adopted by the Fund,
would be as follows:
"[As a matter of operating policy, the Fund may not:] Invest in puts,
calls, straddles, spreads, or any combination thereof, except to the
extent permitted by the prospectus and Statement of Additional
Information;"
<PAGE>
While the Fund does not normally engage in options transactions, some of
the Fund's investments may include demand or "put" features, which can provide
additional liquidity or protection against loss. In addition, the Fund may
from time to time enter into agreements with option-like features, such as
standby commitments or other instruments conveying the right or obligation to
buy or sell securities at a future date. The Fund can already invest in these
types of options and a vote against the proposal would not change this
authority. However, approval of the proposal would allow T. Rowe Price to
develop and implement additional strategies in the future, without the need to
seek further shareholder approval. Any such strategies must, of course, be in
accordance with applicable law (such as Rule 2a-7 under the 1940 Act). In
addition to review by the Directors, the Fund would not engage in such
strategies until they, and any risk associated with their use, had been
described sufficiently in the Fund's Prospectus and Statement of Additional
Information.
The Board of Directors recommends that shareholders vote FOR the proposal.
HIGH YIELD, INCOME AND SHORT-INTERMEDIATE FUNDS
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing in options be eliminated and replaced with a
substantially similar operating policy. Fundamental policies may be changed
only by shareholder vote, while operating policies may be changed by vote of
the Board of Directors without shareholder approval. Under the new operating
policy, the Fund would be permitted to purchase and sell options of any type
for any purpose consistent with the Fund's investment program. The purpose of
the proposal is to allow the Fund greater flexibility in responding to market
and regulatory developments by allowing the Board of Directors the authority
to make changes in the Fund's policy on options without seeking further
shareholder approval. The new restriction would also conform the Fund's policy
on investing in options to one which is expected to become standard for all T.
Rowe Price Funds. The Board believes that standardized policies will assist
the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that such change be submitted to shareholders for approval
or disapproval.
The Fund's current fundamental policy in the area of investing in options
is as follows:
INCOME FUND
"[As a matter of fundamental policy, the Fund may not:] Invest in puts,
calls, straddles, spreads, or any combination thereof, except that the
Fund may write secured call and put options and purchase put and call
options. The Fund does not consider a security secured by a call to be
"pledged" as that term is used in [its fundamental policy on mortgaging];"
HIGH YIELD AND SHORT-INTERMEDIATE FUNDS
"[As a matter of fundamental policy, the Fund may not:] Invest in puts,
calls, straddles, spreads, or any combination thereof, except that the
Fund: (i) may write secured call and put options and purchase put and call
options; and (ii) may purchase securities with rights to put securities to
the seller in accordance with their investment programs. The Fund does not
consider a security secured by a call to be "pledged" as that term is used
in [its fundamental policy on mortgaging];"
The operating policy on investing in options, to be adopted by the Fund,
would be as follows:
<PAGE>
"[As a matter of operating policy, the Fund may not:] Invest in puts,
calls, straddles, spreads, or any combination thereof, except to the
extent permitted by the prospectus and Statement of Additional
Information;"
The Board of Directors recommends that shareholders vote FOR the proposal.
R. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
OWNERSHIP OF PORTFOLIO SECURITIES BY OFFICERS AND DIRECTORS
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on the ownership of portfolio securities by officers and
directors of the Fund and T. Rowe Price be eliminated and replaced with a
substantially similar operating policy. Fundamental policies may be changed
only by shareholder vote, while operating policies may be changed by vote of
the Board of Directors without shareholder approval. The current fundamental
policy was formerly required by certain states to be fundamental, but this is
no longer the case. The Board has directed that the proposal be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of ownership of
portfolio securities by officers and directors is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase or retain
the securities of any issuer if, to the knowledge of the Fund's
management, those officers or directors of the Fund, and of its investment
manager, who each owns beneficially more than .5% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
securities;"
As changed, the Fund's operating policy in the area of ownership of
portfolio securities by officers and directors would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase or retain
the securities of any issuer if, to the knowledge of the Fund's
management, those officers and directors of the Fund, and of its
investment manager, who each own beneficially more than .5% of the
outstanding securities of such issuer, together own beneficially more than
5% of such securities;"
The Board of Directors recommends that shareholders vote FOR the proposal.
<PAGE>
S. PROPOSAL TO CHANGE THE DESIGNATION OF THE FUND'S FUNDAMENTAL INVESTMENT
POLICY REGARDING THE PURCHASE OF RESTRICTED AND ILLIQUID SECURITIES
MONEY FUND
The Board of Directors has proposed that the Fund's Fundamental Investment
Policies on purchasing restricted and illiquid securities be changed from
fundamental policies and combined into a single operating policy. Fundamental
policies may be changed only by shareholder vote, while operating polices may
be changed by the Board of Directors without shareholder approval. If the
proposed changes are approved by shareholders, the Board of Directors of the
Fund intends to adopt a single operating policy which conforms the Fund's
operating policy in this area to one which is expected to become standard for
all T. Rowe Price tax-free funds, other than money market funds. The Fund's
current fundamental policies in this area are not required by applicable law
and the proposed change should provide the Fund with greater flexibility in
responding to market and regulatory developments. The Board has directed that
such change be submitted to shareholders for approval or disapproval.
The Fund's current fundamental policies in the area of purchasing illiquid
and restricted securities are as follows:
ILLIQUID SECURITIES
"[As a matter of fundamental policy, the Fund may not:] Purchase illiquid
or unmarketable securities or invest in repurchase agreements which do not
provide for payment within seven days if, as a result of such investment,
more than 10% of the Fund's net assets would be invested in such
securities;"
RESTRICTED SECURITIES
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities with legal or contractual restrictions on resale (except
repurchase agreements), except that each Fund may acquire privately
negotiated loans to tax-exempt borrowers as set forth in the prospectus;"
As changed, the operating policy on investing in illiquid securities, to
be adopted by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase illiquid
securities if, as a result, more than 10% of its net assets would be
invested in such securities;"
ILLIQUID SECURITIES
As an open-end investment company, the Fund may not hold a significant
amount of illiquid securities because such securities may present problems of
accurate valuation and it is possible the Fund could have difficulty
satisfying redemptions within seven days as required under the 1940 Act. In
general, the SEC defines an illiquid security as one which cannot be sold in
the ordinary course of business within seven days at approximately the value
at which the Fund has valued the security. Illiquid securities have included
those enumerated in the Fund's fundamental restrictions on restricted and
illiquid securities--certain securities with legal or contractual restrictions
on resale ("restricted securities"), unmarketable securities and repurchase
agreements of a duration of more than seven days.
If this proposal is approved by shareholders, the specific types of
securities that may be deemed to be illiquid will be determined from time to
time by T. Rowe Price under the supervision of the Directors, with reference
to legal, regulatory and market developments. Unlike under the current policy,
there would not be an absolute prohibition against purchasing certain types of
securities. In addition, by making the Fund's policy on illiquid securities
non-fundamental, the Fund will be able to respond more quickly to market or
regulatory developments because no shareholder vote will be required to
redefine what types of securities may be deemed illiquid or to otherwise
change the Fund's operating policy. In accordance with the Fund's policy
prohibiting the Fund from acting as an underwriter, the Fund will not purchase
restricted securities for the purpose of subsequent distribution in a manner
which would cause the Fund to be deemed an underwriter.
The Board of Directors recommends that shareholders vote FOR the proposal.
<PAGE>
HIGH YIELD, INCOME AND SHORT-INTERMEDIATE FUNDS
The Board of Directors has proposed that the Fund's Fundamental Investment
Policies on purchasing restricted and illiquid securities be changed from
fundamental policies and combined into a single operating policy. Fundamental
policies may be changed only by shareholder vote, while operating polices may
be changed by the Board of Directors without shareholder approval. If the
proposed changes are approved by shareholders, the Board of Directors of the
Fund intends to adopt a single operating policy which would (1) allow the Fund
to invest up to 15% of its net assets in illiquid securities and (2) conform
the Fund's operating policy in this area to one which is expected to become
standard for all T. Rowe Price tax-free funds, other than money market funds.
The Fund's current fundamental policies in this area are not required by
applicable law and the proposed change should provide the Fund with greater
flexibility in responding to market and regulatory developments. The Board has
directed that such change be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policies in the area of purchasing illiquid
and restricted securities are as follows:
EACH FUND
ILLIQUID SECURITIES
"[As a matter of fundamental policy, the Fund may not:] Purchase illiquid
or unmarketable securities or invest in repurchase agreements which do not
provide for payment within seven days if, as a result of such investment,
more than 10% of the Fund's net assets would be invested in such
securities;"
EACH FUND
RESTRICTED SECURITIES
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities with legal or contractual restrictions on resale (except
repurchase agreements), except that each Fund may acquire privately
negotiated loans to tax-exempt borrowers as set forth in the prospectus;"
As changed, the operating policy on investing in illiquid securities, to be
adopted by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase illiquid
securities if, as a result, more than 15% of its net assets would be
invested in such securities;"
<PAGE>
ILLIQUID SECURITIES
As an open-end investment company, the Fund may not hold a significant
amount of illiquid securities because such securities may present problems of
accurate valuation and it is possible the Fund could have difficulty
satisfying redemptions within seven days as required under the 1940 Act. In
general, the SEC defines an illiquid security as one which cannot be sold in
the ordinary course of business within seven days at approximately the value
at which the Fund has valued the security. Illiquid securities have included
those enumerated in the Fund's fundamental restrictions on restricted and
illiquid securities--certain securities with legal or contractual restrictions
on resale ("restricted securities"), unmarketable securities and repurchase
agreements of a duration of more than seven days.
