PAGE 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Section 240.14a-11(c) or
Section 240.14a-12
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
_________________________________________________________________
(Name of Registrant as Specified in its Charter)
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
_________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
_________________________________________________________
2) Aggregate number of securities to which transaction
applies:
_________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: (1)
_________________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________
1 Set forth the amount on which the filing fee is calculated and
state how it was determined.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
PAGE 2
filing by registration statement number, or the form or schedule
and the date of its filing,
1) Amount previously paid:
_________________________________________________________
2) Form, schedule, or Registration Statement no.:
_________________________________________________________
3) Filing party:
_________________________________________________________
4) Date filed:
_________________________________________________________
PAGE 3
Proxy for the T. Rowe Price Tax-Free Income Fund, Inc., should be
inserted here.
PAGE 1
T. ROWE PRICE
_________________________________________________________________
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
PAGE 2
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,
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 3
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
alternative minimum tax;
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;
PAGE 4
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;
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;
PAGE 5
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
the 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
ended May 31, 1994 and the fiscal year 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
PAGE 6
_________________________________________________________________
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.
_________________________________________________________________
CUSIP#779575109/fund#052
CUSIP#741486104/fund#059
CUSIP#779576107/fund#045
CUSIP#77957S109/fund#049
CUSIP#779902105/fund#056
PAGE 7
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
PAGE 8
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.
Abstentions and "broker non-votes" (as defined below) are
counted for purposes of determining whether a quorum is present,
but do not represent votes cast with respect to any Proposal.
"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.
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 SHARES OF EACH FUND PRESENT IN PERSON OR
BY PROXY AT THE MEETING IS SUFFICIENT TO APPROVE PROPOSAL 3 FOR
EACH FUND. 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,
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
PAGE 9
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.
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. 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.
PAGE 10
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 2/28/94(2) 2/28/94
_________________________________________________________________
Robert P. Black Retired: formerly Money 3,223
10 Dahlgren Road President, Federal Fund: --
Richmond, VA Reserve Bank of Richmond; High Yield
23233 Director/Trustee of nine Fund: --
12/21/27 other T. Rowe Price Income Income Fund:
0Money Fund: Funds/Trusts Insured
Initial election Intermediate
0High Yield Fund: --
Fund: Initial Short-
election Intermediate
0Income Fund: Fund:
Initial election
0Insured
Intermediate
Fund: Initial
election
0Short-
Intermediate
Fund: Initial
election
Calvin W. President, Coppin State Money Fund:
Burnett, PH.D. College; Director, High Yield
2500 West North Maryland Chamber of Fund:
Avenue Commerce and Provident Income Fund:
Baltimore, MD Bank of Maryland; Insured
21216 President, Baltimore Intermediate
3/16/32 Area Council Boy Scouts Fund:
0Money Fund: of America; Vice President, Short-
Director since Board of Directors, The Intermediate
1993 Walters Art Gallery, and Fund:
0High Yield a Director/Trustee of the
Fund: Director 11 other Price Income
PAGE 11
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 2/28/94(2) 2/28/94
_________________________________________________________________
since 1993 Funds/Trusts
0Income
Fund: Director
since 1993
0Insured
Intermediate
Fund: Director
since 1993
0Short-
Intermediate
Fund: Director
since 1993
*George J. President, Managing Money Fund:
Collins Director and Chief High Yield
100 East Pratt Executive Officer, T. Rowe Fund:
Street Price Associates, Inc.; Income Fund:
Baltimore, MD Director, Rowe Price- Insured
21202 Fleming International, Intermediate
7/31/40 Inc., T. Rowe Price Trust Fund:
0Money Fund: Company, and T. Rowe Price Short-
Chairman of the Retirement Plan Services, Intermediate
Board and member Inc.; Chairman of the Board Fund:
of Executive of nine other T. Rowe
Committee since Price Funds/Trusts; President
1980 and Director of the following
0High Yield T. Rowe Price Funds: Summit
Fund: Chairman and U.S. Treasury; Vice
of the Board and President and Director,
member of T. Rowe Price Prime Reserve
Executive Fund, Inc.; Director, T. Rowe
Committee since Price New Era Fund, Inc.;
1985 Vice President, T. Rowe Price
0Income Fund: Spectrum Fund, Inc.
