PAGE 1
Registration Nos. 002-65539/811-2958
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Post-Effective Amendment No. 47 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 / X /
Amendment No. 43 / X /
Fiscal Year Ended December 31, 1994
__________________________________________
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
____________________________________________________
(Exact Name of Registrant as Specified in Charter)
100 East Pratt Street, Baltimore, Maryland 21202
__________________________________________ __________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 410-547-2000
____________
Henry H. Hopkins
100 East Pratt Street
Baltimore, Maryland 21202
_______________________________________
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering December 30, 1994
_________________
It is proposed that this filing will become effective (check
appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
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/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/X/ on (December 30, 1994) pursuant to paragraph (a)(ii) of
Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933+
______________________________________________
Pursuant to Section 24f-2 of the Investment Company Act of 1940,
the Registrant has registered an indefinite number of securities
under the Securities Act of 1933 and intends to file a 24f-2
Notice by February 28, 1995.
+Not applicable, as no securities are being registered by this
Post-Effective Amendment No. 47 to the Registration Statement.
PAGE 3
The Registration Statement of the T. Rowe Price
International Funds, Inc. on Form N-1A (File No. 2-65539) is
hereby amended under the Securities Act of 1933 to update the
Registrant's financial statements, make other changes in the
Registrant's Prospectus and Statement of Additional Information,
and to satisfy the annual amendment requirement of Rule 8b-16
under the Investment Company Act of 1940.
This Amendment consists of the following:
Cross Reference Sheet
Part A of Form N-1A, Revised Prospectus
Part B of Form N-1A, Statement of Additional Information
Part C of Form N-1A, Other Information
Accountants' Consent
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T. ROWE PRICE GLOBAL GOVERNMENT BOND FUND
T. ROWE PRICE INTERNATIONAL BOND FUND
T. ROWE PRICE SHORT-TERM GLOBAL INCOME FUND
T. ROWE PRICE EMERGING MARKETS BOND FUND
CROSS REFERENCE SHEET
N-1A Item No. Location
_____________ ________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary of Funds' Fees
and Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Introduction; Summary
Registrant of Funds' Fees and
Expenses; Investment
Programs; Risk
Factors; Investment
Policies; Performance
Information; Capital
Stock; Debt
Securities; Bond
Characteristics
Item 5. Management of the Fund Summary of Funds Fees'
and Expenses;
Management of the
Funds; Expenses and
Management Fee
Item 6. Capital Stock and Other Capital Stock;
Securities Dividends and
Distributions; Taxes
Item 7. Purchase of Securities Being NAV, Pricing, and
Offered Effective Date;
Shareholder Services;
Conditions of Your
Purchase; Completing
the New Account Form;
Opening a New Account;
Purchasing Additional
Shares
Item 8. Redemption or Repurchase NAV, Pricing, and
Effective Date;
Receiving Your
Proceeds; Conditions
of Your Purchase;
Exchanging and
Redeeming Shares
PAGE 5
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +
Item 13. Investment Objectives and Investment Objectives
Policies and Policies;
Investment Objectives;
Investment Programs;
Investment
Restrictions; Risk
Factors of Investing
in Debt Obligations;
Investment
Performance; Yield
Information
Item 14. Management of the Registrant Management of Funds
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Legal Counsel;
Independent
Accountants
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Dividends; Capital
Securities Stock
Item 19. Purchase, Redemption and Redemptions in Kind;
Pricing of Securities Being Pricing of Securities;
Offered Net Asset Value Per
Share; Federal and
State Registration of
Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for Funds
Item 22. Calculation of Yield Quotations
of Money Market Funds +
Item 23. Financial Statements Incorporated by
Reference from Annual
Report
PART C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration
Statement
___________________________________
+ Not applicable or negative answer
PAGE 6
INTERNATIONAL FIXED Short-Term Global Income Fund seeks high
INCOME FUNDS current income consistent with modest price
fluctuation by investing primarily in high-
quality, short-term U.S. and foreign fixed-
income securities.
Global Government Bond Fund seeks high
current income and, secondarily, capital
appreciation and protection of principal by
investing primarily in high quality U.S.
and foreign government bonds.
Prospectus International Bond Fund seeks high current
December 30, 1994 income by investing in a diversified
T. Rowe Price portfolio of nondollar-denominated, high-
International Funds, quality government and corporate bonds.
Inc. The Fund also seeks capital appreciation
and to moderate price fluctuation by
actively managing its maturity structure
and currency exposure.
Emerging Markets Bond Fund seeks maximum
current income and capital appreciation by
investing a significant portion of its
assets in lower-rated short and
intermediate-term high yielding debt
securities issued by governments and
corporations in less developed countries.
These emerging market bonds represent a
much greater risk of default and price
fluctuation than higher rated bonds.
Before investing, you should carefully
consider these greater risks which are
explained in more detail in the Investment
Policy: High Yield Bonds and Risk Factors:
Emerging Markets sections.
___________________________________________
Table of Contents T. Rowe Price
100% No Load. The Funds have no sales
Fund Information charges, no redemption fees, and no 12b-1
Introduction fees. 100% of your investment is credited
Summary of Funds' Fees to your account.
and Expenses
Financial Highlights Services. T. Rowe Price provides easy
Investment Programs access to your money through checkwriting,
Risk Factors bank wires or telephone redemptions and
Investment Policies offers easy exchange to other T. Rowe Price
PAGE 7
Performance Information Funds.
Capital Stock
Debt Securities Rowe Price-Fleming International, Inc.
Bond Characteristics (Price-Fleming), the Funds' manager, was
NAV, Pricing, and founded in 1979 as a joint venture between
Effective Date T. Rowe Price Associates, Inc. (T. Rowe
Receiving Your Proceeds Price) and Robert Fleming Holdings Limited.
Dividends and Price-Fleming is one of America's largest
Distribution international mutual fund asset managers
Taxes with approximately $15.0 billion under
Management of the Funds management with offices in Baltimore,
Expenses and Management London, Tokyo, and Hong Kong.
Fee ___________________________________________
How to Invest This prospectus contains information you
Shareholder Services should know about the Funds before you
Conditions of Your invest. Please keep it for future
Purchase reference. A Statement of Additional
Completing the New Information for the Funds (dated December
Account Form 30, 1994) has been filed with the
Opening A New Account Securities and Exchange Commission and is
Purchasing Additional incorporated by reference in this
Shares prospectus. It is available at no charge
Exchanging and Redeeming by calling: 1-800-638-5660.
Shares
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE
SECURITIES COMMISSION, PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
________________________ ___________________________________________
INTRODUCTION Interest rates vary from country to
country, depending on local economic
conditions and government policies. By
taking a global approach to bond investing,
U.S. investors can access markets that
offer potentially higher returns than are
available in the U.S.
Overseas investments can also help
diversify a fixed income portfolio
otherwise invested solely in U.S.
securities. Since the performance of
foreign bond markets is often different
PAGE 8
than that of the U.S., diversifying
investments across several countries can
help reduce portfolio volatility.
Mutual Funds: A Sensible Way to Invest.
For the individual investor, buying foreign
bonds can be difficult and costly. Access
to international markets is complicated.
Few individuals have the time or resources
to evaluate foreign markets, and
transaction costs are generally high. The
simplicity, professional management, and
broad diversification offered by mutual
funds--at a relatively low cost--make them
an excellent alternative.
Price-Fleming, the investment manager of
all T. Rowe Price International Funds,
makes use of a worldwide network of
analysts to research opportunities in the
U.S. and abroad. From its offices in
Baltimore, London, Tokyo, and Hong Kong,
Price-Fleming has access to the
international research capabilities of
London-based Robert Fleming Holdings
Limited, a 100-year-old investment firm.
Equally important, all T. Rowe Price
International Funds have no sales charges
of any kind, which means 100% of every
dollar you invest goes to work for you.
T. Rowe Price International Fixed Income
Funds. The four T. Rowe Price
international fixed income funds described
in this prospectus offer a range of
objectives and strategies designed to meet
a variety of investor needs. The first
three listed below invest primarily in
high-quality securities, but differ in
terms of average portfolio maturity and
level of currency exposure to allow
investors to pursue a more conservative to
a relatively more aggressive investment
approach. The Emerging Markets Bond Fund
invests predominately in lower quality
(below investment grade) bonds and as such
PAGE 9
offers the highest potential rewards as
well as the greatest potential risks of any
of the Funds.
o Short-Term Global Income Fund is T. Rowe
Price's most conservative international
fixed income fund. It invests in short-
term foreign and U.S. securities to
provide a high level of income. The
Fund seeks to reduce volatility stemming
from currency exposure by hedging a
substantial portion of its nondollar
holdings back to the U.S. dollar.
o Global Government Bond Fund invests in
U.S. and foreign government bonds to
provide a high level of income and,
secondarily, capital appreciation. It
is somewhat less conservative than the
Short-Term Global Income Fund, and the
average maturity of its portfolio is
generally longer. The Fund has wide
flexibility to hedge all or a part of
its nondollar holdings.
o International Bond Fund takes a
relatively aggressive approach to
investing for income and capital
appreciation. It invests outside the
U.S. in longer-term bonds, and normally
does not hedge its nondollar holdings
back to the dollar to allow the Fund to
benefit from currency fluctuations which
could enhance total return. (See
Investment Programs for further
details.)
Emerging Markets Bond Fund is T. Rowe
Price's most aggressive international fixed
income fund. It pursues high income and
capital appreciation by investing in bonds
issued outside the U.S. by governments and
corporations in less established,
"emerging" markets. While the investment
manager believes the significant political
and economic changes in Latin America,
Eastern Europe and other emerging markets
PAGE 10
present an attractive investment
opportunity, investors should keep in mind
this fund entails greater risk than higher
quality bond funds and is only appropriate
for those who are willing to accept
substantial fluctuation in principal
value.
Risk Factors. There are a number of
risk factors unique to international
investing. These are discussed in the Risk
Factors section which begins on page __.
One risk which can significantly affect all
international fixed income investing,
regardless of the credit quality of the
bonds purchased, is the effect of
fluctuating currency values. Although, in
general, Price-Fleming can attempt to
manage this risk through foreign currency
hedging, there is no guarantee the hedging,
even when employed, will work and currency
risk cannot be eliminated entirely.
Further, it may not be possible to
effectively hedge the currencies of certain
countries, especially those in emerging
markets. In addition, hedging costs, which
are paid for out of a fund's capital and
reflected in the fund's net asset value per
share (not its yield), can be significant.
In general, each Fund's share price will
vary with market, economic and foreign
exchange conditions, and investments may be
worth more or less when redeemed than when
purchased. The Funds should not be relied
upon as a complete investment program, nor
used to play short-term swings in foreign
bond or exchange markets, and there is no
assurance the Funds can achieve their
investment objectives.
The following pages detail the expenses
and investment programs for each T. Rowe
Price international fixed income fund. If
you have any questions, please call us at
1-800-638-5660.
________________________ ___________________________________________
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SUMMARY OF FUNDS' FEES The Funds are 100% no-load . . . you pay no
AND EXPENSES fees to purchase, exchange or redeem
shares, nor any ongoing marketing (12b-1)
expenses. Lower expenses benefit you by
increasing your investment return from a
Fund.
Shown below are all
expenses and fees each Fund (except
Emerging Markets Bond Fund) incurred during
its fiscal year. Where applicable,
expenses were restated to reflect current
fees. "Annual Fund Expenses," provides an
estimate of how much it will cost to
operate Emerging Markets Bond Fund for a
year based on projected 1995 fiscal year
expenses (and any applicable expense
limitations). Expenses are expressed as a
percent of average Fund net assets. More
information about these expenses may be
found below and under Expenses and
Management Fee and in the Statement of
Additional Information under Management Fee
and Limitation on Fund Expenses.
Fund Expenses
Shareholder Transaction Expenses
Short- Global
Term Govern- Inter- Emerging
Global ment nationalMarkets
Income Bond Bond Bond
___________________________________________
Sales load
"charge" on
purchases None None None None
___________________________________________
Sales load
"charge" on
reinvested
dividends None None None None
___________________________________________
Redemption
fees None None None None
___________________________________________
PAGE 12
Exchange
fees None None None None
___________________________________________
Annual Fund Expenses
Short- Global
Term Govern- Inter- Emerging
Global ment nationalMarkets
Income Bond Bond Bond
___________________________________________
Management
fee (after
reduction) 0.46%+ 0.51%++ 0.70% ____%
___________________________________________
Total other
(Shareholder
servicing,
custodial,
auditing,
etc.)+++ 0.54% 0.69% 0.29% ____%
___________________________________________
Distri-
bution
fees
(12b-1) None None None None
___________________________________________
Total
Fund
Expenses 1.00% 1.20% 0.99% ____%
___________________________________________
+ The Short-Term Global Income Fund's
management fee and its total expense
ratio would have been 0.60% and 1.14%,
respectively, had Price-Fleming not
agreed to reduce management fees in
accordance with the expense
limitation.
++ The Global Government Bond Fund's
management fee and its total expense
ratio would have been 0.70% and 1.39%,
respectively, had Price-Fleming not
agreed to reduce management fees in
accordance with the expense
limitation.
PAGE 13
+++ The Funds charge a $5 fee for wire
redemptions under $5,000, subject to
change without notice.
Example of Fund expenses. The following example illustrates the
expenses you would incur on a $1,000
investment, assuming a 5% annual rate of
return and redemption at the end of each
period shown. For example, expenses for
the first year in the Short-Term Global
Income Fund would be $10. This is an
illustration only. Actual expenses and
performance may be more or less than shown.
Fund 1 Year3 Years 5 Years 10 Years
____ _____________ _______ ________
Short-Term
Global
Income $10 $32 $55 $122
Global
Govern-
ment Bond $12 $38 $66 $145
Interna-
tional Bond$10 $32 $55 $121
Emerging
Markets
Bond $____ $____ $____ $____
Management Fee. Each Fund pays Price-
Fleming an investment management fee
consisting of a flat Individual Fund Fee of
each Fund's net assets, of 0.25% for the
Short-Term Global Income Fund and 0.35%
each for the Global Government Bond and
International Bond Funds; and 0.___% for
Emerging Markets Bond Fund, and a Group
Fee, defined on page __ under Expenses and
Management Fee, of 0.35% as of December 31,
1993. Thus, the total combined management
fee as of December 31, 1993, based on net
assets would be 0.60% for the Short-Term
Global Income Fund and 0.70% each for the
Global Government Bond and International
Bond Funds.
PAGE 14
The following chart sets forth expense
ratio limitations and the periods for which
they are effective. For each, Price-
Fleming has agreed to bear any Fund
expenses which would cause the Funds' ratio
of expenses to average net assets to exceed
the indicated percentage limitations. The
expenses borne by Price-Fleming are subject
to reimbursement by the Fund through the
indicated reimbursement date, provided no
reimbursement will be made if it would
result in the Fund's expense ratio
exceeding its applicable limitation.
Expense Reim-
Limita- Ratio burse-
tion Limita- ment
Period tion Date
Short-Term
Global
Income+ January 1, 1994- 1.00% December
December 31, 1995 31, 1997
Global
Government
Bond++ January 1, 1993- 1.20% December
December 31, 1994 31, 1996
Emerging
Markets
Bond December 30, 1994- ___% October
October 31, 1996 31, 1998
+ The Short-Term Global Income Fund
previously operated under a 1.00%
limitation that expired December 31,
1993. The reimbursement period for this
limitation extends through December 31,
1995.
++ The Global Government Bond Fund
previously operated under a 1.20%
limitation that expired December 31,
1992. The reimbursement period for this
limitation extends through December 31,
1994.
PAGE 15
Transfer Agent, Shareholder Servicing, and
Administrative Costs. The Funds paid fees
to: (i) T. Rowe Price Services, Inc. (TRP
Services) for transfer and dividend
disbursing agent functions and shareholder
services for all accounts; (ii) T. Rowe
Price Retirement Plan Services, Inc. for
subaccounting and recordkeeping services
for certain retirement accounts; and (iii)
T. Rowe Price for calculating the daily
share price and maintaining the portfolio
and general accounting records of each
Fund. The approximate fees paid are set
forth in the following chart:
Transfer Subaccounting
Agent Services Accounting
Short-Term
Global
Income $107,000 $17 $100,000
Global
Government
Bond $64,000 $36,000 $100,000
Interna-
tional
Bond $627,000 $244,000 $112,000
The Emerging Markets Bond Fund
became effective on December 30, 1994, and
is expected to pay TRP Services transfer
agent fees totaling approximately $_____
for the fiscal period ending October 31,
1995, and is also expected to pay
shareholder service and accounting fees
totaling approximately $__________ and
$__________ respectively, for the same
period to T. Rowe Price Retirement Plan
Services, Inc., and T. Rowe Price,
respectively, as described on page ___
under Management of the Funds.
________________________ ___________________________________________
FINANCIAL HIGHLIGHTS The following table provides information
about each Fund's financial history. It is
based on a single share outstanding
throughout each fiscal year (which ends on
the last day of December). The respective
PAGE 16
table is part of each Fund's financial
statements which are included in each
Fund's annual report and incorporated by
reference into the Statement of Additional
Information, which is available to
shareholders. The financial statements in
the annual report have been audited by the
Funds' independent accountants whose
respective unqualified reports cover the
periods shown.
Investment Activities Distributions
Net Real-
ized and
Net Unreal- Total
Asset ized Gain from
Value, Net (Loss) Invest- Net Net
Begin- Invest- on ment Invest-Real- Total
Year Ended, ning of ment Invest- Activi- ment lized Distri-
December 31 Period Income ments ties Income Gain butions
_________________________________________________________________
Short-Term
Global Income
1992a $5.00 $ .20 $(.21) $(.01) $(.20)$(.01) $ (.21)
1993 4.78 .32c .04 .36 (.32) -- (.32)
End of Period
Ratio
of
Ratio Net
of Invest-
Net Total Expenses ment Port-
Asset Return to Income folio
Value, (Includes Net Average to Aver- Turn-
Year Ended, End of Reinvested Assets ($ Net age Net over
December 31 Period Dividends) Thousands) Assets Assets Rate
_________________________________________________________________
Short-Term
Global Income
1992a $4.78 (.22)% $66,297 1.00%bg 7.92%a 334.1%a
1993 4.82 7.87% 97,118 1.00%b 6.74% 92.9%
_________________________________________________________________
PAGE 17
Investment Activities Distributions
Net Real-
ized and
Net Unreal- Total
Asset ized Gain from
Value, Net (Loss) Invest- Net Net
Begin- Invest- on ment Invest-Real- Total
Year Ended, ning of ment Invest- Activi- ment lized Distri-
December 31 Period Income ments ties Income Gain butions
_________________________________________________________________
Global Government
Bond
1991c $10.00 $ .77d $ .30 $1.07 $ (.77) -- $(.77)
1992 10.30 .76d (.44) .32 (.76) $(.01) (.77)
1993 9.85 .56d .51 1.07 (.56) (.28) (.84)
End of Period
Ratio
of
Ratio Net
of Invest-
Net Total Expenses ment Port-
Asset Return to Income folio
Value, (Includes Net Average to Aver- Turn-
Year Ended, End of Reinvested Assets ($ Net age Net over
December 31 Period Dividends) Thousands) Assets Assets Rate
_________________________________________________________________
Global Government
Bond
1991c $10.30 11.31% $39,775 1.20%d 8.07% 93.6%
1992 9.85 3.26% 53,546 1.20%d 7.51% 236.6%
1993 10.08 11.15% 48,758 1.20%d 5.57% 134.0%
PAGE 18
Investment Activities Distributions
Net Real-
ized and
Net Unreal- Total
Asset ized Gain from
Value, Net (Loss) Invest- Net Net
Begin- Invest- on ment Invest-Real- Total
Year Ended, ning of ment Invest- Activi- ment lized Distri-
December 31 Period Income ments ties Income Gain butions
_________________________________________________________________
International
Bond Fund
1986e $10.00 $ .32 $(.04)f $ .28 $ .01 $ .29 $ (.28)
1987 10.01 1.14 (.13)f 1.01 1.64 2.65 (1.06)
1988 11.60 1.04 (.13) .91 (1.09) (.18) (1.17)
1989 10.25 .75 (1.10) (.35) (.75) -- (.75)
1990 9.15 .83 .55 1.38 (.83) (.17) (1.00)
1991 9.53 .77 .82 1.59 (.77) -- (.77)
1992 10.35 .87 (.63) .24 (.83) (.15) (.98)
1993 9.61 .69 1.18 1.87 (.69) (.45) (1.14)
End of Period
Ratio
of
Ratio Net
of Invest-
Net Total Expenses ment Port-
Asset Return to Income folio
Value, (Includes Net Average to Aver- Turn-
Year Ended, End of Reinvested Assets ($ Net age Net over
December 31 Period Dividends) Thousands) Assets Assets Rate
_________________________________________________________________
International
Bond Fund
1986e $10.01 2.97% $ 70,022 1.25%f 9.48% 217.7%
1987 11.60 27.57% 400,173 1.25%f 9.47% 284.3%
1988 10.25 (1.27)% 407,021 1.20% 8.73% 368.1%
1989 9.15 (3.19)% 303,897 1.23% 8.11% 293.1%
1990 9.53 16.05% 430,386 1.15% 9.04% 211.4%
1991 10.35 17.75% 413,985 1.24% 8.11% 295.6%
1992 9.61 2.39% 513,927 1.08% 8.66% 357.7%
1993 10.34 20.00% 745,244 .99% 6.58% 395.7%
_________________________________________________________________
a For the period June 30, 1992 (commencement of operations) to
December 31, 1992.
PAGE 19
b Excludes expenses in excess of a 1.00% voluntary expense
limitation in effect through December 31, 1993.
c For the period December 28, 1990 (commencement of operations)
to December 31, 1991.
d Excludes expenses in excess of a 1.20% voluntary expense
limitation in effect through December 31, 1994.
e For the period September 10, 1986 (commencement of
operations) to December 31, 1986.
f Excludes expenses in excess of a 1.25% voluntary expense
limitation in effect through December 31, 1987.
g Annualized.
________________________ ___________________________________________
INVESTMENT PROGRAMS Each T. Rowe Price international fixed
income fund has a different investment
program principally designed to deliver
high current income and, in the case of
International Bond Fund and Emerging
Markets Bond Fund, capital appreciation.
Portfolios vary in terms of average
maturity, credit quality and degree of
currency exposure, providing each Fund with
a unique combination of risk and return
potential.
Average Maturity: Bond prices fluctuate
with changes in overall interest rates.
Since prices of longer-term bonds tend to
be more volatile than those of shorter-term
bonds, portfolios with longer average
maturities generally involve greater risk
and provide higher reward potential.
Conversely, portfolios with shorter average
maturities generally exhibit less share
price fluctuation, but offer less return
potential. By actively managing a
portfolio's maturity (i.e., lengthening
average maturity when lower rates are
anticipated and shortening average maturity
when rates are expected to rise), Price-
Fleming seeks to limit the effect of--or
benefit from--interest rate changes.
Currency Exposure: Because of exchange
rate movements, prices of international
funds are likely to be more volatile than
funds which invest only in U.S. dollar-
PAGE 20
denominated securities. As the U.S. dollar
strengthens relative to a given foreign
currency, the value of a portfolio security
denominated in that currency will fall.
Conversely, when the U.S. dollar weakens
relative to a currency, the value of a
portfolio security in that currency will
rise. Therefore, the greater the level of
a fund's currency exposure, the greater its
risk and return potential. By actively
managing a fund's currency exposure, Price-
Fleming can attempt to benefit or insulate
a fund from the effect of currency
fluctuations. There is, of course, no
guarantee Price-Fleming will be successful
in this regard.
As noted in the following chart, the
Short-Term Global Bond and Global
Government Bond Funds invest both in the
United States and abroad, thereby limiting
somewhat their overall currency exposure.
Currency risk in these Funds may be further
reduced by hedging through the use of
foreign currency forward contracts
("forwards"). Of the two Funds, Short-Term
Global Fund is the more conservative due to
its shorter average maturity and more
extensive use of hedging back to the U.S.
dollar. International Bond Fund is more
aggressive, invests nearly exclusively
outside the US, and is normally heavily
exposed to foreign currencies to provide
maximum income and appreciation potential,
although with greater price fluctuations.
The Emerging Markets Bond Fund, our most
aggressive foreign bond fund, invests
primarily in the bonds of emerging markets.
Its exposure to foreign currencies is
limited to some degree by the fact that
many emerging market bonds are dollar
denominated. (See page __ for an
explanation of the types of foreign
currency strategies the Funds use.)
Short-Term Global Income, Global
Government Bond, and International Bond
PAGE 21
concentrate their investments in high-
quality securities to minimize credit risk.
However, each of these Funds may also
invest to a limited extent in lower quality
bonds. In pursuit of maximum income and
capital appreciation, the Emerging Markets
Bond Fund is expected to invest a
significant portion (and may invest
substantially all) of its assets in lower
quality or non-investment grade securities.
Each Fund normally invests in the bonds of
a minimum of three countries, however each
may invest in the bonds of only one country
(including the U.S.) for temporary
defensive purposes. Because of their
concentration in foreign government
securities, all Funds are considered "non-
diversified" for purposes of the Investment
Company Act of 1940.
Summary of Fund Characteristics:
Short- Global
Term Govern- Interna- Emerging
Global ment tional Markets
Income Bond Bond Bond
___________________________________________
Objective Income Income Income Income
& prin- & &
cipal growth growth
preser-
vation
Geographic
Focus World- World- Outside Outside
wide2 wide2 U.S.3 U.S.3
Primary
Credit
Quality1 High High High Low
quality quality quality quality
PAGE 22
Weighted
Average
Maturity Short Approx- Inter- Approx-
(no imately mediate imately
more 7 years to long 5-10
than years
3 years)
Normal
Level of
Currency
Exposure Low Varies High Moderate
Relative
Risk5 Lowest Mod- High Highest
erate
Total
Return
Potential Lowest Mod- High Highest
erate
(1) As determined by at least one public
rating agency (e.g., Standard &
Poor's Corporation ("S&P")), or, if
unrated, by Price-Fleming to be of
equivalent quality. "Investment
Grade" refers to the four highest
credit categories (e.g., AAA, AA, A
and BBB by S&P). "High Quality"
refers to the two highest credit
categories.
(2) Expects to invest primarily in the
United States, the countries of
Western Europe, Japan, Australia, New
Zealand, and Canada.
(3) Expects to invest primarily in the
countries of Western Europe, Japan,
Australia, New Zealand, and Canada.
(4) Expects to invest primarily in
emerging markets of Latin America,
Eastern Europe, Asia and Africa.
PAGE 23
(5) Relative to the other three
funds.
Investing for income in Short-Term Global Income Fund. The Fund's
short-term U.S. and investment objectives are to seek high
foreign debt securities. current income consistent with modest price
fluctuation by investing primarily in high-
quality fixed-income securities. These
include bonds, debentures, notes, mortgage
or asset-backed securities, bank
obligations such as certificates of
deposit, and money market instruments of
all types issued throughout the world. The
Fund may also invest in securities which
are convertible into equity securities or
have attached warrants or rights to
purchase equity securities.
At least 65% of the Fund's assets will be
invested in high quality securities. The
Fund may also invest up to 10% of its total
assets in below investment grade ("junk")
bonds, including bonds which have received
the lowest rating.
To reduce the effect of interest rate
changes on the Fund's share price, the
dollar-weighted average maturity of the
portfolio will not exceed three years,
although the Fund may hold individual
securities with longer maturities.
To reduce the effect of currency exchange
rate fluctuations on the Fund's share
price, Price-Fleming will actively manage
the Fund's foreign currency exposure. This
may be done either through the use of
currency hedging strategies or by investing
in securities whose foreign currencies are
expected to be highly correlated to the
U.S. dollar. Normally, the foreign
currency strategies will involve hedging a
substantial portion of currency back to the
dollar, either through direct or proxy
hedging.