If this proposal is approved by shareholders, the specific types of
securities that may be deemed to be illiquid will be determined from time to
time by T. Rowe Price under the supervision of the Directors, with reference
to legal, regulatory and market developments. Unlike under the current policy,
there would not be an absolute prohibition against purchasing certain types of
securities. In addition, by making the Fund's policy on illiquid securities
non-fundamental, the Fund will be able to respond more quickly to market or
regulatory developments because no shareholder vote will be required to
redefine what types of securities may be deemed illiquid or to otherwise
change the Fund's operating policy. In accordance with the Fund's policy
prohibiting the Fund from acting as an underwriter, the Fund will not purchase
restricted securities for the purpose of subsequent distribution in a manner
which would cause the Fund to be deemed an underwriter.
PERCENTAGE LIMITATIONS
The Fund's fundamental policy limits it to investing no more than 10% of
its net assets in illiquid or unmarketable securities. The new operating
policy to be adopted by the Board of Directors, if shareholders approve
elimination of the fundamental policy, would allow the Fund to invest up to
15% of its net assets in illiquid securities. The 15% limitation represents a
higher percentage than the Fund was previously allowed to invest in illiquid
securities and is the result of a 1992 liberalization by the SEC in this area.
If the fundamental policy is changed to an operating policy, the Fund will,
without the necessity of any further shareholder vote, be able to take
advantage of any future changes in SEC policy in this area.
The Board of Directors recommends that shareholders vote FOR the proposal.
T. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON SHORT
SALES
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on effecting short sales be eliminated and replaced with a
substantially similar operating policy. Fundamental policies may be changed
only by shareholder vote, while operating policies may be changed by the Board
of Directors without shareholder approval. The current policy of the Fund is
not required by applicable law to be fundamental. While there are no
foreseeable circumstances under which the Money Fund would sell securities
short, the proposal, if adopted, would provide the other Funds with greater
flexibility in pursuing their investment objective and program. The new
restriction would also conform the Fund's policy on short sales to one which
is expected to become standard for all T. Rowe Price Funds. The Board believes
that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that the proposal be
submitted to shareholders for approval or disapproval.
<PAGE>
The Fund's current fundamental policy in the area of effecting short sales
of securities is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Effect short sales
of securities . . .;"
The operating policy on short sales, to be adopted by the Fund, would be
as follows:
"[As a matter of operating policy, the Fund may not:] Effect short sales
of securities;"
The current fundamental policy was formerly required by certain states to
be fundamental. This is no longer the case. The replacement of the policy with
an operating policy will adequately protect the Funds while providing greater
flexibility to the non-money market Funds to respond to market or regulatory
developments by allowing the Board of Directors the authority to make changes
in this policy without seeking further shareholder approval.
In a short sale, an investor, such as the Fund, sells a borrowed security
and must return the same security to the lender. Although the Board has no
current intention of allowing the Fund to engage in short sales, if the
proposed amendment is adopted, the Board would be able to authorize the Fund
to engage in short sales at any time without further shareholder action. In
such a case, the Fund's prospectus would be amended and a description of short
sales and their risks would be set forth therein. Any such short sales would
be subject to extensive regulation under the 1940 Act designed to ensure the
Fund could not use short sales for leveraging purposes.
The Board of Directors recommends that shareholders vote FOR the proposal.
U. PROPOSAL TO CHANGE THE DESIGNATION OF THE FUND'S FUNDAMENTAL INVESTMENT
POLICY ON INVESTING IN UNSEASONED ISSUERS
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on investing in the securities of unseasoned issuers be eliminated and
replaced by a substantially similar operating policy. Fundamental policies may
only be changed with shareholder approval, while operating policies may be
changed by vote of the Board of Directors without shareholder approval. The
proposed change should provide the Fund with greater flexibility in responding
to market and regulatory developments without the necessity of seeking further
shareholder approval. The new restriction would also conform the Fund's policy
on investing in unseasoned issuers to one which is expected to become standard
for all T. Rowe Price Funds. The Board believes that standardized policies
will assist the Fund and T. Rowe Price in monitoring compliance with the
various investment restrictions to which the T. Rowe Price Funds are subject.
The Board has directed that such change be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of investing in
unseasoned issuers is as follows:
<PAGE>
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase any
security if, as a result, more than 5% of the value of the Fund's total
assets would be invested in the securities of issuers which at the time of
purchase had been in operation for less than three years, except
obligations issued or guaranteed by the U.S. Government, or its agencies,
and municipal securities (for this purpose, the period of operation of any
issuer shall include the period of operation of any predecessor or
unconditional guarantor of such issuer); provided, however, that for the
purpose of this limitation, industrial development bonds issued by
nongovernmental users shall not be deemed municipal securities;"
The operating policy on investing in unseasoned issuers, to be adopted by
the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase a security
(other than obligations issued or guaranteed by the U.S., any foreign,
state or local government, their agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be
invested in the securities of issuers which at the time of purchase had
been in operation for less than three years (for this purpose, the period
of operation of any issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer). This restriction
does not apply to securities of pooled investment vehicles or mortgage or
asset-backed securities;"
The new operating policy would add securities issued or guaranteed by
foreign governments, as well as securities of pooled investment vehicles and
mortgage and asset-backed securities to the list of those which are excluded
from the percentage restriction on investing in unseasoned issuers. The
reference to foreign governments is strictly to conform the policy to one
which is expected to become standard for all T. Rowe Price Funds. The Fund has
no current intention of investing in foreign securities. The proposed new
operating policy does not refer to industrial development bonds. However, in
accordance with applicable SEC positions, the Fund would continue to exclude
industrial development bonds issued by nongovernmental users from status as
municipal securities under the policy. If the SEC were to change its position,
the Fund would be able to adopt the new SEC position without seeking a
shareholder vote.
The Board of Directors recommends that shareholders vote FOR the proposal.
EACH FUND
3. RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The selection by the Board of Directors of the Money, High Yield and
Insured Intermediate Funds of the firm of Coopers & Lybrand as the independent
accountants for each Fund for the three-month fiscal year ending May 31, 1994
and for fiscal year ending May 31, 1995 is to be submitted for ratification or
rejection by the shareholders of each Fund at the Shareholders Meeting. The
firm of Coopers & Lybrand has served the Money, High Yield and Insured
Intermediate Funds as independent accountants since each such Fund's
inception. The selection by the Board of Directors of the Income and
Short-Intermediate Funds of the firm of Price Waterhouse as the independent
accountants for each Fund for the three-month fiscal year ending May 31, 1994
and for fiscal year ending May 31, 1995 is to be submitted for ratification or
rejection by the shareholders of each Fund at the Shareholders Meeting. The
firm of Price Waterhouse has served each Fund as independent accountants since
each such Fund's inception.
<PAGE>
Each Fund has been advised by its independent accountants that they have
no direct or material indirect financial interest in the Fund. Representatives
of the firm of Coopers & Lybrand and Price Waterhouse are expected to be
present at the Shareholders Meeting and will be available to make a statement,
if they desire to do so, and to respond to appropriate questions which the
shareholders may wish to address to them.
MONEY AND INCOME FUNDS
4. PROPOSAL TO AMEND THE FUND'S ARTICLES OF INCORPORATION TO ELIMINATE THE
POLICY ON PRICING SECURITIES
The Board of Directors has proposed that the Fund amend its Articles of
Incorporation by deleting subparagraph (iii) of Paragraph 3.04(b)(2) of
Article SEVENTH regarding the policy on pricing securities in its portfolio.
The manner in which the Fund prices its securities is currently set forth in
the Fund's Statement of Additional Information and the Fund's policy on
pricing securities is not required to be included in its Articles of
Incorporation. The purpose of the proposed amendment is to provide the Fund
with greater flexibility to respond to regulatory and market developments in
pricing its securities, should the need arise. Although there is no current
intention to change the manner in which the Fund's portfolio securities are
priced, the proposal, if adopted, would allow the Fund's Board of Directors to
make changes in the Fund's policy on pricing, in a manner consistent with
applicable law, without seeking further shareholder approval. The Board has
directed that the proposal be submitted to shareholders for approval or
disapproval.
The Fund's policy on pricing securities as stated in the Articles of
Incorporation is as follows:
MONEY FUND
"Article SEVENTH
(2) Valuation of Assets. The value of such assets is to be determined as
follows:
(iii) Securities. The short-term money market securities in which the
Fund invests are traded primarily in the over-the-counter market.
Securities for which representative market quotations are readily
available are valued at the most recent bid price or yield equivalent
as quoted by one or more dealers who make markets in such securities.