Chairman of the
Board and member
PAGE 12
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 2/28/94(2) 2/28/94
_________________________________________________________________
of Executive
Committee since
1976
0Insured
Intermediate
Fund: Director
since 1992
0Short-
Intermediate
Fund: Chairman
of the Board
and member of
Executive
Committee since
1983
Anthony W. Director, President and Money 86,457
Deering Chief Operating Officer, Fund: 2,626
10275 Little The Rouse Company, real High Yield
Patuxent Parkway estate developers, Fund: 67
Columbia, MD Columbia, Maryland; Income
21044 Advisory Director, Fund: 184
1/28/45 Kleinwort, Benson (North Insured
0Money Fund: America) Corporation, a Intermediate
Director since registered broker-dealer, Fund: --
1983 and a Director/Trustee of Short-
0High Yield the 11 other Price Income Intermediate
Fund: Director Funds/Trusts, Institutional Fund: 186
since 1985 International Funds, Inc.
0Income Fund: and T. Rowe Price
Director since International Funds, Inc.
1983
0Insured
Intermediate
Fund: Director
since 1992
PAGE 13
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 2/28/94(2) 2/28/94
_________________________________________________________________
0Short-
Intermediate
Fund: Director
since 1983
F. Pierce President, F. Pierce Money 56,274
Linaweaver Linaweaver & Associates, Fund: --
The Legg Mason Inc.; formerly (1987-1991) High Yield
Tower Executive Vice President, Fund: --
Suite 2700 EA Engineering, Science, Income Fund: --
111 South and Technology, Inc. and Insured
Calvert Street (1987-1990) President, EA Intermediate
Baltimore, MD Engineering, Inc.; Fund: --
21202 Director/Trustee of the Short-
8/22/34 11 other Price Income Intermediate
0Money Fund: Funds/Trusts Fund: --
Director since
1983
0High Yield
Fund: Director
since 1985
0Income Fund:
Director since
1979
0Insured
Intermediate
Fund: Director
since 1992
0Short-
Intermediate
Fund: Director
since 1983
PAGE 14
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 2/28/94(2) 2/28/94
_________________________________________________________________
*Mary J. Miller Managing Director, T. Rowe Short-
100 East Pratt Price Associates, Inc.; Intermediate
Street Vice President of four Fund:
Baltimore, MD other T. Rowe Price Tax-Free
21202 Funds; President, T. Rowe
7/19/55 Price California Tax-Free
0Short- Income Trust; Executive
Intermediate Vice President, T. Rowe
Fund: President Price State Tax-Free Income
and member of Trust and T. Rowe Price
Executive Summit Municipal Funds,
Committee since Inc.
1991
*William T. Managing Director, T. Rowe Money Fund:
Reynolds Price Associates, Inc.; High Yield
100 East Pratt President and Trustee, Fund:
Street T. Rowe Price State Income Fund:
Baltimore, MD Tax-Free Income Trust; Insured
21202 Vice President and Trustee, Intermediate
5/26/48 T. Rowe Price California Fund:
0Money Fund: Tax-Free Income Trust;
Vice President President, T. Rowe Price
and member of Summit Municipal Funds,
Executive Inc.; Vice President,
Committee since T. Rowe Price Tax-Free
1991 Short-Intermediate Fund, Inc.
0High Yield
Fund: President
and member of
Executive
Committee since
PAGE 15
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 2/28/94(2) 2/28/94
_________________________________________________________________
1989
0Income Fund:
President and
member of
Executive
Committee since
1990
0Insured
Intermediate
Fund: Initial
election -
President since
1992
*James S. Riepe Managing Director, T. Rowe Money Fund:
100 East Pratt Price Associates, Inc.; High Yield
Street President and Director, Fund:
Baltimore, MD T. Rowe Price Investment Income Fund:
21202 Services, Inc.; Chairman of Insured
6/25/43 the Board, T. Rowe Price Intermediate
0Money Fund: Services, Inc., T. Rowe Fund:
Vice President Price Trust Company, T. Short-
and member of Rowe Price Retirement Plan Intermediate
Executive Services, Inc., and four Fund:
Committee since T. Rowe Price Funds; Vice
1983 President and Director/
0High Yield Trustee of 21 other
Fund: Vice T. Rowe Price Funds/Trusts;
President and Vice President of the
member of following T. Rowe Price
Executive Funds/Trusts: New America
Committee since Growth, New Era,
1985 Institutional International
0Income Fund: and International; Director,
Vice President Rhone-Poulenc Rorer, Inc.