PAGE 24
Due to costs associated with hedging,
Price-Fleming will not try to eliminate all
currency risk from the Fund's portfolio.
Rather, it will hedge currency exposure to
the extent deemed necessary to preserve
capital, while at the same time providing
high current income.
Investing for income and Global Government Bond Fund. The Fund's
appreciation in U.S. and investment objectives are to seek high
foreign government bonds. current income and, secondarily, capital
appreciation and protection of principal by
investing primarily in high-quality U.S.
and foreign government bonds.
The Fund will invest primarily in debt
securities that are considered high quality
at the time of purchase, and will normally
have at least 65% of its assets in bonds
issued or guaranteed by the U.S. or foreign
governments, their agencies and
instrumentalities, as well as foreign
authorities, provinces and municipalities.
The Fund may also invest up to 10% of its
total assets in below investment grade
("junk") bonds, including bonds which have
received the lowest rating.
To reduce the effect of interest rate
changes on the Fund's share price while
seeking higher yields, the weighted average
maturity of the portfolio is likely to
average around seven years, although the
Fund may adopt a longer maturity in
anticipation of falling yields and a
shorter maturity in anticipation of rising
yields. The Fund may hold individual
securities with maturities both longer and
shorter than seven years.
The Fund has wide flexibility to engage
in a variety of hedging strategies to
reduce the effect of currency exchange rate
fluctuations on the Fund's share price.
These may involve direct, cross and proxy
hedges.
PAGE 25
Investing for income and International Bond Fund. The International
appreciation in foreign Bond Fund's investment objective is to seek
bonds. high current income by investing in an
diversified portfolio of nondollar-
denominated, high-quality government and
corporate bonds. The Fund also seeks
capital appreciation and to moderate price
fluctuation by actively managing its
maturity structure and currency exposure.
The Fund will invest primarily (at least
65% of assets) in debt securities that are
considered high quality at the time of
purchase. The Fund may also invest up to
10% of its total assets in below investment
grade ("junk") bonds, including bonds which
have received the lowest rating.
Price-Fleming will base its investment
decisions on fundamental market
attractiveness, currency trends, local
market factors and credit quality. The
Fund will generally invest in countries
where the combination of fixed income
market returns and currency exchange rate
movements is attractive, or, if the
currency trend is unfavorable, where the
currency risk can be minimized through
hedging.
The Fund will generally have greater
interest rate and foreign currency exposure
than the other T. Rowe Price international
fixed income funds. It will normally not
hedge its foreign currency exposure back to
the dollar and will normally have no more
than 50% of the value of its total assets
involved in cross hedging transactions.
Therefore, its total return and, in
particular, the principal value of its
foreign currency-denominated debt
securities, is likely to be significantly
affected by changes in foreign interest
rate levels and foreign currency exchange
rates. These changes provide greater
opportunity for capital gains as well as
greater risks of capital loss. Exchange
PAGE 26
rate movements can be large and endure for
extended periods of time. Price-Fleming
will attempt to reduce the risks associated
with investments in international fixed
income securities through portfolio
diversification and active management of
the Fund's maturity and currency exposure.
Emerging Markets Bond Fund. The Fund's
investment objectives are to provide
maximum current income and capital
appreciation.
The Fund seeks to achieve its objectives by
investing at least 65% (and it may invest
substantially all) of its total assets in
debt securities issued by governments and
corporations in emerging foreign markets.
Because the countries are less developed
and the securities markets are not well
established, bonds issued in these markets
are typically rated below investment grade
(such lower rated securities in the U.S.
are referred to as "junk" bonds). It is
thus expected that most of the bonds in the
Fund's portfolio will be rated below
investment grade (i.e. BB in below by S&P
and Ba in below by Moody's). While such
investments can offer significantly higher
yields and substantially greater price
appreciation potential than higher quality
bonds issued in developed foreign markets,
they also entail more risk, as they are
likely to be subject to sharp swings in
price. Also, a real or perceived economic
downturn or shift to higher interest rates
could cause a decline in the prices of
these bonds. Emerging market bonds do not
typically trade in large volumes and
therefore can be more difficult to buy,
sell and value accurately than higher-
quality bonds. (See Risk Factors: Emerging
Markets on page ___ and Investment
Policies: High Yield Securities on page
___).
PAGE 27
The Emerging Markets Bond Fund does not
have any maturity restrictions. Its
weighted average maturity is expected to
range between 5 and 10 years, but may vary
significantly based on market conditions.
An intermediate maturity range could
somewhat limit the Fund's exposure to
interest rate changes. While a substantial
portion of the Fund's investments
(typically approximately 65% of total
assets) may be denominated in U.S. dollars,
the Fund normally will not hedge its
nondollar holdings back to the U.S. dollar.
As a result, the principal value of its
foreign currency denominated debt
securities is likely to be significantly
affected by foreign interest rate levels
and foreign currency exchange rates.
Please see Investment Policies for a more
complete discussion of each Fund's
investments.
________________________ ___________________________________________
RISK FACTORS Investors should understand and consider
carefully the special risks involved in
foreign investing. These risks vary from
country to country but are substantially
greater for emerging market countries.
Foreign Currency. Investments in
foreign bonds will normally require the
Funds to hold securities and cash reserves
denominated in foreign currencies. As a
result, the value of the assets of the
Funds as measured in U.S. dollars may be
affected significantly, favorably or
unfavorably, by changes in foreign currency
exchange rates, currency restrictions, and
exchange control regulations, and the Funds
will incur costs in connection with
conversions between various currencies.
Exchange rate movements can be large and
endure for extended periods of time.
Generally, an increase in the value of a
foreign currency versus the U.S. dollar
will have a positive effect on the Fund's
return; conversely, a decline in the value
PAGE 28
of a foreign currency versus the U.S.
dollar would have a negative impact.
Costs. The expenses to individual
investors of investing directly in foreign
securities are higher than investing in
U.S. securities. While the Funds offer a
very efficient way for individual investors
to participate in foreign markets, their
expenses, including advisory and custodial
fees, are also higher than the typical
domestic fixed income mutual fund.
Economic and Trade Factors. The economies
of the countries in which the Funds may
invest (portfolio countries) may differ
favorably or unfavorably from the U.S.
economy and may be less developed or
diverse. Certain of these countries, for
example Japan, are heavily dependent upon
international trade. Accordingly, they
have been, and may continue to be,
adversely affected by trade barriers and
other protectionist or retaliatory measures
of, as well as economic conditions in, the
U.S. and other countries with which they
trade. Certain countries may be heavily
dependent on a limited number of
commodities and thus vulnerable to
weaknesses in world prices for these
commodities. Finally, there is no
assurance that the pattern of growth
exhibited by certain of the portfolio
countries in the past will continue.
Political Factors. The internal politics
of certain of the portfolio countries are
not as stable as in the United States. In
addition, significant external political
risks, including war, currently affect some
of the countries. Finally, governments in
certain of the countries continue to
participate to a substantial degree,
through ownership interests or regulation,
in their respective economies and
securities markets. Action by these
governments could include restrictions on
PAGE 29
foreign investment, nationalization,
expropriation of assets, or imposition of
taxes. Any of these actions could have a
significant effect on market prices of
securities, the ability of the Funds to
repatriate capital and income, and the
value of the Funds' investments.
Market Characteristics. Many of the
securities markets of the portfolio
countries have substantially less trading
volume than comparable U.S. markets, and
the securities of some companies in these
countries may be less liquid and more
volatile than securities traded in U.S.
markets. Many of these markets may be
subject to greater volatility, be more
influenced by adverse events generally
affecting the market, and by large
investors trading significant blocks of
securities, than is usual in the United
States. The settlement practices in
portfolio countries may include delays and
subject the Funds to risks of loss not
customary in U.S. markets.
Legal and Regulatory. Certain of the
portfolio countries lack uniform
accounting, auditing, and financial
reporting standards, may have less
governmental supervision of securities
markets, brokers, and issuers of
securities, and less financial information
available to investors than is usual in the
United States. Finally, there may be
difficulty in enforcing legal rights
outside the United States.
Foreign Exchanges and Markets. Each Fund's
portfolio securities from time to time may
be primarily listed on foreign exchanges or
traded in foreign markets which are open on
days (such as Saturday) when the Funds do
not compute their prices or accept orders
for the purchase, redemption or exchange of
their shares. As a result, the net asset
values of the Funds may be significantly
PAGE 30
affected by trading on days when
shareholders cannot effect transactions.
Emerging Markets. Each of the Funds may
invest in securities of companies located
in various emerging markets, for example
the countries of Latin America and Eastern
Europe, as well as certain countries in
Asia and Africa. The Emerging Markets Bond
Fund expects to invest substantially all of
its assets in these countries. Many of
these countries are still characterized by
centrally planned economies and state owned
industries. Many have histories of
hyperinflation, political instability,
unpredictable economic conditions and
currency devaluations versus the dollar
(which would adversely affect returns to
U.S. investors). As a result, investments
in such countries can be highly
speculative, fluctuate widely in value and
could result in losses to the Funds.
An emerging market includes any country
defined as emerging or developing by the
International Bank for Reconstruction and
Development (World Bank), International
Finance Corporation or the United
Nations.
________________________ ___________________________________________
INVESTMENT POLICIES This section takes a detailed look at some
of the types of securities each Fund may
hold in its portfolio and the various kinds
of investment practices that may be used in
day-to-day portfolio management. Each
Fund's investment program is subject to
further restrictions and risks described in
the "Statement of Additional Information."
Shareholder approval is required to
substantively change each Fund's objective
(stated on page __) and to change certain
investment restrictions noted in the
following section as "fundamental
policies." The managers also follow
PAGE 31
certain "operating policies" which can be
changed without shareholder approval.
However, significant changes are discussed
with shareholders in each Fund's report.
Each Funds' holdings of certain kinds of
investments cannot exceed maximum
percentages of total assets, which are set
forth in the prospectus. For instance, a
Fund is not permitted to invest more than
10% of total assets in hybrid instruments.
While these restrictions provide a useful
level of detail about a Funds' investment
program, investors should not view them as
an accurate gauge of the potential risk of
such investments. For example, in a given
period, a 5% investment in hybrid
securities could have significantly more
than a 5% impact on a Funds' share price.
The net effect of a particular investment
depends on its volatility and the size of
its overall return in relation to the
performance of all a Funds' other
investments.
Types of Portfolio Securities
Fund managers have In seeking to meet their investment
considerable leeway in objective, each Fund may invest in any type
choosing investment of security or instrument (including
strategies and selecting certain potentially high risk derivatives)
securities they believe whose investment characteristics are
will help each Fund consistent with each Fund's investment
achieve its objectives. program. These and some of the other
investment techniques each Fund may use are
described in the following pages.
All Funds Fixed Income Securities. The Funds'
investments may include but shall not be
limited to: (1) Debt obligations issued or
guaranteed by: (a) a foreign sovereign
government or one of its agencies,
authorities, instrumentalities or political
subdivisions including a foreign state,
province or municipality, and (b)
supranational organizations such as the
World Bank, Asian Development Bank,
PAGE 32
European Investment Bank, and European
Economic Community; (2) Debt obligations:
(a) of foreign banks and bank holding
companies, and (b) of domestic banks and
corporations issued in foreign currencies;
and (3) Foreign corporate debt securities
and commercial paper. Such securities may
take a variety of forms including those
issued in the local currency of the issuer,
Brady bonds, Euro bonds, and bonds
denominated in the ECU. Normally, the
International Bond Fund will only purchase
bonds denominated in foreign currencies.
The Short-Term Global Income, Global
Government Bond and Emerging Markets Bond
Funds may also invest in: such dollar
denominated fixed income securities as (1)
Debt obligations issued or guaranteed by
the U.S. Government, its agencies or
instrumentalities; (2) Domestic corporate
debt securities; (3) Domestic commercial
paper, including commercial paper indexed
to certain specific foreign currency
exchange rates; (4) Debt obligations of
domestic banks and bank holding companies;
and (5) Collateralized mortgage obligations
or asset-backed bonds. The Funds may from
time to time purchase securities on a when-
issued basis and invest in repurchase
agreements.
Brady Bonds. Brady bonds, named after
former U.S. Secretary of the Treasury
Nicholas Brady, are used as a means of
facilitating the capital formation process
in certain emerging markets. A Brady bond
is created when an outstanding commercial
bank loan to a government or private entity
is exchanged for a new bond in connection
with a debt restructuring plan. Brady
bonds may be collaterized or uncollaterized
and issued in various currencies (although
typically in the U.S. dollar). They are
often fully collateralized as to principal
in U.S. Treasury zero coupon bonds.
However, even with this collaterization
feature, Brady Bonds are often considered
PAGE 33
speculative, below investment grade
investments because the timely payment of
interest is the responsibility of the
issuing party (for example, a Latin
American country) and the value of the
bonds can fluctuate significantly based on
the issuer's ability or perceived ability
to make these payments.
Operating policy: Normally, Short-Term
Global Income, Global Government Bond, and
International Bond funds do not expect to
have more than 10% of their total assets in
Brady Bonds. The Emerging Markets Bond
Fund may invest without limitation in such
bonds.
Non-diversified Investment Company. The
Funds are able to invest more than 5% of
their assets in the fixed-income securities
of individual foreign governments; however,
each will not invest more than 5% of its
assets in any individual corporate issuer.
This policy does not prohibit a Fund from
maintaining more than 5% of its assets,
including cash or currency, in custodial
accounts of a Fund's custodian or
subcustodian. In addition, each Fund
intends to qualify as a regulated
investment company for purposes of the
Internal Revenue Code. Such qualification
requires each Fund to limit its investments
so that, with respect to at least 50% of
its total assets, not more than 5% of such
assets are invested in the securities of a
single issuer. Since, as a non-diversified
investment company, each Fund is permitted
to invest a greater proportion of its
assets in the securities of a smaller
number of issuers, the Funds may be subject
to greater credit risk with respect to
their portfolio securities than an
investment company which is more broadly
diversified.
Hybrid Instruments. These instruments (a
type of derivative) can combine the
PAGE 34
characteristics of securities, futures and
options. For example, the principal amount
or interest rate of a hybrid could be tied
(positively or negatively) to the price of
some commodity, currency or securities
index or another interest rate (each a
"benchmark"). Hybrids can be used as an
efficient means of pursuing a variety of
investment goals, including currency
hedging, duration management, and increased
total return. Hybrids may not bear
interest or pay dividends. The value of a
hybrid or its interest rate may be a
multiple of a benchmark and, as a result,
may be leveraged and move (up or down) more
steeply and rapidly than the benchmark.
These benchmarks may be sensitive to
economic and political events, such as
commodity shortages and currency
devaluations, which cannot be readily
foreseen by the purchaser of a hybrid.
Under certain conditions, the redemption
value of a hybrid could be zero. Hybrids
can have volatile prices and limited
liquidity. Thus, an investment in a hybrid
may entail significant market risks that
are not associated with a similar
investment in a traditional, U.S. dollar-
denominated bond that has a fixed principal
amount and pays a fixed rate or floating
rate of interest. The purchase of hybrids
also exposes the fund to the credit risk of
the issuer of the hybrid. These risks may
cause significant fluctuations in the net
asset value of the fund.
Operating policy: Each fund may invest up
to 10% of its total assets in hybrid
instruments.
Private Placements (Restricted Securities).
These securities are sold directly to a
small number of investors, usually
institutions. Unlike public offerings, such
securities are not registered with the SEC.
Although certain of these securities may be
readily sold, for example under Rule 144A,
PAGE 35
the sale of others may involve substantial
delays and additional costs.
Operating Policy. Each Fund will not invest
more than 15% of its net assets in illiquid
securities.
Loan Participations and Assignments.
Large loans to corporations or governments,
including governments of less developed
countries (LDCs), may be shared or
syndicated among several lenders, usually
banks. The Fund could participate in such
syndicates, or could buy part of a loan,
becoming a direct lender. Participations
and assignments involve special types of
risk, including limited marketability and
the risks of being a lender. If a Fund
purchases a participation, it may only be
able to enforce its rights through the
lender, and may assume the credit risk of
the lender in addition to the borrower. In
assignments, the Fund's rights against the
borrower may be more limited than those
held by the lender.
Operating policy: Short-Term Global
Income, Global Government Bond and
International Bond Funds may not invest
more than 5% and Emerging Markets Bond Fund
more than 10% of total assets in loan
participations and assignments.
Defaulted bonds are
High Yield/High Risk Securities: While
acquired only if the fund investment in high yield, lower quality
manager foresees the securities offers the opportunity for
potential for significant substantial income and capital
capital appreciation. appreciation, there are significant risks
associated with such investments,
including:
Greater credit risk. Companies and
governments issuing lower rated bonds are
not as strong financially as those with
higher credit ratings and their bonds are
often viewed as speculative investments.
Such issuers are more vulnerable to real or
PAGE 36
perceived business setbacks and to changes
in the economy, such as a recession, that
might impair their ability to make timely
interest and principal payments. Certain
less developed governments have in the past
defaulted on payment of interest and
principal on debt they have issued. As a
result, your fund manager relies heavily on
proprietary Price-Fleming research when
selecting these investments.
Reduced market liquidity. High yielding
emerging market bonds are generally less
"liquid" than higher-quality bonds issued
by companies and governments in developed
countries. Consequently large purchases or
sales of certain high yield emerging market
debt issues may cause significant changes
in their prices. Because many of these
bonds do not trade frequently, when they do
trade, their price may be substantially
higher or lower than had been expected. A
lack of liquidity also means that judgment
may play a bigger role when seeking to
establish the fair value of the securities.
Other factors. The major factor influences
prices of high-quality bonds is changes in
interest rate levels; but this is only one
of several factors which affect prices of
lower quality bonds. Because the credit
quality of the issuer is lower, such bonds
are more sensitive to developments
affecting the issuer's underlying
fundamentals, such as changes in financial
condition, or a given country's economy in
general. In addition, the entire bond
market in an emerging market can experience
sudden and sharp price swings due to a
variety of factors, including changes in
economic forecasts, stock market activity,
large or sustained sales by such investors,
a high-profile default, a political
upheaval of some kind or just a change in
the market's psychology. This type of
volatility is usually associated more with
PAGE 37
stocks than bonds, but investors in lower
quality bonds should also anticipate it.
Since mutual funds can be a major source of
demand in certain markets, substantial cash
flows into and out of these funds can
affect high-yield bond prices. If, for
example, a significant number of funds were
to sell bonds to meet shareholder
redemptions, both bond prices and the
fund's shares price could fall more than
underlying fundamentals might justify.
Operating policy: Short-Term Global Income,
Global Government Bond, and International
Bond Funds may each invest up to 10% of its
total assets in below investment grade
("junk") bonds. The Emerging Markets Bond
Fund may invest substantially all of its
assets in such bonds.
International Bond Fund Concentration in Banking Industry. When
the Fund's position in issues maturing in
one year or less equals 35% or more of the
Fund's total assets, the Fund will, as a
matter of fundamental policy, normally have
25% or more of its assets concentrated in
securities in the banking industry.
Investments in the banking industry may be
affected by general economic conditions,
exposure to credit losses arising from
possible financial difficulties of
borrowers, and the profitability of the
banking industry is largely dependent on
the availability and cost of funds for the
purpose of financing lending operations
under prevailing money market conditions.
Types of Management Practices
Use of Forwards. Foreign Currency Transactions. Each Fund
may engage in foreign currency transactions
either on a spot (cash) basis at the rate
prevailing in the currency exchange market
at the time or through forward currency
contracts ("forwards") with terms generally
of less than one year. Forwards will be
PAGE 38
used primarily to adjust the foreign
exchange exposure of each Fund with a view
to protecting the portfolio from adverse
currency movements, based on Price-
Fleming's outlook, and the Funds might be
expected to enter into such contracts under
the following circumstances:
Lock In. When management desires to lock
in the U.S. dollar price on the purchase
or sale of a security denominated in a
foreign currency.
Cross Hedge. If a particular currency is
expected to decrease against another
currency, a Fund may sell the currency
expected to decrease and purchase a
currency which is expected to increase
against the currency sold in an amount
approximately equal to some or all of the
Fund's portfolio holdings denominated in
the currency sold.
Direct Hedge. If Price-Fleming wants to
eliminate substantially all of the risk
of owning a particular currency, and/or
if Price-Fleming expects the portfolio
can benefit from price appreciation in a
given country's bonds but does not want
to hold the currency, it may employ a
direct hedge back into the U.S. dollar.
In either case, the Fund would enter into
a forward contract to sell the currency
in which a portfolio security is
denominated and purchase U.S. dollars at
an exchange rate established at the time
it initiated the contract. The cost of
the direct hedge transaction may offset
most, if not all, of the yield advantage
offered by the foreign security but a
Fund would hope to benefit from an
increase (if any) in value of the bond.
Under normal conditions, the
International Bond Fund will not engage
in direct hedges of this sort.
PAGE 39
Proxy Hedge. Price-Fleming might choose
to use a proxy hedge, which is less
costly than a direct hedge. In this
case, the Fund, having purchased a bond,
will sell a currency whose value is
believed to be closely linked to the
currency in which the bond is
denominated. Interest rates prevailing
in the country whose currency was sole
would be expected to be closer to those
in the U.S. and lower than those of bonds
denominated in the currency of the
original holding. This type of hedging
entails greater risk than a direct hedge
because it is dependent on a stable
relationship between the two currencies
paired as proxies and the relationships
can be very unstable at times.
Forward contracts do involve other risks,
including, but not limited to, significant
volatility in currency market. In
addition, currency moves may not occur
exactly as Price-Fleming expected, so use
of forward contracts could adversely affect
the Fund's total return. Finally, it is
often not possible to effectively hedge the
currency risk associated with emerging
market bonds because their currency markets
are not sufficiently developed.
Costs of Hedging. When the Fund purchases
a foreign bond with a higher interest rate
than is available on U.S. bonds of a
similar maturity, the additional yield on
the foreign bond could be substantially
lost if the Fund were to enter into a
direct hedge by selling the foreign
currency and purchasing the U.S. dollar.
This is what is known as the "cost" of
hedging. Proxy hedging attempts to reduce
this cost through an indirect hedge back to
the U.S. dollar.
It is important to note that hedging
costs are treated as capital transactions
PAGE 40
and are not, therefore, deducted from the
Fund's dividend distribution and are not
reflected in its yield. Instead, such
costs will, over time, be reflected in the
Fund's net asset value per share. As a
consequence, the Fund's yield may not be an
accurate indicator of its total return.
Cash Position. Each Fund will hold a
certain portion of its assets in money
market securities, including repurchase
agreements, in the two highest rating
categories, maturing in one year or less.
For temporary, defensive purposes, a Fund
may invest without limitation in such
securities. This reserve position provides
flexibility in meeting redemptions,
expenses, and the timing of new
investments, and serves as a short-term
defense during periods of unusual market
volatility.
Borrowing Money and Transferring Assets.
Each Fund can borrow money from banks as a
temporary measure for emergency purposes,
to facilitate redemption requests, or for
other purposes consistent with the fund's
investment objectives and program. Such
borrowings may be collateralized with fund
assets, subject to restrictions.
Fundamental Policy. Borrowings may not
exceed 33 1/3% of each Fund's total Fund
assets.
Operating Policies. The Funds may not
transfer as collateral any portfolio
securities except as necessary in
connection with permissible borrowings or
investments, and then such transfers may
not exceed 33 1/3% of the each Fund's total
assets. A Fund may not purchase additional
securities when borrowings exceed 5% of
total assets.
Futures and Options. Futures (a type of
derivative) are often used to manage risk,
PAGE 41
because they enable the investor to buy or
sell an asset in the future at an agreed
upon price. Options (a type of derivative)
give the investor the right, but not the
obligation, to buy or sell an asset at a
predetermined price in the future. The
Funds may buy and sell futures contracts
(and options on such contracts) to manage
exposure to changes in interest rates,
securities prices and foreign currencies,
as an efficient means of adjusting overall
exposure to certain markets, and to adjust
a Fund's duration. The Funds may purchase,
sell, or write call and put options on
securities, financial indices, and foreign
currencies.
Futures contracts and options may not
always be successful hedges; their prices
can be highly volatile; using them could
lower a Fund's total return; and the
potential loss from the use of futures can
exceed the Fund's initial investment in
such contracts.
Operating Policies. Futures: Initial margin
deposits and premiums on options used for
non-hedging purposes will not equal more
than 5% of each Fund's net asset value.
Options on securities: The total market
value of securities against which each fund
has written call or put options may not
exceed 25% of its total assets. Each Fund
will not commit more than 5% of its total
assets to premiums when purchasing call or
put options.
Lending of Portfolio Securities. Like other
mutual funds, the Funds may lend securities
to broker-dealers, other institutions, or
other persons to earn additional income.
The principal risk is the potential
insolvency of the broker-dealer or other
borrower. In this event, the Fund could
experience delays in recovering its
securities and possibly capital losses.
PAGE 42
Fundamental Policy. The value of loaned
securities may not exceed 33 1/3% of each
Fund's total assets.
Portfolio Turnover. The Funds will not
generally trade in securities for short-
term profits but, when circumstances
warrant, securities may be purchased and
sold without regard to the length of time
held. As a result, short-term trading may
cause the portfolio turnover of each Fund
to be higher than that of other mutual
funds will less aggressive trading
strategies, which may, in turn, increase
each Fund's transaction costs. To the
extent that short-term trading results in
the realization of short-term capital
gains, shareholders will be taxed on such
gains at ordinary income tax rates. The
following chart sets forth each Fund's
portfolio turnover rates for the last three
years, if applicable.
The portfolio turnover rate for the
Emerging Markets Bond Fund is not expected
to exceed ___%.
1993 1992 1991
Short-Term Global
Income 92.9% 334.1% *
Global Government
Bond 134.0% 236.6% 93.6%
International Bond395.7% 357.7% 295.6%
The portfolio turnover rate for the
Emerging Markets Bond Fund is not expected
to exceed 150%.
*Prior to commencement of Fund operations.
________________________ ___________________________________________
PERFORMANCE INFORMATION Total Return. The Funds may advertise
total return figures on both a cumulative
and compound average annual basis and
compare them to various indices (e.g., the
S&P 500), other mutual funds or other
performance measures. Cumulative total
return compares the amount invested at the
PAGE 43
beginning of a period with the amount
redeemed at the end of the period, assuming
the reinvestment of all dividends and
capital gain distributions. The compound
average annual total return indicates a
yearly compound average of a Fund's
performance, derived from the cumulative
total return. The annual compound rate of
return for a Fund may vary from any
average. Further information about a
Fund's performance is contained in its
annual report which is available free of
charge.
Yield. The Funds may advertise a yield
figure derived by dividing each Fund's net
investment income per share (as defined by
applicable SEC regulations) during a 30-day
base period by the per-share price on the
last day of the base period.
________________________ ___________________________________________
CAPITAL STOCK The T. Rowe Price International Funds, Inc.
(the Corporation) was originally organized
in 1979 as a Maryland corporation.
Effective May 1, 1986, the Corporation
converted from a Maryland corporation to a
Massachusetts business trust known as the
T. Rowe Price International Trust (Trust).
On May 1, 1990, the Trust converted back to
a Maryland corporation. The Corporation is
registered with the Securities and Exchange
Commission under the Investment Company Act
of 1940 as a diversified, open-end
investment company, commonly known as a
"mutual fund." Mutual funds, such as
these, enable shareholders to: (1) obtain
professional management of investments,
including Price-Fleming's proprietary
research; (2) diversify their portfolio to
a greater degree than would be generally
possible if they were investing as
individuals and thereby reduce, but not
eliminate risks; and (3) simplify the
recordkeeping and reduce transaction costs
associated with investments.