Other securities are appraised at values deemed best to reflect their
fair value as determined in good faith by or under the supervision of
officers of the Fund specifically authorized by the Board of
Directors."
<PAGE>
INCOME FUND
"Article SEVENTH
(2) Valuation of Assets. The value of such assets is to be determined as
follows:
(iii) Securities. The securities in which the Fund may invest are
traded primarily in the over-the-counter market. Portfolio securities
are valued at quoted bid prices when representative quotes are readily
available. Securities and other assets for which representative quotes
are not readily available are appraised at prices deemed best to
reflect their fair market value as determined in good faith by or
under the supervision of officers of the Fund in a manner specifically
authorized by the Board of Directors."
The Board of Directors recommends that these provisions of the Articles of
Incorporation be deleted and that the Fund's policy on pricing securities be
described only in the Fund's Statement of Additional Information.
The Board of Directors recommends that shareholders vote FOR the proposal.
INVESTMENT MANAGER
The Fund's investment manager is T. Rowe Price, a Maryland corporation,
100 East Pratt Street, Baltimore, Maryland 21202. The principal executive
officer of T. Rowe Price is George J. Collins, who together with Mr. Riepe,
Thomas H. Broadus, Jr., James E. Halbkat, Jr., Carter O. Hoffman, Henry H.
Hopkins, George A. Roche, John W. Rosenblum, Robert L. Strickland, M. David
Testa, and Philip C. Walsh, constitute its Board of Directors. The address of
each of these persons, with the exception of Messrs. Halbkat, Rosenblum,
Strickland and Walsh, is 100 East Pratt Street, Baltimore, Maryland 21202,
and, with the exception of Messrs. Halbkat, Rosenblum, Strickland, and Walsh,
all are employed by T. Rowe Price. Mr. Halbkat is President of U.S. Monitor
Corporation, a provider of public response systems, P.O. Box 23109, Hilton
Head Island, South Carolina 29925. Mr. Rosenblum, whose address is P.O. Box
6550, Charlottesville, Virginia 22906, is the Tayloe Murphy Professor at the
University of Virginia, and a director of: Chesapeake Corporation, a
manufacturer of paper products; Cadmus Communications Corp., a provider of
printing and communication services; Comdial Corporation, a manufacturer of
telephone systems for businesses; and Cone Mills Corporation, a textiles
producer. Mr. Strickland is Chairman of Lowe's Companies, Inc., a retailer of
specialty home supplies, 604 Two Piedmont Plaza Building, Winston-Salem, North
Carolina 27104. Mr. Walsh, whose address is Blue Mill Road, Morristown, New
Jersey 07960, is a consultant to Cyprus Amax Minerals Company, Englewood,
Colorado, and a director of Piedmont Mining Company, Charlotte, North
Carolina.
The officers of the Funds (other than the nominees for reelection as
directors) and their positions with T. Rowe Price are as follows:
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Officer Position with Fund Position with Manager
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Janet G. Albright Vice President Vice President
Patrice L. Berchtenbreiter* President Vice President
Paul W. Boltz* Vice President Vice President
Michael P. Buckley Vice President Vice President
Patricia S. Deford Vice President Vice President
Charles B. Hill** Vice President Assistant Vice President
Charles O. Holland Vice President Vice President
Henry H. Hopkins Vice President Managing Director
Alan P. Richman Vice President Vice President
C. Stephen Wolfe, II+ Executive Vice President Vice President
Lenora V. Hornung Secretary Vice President
Carmen F. Deyesu Treasurer Vice President
David S. Middleton Controller Vice President
Roger L. Fiery Assistant Vice President Vice President
Konstantine B. Mallas** Assistant Vice President Assistant Vice President
Laura L. McAree++ Assistant Vice President Assistant Vice President
Edward T. Schneider Assistant Vice President Assistant Vice President
William F. Snider@ Assistant Vice President Assistant Vice President
Ingrid I. Vordemberge Assistant Vice President Employee
<FN>
* Ms. Berchtenbreiter is the President of the Money Fund and a Vice President of the High
Yield, Income, Insured Intermediate and Short-Intermediate Funds. Ms. Berchtenbreiter's date
of birth is January 13, 1953, and she has been employed by T. Rowe Price since March 22,
1972. Mr. Boltz is a Vice President of the Money Fund only.
** Mr. Hill is a Vice President and Mr. Mallas is an Assistant Vice President of the High
Yield, Income, Insured Intermediate and Short-Intermediate Funds only.
+ Mr. Wolfe is the Executive Vice President of the High Yield Fund and a Vice President of the
Money, Income, Insured Intermediate and Short-Intermediate Funds. Mr. Wolfe's date of birth
is April 5, 1959, and he has been employed by T. Rowe Price since February 11, 1985.
++ Ms. McAree is an Assistant Vice President of the Money and Insured Intermediate Funds only.
@ Mr. Snider is an Assistant Vice President of the Insured Intermediate Fund only.
</TABLE>
The Funds have an Underwriting Agreement with T. Rowe Price Investment
Services, Inc. ("Investment Services") and a Transfer Agency Agreement with T.
Rowe Price Services, Inc. ("Price Services"), which are wholly-owned
subsidiaries of T. Rowe Price. In addition, the Funds have an Agreement with
T. Rowe Price to perform fund accounting services. James S. Riepe, a Director
of the Insured Intermediate Fund and a Director and Vice President of the
other Funds, is Chairman of the Board of Price Services, and President and
Director of Investment Services. Henry H. Hopkins, a Vice President of each
Fund, is a Vice President and Director of both Investment Services and Price
Services. Edward T. Schneider, an Assistant Vice President of each Fund, is a
Vice President of Price Services. Certain officers of the Funds own shares of
the common stock of T. Rowe Price, its only class of securities.
The following information pertains to transactions involving common stock
of T. Rowe Price, par value $.20 per share ("Stock"), during the period March
1, 1993 through February 28, 1994. There were no transactions during the
period by any director or officer of the Fund, or any director or officer of
T. Rowe Price which involved more than 1% of the outstanding Stock of T. Rowe
Price. These transactions did not involve, and should not be mistaken for,
transactions in the stock of the Fund.
<PAGE>
During the period, the holders of certain options purchased a total of
371,535 shares of common stock at varying prices from $0.67 to $18.75 per
share. Pursuant to the terms of T. Rowe Price's Employee Stock Purchase Plan,
eligible employees of T. Rowe Price and its subsidiaries purchased an
aggregate of 95,380 shares at fair market value. Such shares were purchased in
the open market during this period for employees' accounts.
The Company's Board of Directors has approved the purchase of up to
2,200,000 shares of its common stock in the open market. During the period,
the Company purchased 110,000 common shares under this plan, leaving 1,402,000
shares authorized for future repurchase at February 28, 1994.
During the period, T. Rowe Price issued 1,154,000 common stock options
with an exercise price of $28.13 per share to certain employees under terms of
the 1990 and 1993 Stock Incentive Plans.
An audited consolidated balance sheet of T. Rowe Price as of December 31,
1993, is included in this Proxy Statement.
INVESTMENT MANAGEMENT AGREEMENT
T. Rowe Price serves as investment manager to the Funds pursuant to their
respective Investment Management Agreements (each the "Management Agreement"
and collectively the "Management Agreements"). The Insured Intermediate Fund's
Management Agreement is dated November 3, 1992. The Fund's Management
Agreement was approved by its Board of Directors and T. Rowe Price, its sole
shareholder, on the above-referenced date. The date of each Fund's Management
Agreement and the date it was approved by the respective Fund's shareholders
is as follows:
Date of Shareholder
Management Approval
Fund Agreement Date
------------------ ------------- --------------
Money July 1, 1987 June 10, 1987
High Yield July 1, 1987 June 10, 1987
Income July 1, 1987 June 10, 1987
Short-Intermediate July 1, 1991 June 13, 1991
By their terms, the Management Agreements will, continue in effect from year
to year as long as they are approved annually by each Fund's Board of
Directors (at a meeting called for that purpose) or by vote of a majority of
each Fund's outstanding shares. In either case, renewal of the Management
Agreements must be approved by a majority of each Fund's independent
directors. On March 1, 1994, the directors of each Fund, including all of the
independent directors, voted to extend the Management Agreements for an
additional period of one year, commencing May 1, 1994, and terminating April
30, 1995. Each Management Agreement is subject to termination by either party
without penalty on 60 days' written notice to the other and will terminate
automatically in the event of assignment.
<PAGE>
Under each Management Agreement, T. Rowe Price provides each Fund with
discretionary investment services. Specifically, T. Rowe Price is responsible
for supervising and directing the investments of each Fund in accordance with
the Funds' investment objectives, programs, and restrictions as provided in
their prospectuses and Statements of Additional Information. T. Rowe Price is
also responsible for effecting all securities transactions on behalf of the
Funds, including the negotiation of commissions and the allocation of
principal business and portfolio brokerage. In addition to these services, T.
Rowe Price provides the Funds with certain corporate administrative services,
including: maintaining each Fund's corporate existence, corporate records, and
registering and qualifying Fund shares under federal and state laws;
monitoring the financial, accounting, and administrative functions of the
Funds; maintaining liaison with the agents employed by the Funds, such as each
Fund's custodian and transfer agent; assisting the Funds in the coordination
of such agents' activities; and permitting T. Rowe Price's employees to serve
as officers, directors, and committee members of the Funds without cost to the
Fund.