and member of
PAGE 16
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 2/28/94(2) 2/28/94
_________________________________________________________________
Executive
Committee since
1983
0Insured
Intermediate
Fund: Director
since 1992
0Short-
Intermediate
Fund: Vice
President and
member of
Executive
Committee since
1983
John G. President, Schreiber Money Fund:
Schreiber Investments, a real estate High Yield
1115 East investment company; Fund:
Illinois Road Director and formerly Income Fund:
Lake Forest, (1/80-12/90) Executive Insured
IL 60045 Vice President, JMB Intermediate
10/21/46 Realty Corporation, a Fund:
0Money Fund: national real estate Short-
Director since investment manager and Intermediate
1992 developer; Director/Trustee Fund:
0High Yield of the 11 other Price
Fund: Director Income Funds/Trusts
since 1992
0Income Fund:
Director since
1992
0Insured
Intermediate
Fund: Director
since 1992
PAGE 17
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 2/28/94(2) 2/28/94
_________________________________________________________________
0Short-
Intermediate
Fund: Director
since 1992
Anne Marie Partner, law firm of Money Fund:
Whittemore McGuire, Woods, Battle & High Yield
One James Center Boothe, formerly, Chairman Fund:
901 East Cary and Director, Federal Income Fund:
Street Reserve Bank of Richmond; Insured
Richmond, VA Director, Owens & Minor, Intermediate
23219-4030 Inc., USF&G Corporation, Fund:
3/19/46 Old Dominion University, Short-
0Money Fund: and nominated to the Board Intermediate
Initial election of James River Corporation; Fund:
0High Yield Member, Richmond Bar
Fund: Initial Association and American
election Bar Association
0Income Fund:
Initial election
0Insured
Intermediate
Fund: Initial
election
0Short-
Intermediate
Fund: Initial
election
*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.
PAGE 18
(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 _____, ________, ________ and ________ shares of
the Money, High Yield, Income and Insured Intermediate
Funds, respectively, and Ms. Miller and Messrs. Collins and
Riepe in _______ shares of the Short-Intermediate Fund
which are owned by a wholly-owned subsidiary of the Funds'
investment manager, T. Rowe Price.
John Sagan, a director of the Insured Intermediate Fund
since 1992 and the other Funds, since 1986, 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 Fund's
directors' fee aggregating $15,000, $18,000, $26,000, $7,000 and
$13,000, respectively, including expenses. 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
PAGE 19
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.
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
PAGE 20
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.
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 SEC rules, 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
PAGE 21
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 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 ("AMT"). To
simplify compliance responsibilities and 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 adopt the 80% Income Test only. 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.
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;"
In accordance with SEC positions, under both the current and
proposed policies, the income from securities subject to the
alternative minimum tax ("AMT") is not counted when determining
whether 80% of the Fund's income is exempt from federal income
tax. However, under the proposal, there would be no reference to
AMT income in the Fund's fundamental policy. Thus, if the SEC
were to change its position or the tax law applicable to AMT
income were to change, the Fund's Board of Directors would be
able, without seeking shareholder approval, to change the Fund's
policy on excluding AMT income from the 80% Income Test.
PAGE 22
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 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 rules, 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. 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 23
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;"
In accordance with SEC positions, under both the current and
proposed policies, the income from securities subject to the
alternative minimum tax ("AMT") is not counted when determining
whether 80% of the Fund's income is exempt from federal income
tax. However, under the proposal, there would be no reference to
AMT income in the Fund's fundamental policy. Thus, if the SEC
were to change its position or the tax law applicable to AMT
income were to change, the Fund's Board of Directors would be
able, without seeking shareholder approval, to change the Fund's
policy on excluding AMT income from the 80% Income Test.
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 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
PAGE 24
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;"
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-
PAGE 25
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.
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
PAGE 26
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 Securities and Exchange
Commission ("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
PAGE 27
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.