PAGE 44
Currently, the Corporation consists
of ten series, each representing a separate
class of shares and having different
objectives and investment policies. The
series and the years in which each was
established are as follows: International
Stock Fund, 1979; International Bond Fund,
1986; International Discovery Fund, 1988;
European Stock Fund, New Asia Fund, Global
Government Bond Fund, 1990; Japan Fund,
1991; and Short-Term Global Income Fund,
1992; Latin America Fund, 1993; and
Emerging Markets Bond Fund, 1994. The
International Stock, International
Discovery, European Stock, Japan, New Asia,
and Latin America Funds are described in a
separate prospectus. The Corporation's
Charter provides that the Board of
Directors may issue additional series of
shares and/or additional classes of shares
for each series. Although each Fund is
offering only its own shares, it is
possible that a Fund might become liable
for any misstatement in the prospectus
about another Fund. The Funds' Board has
considered this factor in approving the use
of a single combined prospectus.
Each Fund has an investment advisory
group that has day-to-day responsibility
for managing the portfolio and developing
and executing each Fund's investment
program. The advisory group for each Fund
consists of Peter Askew and Christopher
Rothery.
Peter Askew joined Price-Fleming in 1988
and has 19 years of experience managing
multicurrency fixed income portfolios.
Christopher Rothery joined Price-Fleming in
____ and has ____ years of experience
managing multicurrency fixed income
portfolios.
PAGE 45
Shareholder Rights. All shares of the
Corporation have equal rights with regard
to voting, redemptions, dividends,
distributions, and liquidations.
Fractional shares have voting rights and
participate in any distributions and
dividends. Shareholders have no preemptive
or conversion rights; nor do they have
cumulative voting rights. When a Fund's
shares are issued, they are fully paid and
nonassessable. All shares of the
Corporation may be voted in the election or
removal of directors and on other matters
submitted to the vote of shareholders of
the Corporation. On matters affecting an
individual series of the Corporation, a
separate vote of the particular series is
required. The individual series of the
Corporation do not routinely hold annual
meetings of shareholders. However, if
shareholders representing at least 10% of
all votes of the Corporation entitled to be
cast so desire, they may call a special
meeting of shareholders of the Corporation
for the purpose of voting on the question
of the removal of any director(s). The
total authorized capital stock of the
Corporation consists of 1,000,000,000
shares, each having a par value of $.01.
As of December 31, 1993, there were 4,836
shareholders in the Short-Term Global
Income Fund, 3,673 shareholders in the
Global Government Bond Fund, 33,879
shareholders in the International Bond
Fund, and a total of 3,050,533 shareholders
in the other 54 T. Rowe Price Funds.
________________________ ___________________________________________
DEBT SECURITIES Total Return Components. Each Fund's total
return consists of (1) the change in its
net asset value per share and (2) the
income it generates. The net asset value
of the Funds will be affected primarily by
changes in interest rate levels, the
maturity of individual portfolio holdings,
the quality of the securities held, and
changes in values of foreign currencies.
PAGE 46
A general explanation. Interest Rates. A bond is a contractual
obligation to repay a stated debt amount
(the principal) on a specified date (the
maturity) plus a specified rate of interest
for the use of the money. Most bonds pay a
fixed rate of interest known as the coupon
rate, which is fixed for the term of the
bond. A bond's yield reflects the fixed
annual interest as a percent of its current
price. This price (the bond's market
value) must increase or decrease in order
to adjust an existing bond's yield to
current interest rate levels. Therefore,
bond prices generally move in the opposite
direction of interest rates.
Maturity. The maturity of debt
securities may be considered long (10 years
or greater), intermediate (1 to 10 years),
or short-term (12 months or less). Under
normal circumstances, at least 65% of the
Short-Term Global Income Fund's total
assets will be invested in short-term debt
securities. The proportion invested by the
Global Government, International and
Emerging Market Bond Funds in each category
can be expected to vary depending upon the
evaluation of market patterns and trends by
Price-Fleming. The dollar-weighted average
maturity for the Short-Term Global Income
Fund will not exceed three years, but the
Fund may hold individual securities with
longer maturities, and the dollar-weighted
average maturity for the Global Government
Bond Fund is expected to average around
seven years, although it may vary with
market conditions.
Movements in interest rates typically
have a greater effect on the prices of
longer term bonds than on those with
shorter maturities. The following table
illustrates the effect of a one percentage
point change in interest rates on a $1,000
bond with a 7% coupon.
PAGE 47
Principal value if rates:
_________________________
Increase Decrease
___________ ___________
Bond--Maturity 1% 1%
___________________________________________
Short-
intermediate - 2 years $982 $1,019
Intermediate - 5 years $959 $1,043
Long-term - 20 years $901 $1,116
___________________________________________
This table is for illustrative purposes
only and should not be taken as
representative of expected changes in the
share price of the Fund.
Credit Quality. The quality of a bond is
measured by credit risk--the ability of the
issuer to meet interest and principal
payments on a timely basis. Issuers who
are believed to be good credit risks
receive high-quality ratings, and those
believed to be poor credit risks receive
low-quality ratings. High-quality bonds
involve less credit risk and typically
offer a lower yield than bonds of low
quality.
Foreign Currencies. See Foreign Currency
under Risk Factors on page 8.
________________________ ___________________________________________
BOND CHARACTERISTICS Yield. The yield on fixed-income
securities may vary greatly from one
country to another. Price-Fleming will
attempt to concentrate its assets in
countries where the combination of yield
and potential price appreciation is most
attractive. Consequently, Price-Fleming
may, from time to time, invest in lower
yielding fixed-income securities having a
higher potential for capital appreciation
in order to maximize the Fund's total
return.
________________________ ___________________________________________
PAGE 48
NAV, PRICING, AND Net Asset Value Per Share (NAV). The NAV
EFFECTIVE DATE per share, or share price, for each Fund,
is normally determined as of 4:00 pm
Eastern Time (ET) each day the New York
Stock Exchange (NYSE) is open. Each Fund's
share price is calculated by subtracting
its liabilities from its total assets and
dividing the result by the total number of
shares outstanding. Among other things,
each Fund's liabilities include accrued
expenses and dividends payable, and its
total assets include portfolio securities
valued at market as well as income accrued
but not yet received.
If your order is received Purchased shares are priced at that day's
in good order before 4:00 NAV if your request is received before 4:00
pm ET, you will receive pm ET in good order. (See Completing the
that day's NAV. New Account Form and Opening a New
Account.) If received later than 4:00 pm
ET, shares will be priced at the next
business day's NAV.
Redemptions are priced at that day's NAV
if your request is received before 4:00 pm
ET in good order at the transfer agent's
offices at T. Rowe Price Account Services,
P.O. Box 89000, Baltimore, MD 21289-0220.
If received after 4:00 pm ET, shares will
be priced at the next business day's NAV.
Also, we cannot accept requests which
specify a particular date for a purchase or
redemption or which specify any special
conditions. If your redemption request
cannot be accepted, you will be notified
and given further instructions.
Exchanges are normally priced in the same
manner as purchases and redemptions.
However, if you are exchanging into a bond
or money fund and the release of your
exchange proceeds is delayed for the
allowable five business days (see Receiving
Your Proceeds), you will not begin to earn
dividends until the sixth business day
after the exchange.
PAGE 49
The Funds reserve the right to change the
time at which purchases, redemptions, and
exchanges are priced if the NYSE closes at
a time other than 4:00 pm ET or an
emergency exists.
________________________ ___________________________________________
RECEIVING YOUR PROCEEDS Redemption proceeds are mailed to the
address, or sent by wire or ACH transfer to
the bank account, designated on your New
Account Form. They are generally sent the
next business day after your redemption
request is received in good order.
Proceeds sent by bank wire should be
credited to your bank account the next
business day and proceeds sent by ACH
transfer should be credited the second day
after the sale. In addition, under unusual
conditions, or when deemed to be in the
best interests of the Funds, redemption
proceeds may not be sent for up to five
business days after your request is
received to allow for the orderly
liquidation of securities. Requests by
mail for wire redemptions (unless
previously authorized) must have a
signature guarantee.
________________________ ___________________________________________
DIVIDENDS AND The Funds distribute all net investment
DISTRIBUTIONS income and capital gains to shareholders.
Dividends are declared daily and paid
monthly. Capital gains, if any, are
normally declared in December and paid in
January. Dividends and distributions
declared by the Funds will be reinvested
unless you choose an alternative payment
option on the New Account Form. Dividends
not reinvested are paid by check or
transmitted to your bank account via ACH.
If the U.S. Postal Service cannot deliver
your check, or if your check remains
uncashed for six months, the Fund reserves
the right to reinvest your distribution
check in your account at the then current
NAV and to reinvest all subsequent
distributions in shares of the Fund.
PAGE 50
Purchases. Each day each Fund declares a
dividend to shareholders of record as of
4:00 pm ET on the previous day. You will
begin to earn dividends on the first
business day after shares are purchased
unless shares were not paid for, in which
case dividends are not earned until the
next business day after payment is
received.
Redemptions. Shares will earn dividends
through the date of redemption; also,
shares redeemed on a Friday or prior to a
holiday will continue to earn dividends
until the next business day. Generally, if
you redeem all of your shares at any time
during the month, you will also receive all
dividends earned through the date of
redemption in the same check. When you
redeem only a portion of your shares, all
dividends accrued on those shares will be
reinvested, or paid in cash, on the next
dividend payment date.
________________________ ___________________________________________
TAXES Dividends and Distributions. In January,
the Funds will mail you Form 1099-DIV
indicating the federal tax status of your
Form 1099-DIV dividends and capital gain distributions.
will be mailed to you in Generally, dividends and distributions are
January. taxable in the year they are paid.
However, any dividends and distributions
paid in January but declared during the
prior three months are taxable in the year
they are declared. Dividends and
distributions are taxable to you regardless
of whether they are taken in cash or
reinvested. Dividends and short-term
capital gain distributions are taxable as
ordinary income; long-term capital gain
distributions are taxable as long-term
capital gains. The capital gain holding
period is determined by the length of time
a Fund has held the securities, not the
length of time you have owned Fund shares.
Foreign Transactions. Distributions
resulting from the sale of foreign
PAGE 51
currencies and debt securities, to the
extent of foreign exchange gains, are taxed
as ordinary income or loss. If these
transactions result in reducing that Fund's
net income, a portion of the dividends may
be classified as a return of capital (which
lowers your tax base). If any Fund pays
nonrefundable taxes to foreign governments
during the year, the taxes will reduce that
Fund's dividends but will still be included
in your taxable income. However, you may
be able to claim an offsetting credit or
deduction on your tax return for your
portion of foreign taxes paid by the Fund.
Shares Sold. A redemption or exchange of
Fund shares is treated as a sale for tax
purposes which will result in a short or
long-term capital gain or loss, depending
on how long you have owned the shares. In
January, the Funds will mail you Form 1099-
B indicating the date of and proceeds from
all sales and exchanges.
Undistributed Gains. At the time of
purchase, the share price of each Fund may
reflect undistributed capital gains or
unrealized appreciation of securities. Any
capital gains from these amounts which are
later distributed to you are fully taxable.
Tax-Qualified Retirement Plans. Tax-
qualified retirement plans generally will
not be subject to federal tax liability on
either distributions from each Fund or
redemption of shares of the Funds. Rather,
participants in such plans will be taxed
when they begin taking distributions from
the plans.
Tax Consequences of Hedging. Under
applicable tax law, each Fund may be
required to limit its gains from hedging in
foreign currency forwards, futures and
options. Although it is anticipated the
Funds will comply with such limits, each
Fund's extensive use of these hedging
PAGE 52
techniques involves greater risk of
unfavorable tax consequences than funds not
engaging in such techniques. The extent to
which these limits apply is subject to tax
regulations which have not yet been issued.
Hedging may also result in the application
of the mark-to-market and straddle
provisions of the Internal Revenue Code.
These provisions could result in an
increase (or decrease) in the amount of
taxable dividends paid by the Funds as well
as affect whether dividends paid by the
Funds are classified as capital gain or
ordinary income.
________________________ ___________________________________________
MANAGEMENT OF THE FUNDS Investment Manager. Price-Fleming is
responsible for selection and management of
each Fund's portfolio investments. Price-
Fleming's U.S. office is located at 100
East Pratt Street, Baltimore, Maryland
21202.
Price-Fleming has offices Price-Fleming was incorporated in
in Baltimore, London, Maryland in 1979 as a joint venture between
Tokyo, and Hong Kong. T. Rowe Price and Robert Fleming Holdings
Limited (Flemings). Flemings is a
diversified investment organization which
participates in a global network of
regional investment offices in New York,
London, Zurich, Geneva, Tokyo, Hong Kong,
Manila, Kuala Lumpur, South Korea, and
Taiwan.
T. Rowe Price was incorporated in
Maryland in 1947 as successor to the
investment counseling business founded by
the late Thomas Rowe Price, Jr. in 1937.
Flemings was incorporated in 1974 in the
United Kingdom as successor to the business
founded by Robert Fleming in 1873. As of
December 31, 1993, T. Rowe Price and its
affiliates managed over $41.4 billion of
assets and Flemings managed the U.S.
equivalent of approximately $45 billion.
Board of Directors. The management of each
Fund's business and affairs is the
PAGE 53
responsibility of the Funds' Board of
Directors.
T. Rowe Price, Flemings, and Jardine
Fleming are owners of Price-Fleming. The
common stock of Price-Fleming is 50% owned
by a wholly-owned subsidiary of T. Rowe
Price, 25% by a subsidiary of Flemings and
25% by Jardine Fleming Group Limited
(Jardine Fleming). (Half of Jardine
Fleming is owned by Flemings and half by
Jardine Matheson Holdings Limited.) T.
Rowe Price has the right to elect a
majority of the board of directors of
Price-Fleming, and Flemings has the right
to elect the remaining directors, one of
whom will be nominated by Jardine Fleming.
Research and Administration. Certain
administrative support is provided by T.
Rowe Price which receives from Price-
Fleming a fee of .15% of the market value
of all assets in equity accounts, .15% of
the market value of all assets in active
fixed income accounts and .035% of the
market value of all assets in passive fixed
income accounts under Price-Fleming's
management. Additional investment research
and administrative support for equity
investments is provided to Price-Fleming by
Fleming Investment Management Limited (FIM)
and Jardine Fleming Investment Holdings
Limited (JFIH) for which each receives from
Price-Fleming a fee of .075% of the market
value of all assets in equity accounts
under Price-Fleming's management. FIM and
JFIH are wholly-owned subsidiaries of
Flemings and Jardine Fleming, respectively.
Fleming International Fixed Interest
Management Limited (FIFIM) provides Price-
Fleming additional investment research and
administrative support on fixed income
investments and receives from Price-Fleming
a fee of .075% of the market value of all
assets in active fixed income accounts and
.0175% of such market value in passive
PAGE 54
fixed income accounts under Price-Fleming's
management. FIFIM is owned by Flemings.
Certain officers of Price-Fleming are
directors of FIFIM. JFIH receives a fee of
.075% of the market value of all assets in
active fixed income accounts and .0175% of
such market value in passive fixed income
accounts under Price-Fleming's management.
Portfolio Transactions. Decisions with
respect to the purchase and sale of a
Fund's portfolio securities on behalf of
each Fund are made by Price-Fleming. The
Funds' Board of Directors has authorized
Price-Fleming to utilize affiliates of
Flemings and Jardine Fleming in the
capacity of broker in connection with the
execution of a Fund's portfolio
transactions if Price-Fleming believes that
doing so would result in an economic
advantage (in the form of lower execution
costs or otherwise) being obtained by the
Fund.
Investment Services. T. Rowe Price
Investment Services, Inc., a wholly-owned
subsidiary of T. Rowe Price, is the
distributor for these Funds as well as all
other T. Rowe Price Funds.
Transfer and Dividend Disbursing Agent.
TRP Services, a wholly-owned subsidiary of
T. Rowe Price, serves the Funds as transfer
and dividend disbursing agent. T. Rowe
Price Retirement Plan Services, Inc., a
wholly-owned subsidiary of T. Rowe Price,
performs subaccounting and recordkeeping
services for shareholder accounts in
certain retirement plans investing in the
Price Funds. T. Rowe Price calculates the
daily share price and maintains the
portfolio and general accounting records of
each Fund. The address for TRP Services
and T. Rowe Price Retirement Plan Services,
Inc. is 100 East Pratt Street, Baltimore,
Maryland 21202.
________________________ ___________________________________________
PAGE 55
EXPENSES AND MANAGEMENT Each Fund bears all expenses of its
FEE operations other than those incurred by
Price-Fleming under its Investment
Management Agreement with Price-Fleming.
Fund expenses include: the management fee;
shareholder servicing fees and expenses;
custodian and accounting fees and expenses;
legal and auditing fees; expenses of
preparing and printing prospectuses and
shareholder reports; registration fees and
expenses; proxy and annual meeting
expenses, if any; and directors' fees and
expenses.
Management Fee. Each Fund pays Price-
Fleming an investment management fee
consisting of an Individual Fund Fee and a
Group Fee. See Summary of Funds' Fees and
Expenses for the Individual Fund Fee. The
Group Fee varies and is based on the
combined net assets of all mutual funds
sponsored and managed by Price-Fleming and
T. Rowe Price, excluding T. Rowe Price
Spectrum Fund, Inc., and any institutional
or private label mutual funds, and
distributed by T. Rowe Price Investment
Services, Inc.
Each Fund pays, as its portion of the
Group Fee, an amount equal to the ratio of
its daily net assets to the daily net
assets of all the Price Funds. The table
below shows the annual Group Fee rate at
various asset levels of the combined Price
Funds:
0.480% First $1 billion
0.450% Next $1 billion
0.420% Next $1 billion
0.390% Next $1 billion
0.370% Next $1 billion
0.360% Next $2 billion
0.350% Next $2 billion
0.340% Next $5 billion
0.330% Next $10 billion
0.320% Next $10 billion
0.310% Thereafter
PAGE 56
Based on combined Price Funds' assets of
approximately $34.7 billion at December 31,
1993, the Group Fee was 0.35%.
________________________ ___________________________________________
SHAREHOLDER SERVICES The following is a brief summary of
services available to shareholders in the
T. Rowe Price Funds, some of which may be
restricted or unavailable to retirement
plan accounts. You must authorize most of
these services on a New Account or
Shareholder Services Form. Services may be
modified or withdrawn at any time without
notice. Please verify all transactions on
your confirmation statements promptly after
receiving them. Any discrepancies must be
reported to Shareholder Services
immediately.
Automatic Asset Builder. You can have us
move $50 or more on the same day each month
from your bank account or invest $50 or
more from your paycheck into any T. Rowe
Price Fund.
Checkwriting Service. There is no charge
for this service and you may write an
unlimited number of checks. Minimum check
amount is $500. Remember that a
checkwriting redemption in the Funds will
be treated as a capital gain or loss
transaction for tax purposes.
This service is subject to State Street
Bank's rules and regulations and is
governed by Massachusetts Uniform
Commercial Code. Stop payment instructions
should be given by calling Shareholder
Services at 1-800-225-5132.
Investor Services Discount Brokerage Service. You can trade
1-800-638-5660 stocks, bonds, options, CDs, Treasury
1-410-547-2308 Bills, and precious metals at substantial
savings through our Discount Brokerage
Service. Call Investor Services for more
information.
PAGE 57
Exchange Service. You can move money from
one account to an existing identically
registered account or open a new
identically registered account. Remember
that, for tax purposes, an exchange is
treated as a redemption and a new purchase.
Exchanges into a state tax-free fund are
limited to investors residing in states
where those funds are qualified for sale.
Some of the T. Rowe Price Funds may impose
a redemption fee of .50-2%, payable to such
Funds, on shares held for less than 12
months, or in some Funds, six months.
Retirement Plans. For details on IRAs,
please call Investor Services. For details
on all other retirement plans, please call
our Trust Company at 1-800-492-7670.
Shareholder Services Telephone Services. The following services
1-800-225-5132 are explained fully in the Services Guide,
1-410-625-6500 which is mailed to new T. Rowe Price
investors. If you don't have a copy,
please call Shareholder Services. (All
telephone calls to Shareholder Services and
Investor Services are recorded in order to
protect you, each Fund, and its agents.)
24-Hour Service. Tele*Access(registered
trademark) provides information on
yields, prices, latest dividends, account
balances, and last transaction as well as
the ability to request prospectuses
account forms, duplicate statements and
initiate purchase, redemption and
exchange orders (if you have established
Telephone Services). Just call 1-800-
638-2587 and press the appropriate codes
into your touch-tone phone.
PC*Access(registered trademark) provides
the same information as Tele*Access, but
on a personal computer.
Electronic Transfers. We offer three
free methods for purchasing or redeeming
Fund shares in amounts of $100 to
PAGE 58
$100,000 through ACH transfers between
your bank checking and Fund accounts:
-- By calling Shareholder Services
during business hours (Tele-
Connect(registered trademark);
-- By touch-tone phone any day, any
time (Tele*Access);
-- By personal computer any day, any
time (PC*Access).
If your bank checking and fund account
are not identically registered, you will
need a signature guarantee to establish
this service.
ACH: (Automated Clearing House) is an
automated method of initiating payments
from and receiving payments in your
financial institution account. ACH is a
payment system supported by over 20,000
credit unions, banks and savings banks
which electronically exchange the
transactions primarily through the
Federal Reserve Banks.
Wire Transfers. Wire transfers can be
processed through bank wires (a $5 charge
applies to redemption amounts under
$5,000, and your bank may charge for
incoming or outgoing wire transfers
regardless of size). While this is
usually the quickest transfer method, the
Funds reserve the right to temporarily
suspend wires under unusual
circumstances.
________________________ ___________________________________________
CONDITIONS OF YOUR Account Balance. If your account drops
PURCHASE below $1,000 for three months or more, each
Fund has the right to close your account,
after giving 60 days' notice, unless you
make additional investments to bring your
account value to $1,000 or more.
Broker-Dealers. Purchases or redemptions
through broker-dealers, banks, and other
institutions may be subject to service fees
PAGE 59
imposed by those entities. No such fees
are charged by T. Rowe Price Investment
Services or the Funds if shares are
purchased or redeemed directly from the
Funds.
Excessive Trading and Exchange Limitations.
To protect Fund shareholders against
disruptions in portfolio management which
might occur as a result of too frequent buy
and sell activity and to minimize Fund
expenses associated with such transaction
activity, each Fund prohibits excessive
trading in any account (or group of
accounts managed by the same person).
Within any 120 consecutive-day period,
investors may not exchange between Price
Funds more than twice or buy and sell the
Price Funds more than once, if the
transactions involve substantial assets or
a substantial portion of the assets in the
account or accounts. This policy is
applied on a multi-fund basis. Any
transactions above and beyond these
guidelines will be considered to be
excessive trading, and the investor may be
prohibited from making additional purchases
or exercising the exchange privilege.
This policy does not apply to exchanges
solely between, or purchases and sales
solely of, the Price Money Funds, nor does
it apply to simple redemptions from any
Fund.
Nonpayment. If your check, wire or ACH
transfer does not clear, or if payment is
not received for any telephone purchase,
the transaction will be cancelled and you
will be responsible for any loss the Funds
or Investment Services incurs. If you are
already a shareholder, each Fund can redeem
shares from any identically registered
account in each of these Funds or any other
T. Rowe Price Fund as reimbursement for any
loss incurred. You may be prohibited or
PAGE 60
restricted from making future purchases in
any of the T. Rowe Price Funds.
U.S. Dollars. All purchases must be paid
for in U.S. dollars, and checks must be
drawn on U.S. banks.
Redemptions in Excess of $250,000.
Redemption proceeds are normally paid in
cash. However, if you redeem more than
$250,000, or 1% of the Fund's net assets,
in any 90-day period, the Fund may in its
discretion: (1) pay the difference between
the redemption amount and the lesser of
these two figures with securities of the
Fund or (2) delay the transmission of your
proceeds for up to five business days after
your request is received.
Signature Guarantees. A signature
guarantee is designed to protect you and
the Funds by verifying your signature. You
will need one to:
(1) Establish certain services after the
account is opened.
(2) Redeem over $50,000 by written
request (unless you have authorized
Telephone Services).
(3) Redeem or exchange shares when
proceeds are: (i) being mailed to an
address other than the address of
record, (ii) made payable to other
than the registered owner(s), or
(iii) being sent to a bank account
other than the bank account listed
on your fund account.
(4) Transfer shares to another owner.
(5) Send us written instructions asking
us to wire redemption proceeds
(unless previously authorized).
(6) Establish Electronic Transfers when
your bank checking and fund account
are not identically registered.
These requirements may be waived or
modified in certain instances.
PAGE 61
Acceptable guarantors are all eligible
guarantor institutions as defined by the
Securities Exchange Act of 1934 such as:
commercial banks which are FDIC members,
trust companies, firms which are members of
a domestic stock exchange, and foreign
branches of any of the above. We cannot
accept guarantees from institutions or
individuals who do not provide
reimbursement in the case of fraud, such as
notaries public.
Telephone Exchange and Redemption.
Telephone exchange and redemption are
established automatically when you sign the
New Account Form unless you check the box
which states that you do not want these
services. The Fund uses reasonable
procedures (including shareholder identity
verification) to confirm that instructions
given by telephone are genuine. If these
procedures are not followed, it is the
opinion of certain regulatory agencies that
the Fund may be liable for any losses that
may result from acting on the instructions
given. All conversations are recorded, and
a confirmation is sent within five business
days after the telephone transaction.
Ten-Day Hold. The mailing of proceeds for
redemption requests involving any shares
purchased by personal, corporate or
government check, or ACH transfer is
generally subject to a 10-day delay to
allow the check or transfer to clear. The
10-day clearing period does not affect the
trade date on which your purchase or
redemption order is priced, or any
dividends and capital gain distributions to
which you may be entitled through the date
of redemption. If your redemption request
was sent by mail or mailgram, proceeds will
be mailed no later than the seventh
calendar day following receipt unless the
check or ACH transfer has not cleared. The
10-day hold does not apply to purchases
PAGE 62
made by wire, Automatic Asset Builder-
Paycheck, or cashier's, treasurer's, or
certified checks.
Each Fund and its agents reserve the right
to: (1) reject any purchase or exchange,
cancel any purchase due to nonpayment, or
reject any exchange or redemption where the
Fund has not received payment; (2) waive or
lower the investment minimums; (3) accept
initial purchases by telephone or mailgram;
(4) waive the limit on subsequent purchases
by telephone; (5) reject any purchase or
exchange prior to receipt of the
confirmation statement; (6) redeem your
account (see Tax Identification Number);
(7) modify the conditions of purchase at
any time; and (8) reject any check not made
directly payable to the Fund or T. Rowe
Price (call Shareholder Services for more
information).
________________________ ___________________________________________
COMPLETING THE NEW Tax Identification Number. We must have
ACCOUNT FORM your correct social security or corporate
tax identification number and a signed New
Account Form or W-9 Form. Otherwise,
federal law requires the Funds to withhold
You must provide your tax a percentage (currently 31%) of your
ID number and sign the dividends, capital gain distributions, and
New Account Form. redemptions, and may subject you to an IRS
fine. You also will be prohibited from
opening another account by exchange. If
this information is not received within 60
days after your account is established,
your account may be redeemed, priced at the
NAV on the date of redemption.
Unless you otherwise request, one
shareholder report will be mailed to
multiple account owners with the same tax
identification number and same zip code and
to those shareholders who have requested
that their accounts be combined with
someone else's for financial reporting.
Account Registration. If you own other T.
Rowe Price Funds, make certain the
PAGE 63
registration (name and account type) is
identical to your other funds for easy
exchange. Remember to sign the form
exactly as the name appears in the
registration section.
Services. By signing up for services on
the New Account Form, rather than after the
account is opened, you will avoid having to
complete a separate form and obtain a
signature guarantee (see Conditions of Your
Purchase).