Each Fund's Management Agreement also provides that T. Rowe Price, its
directors, officers, employees, and certain other persons performing specific
functions for the Fund will only be liable to the Fund for losses resulting
from willful misfeasance, bad faith, gross negligence, or reckless disregard
of duty.
The Management Agreement provides that each Fund will bear all expenses of
its operations not specifically assumed by T. Rowe Price. However, in
compliance with certain state regulations, T. Rowe Price will reimburse the
Funds for any expenses (excluding interest, taxes, brokerage, other
expenditures which are capitalized in accordance with generally accepted
accounting principles, and extraordinary expenses) which in any year exceed
the limits prescribed by any state in which the Funds' shares are qualified
for sale. Presently, the most restrictive expense ratio limitation imposed by
any state is 2.5% of the first $30 million of the Fund's average daily net
assets, 2% of the next $70 million of such assets, and 1.5% of net assets in
excess of $100 million. For the purpose of determining whether a Fund is
entitled to reimbursement, the expenses of the Fund are calculated on a
monthly basis. If the Fund is entitled to reimbursement, that month's
management fee will be reduced or postponed, with any adjustment made after
the end of the year.
For its services to each Fund under the Management Agreement, T. Rowe
Price is paid a management fee ("Management Fee") consisting of two elements:
a "group" fee ("Group Fee") and an "individual" fund fee ("Individual Fund
Fee"). The Group Fee varies and is based on the combined net assets of all of
the T. Rowe Price Funds distributed by T. Rowe Price Investment Services,
Inc., other than institutional or "private label" products. For this purpose,
the T. Rowe Price Funds include all Funds managed and sponsored by T. Rowe
Price as well as those Funds managed and sponsored by Rowe Price-Fleming
International, Inc. Each Fund pays, as its portion of the Group Fee, an amount
equal to the ratio of its daily net assets to the daily net assets of all the
T. Rowe Price Funds. At February 28, 1994, the Group Fee was 0.34% based on
combined Price Funds' assets of approximately $36.1 billion. In addition, each
Fund pays a flat Individual Fund Fee based on the net assets of each Fund. The
following table lists each Fund's individual fee, combined fee, net assets and
management fee paid to T. Rowe Price, at February 28, 1994.
<PAGE>
Individual Combined Net Management
Fund Fee Fee Assets Fee
- -------------------- ------------- ------------- ------------- -------------
Money 0.10% 0.44% $ 732,900,000 $3,132,000
High Yield 0.30% 0.64% 941,295,000 5,954,000
Income 0.15% 0.49% 1,452,581,000 7,362,000
Insured Intermediate 0.10% 0.44% 99,162,000 9,000
Short-Intermediate 0.10% 0.44% 540,728,000 2,256,000
The following chart shows the ratio of operating expenses to average net
assets of the following Funds for the fiscal years ended February 28, 1994,
February 28, 1993 and February 29, 1992.
Fund 1994 1993 1992
- ------------------ ----- ----- -----
Money 0.59% 0.60% 0.61%
High Yield 0.79% 0.81% 0.83%
Income 0.59% 0.61% 0.62%
Short-Intermediate 0.60% 0.63% 0.67%
INSURED INTERMEDIATE FUND
Effective July 1, 1993, T. Rowe Price agreed to bear any expenses through
February 28, 1994, which would cause the Fund's ratio of expenses to average
daily net assets to exceed 0.50%. Effective March 1, 1994, T. Rowe Price
agreed to bear any expenses that would cause the Fund's ratio of expenses to
average net assets to exceed 0.65%. Expenses paid or assumed under the second
and third agreements are subject to reimbursement to T. Rowe Price by the Fund
whenever its expense ratio is below 0.50% (for the first agreement) and 0.65%
(for the second agreement), however, no reimbursement will be made after
February 29, 1996 (for the first agreement) or February 28, 1998 (for the
second agreement), or if it would result in the expense ratio exceeding 0.50%
(for the first agreement) and 0.65% (for the second agreement).
Pursuant to the present expense limitation, $301,000 of management fees
were not accrued for the fiscal year ended February 28, 1994, of which $73,000
were permanently waived. In addition, $201,000 of other Fund expenses borne by
T. Rowe Price were permanently waived.
PORTFOLIO TRANSACTIONS
In the following discussion "the Fund" is intended to refer to each Fund.
INVESTMENT OR BROKERAGE DISCRETION
Decisions with respect to the purchase and sale of portfolio securities on
behalf of the Fund are made by T. Rowe Price. T. Rowe Price is also
responsible for implementing these decisions, including the negotiation of
commissions and the allocation of portfolio brokerage and principal business.
The Fund's purchases and sales of portfolio securities are normally done on a
principal basis and do not involve the payment of a commission although they
may involve the designation of selling concessions. That part of the
discussion below relating solely to brokerage commissions would not normally
apply to the Funds. However, it is included because T. Rowe Price does manage
a significant number of common stock portfolios which do engage in agency
transactions and pay commissions and because some research and services
resulting from the payment of such commissions may benefit the Fund.
<PAGE>
HOW BROKERS AND DEALERS ARE SELECTED
FIXED INCOME SECURITIES
Fixed income securities are generally purchased from the issuer or a
primary market-maker acting as principal for the securities on a net basis,
with no brokerage commission being paid by the client, although the price
usually includes an undisclosed compensation. Transactions placed through
dealers serving as primary market-makers reflect the spread between the bid
and asked prices. Securities may also be purchased from underwriters at prices
which include underwriting fees.
T. Rowe Price may effect principal transactions on behalf of the Fund with
a broker or dealer who furnishes brokerage and/or research services, designate
any such broker or dealer to receive selling concessions, discounts or other
allowances, or otherwise deal with any such broker or dealer in connection
with the acquisition of securities in underwritings. T. Rowe Price may receive
brokerage and research services in connection with such designations in fixed
price underwritings.
In purchasing and selling the Fund's portfolio securities, it is T. Rowe
Price's policy to obtain quality execution at the most favorable prices
through responsible brokers and dealers and, in the case of agency
transactions (in which the Fund does not generally engage), at competitive
commission rates. However, under certain conditions, the Fund may pay higher
brokerage commissions in return for brokerage and research services. In
selecting broker-dealers to execute the Fund's portfolio transactions,
consideration is given to such factors as the price of the security, the rate
of the commission, the size and difficulty of the order, the reliability,
integrity, financial condition, general execution and operational capabilities
of competing brokers and dealers, and brokerage and research services provided
by them. It is not the policy of T. Rowe Price to seek the lowest available
commission rate where it is believed that a broker or dealer charging a higher
commission rate would offer greater reliability or provide better price or
execution.
HOW EVALUATIONS ARE MADE OF THE OVERALL REASONABLENESS OF BROKERAGE
COMMISSIONS PAID
On a continuing basis, T. Rowe Price seeks to determine what levels of
commission rates are reasonable in the marketplace for transactions executed
on behalf of the Fund. In evaluating the reasonableness of commission rates,
T. Rowe Price considers: (a) historical commission rates, both before and
since rates have been fully negotiable; (b) rates which other institutional
investors are paying, based on available public information; (c) rates quoted
by brokers and dealers; (d) the size of a particular transaction, in terms of
the number of shares, dollar amount, and number of clients involved; (e) the
complexity of a particular transaction in terms of both execution and
settlement; (f) the level and type of business done with a particular firm
over a period of time; and (g) the extent to which the broker or dealer has
capital at risk in the transaction.
<PAGE>
DESCRIPTION OF RESEARCH SERVICES RECEIVED FROM BROKERS AND DEALERS
T. Rowe Price receives a wide range of research services from brokers and
dealers. These services include information on the economy, industries, groups
of securities, individual companies, statistical information, accounting and
tax law interpretations, political developments, legal developments affecting
portfolio securities, technical market action, pricing and appraisal services,
credit analysis, risk measurement analysis, performance analysis and analysis
of corporate responsibility issues. These services provide both domestic and
international perspective. Research services are received primarily in the
form of written reports, computer generated services, telephone contacts and
personal meetings with security analysts. In addition, such services may be
provided in the form of meetings arranged with corporate and industry
spokespersons, economists, academicians and government representatives. In
some cases, research services are generated by third parties but are provided
to T. Rowe Price by or through broker-dealers.
Research services received from brokers and dealers are supplemental to T.
Rowe Price's own research effort and, when utilized, are subject to internal
analysis before being incorporated by T. Rowe Price into its investment
process. As a practical matter, it would not be possible for T. Rowe Price to
generate all of the information presently provided by brokers and dealers. T.
Rowe Price pays cash for certain research services received from external
sources. T. Rowe Price also allocates brokerage for research services which
are available for cash. While receipt of research services from brokerage
firms has not reduced T. Rowe Price's normal research activities, the expenses
of T. Rowe Price could be materially increased if it attempted to generate
such additional information through its own staff. To the extent that research
services of value are provided by brokers or dealers, T. Rowe Price may be
relieved of expenses which it might otherwise bear.