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 page
___). 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
PAGE 28
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 29
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-
PAGE 30
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 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
PAGE 31
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.
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 in certificates of
deposit and bankers' acceptances. Since the Fund's policy
PAGE 32
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
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;"
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
PAGE 33
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 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
PAGE 34
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.
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
PAGE 35
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 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.
PAGE 36
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 ____. 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.
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
PAGE 37
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.
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
PAGE 38
(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.
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
PAGE 39
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
PAGE 40
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:
"[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
PAGE 41
change its position, the Fund would be able to change its policy
without seeking further shareholder action. Finally, the Fund
considers municipal securities refunded by U.S. government
securities to be U.S. government securities for purposes of this
policy. This means that the Fund can invest without limit in the
bonds of a given issuer to the extent such bonds are refunded by
U.S. government 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 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. The
new restriction would also 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
investing in the securities of a single issuer 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
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;"
PAGE 42
Finally, the Fund considers municipal securities refunded by
U.S. government securities to be U.S. government securities for
purposes of this policy. This means that the Fund can invest
without limit in the bonds of a given issuer to the extent such
bonds are refunded by U.S. government securities.
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 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. The
new restriction would also 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
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:
"[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
PAGE 43
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 action. Finally, the Fund
considers municipal securities refunded by U.S. government
securities to be U.S. government securities for purposes of this
policy. This means that the Fund can invest without limit in the
bonds of a given issuer to the extent such bonds are refunded by
U.S. government securities.
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 materially affect the Fund's 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
PAGE 44
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 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;"
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
PAGE 45
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)"
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);"
PAGE 46
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 47
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
current policy of the Fund 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 new policy, the 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. 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 are
subject. The Board has directed that the proposal be various
investment restrictions to which the T. Rowe Price Funds
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 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;"
PAGE 48
Although to date the Fund has not purchased any equity
securities, at times, there have been attractive opportunities in
the market to make such investments. 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 which 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.
The market may develop other equity securities in the future
which present additional opportunities for the Fund. If the
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
PAGE 49
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];"
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
option 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;"
PAGE 50
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 51
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. 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;"
PAGE 52
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");"
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
PAGE 53
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:
"[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
PAGE 54
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:
PAGE 55
"[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.
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:
PAGE 56
"[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.
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, preferred stock of certain
closed-end investment companies which invest in municipal
securities. 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. 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;"
PAGE 57
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;"
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, (1) to investing no more than 10% of its total assets
in the securities of other investment companies; (2) to owning no
more than 3% of the total outstanding voting stock of any other
investment company; and (3) to 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.
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.
PAGE 58
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;"
PAGE 59
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 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];"
PAGE 60
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 Board of Directors recommends that shareholders vote FOR
the proposal.
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
PAGE 61
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;"
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
PAGE 62
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 engages in futures or options transactions or purchases
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
PAGE 63
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:
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
PAGE 64
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;"
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. 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
PAGE 65
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:
"[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 66
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."
PAGE 67
The Board of Directors recommends that shareholders vote FOR
the proposal.
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 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. 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;"
PAGE 68
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 can not 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
restriction on restricted 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.
High Yield, Income and Short-Intermediate Funds
The Board of Directors has proposed that the Fund's
Fundamental Investment Policies on purchasing restricted and
PAGE 69
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. 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 70
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 can not 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
restriction on restricted 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.
PAGE 71
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.
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
PAGE 72
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.
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:
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
PAGE 73
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
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
PAGE 74
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 May 31, 1994 and for fiscal year 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 ended May 31, 1994 and for fiscal year 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.
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
PAGE 75
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."
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.
PAGE 76
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:
Position Position with
Officer with Fund Manager
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
PAGE 77
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 Vice President
President
Lenora V. Hornung Secretary Vice President
Carmen F. Deyesu Treasurer Vice President
David S. Middleton Controller Vice President
Roger L. Fiery Assistant Vice Employee
President
Konstantine B. Mallas** Assistant Vice Assistant Vice
President President
Laura L. McAree++ Assistant Vice Assistant Vice
President President
Edward T. Schneider Assistant Vice Employee
President
William F. Snider@ Assistant Vice Employee
President
Ingrid I. Vordemberge Assistant Vice Employee
President
* Ms. Berchtenbreiter is the President of the Money Fund and a
Vice President of the High Yield, Income, Insured
Intermediate and Short-Intermediate Funds. Mr. Boltz is a
Vice President of the Money Fund only. Ms. Berchtenbreiter's
date of birth is January 13, 1953, and she has been employed
by T. Rowe Price since March 22, 1972.