________________________ ___________________________________________
OPENING A NEW ACCOUNT Minimum initial investment: $2,500 ($1,000
for retirement
plans and gifts
or transfers to
minors
(UGMA/UTMA
accounts); $50
per month for
Automatic Asset
Builder
accounts--see
Shareholder
Services)
By Mail Send your New Account Form and
check to:
Checks payable to T. Rowe Regular Mail Mailgram,
Price Funds. Express,
Registered, or
Certified Mail
T. Rowe Price T. Rowe Price
Account Services Account Services
P.O. Box 17300 10090 Red Run
Baltimore, MD Boulevard
21298-9353 Owings Mills, MD
21117
___________________________________________
Investor Services By Wire Call Investor Services for an
1-800-638-5660 account number and use Wire Address
1-410-547-2308 below. Then, complete the New
Account Form and mail it to one of
the above addresses. (Not
applicable to retirement plans.)
PAGE 64
Wire Address Morgan Guaranty
(to give to your Trust Co. of
bank): New York
ABA #021000238
T. Rowe Price
(fund name)/
AC-00153938
Account name(s)
and account
number
___________________________________________
Shareholder Services By Exchange Call Shareholder Services. The
1-800-225-5132 new account will have the same
1-410-625-6500 registration as the account
from which you are exchanging.
Services for the new account
may be carried over by
telephone request if
preauthorized on the existing
account. See Excessive Trading
and Exchange Limitations under
Conditions of Your Purchase.
___________________________________________
In Person Drop off your New Account Form
and obtain a receipt at a
T. Rowe Price Investor Center:
101 East T. Rowe Price
Lombard StreetFinancial Center
Baltimore, MD 10090 Red Run
Boulevard
Owings Mills, MD
Farragut ARCO Tower
Square 31st Floor
900 17th 515 South
Street, N.W. Flower Street
Washington, Los Angeles,
DC CA
_________________________ ___________________________________________
PURCHASING ADDITIONAL Minimum: $100 ($50 for retirement plans
SHARES and Automatic Asset Builder)
By Wire Call Shareholder Services or
use the Wire Address in Opening
a New Account.
___________________________________________
PAGE 65
By Mail Indicate your account number
and the Fund name on your
Shareholder Services check. Mail it to us at the
1-800-225-5132 address below Shareholder with
1-410-625-6500 the stub from a statement
confirming a prior Services
transaction or a note stating
that you want to purchase
shares in that Fund and giving
us the account number.
T. Rowe Price Funds
Account Services
P.O. Box 89000
Baltimore, MD 21289-1500
___________________________________________
By ACH Use Tele*Access, PC*Access or
Transfer call Shareholder Services (if
you have established Telephone
Services) for ACH transfers.
___________________________________________
By Automatic Fill out the Automatic Asset
Asset Builder section on the New
Builder Account or Shareholder Services
Form.
___________________________________________
Minimum: $5,000
By Phone Call Shareholder Services.
________________________ ___________________________________________
EXCHANGING AND REDEEMING By Phone Call Shareholder Services. If
SHARES you find our phones busy during
unusually volatile markets,
please consider placing your
order by express mail,
mailgram, Tele*Access or
PC*Access. For exchange
policy, see Excessive Trading
and Exchange Limitations under
Conditions of Your Purchase.
Redemption proceeds can be
mailed, sent by ACH transfer,
or wired to your bank. The
Funds charge a $5.00 fee for
wire redemptions under $5,000,
subject to change without
PAGE 66
notice. Your bank may also
charge you for receiving wires.
___________________________________________
By Mail Indicate account name(s) and
numbers, fund name(s), and
Shareholder Services exchange or redemption amount.
1-800-225-5132 For exchanges, indicate the
1-410-625-6500 accounts you are exchanging
from and to along with the
amount. We require the
signature of all owners exactly
as registered, and possibly a
signature guarantee (see
Signature Guarantees under
Conditions of Your Purchase).
Note: Distributions from
retirement accounts, including
IRAs, must be in writing.
Please call Shareholder
Services to obtain an IRA
Distribution Request Form. For
employer-sponsored retirement
accounts, call T. Rowe Price
Trust Company or your plan
administrator for instructions.
Shareholders holding previously
issued certificates must
conduct transactions by mail.
If you lose a stock
certificate, you may incur an
expense to replace it. Call
T. Rowe Price Trust Shareholder Services for
Company further information.
1-800-492-7670
1-410-625-6585 Mailing addresses:
Regular Mail Mailgram,
Express,
Registered, or
Certified Mail
PAGE 67
Non-Retirement
and IRA
Accounts All Accounts
T. Rowe Price T. Rowe Price
Account ServicesAccount
P.O. Box 89000 Services
Baltimore, MD 10090 Red Run
21289-0220 Boulevard
Owings Mills,
MD 21117
Employer-Sponsored
Retirement Accounts
T. Rowe Price Trust Company
P.O. Box 89000
Baltimore, MD 21289-0300
PAGE 68
Prospectus
To Open an Account
Investor Services T. Rowe Price International
1-800-638-5660 Fixed Income Funds
1-410-547-2308
Existing Accounts December 30, 1994
Shareholder Services
1-800-225-5132
1-410-625-6500
For Yields & Prices
Tele*AccessR
1-800-638-2587
1-410-625-7676
24 hours, 7 days
Investor Centers
101 East Lombard Street
Baltimore, Maryland
T. Rowe Price Financial Center
10090 Red Run Boulevard
Owings Mills, Maryland
Farragut Square
900 17th Street, N.W.
Washington, DC
ARCO Tower
31st Floor
515 South Flower Street
Los Angeles, California
T. ROWE PRICE
Invest With ConfidenceR
PAGE 69
STATEMENT OF ADDITIONAL INFORMATION
T. Rowe Price International Funds, Inc. (the "Corporation")
Short-Term Global Income Fund
Global Government Bond Fund
International Bond FundR
Emerging Markets Bond Fund
(the "Funds")
This Statement of Additional Information is not a
prospectus but should be read in conjunction with the Fund's
prospectus dated December 30, 1994, which may be obtained from
T. Rowe Price Investment Services, Inc., 100 East Pratt Street,
Baltimore, Maryland 21202.
The date of this Statement of Additional Information is
December 30, 1994.
PAGE 70
TABLE OF CONTENTS
Page Page
Call and Put Options . . 11 Investment Restrictions . . 25
Capital Stock . . . . . . 54 Legal Counsel . . . . . . . 56
Custodian . . . . . . . . 47 Lending of Portfolio
Dealer Options . . . . . 15 Securities . . . . . . . 99
Distributor for Funds . . 46 Management of Funds . . . . 40
Dividends . . . . . . . . 53 Net Asset Value Per Share . 52
Federal and State Registration Portfolio Management
of Shares . . . . . . . 56 Practices . . . . . . . . . 9
Foreign Currency Portfolio Transactions . . 47
Transactions . . . . . 22 Pricing of Securities . . . 51
Principal Holders of Ratings of Corporate Debt
Securities . . . . . . 42 Securities . . . . . . . 58
Foreign Futures and Repurchase Agreements . . . 10
Options . . . . . . . . 21 Risk Factors of Foreign
Futures Contracts . . . . 16 Investing . . . . . . . . . 3
Hybrid Instruments . . . . 7 Risk Factors of Investing in
Illiquid or Restricted Debt Obligations . . . . . 6
Securities . . . . . . . 8 Tax Status . . . . . . . . 53
Independent Accountants . 56 Taxation of Foreign
Investment Management . . . Shareholders . . . . . . 54
Services . . . . . . . 43 When-Issued Securities and
Investment Objectives and Forward Commitment
Policies . . . . . . . . 2 Contracts . . . . . . . . 25
Investment Performance . 29 Yield Information . . . . . 40
Investment Programs . . . . 2
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each
Fund's investment objectives and policies discussed on pages __,
__ through __ of the prospectus. Unless otherwise specified, the
investment program and restrictions of each Fund are not
fundamental policies. The operating policies of each Fund are
subject to change by its Board of Directors without shareholder
approval. However, shareholders will be notified of a material
change in an operating policy. The fundamental policies of each
Fund may not be changed without the approval of at least a
majority of the outstanding shares of each Fund or, if it is
less, 67% of the shares represented at a meeting of shareholders
at which the holders of 50% or more of the shares are
represented.
PAGE 71
INVESTMENT PROGRAMS
All Funds
The Funds' investment manager, Rowe Price-Fleming
International, Inc. ("Price-Fleming"), one of America's largest
managers of no-load international mutual fund assets, regularly
analyzes a broad range of international equity and fixed income
markets in order to assess the degree of risk and level of return
that can be expected from each market. Based upon its current
assessment, Price-Fleming believes a high level of current income
may be achieved by investing in high quality international fixed
income securities, high quality, short-term U.S. and foreign
fixed income securities, or high quality U.S. and foreign
government bonds. Of course, there can be no assurance that
Price-Fleming's forecasts of expected return will be reflected in
the actual returns achieved by the Funds.
Each Fund's share price will fluctuate with market, economic
and foreign exchange conditions, and your investment may be worth
more or less when redeemed than when purchased. The Funds should
not be relied upon as a complete investment program, nor used to
play short-term swings in the global bond or foreign exchange
markets. The Funds are subject to risks unique to international
investing. See discussion under "Risk Factors of Foreign
Investing" beginning on page 3. Further, there is no assurance
that the favorable trends discussed below will continue, and the
Funds cannot guarantee they will achieve their objectives.
Risk Factors of Foreign Investing
There are special risks in investing in the Funds. Certain of
these risks are inherent in any international mutual fund while
others relate more to the countries in which the Funds will
invest. Many of the risks are more pronounced for investments in
developing or emerging countries, such as many of the countries
of Southeast Asia, Latin America, Eastern Europe and the Middle
East. Although there is no universally accepted definition, a
developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a
per capita gross national product of less than $8,000.
General. Investors should understand that all investments
have a risk factor. There can be no guarantee against loss
resulting from an investment in the Funds, and there can be no
assurance that the Funds' investment policies will be successful,
PAGE 72
or that its investment objectives will be attained. The Funds
are designed for individual and institutional investors seeking
to diversify beyond the United States in actively researched and
managed portfolios, and are intended for long-term investors who
can accept the risks entailed in investment in foreign
securities.
Political and Economic Factors. Individual foreign economies
of certain countries may differ favorably or unfavorably from the
United States' economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. The
internal politics of certain foreign countries are not as stable
as in the United States. For example, in 1991, the existing
government in Thailand was overthrown in a military coup. In
1992, there were two military coup attempts in Venezuela and in
1992 the President of Brazil was impeached. In addition,
significant external political risks currently affect some
foreign countries. Both Taiwan and China still claim sovereignty
of one another and there is a demilitarized border between North
and South Korea.
Governments in certain foreign countries continue to
participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these
governments could have a significant effect on market prices of
securities and payment of dividends. The economies of many
foreign countries are heavily dependent upon international trade
and are accordingly affected by protective trade barriers and
economic conditions of their trading partners. The enactment by
these trading partners of protectionist trade legislation could
have a significant adverse effect upon the securities markets of
such countries.
Currency Fluctuations. The Funds will invest in securities
denominated in various currencies. Accordingly, a change in the
value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Funds'
assets denominated in that currency. Such changes will also
affect the Funds' income. Generally, when a given currency
appreciates against the dollar (the dollar weakens) the value of
the Fund's securities denominated in that currency will rise.
When a given currency depreciates against the dollar (the dollar
strengthens) the value of the Funds' securities denominated in
that currency would be expected to decline.
PAGE 73
Investment and Repatriation of Restrictions. Foreign
investment in the securities markets of certain foreign countries
is restricted or controlled in varying degrees. These
restrictions may limit at times and preclude investment in
certain of such countries and may increase the cost and expenses
of the Funds. Investments by foreign investors are subject to a
variety of restrictions in many developing countries. These
restrictions may take the form of prior governmental approval,
limits on the amount or type of securities held by foreigners,
and limits on the types of companies in which foreigners may
invest. Additional or different restrictions may be imposed at
any time by these or other countries in which the Funds invest.
In addition, the repatriation of both investment income and
capital from several foreign countries is restricted and
controlled under certain regulations, including in some cases the
need for certain government consents. For example, capital
invested in Chile normally cannot be repatriated for one year.
Market Characteristics. It is contemplated that most foreign
securities, other than Latin American securities, will be
purchased in over-the-counter markets or on stock exchanges
located in the countries in which the respective principal
offices of the issuers of the various securities are located, if
that is the best available market. Currently, it is anticipated
that many Latin American investments will be made through ADRs
traded in the United States. Foreign stock markets are generally
not as developed or efficient as, and may be more volatile than,
those in the United States. While growing in volume, they
usually have substantially less volume than U.S. markets and the
Funds' portfolio securities may be less liquid and subject to
more rapid and erratic price movements than securities of
comparable U.S. companies. Equity securities may trade at
price/earnings multiples higher than comparable United States
securities and such levels may not be sustainable. Fixed
commissions on foreign stock exchanges are generally higher than
negotiated commissions on United States exchanges, although the
Funds will endeavor to achieve the most favorable net results on
their portfolio transactions. There is generally less government
supervision and regulation of foreign stock exchanges, brokers
and listed companies than in the United States. Moreover,
settlement practices for transactions in foreign markets may
differ from those in United States markets. Such differences may
include delays beyond periods customary in the United States and
practices, such as delivery of securities prior to receipt of
payment, which increase the likelihood of a "failed settlement."
Failed settlements can result in losses to a Fund.
PAGE 74
Investment Funds. The Funds may invest in investment funds
which have been authorized by the governments of certain
countries specifically to permit foreign investment in securities
of companies listed and traded on the stock exchanges in these
respective countries. The Funds' investment in these funds is
subject to the provisions of the 1940 Act discussed on page 28.
If the Funds invest in such investment funds, the Funds'
shareholders will bear not only their proportionate share of the
expenses of the Funds (including operating expenses and the fees
of the investment manager), but also will bear indirectly similar
expenses of the underlying investment funds. In addition, the
securities of these investment funds may trade at a premium over
their net asset value.
Information and Supervision. There is generally less publicly
available information about foreign companies comparable to
reports and ratings that are published about companies in the
United States. Foreign companies are also generally not subject
to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those
applicable to United States companies. It also may be more
difficult to keep currently informed of corporate actions which
affect the prices of portfolio securities.
Taxes. The dividends and interest payable on certain of the
Funds' foreign portfolio securities may be subject to foreign
withholding taxes, thus reducing the net amount of income
available for distribution to the Funds' shareholders. A
shareholder otherwise subject to United States federal income
taxes may, subject to certain limitations, be entitled to claim a
credit or deduction for U.S. federal income tax purposes for his
or her proportionate share of such foreign taxes paid by the
Funds. (See "Tax Status," page 53.)
Costs. Investors should understand that the expense ratios of
the Funds can be expected to be higher than investment companies
investing in domestic securities since the cost of maintaining
the custody of foreign securities and the rate of advisory fees
paid by the Funds are higher.
Small Companies. Small companies may have less experienced
management and fewer management resources than larger firms. A
smaller company may have greater difficulty obtaining access to
capital markets, and may pay more for the capital it obtains. In
addition, smaller companies are more likely to be involved in
fewer market segments, making them more vulnerable to any
downturn in a given segment. Some of these factors may also
PAGE 75
apply, to a lesser extent, to medium size companies. Some of the
smaller companies in which the Funds will invest may be in major
foreign markets; others may be leading companies in emerging
countries outside the major foreign markets. Securities analysts
generally do not follow such securities, which are seldom held
outside of their respective countries and which may have
prospects for long-term investment returns superior to the
securities of well-established and well-known companies. Direct
investment in such securities may be difficult for United States
investors because, among other things, information relating to
such securities is often not readily available. Of course, there
are also risks associated with such investments, and there is no
assurance that such prospects will be realized.
Other. With respect to certain foreign countries, especially
developing and emerging ones, there is the possibility of adverse
changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Funds, political or
social instability, or diplomatic developments which could affect
investments by U.S. persons in those countries.
Emerging Market Investing
Eastern Europe and Russia. Changes occurring in Eastern
Europe and Russia today could have long-term potential
consequences. As restrictions fall, this could result in rising
standards of living, lower manufacturing costs, growing consumer
spending, and substantial economic growth. However, investment
in the countries of Eastern Europe and Russia is highly
speculative at this time. Political and economic reforms are too
recent to establish a definite trend away from centrally-planned
economies and state owned industries. In many of the countries
of Eastern Europe and Russia, there is no stock exchange or
formal market for securities. Such countries may also have
government exchange controls, currencies with no recognizable
market value relative to the established currencies of western
market economies, little or no experience in trading in
securities, no financial reporting standards, a lack of a banking
and securities infrastructure to handle such trading, and a legal
tradition which does not recognize rights in private property.
In addition, these countries may have national policies which
restrict investments in companies deemed sensitive to the
country's national interest. Further, the governments in such
countries may require governmental or quasi-governmental
authorities to act as custodian of a Fund's assets invested in
such countries and these authorities may not qualify as a foreign
PAGE 76
custodian under the Investment Company Act of 1940 and exemptive
relief from such Act may be required. All of these
considerations are among the factors which could cause
significant risks and uncertainties to investment in Eastern
Europe and Russia. Each Fund will only invest in a company
located in, or a government of, Eastern Europe and Russia, if it
believes the potential return justifies the risk.
Latin America
The political history of certain Latin American countries has
been characterized by political uncertainty, intervention by the
military in civilian and economic spheres, and political
corruption. Such developments, if they were to reoccur, could
reverse favorable trends toward market and economic reform,
privatization and removal of trade barriers and result in
significant disruption in securities markets. Persistent levels
of inflation or in some cases, hyperinflation, have led to high
interest rates, extreme measures by governments to keep inflation
in check and a generally debilitating effect on economic growth.
Although inflation in many countries has lessened, there is no
guarantee it will remain at lower levels. In addition, a number
of Latin American countries are also among the largest debtors of
developing countries. There have been moratoria on, and
reschedulings of, repayment with respect to these debts. Such
events can restrict the flexibility of these debtor nations in
the international markets and result in the imposition of onerous
conditions on their economies.
Certain Latin American countries may have managed currencies
which are maintained at artificial levels to the U.S. dollar
rather than at levels determined by the market. This type of
system can lead to sudden and large adjustments in the currency
which, in turn, can have a disruptive and negative effect on
foreign investors. Certain Latin American countries also may
restrict the free conversion of their currency into foreign
currencies, including the U.S. dollar. There is no significant
foreign exchange market for certain currencies and it would, as a
result, be difficult for the Fund to engage in foreign currency
transactions designed to protect the value of the Fund's
interests in securities denominated in such currencies.
Risk Factors of Investing in Debt Obligations
Because of their investment policies, the Bond Funds may or
may not be suitable or appropriate for all investors. The Funds
are not money market funds and are not appropriate investments
PAGE 77
for those whose primary objective is principal stability. There
is risk in all investment. The Short-Term Global Income Fund is
designed for the investor, who is willing to accept the risks of
international investing in seeking to participate in a
diversified portfolio of U.S. and foreign government short-term
high quality bonds and other debt securities which provide
greater stability in the rate of income than a money market fund
(average weighted maturity of less than 90 days) and less risk of
capital fluctuation than a portfolio of long-term debt
securities. The value of the portfolio securities of each Fund
will fluctuate based upon market, economic and foreign exchange
conditions. Although each Fund seeks to reduce risk by investing
in a diversified portfolio, such diversification does not
eliminate all risk. There can, of course, be no assurance that
the Funds will achieve these results.
Yields on short, intermediate, and long-term securities are
dependent on a variety of factors, including the general
conditions of the money, bond and foreign exchange markets, the
size of a particular offering,the maturity of the obligation, and
the rating of the issue. Debt securities with longer maturities
tend to produce higher yields and are generally subject to
potentially greater capital appreciation and depreciation than
obligations with shorter maturities and lower yields. The market
prices of debt securities usually vary, depending upon available
yields. An increase in interest rates will generally reduce the
value of portfolio investments, and a decline in interest rates
will generally increase the value of portfolio investments. The
ability of each Fund to achieve its investment objective is also
dependent on the continuing ability of the issuers of the debt
securities in which each Fund invests to meet their obligations
for the payment of interest and principal when due.
After purchase by a Fund, a security may cease to be rated or
its rating may be reduced below the minimum required for purchase
by the Fund. Neither event will require a sale of such security
by a Fund. However, Price-Fleming will consider such event in
its determination of whether a Fund should continue to hold the
security. To the extent that the ratings given by Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P") may change as a result of changes in such
organizations or their rating systems, the Funds will attempt to
use comparable ratings as standards for investments in accordance
with the investment policies contained in the prospectus.
PAGE 78
Special Risks of High Yield ("Junk Bond") Investing
Junk bonds are regarded as predominantly speculative with
respect to the issuer's continuing ability to meet principal and
interest payments. Because investment in low and lower-medium
quality bonds involves greater investment risk, to the extent the
Fund invests in such bonds, achievement of its investment
objective will be more dependent on Price-Fleming's credit
analysis than would be the case if the Fund was investing in
higher quality bonds. High yield bonds may be more susceptible
to real or perceived adverse economic conditions than investment
grade bonds. A projection of an economic downturn, or higher
interest rates, for example, could cause a decline in high yield
bond prices because the advent of such events could lessen the
ability of highly leverage issuers to make principal and interest
payments on their debt securities.
Because the market for lower rated securities may be
thinner and less active than for higher rated securities, there
may be market price volatility for these securities and limited
liquidity in the resale market. Nonrated securities are usually
not as attractive to as many buyers as rated securities are, a
factor which may make nonrated securities less marketable. These
factors may have the effect of limiting the availability of the
securities for purchase by the Fund and may also limit the
ability of the Fund to sell such securities at their fair value
either to meet redemption requests or in response to changes in
the economy or the financial markets. Adverse publicity and
investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower rated
debt securities, especially in a thinly traded market. To the
extent the Fund owns or may acquire illiquid or restricted lower
rated securities, these securities may involve special
registration responsibilities, liabilities and costs, and
liquidity and valuation difficulties. Changes in values of
debt securities which the Fund owns will affect its net asset
value per share. If market quotations are not readily available
for the Fund's lower rated or nonrated securities, these
securities will be valued by a method that the Fund's Board of
Directors believes accurately reflects fair value. Judgment
plays a greater role in valuing lower rated debt securities than
with respect to securities for which more external sources of
quotations and last sale information are available.
In addition to the investments described in the Funds'
prospectus, the Funds may invest in the following:
PAGE 79
Types of Securities
Hybrid Instruments
Hybrid Instruments have recently been developed and combine
the elements of futures contracts or options with those of debt,
preferred equity or a depository instrument (hereinafter "Hybrid
Instruments"). Often these Hybrid Instruments are indexed to the
price of a commodity, particular currency, or a domestic or
foreign debt or equity securities index. Hybrid Instruments may
take a variety of forms, including, but not limited to, debt
instruments with interest or principal payments or redemption
terms determined by reference to the value of a currency or
commodity or securities index at a future point in time,
preferred stock with dividend rates determined by reference to
the value of a currency, or convertible securities with the
conversion terms related to a particular commodity.
The risks of investing in Hybrid Instruments reflect a
combination of the risks from investing in securities, options,
futures and currencies, including volatility and lack of
liquidity. Reference is made to the discussion of futures,
options, and forward contracts herein for a discussion of these
risks. Further, the prices of the Hybrid Instrument and the
related commodity or currency may not move in the same direction
or at the same time. Hybrid Instruments may bear interest or pay
preferred dividends at below market (or even relatively nominal)
rates. Alternatively, Hybrid Instruments may bear interest at
above market rates but bear an increased risk of principal loss
(or gain). In addition, because the purchase and sale of Hybrid
Instruments could take place in an over-the-counter market or in
a private transaction between the Fund and the seller of the
Hybrid Instrument, the creditworthiness of the contra party to
the transaction would be a risk factor which the Fund would have
to consider. Hybrid Instruments also may not be subject to
regulation of the Commodities Futures Trading Commission
("CFTC"), which generally regulates the trading of commodity
futures by U.S. persons, the SEC, which regulates the offer and
sale of securities by and to U.S. persons, or any other
governmental regulatory authority.
Illiquid or Restricted Securities
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act of
1933 (the "1933 Act"). Where registration is required, the Fund
PAGE 80
may be obligated to pay all or part of the registration expenses
and a considerable period may elapse between the time of the
decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during
such a period, adverse market conditions were to develop, the
Fund might obtain a less favorable price than prevailed when it
decided to sell. Restricted securities will be priced at fair
value as determined in accordance with procedures prescribed by
the Fund's Board of Directors/Trustees. If through the
appreciation of illiquid securities or the depreciation of liquid
securities, the Fund should be in a position where more than 15%
of the value of its net assets are invested in illiquid assets,
including restricted securities, the Fund will take appropriate
steps to protect liquidity.
Notwithstanding the above, the Fund may purchase securities
which, while privately placed, are eligible for purchase and sale
under Rule 144A under the 1933 Act. This rule permits certain
qualified institutional buyers, such as the Fund, to trade in
privately placed securities even though such securities are not
registered under the 1933 Act. Price-Fleming under the
supervision of the Fund's Board of Directors/Trustees, will
consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Fund's restriction of investing
no more than 15% of its net assets in illiquid securities. A
determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, Price-Fleming
will consider the trading markets for the specific security
taking into account the unregistered nature of a Rule 144A
security. In addition, Price-Fleming could consider the (1)
frequency of trades and quotes, (2) number of dealers and
potential purchases, (3) dealer undertakings to make a market,
and (4) the nature of the security and of marketplace trades
(e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity
of Rule 144A securities would be monitored, and if as a result of
changed conditions it is determined that a Rule 144A security is
no longer liquid, the Fund's holdings of illiquid securities
would be reviewed to determine what, if any, steps are required
to assure that the Fund does not invest more than 15% of its net
assets in illiquid securities. Investing in Rule 144A securities
could have the effect of increasing the amount of the Fund's
assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities.
PAGE 81
Short-Term Global Income and Global Government Bond Funds
The securities of U.S. issuers in which both Funds may invest
include, but are not limited to, the following:
U.S. Government Obligations. Debt securities issued by the
U.S. Treasury. These are direct obligations of the U.S.
Government and differ mainly in the length of their maturities.
U.S. Government Agency Securities. Issued or guaranteed by
U.S. Government sponsored enterprises and federal agencies.
These include securities issued by the Federal National Mortgage
Association, Government National Mortgage Association, Federal
Home Loan Bank, Federal Land Banks, Farmers Home Administration,
Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Banks, the Small Business
Association, and the Tennessee Valley Authority. Some of these
securities are supported by the full faith and credit of the U.S.
Treasury, and the remainder are supported only by the credit of
the instrumentality, which may or may not include the right of
the issuer to borrow from the Treasury.
Bank Obligations. Certificates of deposit, bankers'
acceptances, and other short-term debt obligations. Certificates
of deposit are short-term obligations of commercial banks. A
bankers' acceptance is a time draft drawn on a commercial bank by
a borrower, usually in connection with international commercial
transactions. Certificates of deposit may have fixed or variable
rates.
Savings and Loan Obligations. Negotiable certificates of
deposit and other short-term debt obligations of savings and loan
associations.
Collateralized Mortgage Obligations (CMOs). CMOs are
obligations fully collateralized by a portfolio of mortgages or
mortgage-related securities. Payments of principal and interest
on the mortgages are passed through to the holders of the CMOs on
the same schedule as they are received, although certain classes
of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type
of CMOs in which a Fund invests, the investment may be subject to
a greater or lesser risk of prepayment than other types of
mortgage-related securities.