T. Rowe Price has a policy of not allocating brokerage business in return
for products or services other than brokerage or research services. In
accordance with the provisions of Section 28(e) of the Securities Exchange Act
of 1934, T. Rowe Price may from time to time receive services and products
which serve both research and non-research functions. In such event, T. Rowe
Price makes a good faith determination of the anticipated research and
non-research use of the product or service and allocates brokerage only with
respect to the research component.
BROKERAGE AND EXECUTION SERVICES PROVIDED BY BROKERS AND DEALERS WHO FURNISH
RESEARCH SERVICES
Certain brokers who provide quality execution services also furnish
research services to T. Rowe Price. With regard to the payment of brokerage
commissions, T. Rowe Price has adopted a brokerage allocation policy embodying
the concepts of Section 28(e) of the Securities Exchange Act of 1934, which
permits an investment adviser to cause an account to pay commission rates in
excess of those another broker or dealer would have charged for effecting the
same transaction, if the adviser determines in good faith that the commission
paid is reasonable in relation to the value of the brokerage and research
services provided. The determination may be viewed in terms of either the
particular transaction involved or the overall responsibilities of the adviser
with respect to the accounts over which it exercises investment discretion.
Accordingly, while T. Rowe Price cannot readily determine the extent to which
commission rates or net prices charged by broker-dealers reflect the value of
their research services, T. Rowe Price would expect to assess the
reasonableness of commissions in light of the total brokerage and research
services provided by each particular broker. T. Rowe Price may receive
research as defined in Section 28(e), in connection with selling concessions
and designations in fixed price offerings.
<PAGE>
INTERNAL ALLOCATION PROCEDURES
T. Rowe Price has a policy of not precommitting a specific amount of
business to any broker or dealer over any specific time period. Historically,
the majority of brokerage placement has been determined by the needs of a
specific transaction such as market-making, availability of a buyer or seller
of a particular security, or specialized execution skills. However, T. Rowe
Price does have an internal brokerage allocation procedure for that portion of
its discretionary client brokerage business or selling concession business
where special needs do not exist, or where the business may be allocated among
several brokers or dealers which are able to meet the needs of the
transaction.
Each year, T. Rowe Price assesses the contribution of the brokerage and
research services provided by brokers and dealers, and attempts to allocate a
portion of its brokerage and selling concession business in response to these
assessments. Research analysts, counselors, various investment committees, and
the Trading Department each seek to evaluate the brokerage and research
services they receive from brokers and make judgments as to the level of
business which would recognize such services. In addition, brokers and dealers
sometimes suggest a level of business they would like to receive in return for
the various brokerage and research services they provide. Actual business
received by any firm may be less than the suggested allocations but can, and
often does, exceed the suggestions, because the total business is allocated on
the basis of all the considerations described above. In no case is a broker or
dealer excluded from receiving business from T. Rowe Price because it has not
been identified as providing research services.
MISCELLANEOUS
T. Rowe Price's brokerage allocation policy is consistently applied to all
its fully discretionary accounts, which represent a substantial majority of
all assets under management. Research services furnished by brokers and
dealers through which T. Rowe Price effects securities transactions may be
used in servicing all accounts (including non-Fund accounts) managed by T.
Rowe Price.
Conversely, research services received from brokers and dealers which
execute transactions for the Fund are not necessarily used by T. Rowe Price
exclusively in connection with the management of the Fund.
From time to time, orders for clients may be placed through a computerized
transaction network.
The Fund does not allocate business to any broker-dealer on the basis of
its sales of the Fund's shares. However, this does not mean that
broker-dealers who purchase Fund shares for their clients will not receive
business from the Fund.
<PAGE>
Some of T. Rowe Price's other clients have investment objectives and
programs similar to those of the Fund. T. Rowe Price may occasionally make
recommendations to other clients which result in their purchasing or selling
securities simultaneously with the Fund. As a result, the demand for
securities being purchased or the supply of securities being sold may
increase, and this could have an adverse effect on the price of those
securities. It is T. Rowe Price's policy not to favor one client over another
in making recommendations or in placing orders. T. Rowe Price frequently
follows the practice of grouping orders of various clients for execution which
generally results in lower commission rates being attained. In certain cases,
where the aggregate order is executed in a series of transactions at various
prices on a given day, each participating client's proportionate share of such
order reflects the average price paid or received with respect to the total
order. T. Rowe Price has established a general investment policy that it will
ordinarily not make additional purchases of a common stock of a company for
its clients (including the T. Rowe Price Funds) if, as a result of such
purchases, 10% or more of the outstanding common stock of such company would
be held by its clients in the aggregate.
To the extent possible, T. Rowe Price intends to recapture solicitation
fees paid in connection with tender offers through T. Rowe Price Investment
Services, Inc., the Fund's distributor. At the present time, T. Rowe Price
does not recapture commissions or underwriting discounts or selling group
concessions in connection with taxable securities acquired in underwritten
offerings. T. Rowe Price does, however, attempt to negotiate elimination of
all or a portion of the selling-group concession or underwriting discount when
purchasing tax-exempt municipal securities on behalf of its clients in
underwritten offerings.
OTHER
The Funds engaged in portfolio transactions involving broker-dealers in
the following amounts for the fiscal years ended February 28, 1994, February
28, 1993 and February 29, 1992:
Fund 1994 1993 1992
- -------------------- ---------------- ---------------- ------------------
Money $3,503,548,000 $3,848,865,000 $4,251,499,000
High Yield 2,185,765,000 1,408,187,000 1,322,908,000
Income 3,905,016,000 3,328,251,000 2,593,637,000
Insured Intermediate 383,604,000 75,345,000* **
Short-Intermediate 1,368,139,000 1,111,763,000 1,080,196,000
* For the three-month fiscal period ended February 28, 1993.
** Prior to commencement of operations.
The following amounts consisted of principal transactions as to which the
Funds have no knowledge of the profits or losses realized by the respective
broker-dealers for the fiscal years ended February 28, 1994, February 28, 1993
and February 29, 1992:
Fund 1994 1993 1992
- -------------------- --------------- --------------- ---------------
Money $3,503,548,000 $3,832,044,000 $4,231,419,000
High Yield 1,944,568,000 1,235,780,000 1,271,082,000
Income 3,412,068,000 2,897,793,000 2,457,260,000
Insured Intermediate 343,890,000 70,657,000* **
Short-Intermediate 1,250,892,000 1,038,797,000 1,056,760,000
* For the three-month fiscal period ended February 28, 1993.
** Prior to commencement of operations.
<PAGE>
The following amounts involved trades with brokers acting as agents or
underwriters for the fiscal years ended February 28, 1994, February 28, 1993
and February 29, 1992:
Fund 1994 1993 1992
- --------------------- ------------- ------------- -------------
Money $ 0 $ 16,822,000 $ 20,081,000
High Yield 241,196,000 172,407,000 51,826,000
Income 492,947,000 430,458,000 136,376,000
Insured Intermediate 39,714,000 4,688,000* **
Short-Intermediate 117,247,000 72,966,000 23,436,000
* For the three-month fiscal period ended February 28, 1993.
** Prior to commencement of operations.
The following amounts involved trades with brokers acting as agents or
underwriters, in which such brokers received total commissions, including
discounts received in connection with underwritings for the fiscal years ended
February 28, 1994, February 28, 1993 and February 29, 1992:
Fund 1994 1993 1992
- -------------------- ----------- ----------- ---------
Money $ 0 $ 23,000 $ 15,000
High Yield 1,910,000 1,282,000 398,000
Income 488,000 3,069,000 971,000
Insured Intermediate 256,000 25,000* **
Short-Intermediate 582,000 367,000 123,000
* For the three-month fiscal period ended February 28, 1993.
** Prior to commencement of operations.
The portfolio turnover rates for the following Funds for the fiscal years
ended February 28, 1994, February 28, 1993 and February 29, 1992 are:
Fund 1994 1993 1992
- -------------------- ------ ------- ------
High Yield 59.3% 34.7% 51.0%
Income 71.2% 76.7% 57.9%
Insured Intermediate 74.8% 65.3%* **
Short-Intermediate 51.1% 38.5% 81.3%
* Figure is annualized and is for the three-month fiscal period ended
February 28, 1993.
** Prior to commencement of operations.
OTHER BUSINESS
The management of each Fund knows of no other business which may come
before the meeting. However, if any additional matters are properly presented
at the meeting, it is intended that the persons named in the enclosed proxy,
or their substitutes, will vote such proxy in accordance with their judgment
on such matters.
<PAGE>
GENERAL INFORMATION
The number of outstanding shares for each Fund, as of February 28, 1994,
are shown below. The Money, High Yield, Insured Intermediate and
Short-Intermediate Funds' shares each have a par value of $0.01 and the shares
of the Income Fund have a $1.00 par value.