** 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.
PAGE 78
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.
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.
PAGE 79
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.
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
PAGE 80
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
PAGE 81
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.
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
PAGE 82
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.
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.
PAGE 83
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. The Fund 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 84
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.
PAGE 85
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.
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
PAGE 86
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.
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
PAGE 87
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 $3,848,865,000 $4,251,499,000
High Yield 1,408,187,000 1,322,908,000
Income 3,328,251,000 2,593,637,000
Insured Intermediate383,604,000 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:
PAGE 88
Fund 1994 1993 1992
______ ____ ____ ____
Money $3,832,044,000 $4,231,419,000
High Yield 1,235,780,000 1,271,082,000
Income 2,897,793,000 2,457,260,000
Insured Intermediate343,890,000 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.
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 $ 16,822,000 $ 20,081,000
High Yield 172,407,000 51,826,000
Income 430,458,000 136,376,000
Insured Intermediate39,714,000 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 $ 23,000 $ 15,000
High Yield 1,282,000 398,000
Income 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.
PAGE 89
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.
GENERAL INFORMATION
The number of outstanding shares for each Fund 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 an 2,484,903, 101,857, 241,105, 105,980
and 212,267 shares of the outstanding stock of the Money, High
PAGE 90
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
High Yield
Income
Insured Intermediate
Short-Intermediate
The ownership of the officers and directors reflects their
proportionate interests, if any, in ____________ shares of the
Fund which are owned by a wholly-owned subsidiary of 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.
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
PAGE 91
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 92
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 93
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
The Company has historically accounted for its investments in
stock and bond mutual funds at the lower of aggregate cost or
market. 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.
PAGE 94
T. ROWE PRICE ASSOCIATES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 95
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) include:
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.
PAGE 96
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
_________
_________
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%.
PAGE 97
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (Continued)
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.
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.
PAGE 98
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (Continued)
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.
Options
Unexer- Options Unexer- Exer-
cised Options Granted cised cisable
Options Exer- (Canceled) Options at
Year at Decem- cised During Decem- Decem- Exer-
of ber 31, During ber 31, ber 31, ber 31, cise
Grant 1992 1993 1993 1993 1993 Price
____ ________ ________ ________ ________ ________ ______
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
_________ ________ _________ _________ _________
_________ ________ _________ _________ _________
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 99
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
PAGE 100
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (Continued)
1996, $3,769,000 in 1997 and 1998, and $33,755,000 in 1999
through 2006. Other assets at December 31, 1992 includes a
receivable from the venture of $3,485,000 for leasehold
improvements made by the Company and reimbursed by the venture in
1993.
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.
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 101
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
[/TEXT]
[/DOCUMENT]
</DOCUMENT
PAGE 4
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
(Front)
PAGE 5
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
as marked to the nominees 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 Fund's fundamental policies.
FOR each policy / / ABSTAIN / / 2.
listed below (except as
marked to the contrary)
If you do NOT wish to approve a policy change, please check the
appropriate box below:
/ / (A) Alternative Minimum Tax / / (L) Control
/ / (B) Borrowing / / (M) Investment Companies
/ / (C) Industry Concentration / / (N) Purchasing on Margin
/ / (D) Lending / / (O) Pledging Assets
/ / (E) Single Issuer / / (P) Oil and Gas
/ / (F) Voting Securities / / (Q) Options
/ / (G) Real Estate / / (R) Ownership of Securities
/ / (H) Equity Securities / / (S) Illiquid Securities
/ / (I) Commodities and Futures / / (T) Short Sales
/ / (J) Senior Securities / / (U) Unseasoned Issuers
/ / (K) Underwriting Securities
3. Ratify the selection of Price Waterhouse as independent
accountants. FOR / / AGAINST / / ABSTAIN / / 3.
PAGE 6
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
(BACK)