Asset Backed Receivables. The asset-backed securities that
may be purchased include, but are not limited to, Certificates
PAGE 82
for Automobile Receivables (CARSsm) and Credit Card Receivable
Securities. CARSsm represent undivided fractional interests in a
trust whose assets consist of a pool of motor vehicle retail
installment sales contracts and security interests in the
vehicles securing these contracts. In addition to the general
risks pertaining to all asset-backed securities, CARSsm are
subject to the risks of delayed payments or losses if the full
amounts due on underlying sales contracts are not realized by the
trust due to unanticipated legal or administrative costs of
enforcing the contracts, or due to depreciation, damage or loss
of the vehicles securing the contracts. Credit Card Receivable
Securities are backed by receivables from revolving credit card
accounts. Since balances on revolving credit card accounts are
generally paid down more rapidly than CARSsm, issuers often
lengthen the maturity of these securities by providing for a
fixed period during which interest payments are passed through
and principal payments are used to fund the transfer of
additional receivables to the underlying pool. The failure of
the underlying receivables to generate principal payments may
therefore shorten the maturity of these securities. In addition,
unlike most other asset-backed securities, Credit Card Receivable
Securities are backed by obligations that are not secured by an
interest in personal or real property.
There are, of course, other types of securities that are, or
may become available, which are similar to the foregoing and the
Fund may invest in these securities.
Portfolio Management Practices
Lending of Portfolio Securities
Securities loans are made to broker-dealers or institutional
investors or other persons, pursuant to agreements requiring that
the loans be continuously secured by collateral at least equal at
all times to the value of the securities lent marked to market on
a daily basis. The collateral received will consist of cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted under its investment program.
While the securities are being lent, the Fund will continue to
receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment
of the collateral or a fee from the borrower. The Fund has a
right to call each loan and obtain the securities on five
business days' notice or, in connection with securities trading
on foreign markets, within such longer period of time which
coincides with the normal settlement period for purchases and
PAGE 83
sales of such securities in such foreign markets. The Fund will
not have the right to vote securities while they are being lent,
but it will call a loan in anticipation of any important vote.
The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to firms
deemed by Price-Fleming to be of good standing and will not be
made unless, in the judgment of Price-Fleming, the consideration
to be earned from such loans would justify the risk.
Other Lending/Borrowing
Subject to approval by the Securities and Exchange
Commission and certain state regulatory agencies, the Fund may
make loans to, or borrow funds from, other mutual funds sponsored
or advised by T. Rowe Price or Price-Fleming (collectively,
"Price Funds"). The Fund has no current intention of engaging in
these practices at this time.
Repurchase Agreements
The Fund may enter into a repurchase agreement through which
an investor (such as the Fund) purchases a security (known as the
"underlying security") from a well-established securities dealer
or a bank that is a member of the Federal Reserve System. Any
such dealer or bank will be on Price-Fleming's approved list and
have a credit rating with respect to its short-term debt of at
least A1 by Standard & Poor's Corporation, P1 by Moody's
Investors Service, Inc., or the equivalent rating by Price-
Fleming. At that time, the bank or securities dealer agrees to
repurchase the underlying security at the same price, plus
specified interest. Repurchase agreements are generally for a
short period of time, often less than a week. Repurchase
agreements which do not provide for payment within seven days
will be treated as illiquid securities. The Fund will only enter
into repurchase agreements where (i) the underlying securities
are of the type (excluding maturity limitations) which the Fund's
investment guidelines would allow it to purchase directly, (ii)
the market value of the underlying security, including interest
accrued, will be at all times equal to or exceed the value of the
repurchase agreement, and (iii) payment for the underlying
security is made only upon physical delivery or evidence of book-
entry transfer to the account of the custodian or a bank acting
as agent. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Fund could experience both
PAGE 84
delays in liquidating the underlying security and losses,
including: (a) possible decline in the value of the underlying
security during the period while the Fund seeks to enforce its
rights thereto; (b) possible subnormal levels of income and lack
of access to income during this period; and (c) expenses of
enforcing its rights.
Options
Writing Covered Call Options
The Fund may write (sell) American or European style "covered"
call options and purchase options to close out options previously
written by a Fund. In writing covered call options, the Fund
expects to generate additional premium income which should serve
to enhance the Fund's total return and reduce the effect of any
price decline of the security or currency involved in the option.
Covered call options will generally be written on securities or
currencies which, in Price-Fleming's opinion, are not expected to
have any major price increases or moves in the near future but
which, over the long term, are deemed to be attractive
investments for the Fund.
A call option gives the holder (buyer) the "right to purchase"
a security or currency at a specified price (the exercise price)
at expiration of the option (European style) or at any time until
a certain date (the expiration date) (American style). So long
as the obligation of the writer of a call option continues, he
may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring him to deliver the
underlying security or currency against payment of the exercise
price. This obligation terminates upon the expiration of the
call option, or such earlier time at which the writer effects a
closing purchase transaction by repurchasing an option identical
to that previously sold. To secure his obligation to deliver the
underlying security or currency in the case of a call option, a
writer is required to deposit in escrow the underlying security
or currency or other assets in accordance with the rules of a
clearing corporation.
The Fund will write only covered call options. This means
that the Fund will own the security or currency subject to the
option or an option to purchase the same underlying security or
currency, having an exercise price equal to or less than the
exercise price of the "covered" option, or will establish and
maintain with its custodian for the term of the option, an
account consisting of cash, U.S. government securities or other
PAGE 85
liquid high-grade debt obligations having a value equal to the
fluctuating market value of the optioned securities or
currencies.
Portfolio securities or currencies on which call options may
be written will be purchased solely on the basis of investment
considerations consistent with the Fund's investment objective.
The writing of covered call options is a conservative investment
technique believed to involve relatively little risk (in contrast
to the writing of naked or uncovered options, which the Fund will
not do), but capable of enhancing the Fund's total return. When
writing a covered call option, a Fund, in return for the premium,
gives up the opportunity for profit from a price increase in the
underlying security or currency above the exercise price, but
conversely retains the risk of loss should the price of the
security or currency decline. Unlike one who owns securities or
currencies not subject to an option, the Fund has no control over
when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any
time prior to the expiration of its obligation as a writer. If a
call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain
may be offset by a decline in the market value of the underlying
security or currency during the option period. If the call
option is exercised, the Fund will realize a gain or loss from
the sale of the underlying security or currency. The Fund does
not consider a security or currency covered by a call to be
"pledged" as that term is used in the Fund's policy which limits
the pledging or mortgaging of its assets.
The premium received is the market value of an option. The
premium the Fund will receive from writing a call option will
reflect, among other things, the current market price of the
underlying security or currency, the relationship of the exercise
price to such market price, the historical price volatility of
the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made,
Price-Fleming, in determining whether a particular call option
should be written on a particular security or currency, will
consider the reasonableness of the anticipated premium and the
likelihood that a liquid secondary market will exist for those
options. The premium received by the Fund for writing covered
call options will be recorded as a liability of the Fund. This
liability will be adjusted daily to the option's current market
value, which will be the latest sale price at the time at which
the net asset value per share of the Fund is computed (close of
the New York Stock Exchange), or, in the absence of such sale,
PAGE 86
the latest asked price. The option will be terminated upon
expiration of the option, the purchase of an identical option in
a closing transaction, or delivery of the underlying security or
currency upon the exercise of the option.
Closing transactions will be effected in order to realize a
profit on an outstanding call option, to prevent an underlying
security or currency from being called, or, to permit the sale of
the underlying security or currency. Furthermore, effecting a
closing transaction will permit the Fund to write another call
option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund
desires to sell a particular security or currency from its
portfolio on which it has written a call option, or purchased a
put option, it will seek to effect a closing transaction prior
to, or concurrently with, the sale of the security or currency.
There is, of course, no assurance that the Fund will be able to
effect such closing transactions at favorable prices. If the
Fund cannot enter into such a transaction, it may be required to
hold a security or currency that it might otherwise have sold.
When the Fund writes a covered call option, it runs the risk of
not being able to participate in the appreciation of the
underlying securities or currencies above the exercise price, as
well as the risk of being required to hold on to securities or
currencies that are depreciating in value. This could result in
higher transaction costs. The Fund will pay transaction costs in
connection with the writing of options to close out previously
written options. Such transaction costs are normally higher than
those applicable to purchases and sales of portfolio securities.
Call options written by the Fund will normally have expiration
dates of less than nine months from the date written. The
exercise price of the options may be below, equal to, or above
the current market values of the underlying securities or
currencies at the time the options are written. From time to
time, the Fund may purchase an underlying security or currency
for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security or
currency from its portfolio. In such cases, additional costs may
be incurred.
The Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than
the premium received from the writing of the option. Because
increases in the market price of a call option will generally
reflect increases in the market price of the underlying security
or currency, any loss resulting from the repurchase of a call
PAGE 87
option is likely to be offset in whole or in part by appreciation
of the underlying security or currency owned by the Fund.
In order to comply with the requirements of several states,
the Fund will not write a covered call option if, as a result,
the aggregate market value of all portfolio securities or
currencies covering call or put options exceeds 25% of the market
value of the Fund's net assets. Should these state laws change
or should the Fund obtain a waiver of its application, the Fund
reserves the right to increase this percentage. In calculating
the 25% limit, the Fund will offset, against the value of assets
covering written calls and puts, the value of purchased calls and
puts on identical securities or currencies with identical
maturity dates.
Writing Covered Put Options
The Fund may write American or European style covered put
options and purchase options to close out options previously
written by the Fund. A put option gives the purchaser of the
option the right to sell, and the writer (seller) has the
obligation to buy, the underlying security or currency at the
exercise price during the option period (American style) or at
the expiration of the option (European style). So long as the
obligation of the writer continues, he may be assigned an
exercise notice by the broker-dealer through whom such option was
sold, requiring him to make payment of the exercise price against
delivery of the underlying security or currency. The operation
of put options in other respects, including their related risks
and rewards, is substantially identical to that of call options.
The Fund would write put options only on a covered basis,
which means that the Fund would maintain in a segregated account
cash, U.S. government securities or other liquid high-grade debt
obligations in an amount not less than the exercise price or the
Fund will own an option to sell the underlying security or
currency subject to the option having an exercise price equal to
or greater than the exercise price of the "covered" option at all
times while the put option is outstanding. (The rules of a
clearing corporation currently require that such assets be
deposited in escrow to secure payment of the exercise price.)
The Fund would generally write covered put options in
circumstances where Price-Fleming wishes to purchase the
underlying security or currency for the Fund's portfolio at a
price lower than the current market price of the security or
currency. In such event the Fund would write a put option at an
exercise price which, reduced by the premium received on the
PAGE 88
option, reflects the lower price it is willing to pay. Since the
Fund would also receive interest on debt securities or currencies
maintained to cover the exercise price of the option, this
technique could be used to enhance current return during periods
of market uncertainty. The risk in such a transaction would be
that the market price of the underlying security or currency
would decline below the exercise price less the premiums
received. Such a decline could be substantial and result in a
significant loss to the Fund. In addition, the Fund, because it
does not own the specific securities or currencies which it may
be required to purchase in exercise of the put, cannot benefit
from appreciation, if any, with respect to such specific
securities or currencies. In order to comply with the
requirements of several states, the Fund will not write a covered
put option if, as a result, the aggregate market value of all
portfolio securities or currencies covering put or call options
exceeds 25% of the market value of the Fund's net assets. Should
these state laws change or should the Fund obtain a waiver of its
application, the Fund reserves the right to increase this
percentage. In calculating the 25% limit, the Fund will offset,
against the value of assets covering written puts and calls, the
value of purchased puts and calls on identical securities or
currencies with identical maturity dates.
Purchasing Put Options
The Fund may purchase American or European style put
options. As the holder of a put option, the Fund has the right
to sell the underlying security or currency at the exercise price
at any time during the option period (American style) or at the
expiration of the option (European style). The Fund may enter
into closing sale transactions with respect to such options,
exercise them or permit them to expire. The Fund may purchase
put options for defensive purposes in order to protect against an
anticipated decline in the value of its securities or currencies.
An example of such use of put options is provided below.
The Fund may purchase a put option on an underlying security
or currency (a "protective put") owned by the Fund as a defensive
technique in order to protect against an anticipated decline in
the value of the security or currency. Such hedge protection is
provided only during the life of the put option when the Fund, as
the holder of the put option, is able to sell the underlying
security or currency at the put exercise price regardless of any
decline in the underlying security's market price or currency's
exchange value. For example, a put option may be purchased in
order to protect unrealized appreciation of a security or
PAGE 89
currency where Price-Fleming deems it desirable to continue to
hold the security or currency because of tax considerations. The
premium paid for the put option and any transaction costs would
reduce any capital gain otherwise available for distribution when
the security or currency is eventually sold.
The Fund may also purchase put options at a time when the Fund
does not own the underlying security or currency. By purchasing
put options on a security or currency it does not own, the Fund
seeks to benefit from a decline in the market price of the
underlying security or currency. If the put option is not sold
when it has remaining value, and if the market price of the
underlying security or currency remains equal to or greater than
the exercise price during the life of the put option, the Fund
will lose its entire investment in the put option. In order for
the purchase of a put option to be profitable, the market price
of the underlying security or currency must decline sufficiently
below the exercise price to cover the premium and transaction
costs, unless the put option is sold in a closing sale
transaction.
To the extent required by the laws of certain states, the Fund
may not be permitted to commit more than 5% of its assets to
premiums when purchasing put and call options. Should these
state laws change or should the Fund obtain a waiver of its
application, the Fund may commit more than 5% of its assets to
premiums when purchasing call and put options. The premium paid
by the Fund when purchasing a put option will be recorded as an
asset of the Fund. This asset will be adjusted daily to the
option's current market value, which will be the latest sale
price at the time at which the net asset value per share of the
Fund is computed (close of New York Stock Exchange), or, in the
absence of such sale, the latest bid price. This asset will be
terminated upon expiration of the option, the selling (writing)
of an identical option in a closing transaction, or the delivery
of the underlying security or currency upon the exercise of the
option.
Purchasing Call Options
The Fund may purchase American or European style call
options. As the holder of a call option, the Fund has the right
to purchase the underlying security or currency at the exercise
price at any time during the option period (American style) or at
the expiration of the option (European style). The Fund may
enter into closing sale transactions with respect to such
options, exercise them or permit them to expire. The Fund may
PAGE 90
purchase call options for the purpose of increasing its current
return or avoiding tax consequences which could reduce its
current return. The Fund may also purchase call options in order
to acquire the underlying securities or currencies. Examples of
such uses of call options are provided below.
Call options may be purchased by the Fund for the purpose of
acquiring the underlying securities or currencies for its
portfolio. Utilized in this fashion, the purchase of call
options enables the Fund to acquire the securities or currencies
at the exercise price of the call option plus the premium paid.
At times the net cost of acquiring securities or currencies in
this manner may be less than the cost of acquiring the securities
or currencies directly. This technique may also be useful to the
Fund in purchasing a large block of securities or currencies that
would be more difficult to acquire by direct market purchases.
So long as it holds such a call option rather than the underlying
security or currency itself, the Fund is partially protected from
any unexpected decline in the market price of the underlying
security or currency and in such event could allow the call
option to expire, incurring a loss only to the extent of the
premium paid for the option.
To the extent required by the laws of certain states, the Fund
may not be permitted to commit more than 5% of its assets to
premiums when purchasing call and put options. Should these
state laws change or should the Fund obtain a waiver of its
application, the Fund may commit more than 5% of its assets to
premiums when purchasing call and put options. The Fund may also
purchase call options on underlying securities or currencies it
owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for
this purpose where tax considerations make it inadvisable to
realize such gains through a closing purchase transaction. Call
options may also be purchased at times to avoid realizing losses.
Dealer (Over-the-Counter) Options
The Fund may engage in transactions involving dealer options.
Certain risks are specific to dealer options. While the Fund
would look to a clearing corporation to exercise exchange-traded
options, if the Fund were to purchase a dealer option, it would
rely on the dealer from whom it purchased the option to perform
if the option were exercised. Failure by the dealer to do so
would result in the loss of the premium paid by the Fund as well
as loss of the expected benefit of the transaction.
PAGE 91
Exchange-traded options generally have a continuous liquid
market while dealer options have none. Consequently, the Fund
will generally be able to realize the value of a dealer option it
has purchased only by exercising it or reselling it to the dealer
who issued it. Similarly, when the Fund writes a dealer option,
it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction
with the dealer to which the Fund originally wrote the option.
While the Fund will seek to enter into dealer options only with
dealers who will agree to and which are expected to be capable of
entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate a dealer option
at a favorable price at any time prior to expiration. Until the
Fund, as a covered dealer call option writer, is able to effect a
closing purchase transaction, it will not be able to liquidate
securities (or other assets) or currencies used as cover until
the option expires or is exercised. In the event of insolvency
of the contra party, the Fund may be unable to liquidate a dealer
option. With respect to options written by the Fund, the
inability to enter into a closing transaction may result in
material losses to the Fund. For example, since the Fund must
maintain a secured position with respect to any call option on a
security it writes, the Fund may not sell the assets which it has
segregated to secure the position while it is obligated under the
option. This requirement may impair a Fund's ability to sell
portfolio securities or currencies at a time when such sale might
be advantageous.
The Staff of the SEC has taken the position that purchased
dealer options and the assets used to secure the written dealer
options are illiquid securities. The Fund may treat the cover
used for written OTC options as liquid if the dealer agrees that
the Fund may repurchase the OTC option it has written for a
maximum price to be calculated by a predetermined formula. In
such cases, the OTC option would be considered illiquid only to
the extent the maximum repurchase price under the formula exceeds
the intrinsic value of the option. Accordingly, the Fund will
treat dealer options as subject to the Fund's limitation on
unmarketable securities. If the SEC changes its position on the
liquidity of dealer options, the Fund will change its treatment
of such instrument accordingly.
PAGE 92
Futures Contracts
Transactions in Futures
Each Fund may enter into financial futures contracts,
including stock index, interest rate and currency futures
("futures or futures contracts"); however, the Funds have no
current intention of entering into stock index futures. The
Funds, however, reserve the right to trade in financial futures
of any kind.
Stock index futures contracts may be used to provide a hedge
for a portion of the Fund's portfolio, as a cash management tool,
or as an efficient way for Price-Fleming to implement either an
increase or decrease in portfolio market exposure in response to
changing market conditions. The Fund may, purchase or sell
futures contracts with respect to any stock index. Nevertheless,
to hedge the Fund's portfolio successfully, the Fund must sell
futures contacts with respect to indices or subindices whose
movements will have a significant correlation with movements in
the prices of the Fund's portfolio securities.
Interest rate or currency futures contracts may be used as a
hedge against changes in prevailing levels of interest rates or
currency exchange rates in order to establish more definitely the
effective return on securities or currencies held or intended to
be acquired by the Fund. In this regard, the Fund could sell
interest rate or currency futures as an offset against the effect
of expected increases in interest rates or currency exchange
rates and purchase such futures as an offset against the effect
of expected declines in interest rates or currency exchange
rates.
The Fund will enter into futures contracts which are traded on
national or foreign futures exchanges, and are standardized as to
maturity date and underlying financial instrument. Futures
exchanges and trading in the United States are regulated under
the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"). Futures are traded in London at the London
International Financial Futures Exchange in Paris at the MATIF
and in Tokyo at the Tokyo Stock Exchange. Although techniques
other than the sale and purchase of futures contracts could be
used for the above-referenced purposes, futures contracts offer
an effective and relatively low cost means of implementing the
Fund's objectives in these areas.
PAGE 93
Regulatory Limitations
The Fund will engage in futures contracts and options thereon
only for bona fide hedging, yield enhancement, and risk
management purposes, in each case in accordance with rules and
regulations of the CFTC and applicable state law.
The Fund may not purchase or sell futures contracts or related
options if, with respect to positions which do not qualify as
bona fide hedging under applicable CFTC rules, the sum of the
amounts of initial margin deposits and premiums paid on those
portions would exceed 5% of the net asset value of the Fund after
taking into account unrealized profits and unrealized losses on
any such contracts it has entered into; provided, however, that
in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating
the 5% limitation. For purposes of this policy options on
futures contracts and foreign currency options traded on a
commodities exchange will be considered "related options". This
policy may be modified by the Board of Directors/Trustees without
a shareholder vote and does not limit the percentage of the
Fund's assets at risk to 5%.
In accordance with the rules of the State of California, the
Fund will apply above 5% test without excluding the value of
initial margin and premiums paid for bona fide hedging portions.
The Fund's use of futures contracts will not result in
leverage. Therefore, to the extent necessary, in instances
involving the purchase of futures contracts or the writing of
call or put options thereon by the Fund, an amount of cash, U.S.
government securities or other liquid, high-grade debt
obligations, equal to the market value of the futures contracts
and options thereon (less any related margin deposits), will be
identified in an account with the Fund's custodian to cover (such
as owning an offsetting position) the position, or alternative
cover will be employed. Assets used as cover or held in an
identified account cannot be sold while the position in the
corresponding option or future is open, unless they are replaced
with similar assets. As a result, the commitment of a large
portion of a Fund's assets to cover or identified accounts could
impede portfolio management or the fund's ability to meet
redemption requests or over current obligations.
If the CFTC or other regulatory authorities adopt different
(including less stringent) or additional restrictions, the Fund
would comply with such new restrictions.
PAGE 94
Trading in Futures Contracts
A futures contract provides for the future sale by one party
and purchase by another party of a specified amount of a specific
financial instrument (e.g., units of a debt security) for a
specified price, date, time and place designated at the time the
contract is made. Brokerage fees are incurred when a futures
contract is bought or sold and margin deposits must be
maintained. Entering into a contract to buy is commonly referred
to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as
selling a contract or holding a short position.
Unlike when the Fund purchases or sells a security, no price
would be paid or received by the Fund upon the purchase or sale
of a futures contract. Upon entering into a futures contract,
and to maintain the Fund's open positions in futures contracts,
the Fund would be required to deposit with its custodian in a
segregated account in the name of the futures broker an amount of
cash, U.S. government securities, suitable money market
instruments, or liquid, high-grade debt securities, known as
"initial margin." The margin required for a particular futures
contract is set by the exchange on which the contract is traded,
and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are
customarily purchased and sold on margins that may range upward
from less than 5% of the value of the contract being traded.
If the price of an open futures contract changes (by increase
in the case of a sale or by decrease in the case of a purchase)
so that the loss on the futures contract reaches a point at which
the margin on deposit does not satisfy margin requirements, the
broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes
in the futures contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to the Fund.
These subsequent payments, called "variation margin," to and
from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short
positions in the futures contract more or less valuable, a
process known as "marking to the market." The Fund expects to
earn interest income on its margin deposits.
Although certain futures contracts, by their terms, require
actual future delivery of and payment for the underlying
PAGE 95
instruments, in practice most futures contracts are usually
closed out before the delivery date. Closing out an open futures
contract purchase or sale is effected by entering into an
offsetting futures contract sale or purchase, respectively, for
the same aggregate amount of the identical securities and the
same delivery date. If the offsetting purchase price is less
than the original sale price, the Fund realizes a gain; if it is
more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The
transaction costs must also be included in these calculations.
There can be no assurance, however, that the Fund will be able to
enter into an offsetting transaction with respect to a particular
futures contract at a particular time. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the futures
contract.
As an example of an offsetting transaction in which the
underlying instrument is not delivered, the contractual
obligations arising from the sale of one contract of September
Treasury Bills on an exchange may be fulfilled at any time before
delivery of the contract is required (i.e., on a specified date
in September, the "delivery month") by the purchase of one
contract of September Treasury Bills on the same exchange. In
such instance, the difference between the price at which the
futures contract was sold and the price paid for the offsetting
purchase, after allowance for transaction costs, represents the
profit or loss to the Fund.
Special Risks of Transactions in Futures Contracts
Volatility and Leverage. The prices of futures contracts are
volatile and are influenced, among other things, by actual and
anticipated changes in the market and interest rates, which in
turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular
type of futures contract, no trades may be made on that day at a
price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not
PAGE 96
limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting
some futures traders to substantial losses.
Because of the low margin deposits required, futures trading
involves an extremely high degree of leverage. As a result, a
relatively small price movement in a futures contract may result
in immediate and substantial loss, as well as gain, to the
investor. For example, if at the time of purchase, 10% of the
value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract
would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150%
of the original margin deposit, if the contract were closed out.
Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in
the underlying financial instrument and sold it after the
decline. Furthermore, in the case of a futures contract
purchase, in order to be certain that the Fund has sufficient
assets to satisfy its obligations under a futures contract, the
Fund earmarks to the futures contract money market instruments
equal in value to the current value of the underlying instrument
less the margin deposit.
Liquidity. The Fund may elect to close some or all of its
futures positions at any time prior to their expiration. The
Fund would do so to reduce exposure represented by long futures
positions or short futures positions. The Fund may close its
positions by taking opposite positions which would operate to
terminate the Fund's position in the futures contracts. Final
determinations of variation margin would then be made, additional
cash would be required to be paid by or released to the Fund, and
the Fund would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded.
Although the Fund intends to purchase or sell futures contracts
only on exchanges or boards of trade where there appears to be an
active market, there is no assurance that a liquid market on an
exchange or board of trade will exist for any particular contract
at any particular time. In such event, it might not be possible
PAGE 97
to close a futures contract, and in the event of adverse price
movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event futures
contracts have been used to hedge the underlying instruments, the
Fund would continue to hold the underlying instruments subject to
the hedge until the futures contracts could be terminated. In
such circumstances, an increase in the price of underlying
instruments, if any, might partially or completely offset losses
on the futures contract. However, as described below, there is
no guarantee that the price of the underlying instruments will,
in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures
contract.
Hedging Risk. A decision of whether, when, and how to hedge
involves skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of unexpected market
behavior, market or interest rate trends. There are several
risks in connection with the use by the Fund of futures contracts
as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the futures
contracts and movements in the prices of the underlying
instruments which are the subject of the hedge. Price-Fleming
will, however, attempt to reduce this risk by entering into
futures contracts whose movements, in its judgment, will have a
significant correlation with movements in the prices of the
Fund's underlying instruments sought to be hedged.
Successful use of futures contracts by the Fund for hedging
purposes is also subject to Price-Fleming's ability to correctly
predict movements in the direction of the market. It is possible
that, when the Fund has sold futures to hedge its portfolio
against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the
underlying instruments held in the Fund's portfolio might
decline. If this were to occur, the Fund would lose money on the
futures and also would experience a decline in value in its
underlying instruments. However, while this might occur to a
certain degree, Price-Fleming believes that over time the value
of the Fund's portfolio will tend to move in the same direction
as the market indices used to hedge the portfolio. It is also
possible that if the Fund were to hedge against the possibility
of a decline in the market (adversely affecting the underlying
instruments held in its portfolio) and prices instead increased,
the Fund would lose part or all of the benefit of increased value
of those underlying instruments that it has hedged, because it
would have offsetting losses in its futures positions. In
PAGE 98
addition, in such situations, if the Fund had insufficient cash,
it might have to sell underlying instruments to meet daily
variation margin requirements. Such sales of underlying
instruments might be, but would not necessarily be, at increased
prices (which would reflect the rising market). The Fund might
have to sell underlying instruments at a time when it would be
disadvantageous to do so.
In addition to the possibility that there might be an
imperfect correlation, or no correlation at all, between price
movements in the futures contracts and the portion of the
portfolio being hedged, the price movements of futures contracts
might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First,
all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors might close
futures contracts through offsetting transactions, which could
distort the normal relationship between the underlying
instruments and futures markets. Second, the margin requirements
in the futures market are less onerous than margin requirements
in the securities markets, and as a result the futures market
might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market
might also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and also
because of the imperfect correlation between price movements in
the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by
Price-Fleming might not result in a successful hedging
transaction over a very short time period.
Options on Futures Contracts
The Fund may purchase and sell options on the same types of
futures in which it may invest.