Shares
Fund Outstanding
--------------------- ------------
Money 733,216,000
High Yield 76,785,000
Income 150,316,000
Insured Intermediate 9,370,000
Short-Intermediate 101,558,000
As of February 28, 1994, a wholly-owned subsidiary of T. Rowe Price owned
directly 2,484,903, 101,857, 241,105, 105,980 and 212,267 shares of the
outstanding stock of the Money, High Yield, Income, Insured Intermediate and
Short-Intermediate Funds, respectively, representing approximately 0.34%,
0.13%, 0.16%, 1.13% and 0.21%, respectively. In addition, T. Rowe Price owned
directly 22,834,684 shares of the outstanding stock of the Money Fund
representing approximately 3.11%.
The following chart indicates the number of shares beneficially owned,
directly or indirectly, by the officers and directors of each Fund and the
percentage this ownership represents of each Fund's outstanding shares.
Shares
Beneficially % Ownership of
Owned Directly Outstanding
Fund or Indirectly Shares
- --------------------- --------------------- ---------------
Money 780,083 0.11
High Yield 65,355 0.09
Income 62,402 0.04
Insured Intermediate 8,815 0.09
Short-Intermediate 93,053 0.09
The ownership of the officers and directors reflects their proportionate
interests, if any, in 207,985, 8,362, 19,818 and 8,711 shares of the Money,
High Yield, Income and Insured Intermediate Funds, respectively, which are
owned by a wholly-owned subsidiary of T. Rowe Price, and their proportionate
interests in 17,447 shares of the Short-Intermediate Fund owned by T. Rowe
Price.
A copy of the Annual Report of each Fund for the year ended February 28,
1994, including financial statements, has been mailed to shareholders of
record at the close of business on that date and to persons who became
shareholders of record between that time and the close of business on April 8,
1994, the record date for the determination of the shareholders who are
entitled to be notified of and to vote at the meeting.
<PAGE>
ANNUAL MEETINGS
Under Maryland General Corporation Law, any corporation registered under
the 1940 Act is not required to hold an annual meeting in any year in which
the 1940 Act does not require action by shareholders on the election of
directors. The Board of Directors of each Fund has determined that in order to
avoid the significant expense associated with holding annual meetings,
including legal, accounting, printing and mailing fees incurred in preparing
proxy materials, each Fund will take advantage of these Maryland law
provisions. Accordingly, no annual meetings shall be held in any year in which
a meeting is not otherwise required to be held by the 1940 Act for the
election of Directors unless the Board of Directors otherwise determines that
there should be an annual meeting. However, special meetings will be held in
accordance with applicable law or when otherwise determined by the Board of
Directors. Each Fund's By-Laws reflect this policy.
SHAREHOLDER PROPOSALS
If a shareholder wishes to present a proposal to be included in the Proxy
Statement for the next Annual Meeting, and if such Annual Meeting is held in
June, 1995, such proposal must be submitted in writing and received by the
Corporation's Secretary at its Baltimore office prior to December 26, 1994.
FINANCIAL STATEMENT OF INVESTMENT MANAGER
The audited consolidated balance sheet of T. Rowe Price which follows is
required by the 1940 Act, and should not be confused with, or mistaken for,
the financial statements of T. Rowe Price Tax-Exempt Money Fund, Inc., T. Rowe
Price Tax-Free High Yield Fund, Inc., T. Rowe Price Tax-Free Income Fund,
Inc., T. Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc., and T. Rowe
Price Tax-Free Short-Intermediate Fund, Inc., which are set forth in the
Annual Report for each Fund.
<PAGE>
T. ROWE PRICE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
(in thousands)
ASSETS
Cash and cash equivalents ................................... $ 46,218
Accounts receivable ......................................... 43,102
Investments in sponsored mutual funds
Short-term bond and money market mutual funds held
as trading securities ................................... 27,647
Other funds held as available-for-sale securities ......... 69,423
Partnership and other investments ........................... 19,606
Property and equipment ...................................... 39,828
Goodwill and deferred expenses .............................. 9,773
Other assets ................................................ 7,803
-------------
$263,400
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses ..................... $ 15,111
Accrued retirement and other compensation costs ........... 19,844
Income taxes payable ...................................... 5,097
Dividends payable ......................................... 3,784
Debt ...................................................... 12,915
Deferred revenues ......................................... 1,548
Minority interests in consolidated subsidiaries ........... 9,148
-------------
Total liabilities ..................................... 67,447
-------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, $.20 par value--authorized 48,000,000 shares;
issued and outstanding 29,095,039 shares ................ 5,819
Capital in excess of par value ............................ 1,197
Unrealized security holding gains ......................... 5,345
Retained earnings ......................................... 183,592
-------------
Total stockholders' equity ............................ 195,953
-------------
$263,400
-------------
-------------
The accompanying notes are an integral part of the consolidated balance sheet.
<PAGE>
T. ROWE PRICE ASSOCIATES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Associates, Inc. and its consolidated subsidiaries (the
"Company") provide investment advisory and administrative services to
sponsored mutual funds and investment products, and to private accounts of
other institutional and individual investors.
BASIS OF PREPARATION
The Company's financial statements are prepared in accordance with generally
accepted accounting principles.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all majority
owned subsidiaries and, by virtue of the Company's controlling interest, its
50%-owned subsidiary, Rowe Price-Fleming International, Inc. ("RPFI"). All
material intercompany accounts are eliminated in consolidation.
CASH EQUIVALENTS
For purposes of financial statement disclosure, cash equivalents consist of
all short-term, highly liquid investments including certain money market
mutual funds and all overnight commercial paper investments. The cost of these
investments is equivalent to fair value.
INVESTMENTS IN SPONSORED MUTUAL FUNDS
On December 31, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which requires the Company to state its mutual fund
investments at fair value and to classify these holdings as either trading
(held for only a short period of time) or available-for-sale securities.
Unrealized holding gains on available-for-sale securities at December 31, 1993
are reported net of income tax effects in a separate component of
stockholders' equity.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk as defined by SFAS No. 105 consist primarily of investments in
sponsored money market and bond mutual funds and accounts receivable. Credit
risk is believed to be minimal in that counterparties to these financial
instruments have substantial assets including the diversified portfolios under
management by the Company which aggregate $54.4 billion at December 31, 1993.
<PAGE>
T. ROWE PRICE ASSOCIATES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PARTNERSHIP AND OTHER INVESTMENTS
The Company invests in various partnerships and ventures including those
sponsored by the Company. These investments which hold equity securities,
venture capital investments, debt securities and real estate are stated at
cost adjusted for the Company's share of the earnings or losses of the
investees subsequent to the date of investment. Because the majority of these
entities carry their investments at fair value and include unrealized gains
and losses in their reported earnings, the Company's carrying value for these
investments approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost net of accumulated depreciation and
amortization computed using the straight-line method. Provisions for
depreciation and amortization are based on the following estimated useful
lives: computer and communications equipment and furniture and other
equipment, 3 to 7 years; building, 40 years; leased land, the 50-year lease
term; and leasehold improvements, the shorter of their useful lives or the
remainder of the lease term.
<PAGE>
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 1--INVESTMENTS IN SPONSORED MUTUAL FUNDS
Investments in sponsored money market mutual funds, which are classified as
cash equivalents in the accompanying consolidated financial statements,
aggregate $45,272,000 at December 31, 1993.
The Company's investments in sponsored mutual funds held as
available-for-sale at December 31, 1993 (in thousands) includes:
Gross
unrealized Aggregate
Aggregate holding fair
cost gains value
------------ ----------- -------------
Stock funds .............. $34,990 $7,025 $42,015
Bond funds ............... 26,190 1,218 27,408
------------ ----------- -------------
Total .................. $61,180 $8,243 $69,423
------------ ----------- -------------
------------ ----------- -------------
The Company provides investment advisory and administrative services to
the T. Rowe Price family of mutual funds which had aggregate assets under
management at December 31, 1993 of $34.7 billion. All services rendered by the
Company are provided under contracts that set forth the services to be
provided and the fees to be charged. These contracts are subject to periodic
review and approval by each of the funds' boards of directors and, with
respect to investment advisory contracts, also by the funds' shareholders.
Services rendered to the funds accounted for 71% of 1993 revenues.
Accounts receivable from the sponsored mutual funds aggregated $21,741,000
at December 31, 1993.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1993 (in thousands) consists of:
Computer and communications equipment .......... $31,431
Building and leased land ....................... 19,756
Furniture and other equipment .................. 13,889
Leasehold improvements ......................... 4,691
------------------
69,767
Accumulated depreciation and amortization ...... (29,939)
------------------
$39,828
------------------
------------------
<PAGE>
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
NOTE 3--GOODWILL AND DEFERRED EXPENSES
On September 2, 1992, the Company acquired an investment management subsidiary
of USF&G Corporation and combined six USF&G mutual funds with aggregate net
assets of $.5 billion into the T. Rowe Price family of funds. The total
transaction cost which has been recognized using the purchase method of
accounting was approximately $11,024,000, including goodwill of $8,139,000
which is being amortized over 11 years using the straight-line method. Prepaid
non-compete and transition services agreements totaling $2,500,000 are being
amortized over their three-year life. Accumulated amortization at December 31,
1993 aggregates $2,216,000.
Goodwill of $1,980,000 from an earlier corporate acquisition is being
amortized over 40 years using the straight-line method. Accumulated
amortization was $1,039,000 at December 31, 1993.