Options on futures are similar to options on underlying
instruments except that options on futures give the purchaser the
right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a
short position if the option is a put), rather than to purchase
or sell the futures contract, at a specified exercise price at
any time during the period of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the
option to the holder of the option will be accompanied by the
delivery of the accumulated balance in the writer's futures
PAGE 99
margin account which represents the amount by which the market
price of the futures contract, at exercise, exceeds (in the case
of a call) or is less than (in the case of a put) the exercise
price of the option on the futures contract. Purchasers of
options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
As an alternative to writing or purchasing call and put
options on interest rate futures, the Fund may write or purchase
call and put options on financial indices. Such options would be
used in a manner similar to the use of options on futures
contracts. From time to time, a single order to purchase or sell
futures contracts (or options thereon) may be made on behalf of
the Fund and other T. Rowe Price Funds. Such aggregated orders
would be allocated among the Funds and the other T. Rowe Price
Funds in a fair and non-discriminatory manner.
Special Risks of Transactions in Options on Futures Contracts
The risks described under "Special Risks of Transactions on
Futures Contracts" are substantially the same as the risks of
using options on futures. In addition, where the Fund seeks to
close out an option position by writing or buying an offsetting
option covering the same index, underlying instrument or contract
and having the same exercise price and expiration date, its
ability to establish and close out positions on such options will
be subject to the maintenance of a liquid secondary market.
Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options, or underlying instruments; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that
exchange (or in the class or series of options) would cease to
exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times,
PAGE 100
render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by
an exchange of special procedures which may interfere with the
timely execution of customers' orders.
Additional Futures and Options Contracts
Although the Fund has no current intention of engaging in
futures or options transactions other than those described above,
it reserves the right to do so. Such futures and options trading
might involve risks which differ from those involved in the
futures and options described above.
Foreign Futures and Options
Participation in foreign futures and foreign options
transactions involves the execution and clearing of trades on or
subject to the rules of a foreign board of trade. Neither the
National Futures Association nor any domestic exchange regulates
activities of any foreign boards of trade, including the
execution, delivery and clearing of transactions, or has the
power to compel enforcement of the rules of a foreign board of
trade or any applicable foreign law. This is true even if the
exchange is formally linked to a domestic market so that a
position taken on the market may be liquidated by a transaction
on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or
foreign options transaction occurs. For these reasons, when the
Fund trades foreign futures or foreign options contracts, it may
not be afforded certain of the protective measures provided by
the Commodity Exchange Act, the CFTC's regulations and the rules
of the National Futures Association and any domestic exchange,
including the right to use reparations proceedings before the
Commission and arbitration proceedings provided by the National
Futures Association or any domestic futures exchange. In
particular, funds received from the Fund for foreign futures or
foreign options transactions may not be provided the same
protections as funds received in respect of transactions on
United States futures exchanges. In addition, the price of any
foreign futures or foreign options contract and, therefore, the
potential profit and loss thereon may be affected by any variance
in the foreign exchange rate between the time the Fund's order is
placed and the time it is liquidated, offset or exercised.
PAGE 101
Foreign Currency Transactions
A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are principally traded in the
interbank market conducted directly between currency traders
(usually large, commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions
are charged at any stage for trades.
The Fund may enter into forward contracts for a variety of
purposes in connection with the management of the foreign
securities portion of its portfolio. The Fund's use of such
contracts would include, but not be limited to, the following:
First, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. By
entering into a forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of foreign currency
involved in the underlying security transactions, the Fund will
be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date
the security is purchased or sold and the date on which payment
is made or received.
Second, when Price-Fleming believes that one currency may
experience a substantial movement against another currency,
including the U.S. dollar, it may enter into a forward contract
to sell or buy the amount of the former foreign currency,
approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. Alternatively,
where appropriate, the Fund may hedge all or part of its foreign
currency exposure through the use of a basket of currencies or a
proxy currency where such currency or currencies act as an
effective proxy for other currencies. In such a case, the Fund
may enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into
separate forward contracts for each currency held in the Fund.
The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible
since the future value of such securities in foreign currencies
PAGE 102
will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered
into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly
uncertain. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the
longer term investment decisions made with regard to overall
diversification strategies. However, Price-Fleming believes that
it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of
the Fund will be served.
The Fund may enter into forward contacts for any other purpose
consistent with the Fund's investment objective and program.
However, the Fund will not enter into a forward contract, or
maintain exposure to any such contract(s), if the amount of
foreign currency required to be delivered thereunder would exceed
the Fund's holdings of liquid, high-grade debt securities and
currency available for cover of the forward contract(s). In
determining the amount to be delivered under a contract, the Fund
may net offsetting positions.
At the maturity of a forward contract, the Fund may sell the
portfolio security and make delivery of the foreign currency, or
it may retain the security and either extend the maturity of the
forward contract (by "rolling" that contract forward) or may
initiate a new forward contract.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as
described below) to the extent that there has been movement in
forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices
decline during the period between the Fund's entering into a
forward contract for the sale of a foreign currency and the date
it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices
increase, the Fund will suffer a loss to the extent of the price
of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange
contracts will generally be limited to the transactions described
PAGE 103
above. However, the Fund reserves the right to enter into
forward foreign currency contracts for different purposes and
under different circumstances. Of course, the Fund is not
required to enter into forward contracts with regard to its
foreign currency-denominated securities and will not do so unless
deemed appropriate by Price-Fleming. It also should be realized
that this method of hedging against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange at a
future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any
potential gain which might result from an increase in the value
of that currency.
Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. It will do so
from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
Federal Tax Treatment of Options, Futures Contracts and Forward
Foreign Exchange Contracts
The Fund may enter into certain option, futures, and forward
foreign exchange contracts, including options and futures on
currencies, which will be treated as Section 1256 contracts or
straddles.
Transactions which are considered Section 1256 contracts will
be considered to have been closed at the end of the Fund's fiscal
year and any gains or losses will be recognized for tax purposes
at that time. Such gains or losses from the normal closing or
settlement of such transactions will be characterized as 60%
long-term capital gain or loss and 40% short-term capital gain or
loss regardless of the holding period of the instrument. The
Fund will be required to distribute net gains on such
transactions to shareholders even though it may not have closed
the transaction and received cash to pay such distributions.
PAGE 104
Options, futures and forward foreign exchange contracts,
including options and futures on currencies, which offset a
foreign dollar denominated bond or currency position may be
considered straddles for tax purposes, in which case a loss on
any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding
period of the securities or currencies comprising the straddle
will be deemed not to begin until the straddle is terminated.
For securities offsetting a purchased put, this adjustment of the
holding period may increase the gain from sales of securities
held less than three months. The holding period of the security
offsetting an "in-the-money qualified covered call" option on an
equity security will not include the period of time the option is
outstanding.
Losses on written covered calls and purchased puts on
securities, excluding certain "qualified covered call" options on
equity securities, may be long-term capital loss, if the security
covering the option was held for more than twelve months prior to
the writing of the option.
In order for the Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
currencies. Pending tax regulations could limit the extent that
net gain realized from option, futures or foreign forward
exchange contracts on currencies is qualifying income for
purposes of the 90% requirement. In addition, gains realized on
the sale or other disposition of securities, including option,
futures or foreign forward exchange contracts on securities or
securities indexes and, in some cases, currencies, held for less
than three months, must be limited to less than 30% of the Fund's
annual gross income. In order to avoid realizing excessive gains
on securities or currencies held less than three months, the Fund
may be required to defer the closing out of option, futures or
foreign forward exchange contracts beyond the time when it would
otherwise be advantageous to do so. It is anticipated that
unrealized gains on Section 1256 option, futures and foreign
forward exchange contracts, which have been open for less than
three months as of the end of the Fund's fiscal year and which
are recognized for tax purposes, will not be considered gains on
securities or currencies held less than three months for purposes
of the 30% test.
PAGE 105
Under certain circumstances, each Fund, with the exception of
International Bond Fund, may commit a substantial portion or the
entire value of its assets to the consummation of these
contracts. Price-Fleming will consider the effect a substantial
commitment of its assets to forward contracts would have on the
investment program of the Fund and the flexibility of the Fund to
purchase additional securities. In regard to International Bond
Fund, Price-Fleming does not intend to enter into such forward
contracts if, as a result, the Fund will have more than 50% of
the value of its total assets committed to the consummation of
such contracts.
When-Issued Securities and Forward Commitment Contracts
The Fund may purchase securities on a "when-issued" or delayed
delivery basis ("When-Issueds") and may purchase securities on a
forward commitment basis ("Forwards"). The Fund may invest
without limitation in When-Issueds and Forwards. The price of
such securities, which may be expressed in yield terms, is fixed
at the time the commitment to purchase is made, but delivery and
payment take place at a later date. Normally, the settlement
date occurs within 90 days of the purchase for When-Issueds, but
may be substantially longer for Forwards. During the period
between purchase and settlement, no payment is made by the Fund
to the issuer and no interest accrues to the Fund. The purchase
of these securities will result in a loss if their value declines
prior to the settlement date. This could occur, for example, if
interest rates increase prior to settlement. The longer the
period between purchase and settlement, the greater the risks
are. At the time the Fund makes the commitment to purchase these
securities, it will record the transaction and reflect the value
of the security in determining its net asset value. The Fund
will cover these securities by maintaining cash and/or liquid,
high-grade debt securities with its custodian bank equal in value
to commitments for them during the time between the purchase and
the settlement. Therefore, the longer this period, the longer
the period during which alternative investment options are not
available to the Fund (to the extent of the securities used for
cover). Such securities either will mature or, if necessary, be
sold on or before the settlement date.
To the extent the Fund remains fully or almost fully invested
(in securities with a remaining maturity of more than one year)
at the same time it purchases these securities, there will be
greater fluctuations in the Fund's net asset value than if the
Fund did not purchase them.
PAGE 106
INVESTMENT RESTRICTIONS
The investment restrictions described below have been adopted
by each Fund. Fundamental policies of each Fund may not be
changed without the approval of the lesser of (1) 67% of a Fund's
shares present at a meeting of shareholders if the holders of
more than 50% of the outstanding shares are present in person or
by proxy or (2) more than 50% of a Fund's outstanding shares.
Other restrictions, in the form of operating policies, are
subject to change by the Funds' Board of Directors without
shareholder approval. Any investment restriction which involves
a maximum percentage of securities or assets shall not be
considered to be violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition of
securities or assets of, or borrowings by, the Fund.
Fundamental Policies
As a matter of fundamental policy, the Fund may not:
(1) Borrowing. Borrow money except that each Fund may (i)
borrow for non-leveraging, temporary or emergency
purposes and (ii) engage in reverse repurchase
agreements and make other investments or engage in other
transactions, which may involve a borrowing, in a manner
consistent with each Fund's investment objective and
program, provided that the combination of (i) and (ii)
shall not exceed 33 1/3% of the value of each 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. Each Fund may borrow from banks, other
Price Funds or other persons to the extent permitted by
applicable law.
(2) Commodities. Purchase or sell physical commodities;
except that it may enter into futures contracts and
options thereon;
(3) Industry Concentration (Global Government Bond and
Short-Term Global Income Funds). Purchase the
securities of any issuer if, as a result, more than 25%
of the value of a Fund's total assets would be invested
in the securities of issuers having their principal
business activities in the same industry;
PAGE 107
Industry Concentration (International Bond Fund).
Purchase the securities of any issuer if, as a result,
more than 25% of the value of a Fund's total assets
would be invested in the securities of issuers having
their principal business activities in the same
industry; provided, however, that the Fund will normally
concentrate 25% or more of its assets in securities of
the banking industry when the Fund's position in issues
maturing in one year or less equals 35% or more of the
Fund's total assets;
(4) Loans. Make loans, although each 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 a 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;
(5) Real Estate. Purchase or sell real estate unless
acquired as a result of ownership of securities or other
instruments (but this shall not prevent a Fund from
investing in securities or other instruments backed by
real estate or securities of companies engaged in the
real estate business;
(6) Senior Securities. Issue senior securities except in
compliance with the Investment Company Act of 1940; or
(7) Underwriting. Underwrite securities issued by other
persons, except to the extent that a 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.
NOTES
The following notes should be read in connection with
the above-described fundamental policies. The notes are
not fundamental policies.
With respect to investment restrictions (1) and (4),
each Fund will not borrow from or lend to any other T.
PAGE 108
Rowe Price Fund unless each Fund applies for and
receives an exemptive order from the SEC or the SEC
issues rules permitting such transactions. Each Fund
has no current intention of engaging in any such
activity and there is no assurance the SEC would grant
any order requested by a Fund or promulgate any rules
allowing the transactions.
With respect to investment restriction (2), the Fund
does not consider currency contracts or hybrid
investments to be commodities.
For purposes of investment restriction (3), U.S., state
or local governments, or related agencies or
instrumentalities, are not considered an industry.
Industries are determined by reference to the
classifications of industries set forth in the Fund's
semi-annual and annual reports.
For purposes of investment restriction (4), 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.
Operating Policies
As a matter of operating policy, the Funds may not:
(1) Borrowing. Each Fund will not purchase additional
securities when money borrowed exceeds 5% of its total
assets.
(2) Control of Portfolio Companies. Invest in companies for
the purpose of exercising management or control;
(3) Futures Contracts. 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 positions would exceed 5% of each Fund's net asset
value.
(4) Illiquid Securities. Purchase illiquid securities and
securities of unseasoned issuers if, as a result, more
than 15% of its net assets would be invested in such
securities;
PAGE 109
(5) Investment Companies. Purchase securities of open-end
or closed-end investment companies except in compliance
with the Investment Company Act of 1940 and applicable
state law. Duplicate fees may result from such
purchases;
(6) Margin. 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;
(7) Mortgaging. Mortgage, pledge, hypothecate or, in any
manner, transfer any security owned by a Fund as
security for indebtedness except as may be necessary in
connection with permissible borrowings or investments
and then such mortgaging, pledging or hypothecating may
not exceed 33 1/3% of a Fund's total assets at the time
of borrowing or investment;
(8) Oil and Gas Programs. Purchase participations or other
direct interests or enter into leases with respect to,
oil, gas, or other mineral exploration or development
programs;
(9) Options, Etc. Invest in puts, calls, straddles,
spreads, or any combination thereof, except to the
extent permitted by the prospectus and Statement of
Additional Information;
(10) Ownership of Portfolio Securities by Officers and
Directors. Purchase or retain the securities of any
issuer if those officers and directors of a 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;
(11) Short Sales. Effect short sales of securities;
(12) Unseasoned Issuers. Purchase a security (other than
obligations issued or guaranteed by the U.S., any state
or local government, or any foreign government, their
agencies or instrumentalities) if, as a result, more
than 5% of the value of each Fund's total assets would
be invested in the securities issuers which at the time
of purchase had been in operation for less than three
PAGE 110
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; or
(13) Warrants. Invest in warrants if, as a result thereof,
more than 2% of the value of the net assets of each Fund
would be invested in warrants which are not listed on
the New York Stock Exchange, the American Stock
Exchange, or a recognized foreign exchange, or more than
5% of the value of the net assets of each Fund would be
invested in warrants whether or not so listed. For
purposes of these percentage limitations, the warrants
will be valued at the lower of cost or market and
warrants acquired by the Funds in units or attached to
securities may be deemed to be without value.
In addition to the restrictions described above, some foreign
countries limit, or prohibit, all direct foreign investment in
the securities of their companies. However, the governments of
some countries have authorized the organization of investment
funds to permit indirect foreign investment in such securities.
For tax purposes these funds may be known as Passive Foreign
Investment Companies. Each Fund is subject to certain percentage
limitations under the 1940 Act and certain states relating to the
purchase of securities of investment companies, and may be
subject to the limitation that no more than 10% of the value of
the Fund's total assets may be invested in such securities.
INVESTMENT PERFORMANCE
Total Return Performance
Each Fund's calculation of total return performance includes
the reinvestment of all capital gain distributions and income
dividends for the period or periods indicated, without regard to
tax consequences to a shareholder in each Fund. Total return is
calculated as the percentage change between the beginning value
of a static account in each Fund and the ending value of that
account measured by the then current net asset value, including
all shares acquired through reinvestment of income and capital
gains dividends. The results shown are historical and should not
be considered indicative of the future performance of each Fund.
Each average annual compound rate of return is derived from the
PAGE 111
cumulative performance of each Fund over the time period
specified. The annual compound rate of return for each Fund over
any other period of time will vary from the average.
International Bond Fund
Cumulative Performance Percentage Change
Since
1 Year 5 Years Inception
Ended Ended 9/10/86-
12/31/93+ 12/31/9312/31/93++
_______ ________ ________
International Bond Fund 20.00% 62.55% 110.82%
International Stock Fund 40.11 76.63 137.57
Fidelity Global Bond Fund 21.88 73.92 N/A
Massachusetts Financial World
Wide Government Trust "A" 18.10 71.85 N/A
Merrill Lynch Retirement Global
Bond Fund "B" 12.39 69.53 128.47
Paine Webber Master Global
Income Fund "B" 13.43 56.68 N/A
J.P. Morgan Non-U.S. Dollar Gov't.
Bond Index 14.53 52.04 N/A
Salomon Brothers Non-U.S. Dollar
World Gov't. Bond Index 15.12 56.09 122.15*
Lipper General World Income
Funds Avg. 17.03 64.86 102.91
*Since 9/30/86
PAGE 112
Average Annual Compound Rates of Return
Since
1 Year 5 Years Inception
Ended Ended 9/10/86-
12/31/93+ 12/31/93 12/31/93++
_______ ________ ________
International Bond Fund 20.00% 10.20% 10.75%
International Stock Fund 40.11 12.05 12.56
Fidelity Global Bond Fund 21.88 11.70 N/A
Massachusetts Financial World
Wide Government Trust "A" 18.10 11.43 N/A
Merrill Lynch Retirement Global
Bond Fund "B" 12.39 11.13 12.06
Paine Webber Master Global
Income Fund "B" 13.43 9.39 N/A
J.P. Morgan Non-U.S. Dollar Gov't.
Bond Index 14.53 8.74 11.19*
Salomon Brothers Non-U.S. Dollar
World Gov't. Bond Index 15.12 9.31 11.63*
Lipper General World Income
Funds Avg. 17.03 10.51 10.24*
+ If you invested $1,000 at the beginning of 1993, the total
return on December 31, 1993 would be $1,200 ($1,000 X .20).
++ Assumes purchase of one share of the International Bond Fund
at the inception price of $10.00 on 9/10/86.
+++ Since September 30, 1986
* Since 9/30/86
Global Government Bond Fund
Cumulative Performance Percentage Change
Since
1 Year Inception
Ended 12/28/90-
12/31/93+ 12/31/93++
_________ __________
Global Government Bond Fund 11.15% 27.48%
International Bond Fund 20.00 44.68
International Stock Fund 40.11 56.71
Fidelity Global Bond Fund 21.88 43.52
Massachusetts Financial World
Wide Government Trust "A" 18.10 35.75
PAGE 113
Merrill Lynch Retirement Global
Bond Fund "B" 12.39 38.79
Paine Webber Master Global
Income Fund "B" 13.43 26.20
J.P. Morgan Global (50%) and Global
Hedged (50%) Gov't. Bond Index 12.59 38.52
J.P. Morgan Global Gov't.
Bond Index 12.27 35.50
J.P. Morgan Global Gov't. Bond
Hedged Index 12.16 35.28
Lipper General World Income
Funds Avg. 17.03 10.90
Average Annual Compound Rates of Return
Since
1 Year Inception
Ended 12/28/90-
12/31/93+ 12/31/93++
_________ __________
Global Government Bond Fund 11.15% 8.51%
International Bond Fund 20.00 13.10
International Stock Fund 40.11 16.15
Fidelity Global Bond Fund 21.88 12.79
Massachusetts Financial World
Wide Government Trust "A" 18.10 10.71
Merrill Lynch Retirement Global
Bond Fund "B" 12.39 11.53
Paine Webber Master Global
Income Fund "B" 13.43 8.06
J.P. Morgan Global (50%) and Global
Hedged (50%) Gov't. Bond Index 12.59 11.46
J.P. Morgan Global Gov't.
Bond Index 12.27 10.65
J.P. Morgan Global Gov't. Bond
Hedged Index 12.16 10.59
Lipper General World Income
Funds Avg. 17.03 10.90
+ If you invested $1,000 at the beginning of 1993, the total
return on December 31, 1993 would be $1,111 ($1,000 X
.111).
++ Assumes purchase of one share of the Global Government Bond
Fund at the inception price of $10.00 on 12/28/90.
PAGE 114
Short-Term Global Income Fund
Cumulative Performance Percentage Change
Since
1 Year Inception
Ended 06/30/92-
12/31/93+ 12/31/93++
_________ __________
Short-Term Global Income Fund 7.87% 7.63%
Alliance Short-Term Multi-Market
Trust "A" 7.79 4.95
Blanchard Short-Term Global
Income Fund 8.53 9.47
Fidelity Short-Term World
Income Fund 12.59 13.09
Scudder Short-Term Global
Income Fund 6.74 8.18
Lipper Short World Multi-Market
Income Funds Average 5.41 1.28
Average Annual Compound Rates of Return
Since
1 Year Inception
Ended 06/30/92-
12/31/93+ 12/31/93++
_________ __________
Short-Term Global Income Fund 7.87% 5.01%
Alliance Short-Term Multi-Market
Trust "A" 7.79 3.26
Blanchard Short-Term Global
Income Fund 8.53 6.20
Fidelity Short-Term World
Income Fund 12.59 8.52
Scudder Short-Term Global
Income Fund 6.74 5.37
Lipper Short World Multi-Market
Income Funds Average 5.41 0.85
+ If you invested $1,000 at the beginning of 1993, the total
return on December 31, 1993 would be $1,079 ($1,000 X
.07870).
++ Assumes purchase of one share of the Short-Term Global
Income Fund at the inception price of $10.00 on 06/30/92.
PAGE 115
Short-Term Global Income, Global Government Bond, and
International Bond Funds
From time to time, in reports and promotional literature, one
or more of the T. Rowe Price funds, including these Funds, may
compare its performance to Overnight Government Repurchase
Agreements, Treasury bills, notes, and bonds, certificates of
deposit, and six-month money market certificates. Performance
may also be compared to (1) indices of broad groups of managed
and unmanaged securities considered to be representative of or
similar to Fund portfolio holdings (2) other mutual funds or (3)
other measures of performance set forth in publications such as:
Advertising News Service, Inc., "Bank Rate Monitor+ - The
Weekly Financial Rate Reporter" is a weekly publication which
lists the yields on various money market instruments offered
to the public by 100 leading banks and thrift institutions in
the U.S., including loan rates offered by these banks. Bank
certificates of deposit differ from mutual funds in several
ways: the interest rate established by the sponsoring bank is
fixed for the term of a CD; there are penalties for early
withdrawal from CDs; and the principal on a CD is insured.
Consumer Price Index - prepared monthly by the Department of
Commerce, this index is based on the price of selected
consumer goods and is widely accepted as an indicator of U.S.
price levels in general.
Donoghue Organization, Inc., "Donoghue's Money Fund Report"
is a weekly publication which tracks net assets, yield,
maturity and portfolio holdings on approximately 380 money
market mutual funds offered in the U.S. These funds are
broken down into various categories such as U.S. Treasury,
Domestic Prime and Euros, Domestic Prime and Euros and
Yankees, and Aggressive.
First Boston High Yield Index shows statistics on the
Composite Index and analytical data on new issues in the
marketplace and low-grade issuers.
International Bond Fund Major Competitors - the average of
the following mutual funds: Massachusetts Financial Global
Bond Fund, Merrill-Lynch Retirement Global Bond Fund,
Prudential-Bache Global Yield Fund, or other similar mutual
funds;
PAGE 116
Lipper Analytical Services, Inc. Average of World Income
Funds - a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives,
and assets.
Lipper Analytical Services, Inc., "Lipper-Fixed Income Fund
Performance Analysis" is a monthly publication which tracks
net assets, total return, principal return and yield on
approximately 950 fixed income mutual funds offered in the
United States.
Merrill Lynch Global Government Bond Indices - provides
detailed compound returns for individual countries and a
market weighted index beginning in 1986. Returns are broken
down into local market and currency components.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond
Indices" is a monthly publication which lists principal,
coupon and total return on over 100 different taxable bond
indices which Merrill Lynch tracks, together with the par
weighted characteristics of each Index. The index used as a
benchmark for the High Yield Fund is the High Yield Index.
The two indices used as benchmarks for the Short-Term Bond
Fund are the 91-Day Treasury Bill Index and the 1-2.99 Year
Treasury Note Index.
Morningstar, Inc. is a widely used independent research firm
which rates mutual funds by overall performance, investment
objectives, and assets.
Reuters Reports. Reuters is a news and information
organization which provides statistics and analytical data on
yields available in various countries.
Salomon Brothers Broad Investment Grade Index - a widely used
index composed of U.S. domestic government, corporate, and
mortgage-backed fixed income securities.
Salomon Brothers Inc. "Bond Market Round-up" is a weekly
publication which tracks the yields and yield spreads on a
large, but select, group of money market instruments, public
corporate debt obligations, and public obligations of the
U.S. Treasury and agencies of the U.S. Government.
Salomon Brothers Inc. "Market Performance" is a monthly
publication which tracks principal return, total return and
PAGE 117
yield on the Salomon Brothers Broad investment - Grade Bond
Index and the components of the Index.
Salomon Brothers World Bond Index and related subindices -
provides detailed compound returns for individual countries
and a market-weighted index beginning in 1978. Returns are
broken down into local market and currency components.
Salomon Brothers World Government Bond Index and related
subindices - provides detailed compound returns for
individual countries and a market weighted index beginning in
1985. Returns are broken down into local market and currency
components.
Shearson Lehman American Express Government/Corporate Bond
Index - a widely used index composed of U.S. domestic
government and corporate fixed income securities.
Shearson Lehman Brothers, Inc. "The Bond Market Report" is a
monthly publication which tracks principal, coupon and total
return on the Shearson Lehman Govt./Corp. Index and Shearson
Lehman Aggregate Bond Index, as well as all the components of
these Indices.
Standard & Poor's "500" Index - a widely recognized index
composed of the capitalization-weighted average of the price
of 500 of the largest publicly traded stocks.
Telerate Systems, Inc., a computer system to which we
subscribe which tracks the daily rates on money market
instruments, public corporate debt obligations and public
obligations of the U.S. Treasury and agencies of the U.S.
Government.
Wall Street Journal, a daily newspaper publication which
lists the yields and current market values on money market
instruments, public corporate debt obligations, public
obligations of the U.S. Treasury and agencies of the U.S.
Government as well as common stocks, preferred stocks,
convertible preferred stocks, options and commodities; in
addition to indices prepared by the research departments of
such financial organizations as Shearson Lehman/American
Express Inc. and Merrill Lynch, Pierce, Fenner and Smith,
Inc., including information provided by the Federal Reserve
Board.
PAGE 118
Indices prepared by the research departments of such financial
organizations as Salomon Brothers, Inc., Merrill Lynch, Pierce,
Fenner & Smith, Inc., Bear Stearns & Co., Inc., and Ibbotson
Associates will be used, as well as information provided by the
Federal Reserve Board.
Performance rankings and ratings reported periodically in
national financial publications such as MONEY, FORBES, BUSINESS
WEEK, and BARRON'S, etc. may also be used.
Benefits of Investing in High-Quality Bond Funds
o Higher Income
Bonds have generally provided a higher income than money
market securities because yields have usually increased with
longer maturities. For instance, the yield on the 30-year
Treasury bond usually exceeds the yield on the 1-year Treasury
bill or 5-year Treasury note. However, securities with longer
maturities fluctuate more in price than those with shorter
maturities. Therefore, the investor must weigh the advantages
of higher yields against the possibility of greater
fluctuation in the principal value of your investment.
o Income Compounding
Investing in bond mutual funds allows investors to benefit
from easy and convenient compounding, because you can
automatically reinvest monthly dividends in additional fund
shares. Each month investors earn interest on a larger number
of shares. Also, reinvesting dividends removes the temptation
to spend the income.
o Broad Diversification
Each share of a mutual fund represents an interest in a
large pool of securities, so even a small investment is
broadly diversified by maturity. Since most bonds trade
efficiently only in very large blocks, mutual funds provide a
degree of diversification that may be difficult for individual
investors to achieve on their own.
o Lower Portfolio Volatility
Investing a portion of one's assets in longer term, high-
quality bonds can help smooth out the fluctuations in your
overall investment results, because bond prices do not
PAGE 119
necessarily move with stock prices. Also, bonds usually have
higher income yields than stocks, thus increasing the total
income component of your portfolio. This strategy should also
add stability to overall results, as income is always a
positive component of total return.
o Liquidity
A bond fund can supplement a money market fund or bank
account as a source of capital for unexpected contingencies.
T. Rowe Price fixed-income funds offer you easy access to
money through free checkwriting and convenient redemption or
exchange features. Of course, the value of a bond fund's
shares redeemed through checkwriting may be worth more or less
than their value at the time of their original purchase.
Suitability
High-quality bond funds are most suitable for the
following objectives: obtaining a higher current income with
minimal credit risk; compounding of income over time; or
diversifying overall investments to reduce volatility.
GOVERNMENT BOND YIELDS+
The Fund can invest in the world's highest yielding
government bonds, wherever they are found.
Chart 1
Global Government Bond Fund
+ Semiannual equivalent yields on 10-year government bonds,
1984 through 1994.
Source: Datastream
IRAs
An IRA is a long-term investment whose objective is to
accumulate personal savings for retirement. Due to the long-term
nature of the investment, even slight differences in performance
will result in significantly different assets at retirement.
Mutual funds, with their diversity of choice, can be used for IRA
investments. Generally, individuals may need to adjust their
PAGE 120
underlying IRA investments as their time to retirement and
tolerance for risk changes.
Other Features and Benefits
Each Fund is a member of the T. Rowe Price Family of Funds and
may help investors achieve various long-term investment goals,
such as investing money for retirement, saving for a down payment
on a home, or paying college costs. To explain how the Fund
could be used to assist investors in planning for these goals and
to illustrate basic principles of investing, various worksheets
and guides prepared by T. Rowe Price Associates, Inc. and/or T.
Rowe Price Investment Services, Inc. may be made available.
These currently include: the Asset Mix Worksheet which is
designed to show shareholders how to reduce their investment risk
by developing a diversified investment plan: the College Planning
Guide which discusses various aspects of financial planning to
meet college expenses and assists parents in projecting the costs
of a college education for their children; the Retirement
Planning Kit (also available in a PC version) which includes a
detailed workbook to determine how much money you may need for
retirement and suggests how you might invest to reach your goal;
and the Retirees Financial Guide which includes a detailed
workbook to determine how much money you can afford to spend and
still preserve your purchasing power and suggest how you might
invest to reach your goal. From time to time, other worksheets
and guides may be made available as well. Of course, an
investment in the Fund cannot guarantee that such goals will be
met.
To assist investors in understanding the different returns and
risk characteristics of various investments, the aforementioned
guides will include presentation of historical returns of various
investments using published indices. An example of this is shown
on the next page.
PAGE 121
Historical Returns for Different Investments
Annualized returns for periods ended 12/31/93
50 years 20 years 10 years 5 years
Small-Company Stocks 15.3% 18.8% 10.0% 13.3%
Large-Company Stocks 12.3 12.8 14.9 14.5
Foreign Stocks N/A 14.4 17.9 2.3
Long-Term Corporate Bonds 5.6 10.2 14.0 13.0
Intermediate-Term U.S.
Gov't. Bonds 5.7 9.8 11.4 11.3
Treasury Bills 4.6 7.5 6.4 5.6
U.S. Inflation 4.3 5.9 3.7 3.9
Sources: Ibbotson Associates, Morgan Stanley. Foreign stocks
reflect performance of The Morgan Stanley Capital International
EAFE Index, which includes some 1,000 companies representing the
stock markets of Europe, Australia, New Zealand, and the Far
East. This chart is for illustrative purposes only and should
not be considered as performance for, or the annualized return
of, any T. Rowe Price Fund. Past performance does not guarantee
future results.
Also included will be various portfolios demonstrating how
these historical indices would have performed in various
combinations over a specified time period in terms of return. An
example of this is shown on the next page.
PAGE 122
Performance of Retirement Portfolios*
Asset Mix Average Annualized Value
Returns 20 Years of
Ended 12/31/93 $10,000
Investment
After Period
________________ ________________ ___________
Nominal Real Best Worst
Portfolio Growth IncomeSafety ReturnReturn**Year Year
I. Low
Risk 40% 40% 20% 11.3% 5.4% 24.9% -9.3% $ 79,775
II. Moderate
Risk 60% 30% 10% 12.1% 6.2% 29.1%-15.6% $ 90,248
III. High
Risk 80% 20% 0% 12.9% 7.0% 33.4%-21.9% $100,031
Source: T. Rowe Price Associates; data supplied by Lehman
Brothers, Wilshire Associates, and Ibbotson Associates.
* Based on actual performance for the 20 years ended 1993 of
stocks (85% Wilshire 5000 and 15% Europe, Australia, Far East
[EAFE] Index), bonds (Lehman Brothers Aggregate Bond Index
from 1976-93 and Lehman Brothers Government/Corporate Bond
Index from 1974-75), and 30-day Treasury bills from January
1974 through December 1993. Past performance does not
guarantee future results. Figures include changes in
principal value and reinvested dividends and assume the same
asset mix is maintained each year. This exhibit is for
illustrative purposes only and is not representative of the
performance of any T. Rowe Price fund.
** Based on inflation rate of 5.9% for the 20-year period ended
12/31/93.
From time to time, Insights, a T. Rowe Price publication of
reports on specific investment topics and strategies, may be
included in the Fund's fulfillment kit. Such reports may include
information concerning: calculating taxable gains and losses on
mutual fund transactions, coping with stock market volatility,
benefiting from dollar cost averaging, understanding
international markets, investing in high-yield "junk" bonds,
growth stock investing, conservative stock investing, value
PAGE 123
investing, investing in small companies, tax-free investing,
fixed income investing, investing in mortgage-backed securities,
as well as other topics and strategies.
YIELD INFORMATION
From time to time, the Funds may advertise a yield figure
calculated in the following manner:
In conformity with regulations of the Securities and Exchange
Commission, an income factor is calculated for each security in
the portfolio, based upon the security's market value at the
beginning of the period and expected yield-to-maturity. The
income factors are then totalled for all securities in the
portfolio. Next, expenses of the Fund for the period, net of
expected reimbursements, are deducted from the income to arrive
at net income, which is then converted to a per-share amount by
dividing net income by the average number of shares outstanding
during the period. The net income per share is divided by the
net asset value on the last day of the period to produce a
monthly yield which is then annualized. Quoted yield factors are
for comparison purposes only, and are not intended to indicate
future performance or forecast the dividend per share of the
Fund.
Global Government Bond Fund
The Fund's yield calculated as set forth above for the month
ended March 31, 1994 was 5.11%.
Short-Term Global Income Fund
The Fund's yield calculated as set forth above for the month
ended March 31, 1994 was 6.64%.
International Bond Fund
The Fund's yield calculated as set forth above for the month
ended March 31, 1994 was 6.93%.
Redemptions in Kind
In the unlikely event a shareholder in any of the
International Funds were to receive an in kind redemption of
portfolio securities of a Fund, brokerage fees could be incurred
by the shareholder in subsequent sale of such securities.
PAGE 124
Issuance of Fund Shares for Securities
Transactions involving issuance of a fund's shares for
securities or assets other than cash will be limited to (1) bona
fide reorganizations; (2) statutory mergers; or (3) other
acquisitions of portfolio securities that: (a) meet the
investment objectives and policies of the Funds; (b) are acquired
for investment and not for resale except in accordance with
applicable law; (c) have a value that is readily ascertainable
via listing on or trading in a recognized United States or
international exchange or market; and (d) are not illiquid.
MANAGEMENT OF FUNDS
The officers and directors of the Funds are listed below.
Unless otherwise noted, the address of each is 100 East Pratt
Street, Baltimore, Maryland 21202. Except as indicated, each has
been an employee of T. Rowe Price for more than five years. In
the list below, the Funds' directors who are considered
"interested persons" of T. Rowe Price or the Fund as defined
under Section 2(a)(19) of the Investment Company Act of 1940 are
noted with an asterisk (*). These directors are referred to as
inside directors by virtue of their officership, directorship,
and/or employment with T. Rowe Price.
*M. DAVID TESTA, Chairman of the Board--Chairman of the Board,
Price-Fleming; Managing Director, T. Rowe Price; Vice President
and Director, T. Rowe Price Trust Company; Chartered Financial
Analyst
*MARTIN G. WADE, President and Director--President, Price-
Fleming; Director, Robert Fleming Holdings Limited; Address: 25
Copthall Avenue, London, EC2R 7DR, England
LEO C. BAILEY, Director--Retired; Address: 3396 South Placita
Fabula, Green Valley, Arizona 85614
ANTHONY W. DEERING, Director--Director, President and Chief
Operating Officer, The Rouse Company, real estate developers,
Columbia, Maryland; Advisory Director, Kleinwort, Benson (North
America) Corporation, a registered broker-dealer; Address: 10275
Little Patuxent Parkway, Columbia, Maryland 21044
DONALD W. DICK, JR., Director--Principal, Overseas Partners,
Inc., a financial investment firm; Director, Waverly Press, Inc.,
Baltimore, Maryland; Address: 375 Park Avenue, Suite 2201, New
York, New York 10152
ADDISON LANIER, Director--Financial management; President and
Director, Thomas Emery's Sons, Inc., and Emery Group, Inc.;
PAGE 125
Director, Scinet Development and Holdings, Inc.; Address: 441
Vine Street, #2310, Cincinnati, Ohio 45202-2913
CHRISTOPHER D. ALDERSON, Vice President--Vice President, Price-
Fleming
PETER B. ASKEW, Vice President--Executive Vice President, Price-
Fleming
RICHARD J. BRUCE, Vice President--Vice President of Price-
Fleming; formerly (1985-1990) Investment Manager, Jardine Fleming
Investment Advisers, Tokyo
ROBERT P. CAMPBELL, Vice President--Vice President, T. Rowe Price
and Rowe Price-Fleming International Inc.; formerly (4/80-5/90)
Vice President and Director, Private Finance, New York Life
Insurance Company, New York, New York
MARK J. T. EDWARDS, Vice President--Vice President, Price-Fleming
JOHN R. FORD, Vice President--Executive Vice President, Price-
Fleming
HENRY H. HOPKINS, Vice President--Vice President, Price-Fleming
and T. Rowe Price Retirement Plan Services, Inc.; Managing
Director, T. Rowe Price; Vice President and Director, T. Rowe
Price Investment Services, Inc., T. Rowe Price Services, Inc. and
T. Rowe Price Trust Company
ROBERT C. HOWE, Vice President--Vice President, Price-Fleming and
T. Rowe Price
STEPHEN ILOTT, Vice President--Employee, Price-Fleming; formerly
(1988-1991) portfolio management, Fixed Income Portfolios Group,
Robert Fleming Holdings Limited, London
GEORGE A. MURNAGHAN, Vice President--Vice President, Price-
Fleming, T. Rowe Price, T. Rowe Price Trust Company, and T. Rowe
Price Investment Services, Inc.
JAMES S. RIEPE, Vice President--Managing Director, T. Rowe Price;
Chairman of the Board, T. Rowe Price Services, Inc., T. Rowe
Price Retirement Plan Services, Inc. and T. Rowe Price Trust
Company; President and Director, T. Rowe Price Investment
Services, Inc.; Director, Rhone-Poulenc Rorer, Inc.
CHRISTOPHER ROTHERY, Vice President--Vice President,
Price-Fleming; formerly (1987-1989) employee of Robert Fleming
Holdings Limited, London
JAMES B. M. SEDDON, Vice President--Vice President, Price-Fleming
CHARLES P. SMITH, Vice President--Managing Director, T. Rowe
Price; Vice President, Rowe Price-Fleming International, Inc.
BENEDICT R. F. THOMAS, Vice President--Vice President, Price-
Fleming
PETER VAN DYKE, Vice President--Managing Director, T. Rowe Price;
Vice President, Rowe Price-Fleming International, Inc.
DAVID J. L. WARREN, Vice President--Executive Vice President,
Price-Fleming
PAGE 126
WILLIAM F. WENDLER, II, Vice President--Vice President, Price-
Fleming, T. Rowe Price and T. Rowe Price Investment Services,
Inc.
EDWARD A. WIESE, Vice President--Vice President, T. Rowe Price,
Rowe Price-Fleming International, Inc. and T. Rowe Price Trust
Company
LENORA V. HORNUNG, Secretary--Vice President, T. Rowe Price
CARMEN F. DEYESU, Treasurer--Vice President, T. Rowe Price, T.
Rowe Price Services, Inc., and T. Rowe Price Trust Company
DAVID S. MIDDLETON, Controller--Vice President, T. Rowe Price, T.
Rowe Price Services, Inc., and T. Rowe Price Trust Company
ANN B. CRANMER, Assistant Vice President--Vice President, Price-
Fleming
ROGER L. FIERY, III, Assistant Vice President--Vice President,
Price-Fleming and T. Rowe Price
LEAH P. HOLMES, Assistant Vice President--Vice President, Price-
Fleming and Assistant Vice President, T. Rowe Price
EDWARD T. SCHNEIDER, Assistant Vice President--Assistant Vice
President, T. Rowe Price and Vice President, T. Rowe Price
Services, Inc.
INGRID I. VORDEMBERGE, Assistant Vice President--Employee, T.
Rowe Price
The Funds' Executive Committee, comprised of Messrs. Testa and
Wade, has been authorized by the Board of Directors to exercise
all of the powers of the Board to manage the Funds in the
intervals between meetings of the Board, except the powers
prohibited by statute from being delegated.
PRINCIPAL HOLDERS OF SECURITIES
As of the date of the prospectus, the officers and directors
of the Funds, as a group, owned less than 1% of the outstanding
shares of each Fund.
As of December 31, 1993, the following shareholders
beneficially owned more than 5% of the outstanding shares of the
Short-Term Global Income Fund: The Challenge Fund, 11 Magnolia
Parkway, Chevy Chase, Maryland 20815-4206; and the International
Bond Fund: Charles Scwab & Co. Inc., Reinvest Account, Attn.:
Mutual Fund Dept., 101 West Montgomery Street, San Francisco,
California 94104-4122; and Yachtcrew & Co., FDO Spectrum Income
Fund Account, Attn.: Mark White, State Street Bank and Trust Co.,
1776 Heritage Drive - 4W, North Quincy, Massachusetts 02171-2101.
PAGE 127
INVESTMENT MANAGEMENT SERVICES
Services
Under the Management Agreement, Price-Fleming provides each
Fund with discretionary investment services. Specifically,
Price-Fleming is responsible for supervising and directing the
investments of each Fund in accordance with the Fund's investment
objective, program, and restrictions as provided in its
prospectus and this Statement of Additional Information. Price-
Fleming is also responsible for effecting all security
transactions on behalf of each Fund, including the negotiation of
commissions and the allocation of principal business and
portfolio brokerage. In addition to these services, Price-
Fleming provides the Funds with certain corporate administrative
services, including: maintaining the Funds' corporate existence,
corporate records, and registering and qualifying Fund shares
under federal and state laws; monitoring the financial,
accounting, and administrative functions of each Fund;
maintaining liaison with the agents employed by each Fund such as
the Fund's custodian and transfer agent; assisting each Fund in
the coordination of such agents' activities; and permitting
Price-Fleming's employees to serve as officers, directors, and
committee members of each Fund without cost to the Fund.
The Management Agreement also provides that Price-Fleming, its
directors, officers, employees, and certain other persons
performing specific functions for each Fund will only be liable
to the Fund for losses resulting from willful misfeasance, bad
faith, gross negligence, or reckless disregard of duty.
Under the Management Agreement, Price-Fleming is permitted to
utilize the services or facilities of others to provide it or the
Funds with statistical and other factual information, advice
regarding economic factors and trends, advice as to occasional
transactions in specific securities, and such other information,
advice or assistance as Price-Fleming may deem necessary,
appropriate, or convenient for the discharge of its obligations
under the Management Agreement or otherwise helpful to the Funds.
Certain administrative support is provided by T. Rowe Price
which receives from Price-Fleming a fee of .15% of the market
value of all assets in equity accounts, .15% of the market value
of all assets in active fixed income accounts and .035% of the
market value of all assets in passive fixed income accounts under
Price-Fleming's management.
PAGE 128
Price-Fleming has entered into separate letters of agreement
with Fleming Investment Management Limited ("FIM") and Jardine
Fleming Investment Holdings Limited ("JFIH"), wherein FIM and
JFIH have agreed to render investment research and administrative
support to Price-Fleming. FIM is a wholly-owned subsidiary of
Robert Fleming Asset Management Limited which is a wholly-owned
subsidiary of Robert Fleming Holdings Limited ("Robert Fleming
Holdings"). JFIH is an indirect wholly-owned subsidiary of
Jardine Fleming Group Limited. Under the letters of agreement,
these companies will provide Price-Fleming with research material
containing statistical and other factual information, advice
regarding economic factors and trends, advice on the allocation
of investments among countries and as between debt and equity
classes of securities, and research and occasional advice with
respect to specific companies. For these services, FIM and JFIH
each receives a fee of .075% of the market value of all assets in
equity accounts under Price-Fleming's management. JFIH receives
a fee of .075% of the market value of all assets in active fixed
income accounts and .0175% of such market value in passive fixed
income accounts under Price-Fleming's management.
Robert Fleming personnel have extensive research resources
throughout the world. A strong emphasis is placed on direct
contact with companies in the research universe. Robert Fleming
personnel, who frequently speak the local language, have access
to the full range of research products available in the market
place and are encouraged to produce independent work dedicated
solely to portfolio investment management, which adds value to
that generally available.
Management Fee
Each Fund pays Price-Fleming a fee ("Fee") which consists of
two components: a Group Management Fee ("Group Fee") and an
Individual Fund Fee ("Fund Fee"). The Fee is paid monthly to
Price-Fleming on the first business day of the next succeeding
calendar month and is calculated as described below.
The monthly Group Fee ("Monthly Group Fee") is the sum of the
daily Group Fee accruals ("Daily Group Fee Accruals") for each
month. The Daily Group Fee Accrual for any particular day is
computed by multiplying the Price Funds' group fee accrual as
determined below ("Daily Price Funds' Group Fee Accrual") by the
ratio of each Fund's net assets for that day to the sum of the
aggregate net assets of the Price Funds for that day. The Daily
Price Funds' Group Fee Accrual for any particular day is
calculated by multiplying the fraction of one (1) over the number
PAGE 129
of calendar days in the year by the annualized Daily Price Funds'
Group Fee Accrual for that day as determined in accordance with
the following schedule:
Price Funds'
Annual Group Base Fee
Rate for Each Level of Assets
_________________________________
0.480% First $1 billion
0.450% Next $1 billion
0.420% Next $1 billion
0.390% Next $1 billion
0.370% Next $1 billion
0.360% Next $2 billion
0.350% Next $2 billion
0.340% Next $5 billion
0.330% Next $10 billion
0.320% Next $10 billion
0.310% Thereafter
For the purpose of calculating the Group Fee, the Price Funds
include all the mutual funds distributed by T. Rowe Price
Investment Services, Inc. (excluding T. Rowe Price Spectrum Fund,
Inc. and any institutional or private label mutual funds). For
the purpose of calculating the Daily Price Funds' Group Fee
Accrual for any particular day, the net assets of each Price Fund
are determined in accordance with the Funds' prospectus as of the
close of business on the previous business day on which the Fund
was open for business.
The monthly Fund Fee ("Monthly Fund Fee") is the sum of the
daily Fund Fee accruals ("Daily Fund Fee Accruals") for each
month. The Daily Fund Fee Accrual for any particular day is
computed by multiplying the fraction of one (1) over the number
of calendar days in the year by the Fund Fee Rate of 0.25% for
the Short-Term Global Income Fund and 0.35% each for the Global
Government Bond and International Bond Funds, and multiplying
this product by the net assets of the Fund for that day, as
determined in accordance with the Funds' prospectus as of the
close of business on the previous business day on which the Fund
was open for business.
The Short-Term Global Income Fund paid management fees for the
year 1993, $341,000 and did not pay any management fees to Price-
Fleming for the fiscal year ended 1992, Global Government Bond
Fund paid management fees for the years 1993, and 1992, $269,000,
PAGE 130
$253,000 and did not pay any management fees to Price-Fleming for
the fiscal year ended 1991. The management fees paid by the
International Bond Fund for the years 1993, 1992, and 1991, were
$4,363,000, $3,567,000, and $2,502,000, respectively.
Limitation on Fund Expenses
The Management Agreement between each Fund and Price-Fleming
provides that each Fund will bear all expenses of its operations
not specifically assumed by Price-Fleming. However, in
compliance with certain state regulations, Price-Fleming will
reimburse each Fund for certain expenses which in any year exceed
the limits prescribed by any state in which the Fund's 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 a Fund's average daily net assets, 2% of the next $70
million of the average daily net 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 each
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.
Emerging Markets Bond Fund
In the interest of limiting the expenses of the Fund during
its initial period of operations, Price-Fleming agreed to bear
any expenses through December ___, 1996, which would cause the
Fund's ratio of expenses to average net assets to exceed ____%.
Expenses paid or assumed under this agreement are subject to
reimbursement to Price-Fleming by the Fund whenever the Fund's
expense ratio is below ____%; however no reimbursement will be
made to Price-Fleming after December 31, 1998, or if it would
result in the expense ratio exceeding ____%. The Management
Agreement also provides that one or more additional expense
limitation periods (of the same or different levels and time
periods) may be implemented after the expiration of the current
one on December 31, 1996, and that with respect to any such
additional limitation period, the Fund may reimburse Price-
Fleming, provided the reimbursement does not result in the Fund's
aggregate expenses exceeding the additional expense
limitation.
Short-Term Global Income Fund
In the interest of limiting the expenses of the Fund during
its initial period of operations, Price-Fleming agreed to bear
PAGE 131
any expenses through December 31, 1993, which would cause the
Fund's ratio of expenses to average net assets to exceed 1.00%.
Expenses paid or assumed under this agreement are subject to
reimbursement to Price-Fleming by the Fund whenever the Fund's
expense ratio is below 1.00%; however no reimbursement will be
made to Price-Fleming after December 31, 1995, or if it would
result in the expense ratio exceeding 1.00%. The Management
Agreement also provides that one or more additional expense
limitation periods (of the same or different levels and time
periods) may be implemented after the expiration of the current
one on December 31, 1993, and that with respect to any such
additional limitation period, the Fund may reimburse Price-
Fleming, provided the reimbursement does not result in the Fund's
aggregate expenses exceeding the additional expense limitation.
Pursuant to this agreement, $149,000 of management fees were not
accrued by the Fund for the period ended December 31, 1992, and
$37,000 of other expenses were borne by Price-Fleming.
Pursuant to the Fund's expense limitations, management fees
aggregating $109,000, were not accrued for the year ended
December 31, 1993. In addition, pursuant to past expense
limitations, $186,000 of unaccrued fees and other expenses are
subject to reimbursement through December 31, 1995.
Global Government Bond Fund
In the interest of limiting the expenses of the Fund during
its initial period of operations, Price-Fleming agreed to bear
any expenses through December 31, 1992, which would cause the
Fund's ratio of expenses to average net assets to exceed 1.20%.
Effective January 1, 1993 Price-Fleming agreed to extend the
Fund's existing expense limitation of 1.20% for a period of two
years through December 31, 1994. The Management Agreement also
provides that one or more additional expense limitation periods
(of the same or different time periods) may be implemented after
the expiration of the current one on December 31, 1992, and that
with respect to any such additional limitation period, the Fund
may reimburse Price-Fleming, provided the reimbursement does not
result in the Fund's aggregate expenses exceeding the additional
expense limitation or any applicable state expense limitation.
Expenses paid or assumed under each agreement are subject to
reimbursement to Price-Fleming by the Fund whenever the Fund's
expense ratio is below 1.20%; however, no reimbursement will be
made after December 31, 1994 (for the initial agreement) or
December 31, 1996 (for the second agreement), or if it would
result in the expense ratio exceeding 1.50%.
PAGE 132
Pursuant to the Fund's expense limitations, management fees
aggregating $98,000, were not accrued for the year ended December
31, 1993. In addition, pursuant to past expense limitations,
$388,000 of unaccrued fees and other expenses are subject to
reimbursement through December 31, 1995.
International Bond Fund
The Fund is a party to a Special Servicing Agreement
("Agreement") between and among T. Rowe Price Spectrum Fund, Inc.
("Spectrum Fund"), T. Rowe Price, T. Rowe Price Services, Inc.
and various other T. Rowe Price funds which, along with the
Funds, are funds in which Spectrum Fund invests (collectively all
such funds "Underlying Price Funds").
The Agreement provides that, if the Board of
Directors/Trustees of any Underlying Price Fund determines that
such Underlying Fund's share of the aggregate expenses of
Spectrum Fund is less than the estimated savings to the
Underlying Price Fund from the operation of Spectrum Fund, the
Underlying Price Fund will bear those expenses in proportion to
the average daily value of its shares owned by Spectrum Fund,
provided further that no Underlying Price Fund will bear such
expenses in excess of the estimated savings to it. Such savings
are expected to result primarily from the elimination of numerous
separate shareholder accounts which are or would have been
invested directly in the Underlying Price Funds and the resulting
reduction in shareholder servicing costs. Although such cost
savings are not certain, the estimated savings to the Underlying
Price Funds generated by the operation of Spectrum Fund are
expected to be sufficient to offset most, if not all, of the
expenses incurred by Spectrum Fund.
DISTRIBUTOR FOR FUNDS
T. Rowe Price Investment Services, Inc. ("Investment
Services"), a Maryland corporation formed in 1980 as a wholly-
owned subsidiary of T. Rowe Price, serves as the Funds'
distributor. Investment Services is registered as a broker-
dealer under the Securities Exchange Act of 1934 and is a member
of the National Association of Securities Dealers, Inc. The
offering of each Fund's shares is continuous.
Investment Services is located at the same address as the
Funds and T. Rowe Price -- 100 East Pratt Street, Baltimore,
Maryland 21202.
PAGE 133
Investment Services serves as distributor to the Funds
pursuant to an Underwriting Agreement ("Underwriting Agreement"),
which provides that each Fund will pay all fees and expenses in
connection with: registering and qualifying its shares under the
various state "blue sky" laws; preparing, setting in type,
printing, and mailing its prospectuses and reports to
shareholders; and issuing its shares, including expenses of
confirming purchase orders.
The Underwriting Agreement provides that Investment Services
will pay all fees and expenses in connection with: printing and
distributing prospectuses and reports for use in offering and
selling Fund shares; preparing, setting in type, printing, and
mailing all sales literature and advertising; Investment
Services' federal and state registrations as a broker-dealer; and
offering and selling Fund shares, except for those fees and
expenses specifically assumed by each Fund. Investment Services'
expenses are paid by T. Rowe Price.
Investment Services acts as the agent of each Fund in
connection with the sale of its shares in all states in which the
shares are qualified and in which Investment Services is
qualified as a broker-dealer. Under the Underwriting Agreement,
Investment Services accepts orders for Fund shares at net asset
value. No sales charges are paid by investors or the Funds.
CUSTODIAN
State Street Bank and Trust Company (the "Bank") is the
custodian for the Funds' U.S. securities and cash, but it does
not participate in the Funds' investment decisions. Portfolio
securities purchased in the U.S. are maintained in the custody of
the Bank and may be entered into the Federal Reserve Book Entry
System, or the security depository system of the Depository Trust
Corporation. The Funds have entered into a Custodian Agreement
with The Chase Manhattan Bank, N.A., London, pursuant to which
portfolio securities which are purchased outside the United
States are maintained in the custody of various foreign branches
of The Chase Manhattan Bank and such other custodians, including
foreign banks and foreign securities depositories in accordance
with regulations under the Investment Company Act of 1940. The
Bank's main office is at 225 Franklin Street, Boston,
Massachusetts 02110. The address for The Chase Manhattan Bank,
N.A., London is Woolgate House, Coleman Street, London, EC2P 2HD,
England.