NOTE 4--DEBT
In June 1991, the Company completed the long-term financing arrangements for
its administrative services facility. Terms of the $13,500,000 secured
promissory note with Confederation Life Insurance Company include an interest
rate of 9.77%, monthly principal and interest payments totaling $128,000 for
10 years, and a final principal payment of $9,845,000 in 2001. A prepayment
option is available under the terms of the note; however, the payment of a
substantial premium would have been required to retire the debt at December
31, 1993. Related debt issuance costs of $436,000 are included in deferred
expenses and are being amortized over the life of the loan to produce an
effective annual interest rate of 10.14%.
The outstanding principal balance for this note was $12,904,000 at
December 31, 1993. A fair value of $16,030,000 was estimated based on the cost
of risk-free assets that could be acquired to extinguish the obligation at
December 31, 1993.
A maximum of $20,000,000 is available to the Company under unused bank
lines of credit at December 31, 1993.
NOTE 5--INCOME TAXES
Deferred income taxes arise from differences between taxable income for
financial statement and income tax return purposes and are calculated using
the liability method prescribed by SFAS No. 109, "Accounting for Income
Taxes."
The net deferred tax liability of $2,596,000 included in income taxes
payable at December 31, 1993 consists of total deferred tax liabilities of
$5,609,000 and total deferred tax assets of $3,013,000. Deferred tax
liabilities include $2,898,000 arising from unrealized holding gains on
available-for-sale securities, $1,353,000 arising from unrealized capital
gains allocated from the Company's partnership investments, and $677,000 from
differences in the recognition of depreciation expense. Deferred tax assets
include $1,100,000 from differences in the recognition of the costs of the
defined benefit retirement plan and postretirement benefits.
<PAGE>
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
NOTE 6--COMMON STOCK AND EMPLOYEE STOCK INCENTIVE PLANS
SHARES AUTHORIZED
At December 31, 1993, the Company had reserved 8,151,315 shares of its
unissued common stock for issuance upon the exercise of stock options and
420,000 shares for issuance under an employee stock purchase plan.
SHARE REPURCHASES
The Company's board of directors has authorized the future repurchase of up to
1,432,000 common shares at December 31, 1993.
EXECUTIVE STOCK
At December 31, 1993, there were outstanding 1,226,540 shares of common stock
("Executive Stock") which were sold to certain officers of the Company in 1982
at a discount. These shares are subject to restrictions which require payment
of the discount of $.32 per share to the Company at the earlier of the sale of
such stock or termination of employment.
STOCK INCENTIVE PLANS
The following table summarizes the status of noncompensatory stock options
granted at market value to certain officers and directors of the Company.
<TABLE>
<CAPTION>
OPTIONS OPTIONS
UNEXERCISED OPTIONS GRANTED UNEXERCISED EXERCISABLE
YEAR OPTIONS AT EXERCISED (CANCELED) OPTIONS AT AT
OF DECEMBER 31, DURING DURING DECEMBER 31, DECEMBER 31, EXERCISE
GRANT 1992 1993 1993 1993 1993 PRICE
- ------- ------------- --------- ---------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1983-4 53,000 (30,600) -- 22,400 22,400 $.67 & $.75
1987 309,410 (68,064) -- 241,346 241,346 $5.38 & $9.38
1988 359,000 (66,586) -- 292,414 292,414 $7.94
1989 632,280 (46,288) (5,600) 580,392 312,404 $11.38
1990 681,500 (83,387) (11,800) 586,313 141,313 $7.19 & $8.50
1991 811,450 (37,000) (14,000) 760,450 283,450 $17.00
1992 926,000 (11,600) (27,400) 887,000 168,600 $18.75
1993 -- -- 1,154,000 1,154,000 -- $28.13
--------- -------- --------- --------- ---------
3,772,640 (343,525) 1,095,200 4,524,315 1,461,927
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
</TABLE>
The right to exercise stock options generally vests over the five-year period
following the grant. After the tenth year following the grant, the right to
exercise the related stock options lapses and the options are canceled.
<PAGE>
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
NOTE 7--EMPLOYEE RETIREMENT PLANS
The Company sponsors two defined contribution retirement plans: a
profit-sharing plan based on participant compensation and a 401(k) plan.
The Company also has a defined benefit plan covering those employees whose
annual base salaries do not exceed a specified salary limit. Participant
benefits are based on the final month's base pay and years of service
subsequent to January 1, 1987. The Company's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. The following table sets forth the plan's funded status and the
amounts recognized in the Company's consolidated balance sheet (in thousands)
at December 31, 1993.
Actuarial present value of
Accumulated benefit obligation for service rendered
Vested .................................................. $ 780
Non-vested .............................................. 1,362
------
Total ................................................... 2,142
Obligation attributable to estimated future
compensation increases .................................. 2,594
------
Projected benefit obligation .............................. 4,736
Plan assets held in sponsored mutual funds, at fair value ... 2,594
------
Projected benefit obligation in excess of plan assets ....... 2,142
Unrecognized loss from decreases in discount rate ........... 407
------
Accrued retirement costs .................................... $1,735
------
------
Discount rate used in determining actuarial present values .. 6.40%
------
------
NOTE 8--COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a minority partner in the joint venture which owns the land and
building in which the Company leases its corporate offices. Future minimum
rental payments under the Company's lease agreement are $3,110,000 in 1994 and
1995, $3,220,000 in 1996, $3,769,000 in 1997 and 1998, and $33,755,000 in 1999
through 2006.
The Company leases office facilities and equipment under other
noncancelable operating leases. Future minimum rental payments under these
leases aggregate $4,621,000 in 1994, $4,123,000 in 1995, $1,776,000 in 1996,
$1,259,000 in 1997, $696,000 in 1998, and $4,806,000 in later years.
At December 31, 1993, the Company had outstanding commitments to invest an
additional $6,757,000 in various investment partnerships and ventures.
The Company has contingent obligations at December 31, 1993 under a
$500,000 direct pay letter of credit expiring not later than 1999 and a
$780,000 standby letter of credit which is renewable annually.
<PAGE>
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
NOTE 8--COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Consolidated stockholders' equity at December 31, 1993 includes
$32,635,000 which is restricted as to use under various regulations and
agreements to which the Company and its subsidiaries are subject in the
ordinary course of business.
From time to time, the Company is a party to various employment-related
claims, including claims of discrimination, before federal, state and local
administrative agencies and courts. The Company vigorously defends itself
against these claims. In the opinion of management, after consultation with
counsel, it is unlikely that any adverse determination in one or more pending
employment-related claims would have a material adverse effect on the
Company's financial position.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of T. Rowe Price Associates, Inc.
In our opinion, the accompanying consolidated balance sheet presents fairly,
in all material respects, the financial position of T. Rowe Price Associates,
Inc. and its subsidiaries at December 31, 1993 in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Company's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE
Baltimore, Maryland
January 25, 1994
<PAGE>
T ROWE PRICE LOGO PROXY
- ------------------------------------------------------------------------------
INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. MEETING: 8:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William T. Reynolds and James S. Riepe, as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all shares of stock of the
Fund, which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, June 8, 1994, at the time indicated
above, at the offices of the Fund, 100 East Pratt Street, Baltimore, Maryland
21202, and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated April 25, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name appears.
Only authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than
one name, see page 3 of the Notice of
Annual Meeting and Proxy Statement.
Dated: -------------------------- , 1994
----------------------------------------
----------------------------------------
Signature(s)
CUSIP#779575109/fund#052
<PAGE>
T ROWE PRICE LOGO WE NEED YOUR PROXY VOTE BEFORE JUNE 8, 1994
- ------------------------------------------------------------------------------
Please refer to the Proxy Statement discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
1. Election of FOR all nominees WITHHOLD AUTHORITY 1.
directors. listed below (except to vote for all nominees
as marked to the listed below
contrary)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Robert P. Black Calvin W. Burnett George J. Collins Anthony W. Deering
F. Pierce Linaweaver William T. Reynolds James S. Riepe John G. Schreiber
Anne Marie Whittemore
2. Approve changes to the FOR EACH POLICY AGAINST ABSTAIN 2.
Fund's fundamental LISTED BELOW (except ALL ALL
policies. as marked to the
contrary
IF YOU DO NOT WISH TO APPROVE A POLICY CHANGE, PLEASE CHECK THE APPROPRIATE
BOX BELOW:
(A) Municipal (F) Voting (L) Control (Q) Options
Securities Securities
(B) Borrowing (G) Real Estate (M) Investment (R) Ownership of
Companies Securities
(C) Industry (H) Equity (N) Purchasing on (S) Illiquid
Concentration Securities Margin Securities
(D) Lending (J) Senior (O) Pledging Assets (T) Short Sales
Securities
(E) Single Issuer (K) Underwriting (P) Oil and Gas (U) Unseasoned
Securities Issuers
3. Ratify the selection of Coopers & Lybrand as independent accountants.
FOR AGAINST ABSTAIN 3.
4. Amend Articles of Incorporation to delete policy on pricing securities.
FOR AGAINST ABSTAIN 4.
I authorize the Proxies, in their discretion, to vote upon such other business
as may properly come before the meeting.
CUSIP#779575109/fund#052
<PAGE>
T ROWE PRICE LOGO PROXY
- ------------------------------------------------------------------------------
INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
T. ROWE PRICE TAX-FREE INCOME FUND, INC. MEETING: 8:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William T. Reynolds and James S. Riepe, as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all shares of stock of the
Fund, which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, June 8, 1994, at the time indicated
above, at the offices of the Fund, 100 East Pratt Street, Baltimore, Maryland
21202, and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated April 25, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name appears.
Only authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than
one name, see page 3 of the Notice of
Annual Meeting and Proxy Statement.
Dated: -------------------------- , 1994
----------------------------------------
----------------------------------------
Signature(s)
CUSIP#779576107/fund#045
<PAGE>
T ROWE PRICE LOGO WE NEED YOUR PROXY VOTE BEFORE JUNE 8, 1994
- ------------------------------------------------------------------------------
Please refer to the Proxy Statement discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
1. Election of FOR all nominees WITHHOLD AUTHORITY 1.
directors. listed below (except to vote for all nominees
as marked to the listed below
contrary)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Robert P. Black Calvin W. Burnett George J. Collins Anthony W. Deering
F. Pierce Linaweaver William T. Reynolds James S. Riepe John G. Schreiber
Anne Marie Whittemore
2. Approve changes to the FOR EACH POLICY AGAINST ABSTAIN 2.
Fund's fundamental LISTED BELOW (except ALL ALL
policies. as marked to the
contrary
IF YOU DO NOT WISH TO APPROVE A POLICY CHANGE, PLEASE CHECK THE APPROPRIATE
BOX BELOW:
(A) Municipal (G) Real Estate (L) Control (Q) Options
Securities
(B) Borrowing (H) Equity (M) Investment (R) Ownership of
Securities Companies Securities
(C) Industry (I) Commodities and (N) Purchasing on (S) Illiquid
Concentration Futures Margin Securities
(D) Lending (J) Senior (O) Pledging Assets (T) Short Sales
Securities
(E) Single Issuer (K) Underwriting (P) Oil and Gas (U) Unseasoned
Securities Issuers
(F) Voting
Securities
3. Ratify the selection of Price Waterhouse as independent accountants.
FOR AGAINST ABSTAIN 3.
4. Amend Articles of Incorporation to delete policy on pricing securities.
FOR AGAINST ABSTAIN 4.
I authorize the Proxies, in their discretion, to vote upon such other business
as may properly come before the meeting.
CUSIP#779576107/fund#045
<PAGE>
T. ROWE PRICE LOGO PROXY
- ------------------------------------------------------------------------------
INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
MEETING: 8:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mary J. Miller and James S. Riepe, as proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all shares of stock of the Fund,
which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, June 8, 1994, at the time indicated
above, at the offices of the Fund, 100 East Pratt Street, Baltimore, Maryland
21202, and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated April 25, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name appears.
Only authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than
one name, see page 3 of the Notice of
Annual Meeting and Proxy Statement.
Dated: -------------------------- , 1994
----------------------------------------
----------------------------------------
Signature(s)
CUSIP#779902105/fund#056
<PAGE>
T. ROWE PRICE LOGO WE NEED YOUR PROXY VOTE BEFORE JUNE 8, 1994
- ------------------------------------------------------------------------------
Please refer to the Proxy Statement discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
1. Election of directors. FOR all nominees WITHHOLD AUTHORITY 1.
listed below (except to vote for all nominees
as marked to the listed below
contrary)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Robert P. Black Calvin W. Burnett George J. Collins Anthony W. Deering
F. Pierce Linaweaver Mary J. Miller William T. Reynolds James S. Riepe
John G. Schreiber Anne Marie Whittemore
2. Approve changes to the FOR EACH POLICY AGAINST ABSTAIN 2.
Fund's fundamental LISTED BELOW (except ALL ALL
policies. as marked to the
contrary)
IF YOU DO NOT WISH TO APPROVE A POLICY CHANGE, PLEASE CHECK THE APPROPRIATE
BOX BELOW:
(A) Municipal (G) Real Estate (L) Control (Q) Options
Securities
(B) Borrowing (H) Equity (M) Investment (R) Ownership of
Securities Companies Securities
(C) Industry (I) Commodities and (N) Purchasing on (S) Illiquid
Concentration Futures Margin Securities
(D) Lending (J) Senior (O) Pledging Assets (T) Short Sales
Securities
(E) Single Issuer (K) Underwriting (P) Oil and Gas (U) Unseasoned
Securities Issuers
(F) Voting
Securities
3. Ratify the selection of Price Waterhouse as independent accountants.
FOR AGAINST ABSTAIN 3.
I authorize the Proxies, in their discretion, to vote upon such other business
as may properly come before the meeting.
CUSIP#779902105/fund#056
<PAGE>
T ROWE PRICE LOGO PROXY
- ------------------------------------------------------------------------------
INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
MEETING: 8:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints George J. Collins and James S. Riepe, as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all shares of stock of the
Fund, which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, June 8, 1994, at the time indicated
above, at the offices of the Fund, 100 East Pratt Street, Baltimore, Maryland
21202, and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated April 25, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name appears.
Only authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than
one name, see page 3 of the Notice of
Annual Meeting and Proxy Statement.
Dated: -------------------------- , 1994
----------------------------------------
----------------------------------------
Signature(s)
CUSIP#779575109/fund#049
<PAGE>
T ROWE PRICE LOGO WE NEED YOUR PROXY VOTE BEFORE JUNE 8, 1994
- ------------------------------------------------------------------------------
Please refer to the Proxy Statement discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
1. Election of directors. FOR all nominees WITHHOLD AUTHORITY 1.
listed below (except to vote for all nominees
as marked to the listed below
contrary)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Robert P. Black Calvin W. Burnett George J. Collins Anthony W. Deering
F. Pierce Linaweaver William T. Reynolds James S. Riepe John G. Schreiber
Anne Marie Whittemore
2. Approve changes to the FOR EACH POLICY AGAINST ABSTAIN 2.
Fund's fundamental LISTED BELOW (except ALL ALL
policies. as marked to the
contrary)
IF YOU DO NOT WISH TO APPROVE A POLICY CHANGE, PLEASE CHECK THE APPROPRIATE
BOX BELOW:
(A) Municipal (D) Lending (F) Voting (H) Equity
Securities Securities Securities
(B) Borrowing (E) Single Issuer (G) Real Estate (I) Commodities
and Futures
(C) Industry
Concentration
3. Ratify the selection of Coopers & Lybrand as independent accountants.
FOR AGAINST ABSTAIN 3.
I authorize the Proxies, in their discretion, to vote upon such other business
as may properly come before the meeting.
CUSIP#779575109/fund#049
<PAGE>
T. ROWE PRICE LOGO PROXY
- ------------------------------------------------------------------------------
INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. MEETING: 8:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William T. Reynolds and James S. Riepe, as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all shares of stock of the
Fund, which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, June 8, 1994, at the time indicated
above, at the offices of the Fund, 100 East Pratt Street, Baltimore, Maryland
21202, and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated April 25, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name appears.
Only authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than
one name, see page 3 of the Notice of
Annual Meeting and Proxy Statement.
Dated: -------------------------- , 1994
----------------------------------------
----------------------------------------
Signature(s)
CUSIP#741486104/fund#059
<PAGE>
T. ROWE PRICE LOGO WE NEED YOUR PROXY VOTE BEFORE JUNE 8, 1994
- ------------------------------------------------------------------------------
Please refer to the Proxy Statement discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.
Please fold and detach card at perforation before mailing.
- ------------------------------------------------------------------------------
1. Election of FOR all nominees WITHHOLD AUTHORITY 1.
directors. listed below (except to vote for all nominees
as marked to the listed below
contrary)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Robert P. Black Calvin W. Burnett George J. Collins Anthony W. Deering
F. Pierce Linaweaver William T. Reynolds James S. Riepe John G. Schreiber
Anne Marie Whittemore
2. Approve changes to the FOR EACH POLICY AGAINST ABSTAIN 2
Fund's fundamental LISTED BELOW (except ALL ALL
policies. as marked to the
contrary)
IF YOU DO NOT WISH TO APPROVE A POLICY CHANGE, PLEASE CHECK THE APPROPRIATE
BOX BELOW:
(A) Municipal (G) Real Estate (L) Control (Q) Options
Securities;
(B) Borrowing (H) Equity (M) Investment (R) Ownership of
Securities Companies Securities
(C) Industry (I) Commodities and (N) Purchasing on (S) Illiquid
Concentration Futures Margin Securities
(D) Lending (J) Senior (O) Pledging Assets (T) Short Sales
Securities
(E) Single Issuer (K) Underwriting (P) Oil and Gas (U) Unseasoned
Securities Issuers
(F) Voting
Securities
3. Ratify the selection of Coopers & Lybrand as independent accountants.
FOR AGAINST ABSTAIN 3.
I authorize the Proxies, in their discretion, to vote upon such other business
as may properly come before the meeting.
CUSIP#741486104/fund#059