PAGE 134
PORTFOLIO TRANSACTIONS
Investment or Brokerage Discretion
Decisions with respect to the purchase and sale of portfolio
securities on behalf of the Fund are made by Price-Fleming.
Price-Fleming 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 fixed-income 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 Fund. However, it is included because Price-Fleming 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
Equity Securities
In purchasing and selling each Fund's portfolio securities, it
is Price-Fleming's policy to obtain quality execution at the most
favorable prices through responsible broker-dealers and, in the
case of agency transactions, at competitive commission rates
where such rates are negotiable. However, under certain
conditions, a Fund may pay higher brokerage commissions in return
for brokerage and research services. In selecting broker-dealers
to execute a 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,
their expertise in particular markets and the brokerage and
research services they provide to Price-Fleming or the Funds. It
is not the policy of Price-Fleming 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.
Transactions on stock exchanges involve the payment of
brokerage commissions. In transactions on stock exchanges in the
PAGE 135
United States, these commissions are negotiated. Traditionally,
commission rates have generally not been negotiated on stock
markets outside the United States. In recent years, however, an
increasing number of overseas stock markets have adopted a system
of negotiated rates, although a number of markets continue to be
subject to an established schedule of minimum commission rates.
It is expected that equity securities will ordinarily be
purchased in the primary markets, whether over-the-counter or
listed, and that listed securities may be purchased in the
over-the-counter market if such market is deemed the primary
market. In the case of securities traded on the over-the-counter
markets, there is generally no stated commission, but the price
usually includes an undisclosed commission or markup. In
underwritten offerings, the price includes a disclosed, fixed
commission or discount.
Fixed Income Securities
For fixed income securities, it is expected that purchases and
sales will ordinarily be transacted with the issuer, the issuer's
underwriter, or with a primary market maker acting as principal
on a net basis, with no brokerage commission being paid by the
Fund. However, the price of the securities generally includes
compensation which is not disclosed separately. Transactions
placed though dealers who are serving as primary market makers
reflect the spread between the bid and asked prices.
With respect to equity and fixed income securities, Price-
Fleming may effect principal transactions on behalf of the Funds
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 prices the Fund pays to
underwriters of newly-issued securities usually include a
concession paid by the issuer to the underwriter. Price-Fleming
may receive research services in connection with brokerage
transactions, including designations in fixed price offerings.
Price-Fleming may cause a Fund to pay a broker-dealer who
furnishes brokerage and/or research services a commission for
executing a transaction that is in excess of the commission
another broker-dealer would have received for executing the
transaction if it is determined that such commission is
reasonable in relation to the value of the brokerage and/or
research services which have been provided. In some cases,
PAGE 136
research services are generated by third parties but are provided
to Price-Fleming by or through broker-dealers.
Descriptions of Research Services Received from Brokers and
Dealers
Price-Fleming receives a wide range of research services from
brokers and dealers covering investment opportunities throughout
the world, including information on the economies, industries,
groups of securities, individual companies, statistics, political
developments, technical market action, pricing and appraisal
services, and performance analyses of all the countries in which
a Fund's portfolio is likely to be invested. Price-Fleming
cannot readily determine the extent to which commissions charged
by brokers reflect the value of their research services, but
brokers occasionally suggest a level of business they would like
to receive in return for the brokerage and research services they
provide. To the extent that research services of value are
provided by brokers, Price-Fleming may be relieved of expenses
which it might otherwise bear. In some cases, research services
are generated by third parties but are provided to Price-Fleming
by or through brokers.
Commissions to Brokers who Furnish Research Services
Certain broker-dealers which provide quality execution
services also furnish research services to Price-Fleming. Price-
Fleming 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 its clients to pay a
broker which furnishes brokerage or research services a higher
commission than that which might be charged by another broker
which does not furnish brokerage or research services, or which
furnishes brokerage or research services deemed to be of lesser
value, if such commission is deemed reasonable in relation to the
brokerage and research services provided by the broker, viewed in
terms of either that particular transaction or the overall
responsibilities of the adviser with respect to the accounts as
to which it exercises investment discretion. Accordingly, Price-
Fleming may assess the reasonableness of commissions in light of
the total brokerage and research services provided by each
particular broker.
Miscellaneous
Research services furnished by brokers through which Price-
Fleming effects securities transactions may be used in servicing
PAGE 137
all accounts managed by Price-Fleming, Conversely, research
services received from brokers which execute transactions for a
particular Fund will not necessarily be used by Price-Fleming
exclusively in connection with the management of that Fund.
Some of Price-Fleming's other clients have investment
objectives and programs similar to those of the Funds. Price-
Fleming may occasionally make recommendations to other clients
which result in their purchasing or selling securities
simultaneously with the Funds. 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 Price-Fleming's policy not to favor
one client over another in making recommendations or in placing
orders. Price-Fleming frequently follows the practice of
grouping orders of various clients for execution which generally
results in lower commission rates being attained. In certain
cases, where the aggregate order is executed in a series of
transactions at various prices on a given day, each participating
client's proportionate share of such order reflects the average
price paid or received with respect to the total order. Price-
Fleming 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.
None of the Funds allocates 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.
Transactions with Related Brokers and Dealers
As provided in the Investment Management Agreement between
each Fund and Price-Fleming, Price-Fleming is responsible not
only for making decisions with respect to the purchase and sale
of the Fund's portfolio securities, but also for implementing
these decisions, including the negotiation of commissions and the
allocation of portfolio brokerage and principal business. It is
expected that Price-Fleming will often place orders for a Fund's
portfolio transactions with broker-dealers through the trading
desks of certain affiliates of Robert Fleming Holdings Limited
("Robert Fleming"), an affiliate of Price-Fleming. Robert
Fleming, through Copthall Overseas Limited, a wholly-owned
subsidiary, owns 25% of the common stock of Price-Fleming. Fifty
PAGE 138
percent of the common stock of Price-Fleming is owned by TRP
Finance, Inc., a wholly-owned subsidiary of T. Rowe Price, and
the remaining 25% is owned by Jardine Fleming Holdings Limited, a
subsidiary of Jardine Fleming Group Limited ("JFG"). JFG is 50%
owned by Robert Fleming and 50% owned by Jardine Matheson
Holdings Limited. The affiliates through whose trading desks
such orders may be placed include Fleming Investment Management
Limited ("FIM"), and Robert Fleming & Co. Limited ("RF&Co.").
FIM and RF&Co. are wholly-owned subsidiaries of Robert Fleming.
These trading desks will operate under strict instructions from
the Fund's portfolio manager with respect to the terms of such
transactions. Neither Robert Fleming, JFG, nor their affiliates
will receive any commission, fee, or other remuneration for the
use of their trading desks, although orders for a Fund's
portfolio transactions may be placed with affiliates of Robert
Fleming and JFG who may receive a commission.
The Board of Directors of the Funds has authorized Price-
Fleming to utilize certain affiliates of Robert Fleming and JFG
in the capacity of broker in connection with the execution of
each Fund's portfolio transactions, provided that Price-Fleming
believes that doing so will result in an economic advantage (in
the form of lower execution costs or otherwise) being obtained
for each Fund. These affiliates include Jardine Fleming
Securities Limited ("JFS"), a wholly-owned subsidiary of JFG,
RF&Co., Jardine Fleming Australia Securities Limited, and Robert
Fleming, Inc. (a New York brokerage firm).
The above-referenced authorization was made in accordance with
Section 17(e) of the Investment Company Act of 1940 (the "1940
Act") and Rule 17e-1 thereunder which require the Funds'
independent directors to approve the procedures under which
brokerage allocation to affiliates is to be made and to monitor
such allocations on a continuing basis. Except with respect to
tender offers, it is not expected that any portion of the
commissions, fees, brokerage, or similar payments received by the
affiliates of Robert Fleming in such transactions will be
recaptured by the Funds. The directors have reviewed and from
time to time may continue to review whether other recapture
opportunities are legally permissible and available and, if they
appear to be, determine whether it would be advisable for a Fund
to seek to take advantage of them.
Other
For the fiscal years ended December 31, 1993, December 31,
1992 and December 31, 1991, the Global Government Bond Fund
PAGE 139
engaged in portfolio transactions involving broker-dealers
totaling $144,423,000, $129,060,000 and $174,169,000,
respectively. The entire amounts for each year represented
principal transactions as to which the Global Government Bond
Fund has no knowledge of the profits or losses realized by the
respective broker-dealers. For the fiscal years ended December
31, 1993, December 31, 1992 and December 31, 1991, approximately
0%, 0% and 30%, respectively, were placed with firms which
provided research, statistical, or other services to Price-
Fleming in connection with the management of the Global
Government Bond Fund or, in some cases, to the Global Government
Bond Fund.
For the fiscal year ended December 31, 1993 and fiscal period
ended December 31, 1992, the Short-Term Global Income Fund
engaged in portfolio transactions involving broker-dealers
totaling $4,780,555,000 and $582,425,000, respectively. The
entire amount for the period represented principal transactions
as to which the Short-Term Global Income Fund had no knowledge of
the profits or losses realized by the respective dealers. Of
these portfolio transactions, approximately 0%, was paid to firms
which provided research, statistical, or other services to Price-
Fleming in connection with the management of the Short-Term
Global Income Fund or, in some cases, to the Short-Term Global
Income Fund.
For the fiscal years ended December 31, 1993, December 31,
1992 and December 31, 1991, the International Bond Fund engaged
in portfolio transactions involving broker-dealers totaling
$157,373,000, $6,813,188,000 and $5,874,607,000, respectively.
The entire amounts for each year represented principal
transactions as to which the International Bond Fund has no
knowledge of the profits or losses realized by the respective
broker-dealers. Of all such portfolio transactions, 0%, 0% and
33%, respectively, were placed with firms which provided
research, statistical, or other services to Price-Fleming in
connection with the management of the International Bond Fund or,
in some cases, to the International Bond Fund.
PRICING OF SECURITIES
Fixed income securities are generally traded in the over-the-
counter market and are valued at a price deemed best to reflect a
fair value as quoted by dealers who make markets in these
securities or by an independent pricing service.
PAGE 140
For purposes of determining each Fund's net asset value per
share, all assets and liabilities initially expressed in foreign
currencies are converted into U.S. dollars at the mean of the bid
and offer prices of such currencies against U.S. dollars quoted
by any major bank. If such quotations are not available, the
rate of exchange will be determined in accordance with policies
established in good faith by the Board of Directors.
Securities or other assets for which the above valuation
procedures are deemed not to reflect fair value will be appraised
at prices deemed best to reflect their fair value. Such
determinations will be made in good faith by or under the
supervision of the officers of the Fund, as authorized by the
Board of Directors.
Trading in the portfolio securities of each Fund may take
place in various foreign markets on certain days (such as
Saturday) when the Funds are not open for business and do not
calculate their net asset values. In addition, trading in a
Fund's portfolio securities may not occur on days when the Fund
is open. The calculation of each Fund's net asset value normally
will not take place contemporaneously with the determination of
the value of the Fund's portfolio securities. Events affecting
the values of portfolio securities that occur between the time
their prices are determined and the time each Fund's net asset
value is calculated will not be reflected in the Fund's net asset
value unless Price-Fleming, under the supervision of the Fund's
Board of Directors, determines that the particular event should
be taken into account in computing the Fund's net asset value.
NET ASSET VALUE PER SHARE
The purchase and redemption price of each Fund's shares is
equal to that Fund's net asset value per share or share price.
Each Fund determines its net asset value per share by subtracting
its liabilities (including accrued expenses and dividends
payable) from its total assets (the market value of the
securities the Fund holds plus cash and other assets, including
income accrued but not yet received) and dividing the result by
the total number of shares outstanding. The net asset value per
share of each Fund is calculated as of the close of trading on
the New York Stock Exchange ("NYSE") every day the NYSE is open
for trading. The NYSE is closed on the following days: New
Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
PAGE 141
Determination of net asset value (and the offering, sale,
redemption and repurchase of shares) for a Fund may be suspended
at times (a) during which the NYSE is closed, other than
customary weekend and holiday closings, (b) during which trading
on any of such Exchanges is restricted (c) during which an
emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or (d) during which a governmental body having
jurisdiction over the Fund may by order permit such a suspension
for the protection of the Fund's shareholders; provided that
applicable rules and regulations of the Securities and Exchange
Commission (or any succeeding governmental authority) shall
govern as to whether the conditions prescribed in (b), (c) or (d)
exist.
DIVIDENDS
Unless you elect otherwise, the Fund's annual capital gain
distributions, if any, will be reinvested on the reinvestment
date using the NAV per share of that date. The reinvestment date
normally precedes the payment date by about 10 days although the
exact timing is subject to change.
TAX STATUS
Each Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986,
as amended ("Code").
Dividends and distributions paid by the Funds are not eligible
for the dividends-received deduction for corporate shareholders,
if as expected, none of the Fund's income consists of dividends
paid by United States corporations. Capital gain distributions
paid from these Funds are never eligible for this deduction. For
tax purposes, it does not make any difference whether dividends
and capital gain distributions are paid in cash or in additional
shares. Each Fund must declare dividends equal to at least 98%
of ordinary income (as of December 31) and capital gains (as of
October 31) in order to avoid a federal excise tax and distribute
100% of ordinary income and capital gains as of December 31 to
avoid federal income tax.
Foreign currency gains and losses, including the portion of
gain or loss on the sale of debt securities attributable to
PAGE 142
foreign exchange rate fluctuations are taxable as ordinary
income. If the net effect of these transactions is a gain, the
dividend paid by the fund will be increased; if the result is a
loss, for the Funds, a portion of the income dividends paid could
be classified as a return of capital. Adjustments, to reflect
these gains and losses will be made at the end of each Fund's
taxable year.
At the time of your purchase, each Bond Fund's net asset value
may reflect undistributed capital gains or net unrealized
appreciation of securities held by the Fund. A subsequent
distribution to you of such amounts, although constituting a
return of your investment, would be taxable either as dividends
or capital gain distributions. For federal income tax purposes,
each Fund is permitted to carry forward its net realized capital
losses, if any, for eight years, and realize net capital gains up
to the amount of such losses without being required to pay taxes
on, or distribute such gains. On March 31, 1994, the books of
each Fund indicated that each Fund's aggregate net assets
included undistributed net income, net realized capital gains or
losses, and unrealized appreciation or depreciation which are
listed below.
Net Realized Unrealized
Fund Capital Losses Depreciation
Short-Term Global
Income $ 3,324,000 $ 2,554,000
Global Government Bond 781,000 721,000
International Bond 10,099,000 15,121,000
Income received by each Fund from sources within various
foreign countries may be subject to foreign income taxes withheld
at the source. Under the Code, if more than 50% of the value of
a Fund's total assets at the close of its taxable year comprise
securities issued by foreign corporations, the Fund may file an
election with the Internal Revenue Service to "pass through" to
the Fund's shareholders the amount of any foreign income taxes
paid by the Fund. Pursuant to this election, shareholders will
be required to: (i) include in gross income, even though not
actually received, their respective pro rata share of foreign
taxes paid by the Fund; (ii) treat their pro rata share of
foreign taxes as paid by them; and (iii) either deduct their pro
rata share of foreign taxes in computing their taxable income, or
use it as a foreign tax credit against U.S. income taxes (but not
both). No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions.
PAGE 143
Each Fund intends to meet the requirements of the Code to
"pass through" to its shareholders foreign income taxes paid, but
there can be no assurance that a Fund will be able to do so.
Each shareholder will be notified within 60 days after the close
of each taxable year of a Fund, that Fund will "pass through"
foreign taxes paid for that year, and, if so, the amount of each
shareholder's pro rata share (by country) of (i) the foreign
taxes paid, and (ii) the Fund's gross income from foreign
sources. Of course, shareholders who are not liable for federal
income taxes, such as retirement plans qualified under Section
401 of the Code, will not be affected by any such "pass through"
of foreign tax credits.
If, in any taxable year, a Fund should not qualify as a
regulated investment company under the Code: (i) the Fund would
be taxed at normal corporate rates on the entire amount of its
taxable income without deduction for dividends or other
distributions to shareholders; (ii) the Fund's distributions to
the extent made out of the Fund's current or accumulated earnings
and profits would be taxable to shareholders as ordinary
dividends (regardless of whether they would otherwise have been
considered capital gain dividends), and the Funds would qualify
for the 70% deduction for dividends received by corporations; and
(iii) foreign tax credits would not "pass through" to
shareholders.
Passive Foreign Investment Companies
The Fund may purchase the securities of certain foreign
investment funds or trusts called passive foreign investment
companies. Capital gains on the sale of such holdings will be
deemed to be ordinary income regardless of how long the Fund
holds it investment. In addition to bearing their proportionate
share of the funds expenses (management fees and operating
expenses) shareholders will also indirectly bear similar expenses
of such funds. In addition, the Fund may be subject to corporate
income tax and an interest charge on certain dividends and
capital gains earned from these investments, regardless of
whether such income and gains were distributed to shareholders.
In accordance with tax regulations, the Fund intends to treat
these securities as sold on the last day of the Fund's fiscal
year and recognize any gains for tax purposes at that time;
losses will not be recognized. Such gains will be considered
ordinary income which the Fund will be required to distribute
even though it has not sold the security and received cash to pay
such distributions.
PAGE 144
Taxation of Foreign Shareholders
The Code provides that dividends from net income (which are
deemed to include for this purpose each shareholder's pro rata
share of foreign taxes paid by each Fund - see discussion of
"pass through" of the foreign tax credit to U.S. shareholders),
will be subject to U.S. tax. For shareholders who are not
engaged in a business in the U.S., this tax would be imposed at
the rate of 30% upon the gross amount of the dividend in the
absence of a Tax Treaty providing for a reduced rate or exemption
from U.S. taxation. Distributions of net long-term capital gains
realized by each Fund are not subject to tax unless the foreign
shareholder is a nonresident alien individual who was physically
present in the U.S. during the tax year for more than 182 days.
CAPITAL STOCK
The T. Rowe Price International Funds, Inc. (the
"Corporation") was originally organized in 1979 as a Maryland
corporation under the name T. Rowe Price International Fund, Inc.
("the Old Corporation"). Pursuant to the Annual Meeting of
Shareholders held on April 22, 1986, an Agreement and Plan of
Reorganization and Liquidation was adopted in order to convert
the Old Corporation from a Maryland corporation to a
Massachusetts Business Trust, named the T. Rowe Price
International Trust ("the Trust"). This conversion became
effective on May 1, 1986. Pursuant to the Annual Meeting of
Shareholders held on April 19, 1990, an Agreement and Plan of
Reorganization and Liquidation was adopted in order to convert
the Trust from a Massachusetts Business Trust to a Maryland
corporation. This conversion become effective May 1, 1990. The
Corporation is registered with the Securities and Exchange
Commission under the 1940 Act as a diversified, open-end
investment company, commonly known as a "mutual fund."
Currently, the Corporation consists of nine series, each of
which represents a separate class of the Corporation's shares and
has different objectives and investment policies. The
International Bond Fund was added as a separate series of the
Trust in 1986, and the designation of the existing series of the
Trust was, at that time, changed to the International Stock Fund.
In 1988 and 1990, respectively, the International Discovery and
European Stock Funds were added as separate series of the Trust.
Effective May 1, 1990, all series of the Trust became series of
the Corporation. In the same year, after the May 1, 1990
PAGE 145
reorganization, the New Asia and Global Government Bond Funds
were added as separate series of the Corporation. The Japan,
Short-Term Global Income and Latin America Funds were added as
separate series of the Corporation in 1991, 1992, and 1993,
respectively. The International Stock, International Discovery,
European Stock, Japan and New Asia Funds are described in a
separate Statement of Additional Information. The Charter also
provides that the Board of Directors may issue additional series
of shares.
The Funds' Charter authorizes the Board of Directors to
classify and reclassify any and all shares which are then
unissued, including unissued shares of capital stock into any
number of classes or series, each class or series consisting of
such number of shares and having such designations, such powers,
preferences, rights, qualifications, limitations, and
restrictions, as shall be determined by the Board subject to the
Investment Company Act and other applicable law. The shares of
any such additional classes or series might therefore differ from
the shares of the present class and series of capital stock and
from each other as to preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption, subject to
applicable law, and might thus be superior or inferior to the
capital stock or to other classes or series in various
characteristics. The Board of Directors may increase or decrease
the aggregate number of shares of stock or the number of shares
of stock of any class or series that each Fund has authorized to
issue without shareholder approval.
Each share of each series has equal voting rights with every
other share of every other series, and all shares of all series
vote as a single group except where a separate vote of any class
or series is required by the 1940 Act, the laws of the State of
Maryland, the Corporation's Articles of Incorporation, the By-
Laws of the Corporation, or as the Board of Directors may
determine in its sole discretion. Where a separate vote is
required with respect to one or more classes or series, then the
shares of all other classes or series vote as a single class or
series, provided that, as to any matter which does not affect the
interest of a particular class or series, only the holders of
shares of the one or more affected classes or series is entitled
to vote. The preferences, rights, and other characteristics
attaching to any series of shares, including the present series
of capital stock, might be altered or eliminated, or the series
might be combined with another series, by action approved by the
vote of the holders of a majority of all the shares of all series
PAGE 146
entitled to be voted on the proposal, without any additional
right to vote as a series by the holders of the capital stock or
of another affected series.
Shareholders are entitled to one vote for each full share held
(and fractional votes for fractional shares held) and will vote
in the election of or removal of directors (to the extent
hereinafter provided) and on other matters submitted to the vote
of shareholders. There will normally be no meetings of
shareholders for the purpose of electing directors unless and
until such time as less than a majority of the directors holding
office have been elected by shareholders, at which time the
directors then in office will call a shareholders' meeting for
the election of directors. Except as set forth above, the
directors shall continue to hold office and may appoint successor
directors. Voting rights are not cumulative, so that the holders
of more than 50% of the shares voting in the election of
directors can, if they choose to do so, elect all the directors
of the Fund, in which event the holders of the remaining shares
will be unable to elect any person as a director. As set forth
in the By-Laws of the Corporation, a special meeting of
shareholders of the Corporation shall be called by the Secretary
of the Corporation on the written request of shareholders
entitled to cast at least 10% of all the votes of the
Corporation, entitled to be cast at such meeting. Shareholders
requesting such a meeting must pay to the Corporation the
reasonably estimated costs of preparing and mailing the notice of
the meeting. The Corporation, however, will otherwise assist the
shareholders seeking to hold the special meeting in communicating
to the other shareholders of the Corporation to the extent
required by Section 16(c) of the 1940 Act.
FEDERAL AND STATE REGISTRATION OF SHARES
Each Fund's shares are registered for sale under the
Securities Act of 1933, and the Funds or their shares are
registered under the laws of all states which require
registration, as well as the District of Columbia and Puerto
Rico.
LEGAL COUNSEL
Shereff, Friedman, Hoffman, & Goodman, whose address is 919
Third Avenue, New York, New York 10022, is legal counsel to the
Funds.
PAGE 147
INDEPENDENT ACCOUNTANTS
International Bond Fund
Price Waterhouse, 7 St. Paul Street, Suite 1700, Baltimore,
Maryland 21202, are independent accountants to the Fund. The
financial statements of the International Bond Fund for the year
ended December 31, 1993, and the report of independent
accountants are included in the Fund's Annual Report for the year
ended December 31, 1993, on pages 6-15. Also included are the
unaudited financial statements of the Fund dated June 30, 1994,
on pages 9-14. A copy of the Annual and Semi-Annual Reports
accompanies this Statement of Additional Information. The
following financial statements and the report of independent
accountants appearing in the Annual Report for the year ended
December 31, 1993, and the unaudited financial statements for the
Fund's Semi-Annual Report dated June 30, 1994, are incorporated
into this Statement of Additional Information by reference:
International
Bond Fund
Annual Report
Page
___________
Report of Independent Accountants 15
Statement of Assets and Liabilities,
December 31, 1993 6-8
Statement of Operations, year ended
December 31, 1993 9
Statement of Changes in Net Assets,
years ended December 31, 1993 and
December 31, 1992 10
Notes to Financial Statements,
December 31, 1993 11-13
Financial Highlights 14
PAGE 148
International
Bond Fund
Semi-Annual Report
Page
_____________________
Statement of Assets and Liabilities,
June 30, 1994 (Unaudited) 9
Statement of Operations, six months
ended June 30, 1994 (Unaudited) 10
Statement of Changes in Net Assets,
year ended December 31, 1993 and six
months ended June 30, 1994 (Unaudited) 11
Notes to Financial Statements,
June 30, 1994 (Unaudited) 12-14
Financial Highlights (Unaudited) 14
Short-Term Global Income and Global Government Bond Funds
Coopers & Lybrand, 217 East Redwood Street, Baltimore,
Maryland 21202, are independent accountants to each Fund. The
financial statements of the Short-Term Global Income and Global
Government Bond Funds for the year ended December 31, 1993, and
the report of independent accountants are included in each Fund's
Annual Report for the year ended December 31, 1993, on pages 8-19
and 10-19, respectively. Also included are the unaudited
financial statements of the Short-Term Global Income and Global
Government Bond Funds dated June 30, 1994, on pages 6-8, 9-10,
and 11-16, respectively. A copy of each Annual and Semi-Annual
Report accompanies this Statement of Additional Information. The
following financial statements and the report of independent
accountants appearing in each Annual Report for the year ended
December 31, 1993, and the unaudited financial statements for
each Fund's Semi-Annual Report dated June 30, 1994, are
incorporated into this Statement of Additional Information by
reference:
PAGE 149
Short-Term
Global Income
Fund Annual
Report Page
___________
Report of Independent Accountants 19
Portfolio of Investments,
December 31, 1993 8-9
Statement of Assets and Liabilities,
December 31, 1993 12
Statement of Operations,
December 31, 1993 13
Statement of Changes in Net Assets,
year ended December 31, 1993 and
June 30, 1992 (Commencement of
Operations) to December 31, 1992 14
Notes to Financial Statements,
December 31, 1993 15-17
Financial Highlights, year ended
December 31, 1993 and June 30, 1992
(Commencement of Operations) to
December 31, 1992 18
Short-Term
Global Income
Fund Semi-Annual
Report Page
_________________
Portfolio of Investments,
June 30, 1994 (Unaudited) 6-8
Statement of Assets and Liabilities,
June 30, 1994 (Unaudited) 11
Statement of Operations, six months
ended June 30, 1994 (Unaudited) 12
Statement of Changes in Net Assets, year
ended December 31, 1993 and six months
ended June 30, 1994 (Unaudited) 13
Notes to Financial Statements,
June 30, 1994 (Unaudited) 14-16
Financial Highlights, year ended
December 31, 1993, June 30, 1992
(Commencement of Operations) to
December 31, 1992, and six months ended
June 30, 1994 (Unaudited) 17
PAGE 150
Global
Government
Bond Fund
Annual
Report Page
___________
Report of Independent Accountants 19
Statement of Net Assets,
December 31, 1993 10-11
Statement of Operations, year
ended December 31, 1993 13
Statement of Changes in Net Assets,
year ended December 31, 1993 and
December 28, 1992 14
Notes to Financial Statements,
December 31, 1993 15-17
Financial Highlights 18
Global
Government
Bond Fund
Semi-Annual
Report Page
_____________
Portfolio of Investments,
June 30, 1994 (Unaudited) 9-10
Statement of Assets and Liabilities,
June 30, 1994 (Unaudited) 11
Statement of Operations, six months ended
June 30, 1994 (Unaudited) 12
Statement of Changes in Net Assets, year ended
December 31, 1993 and six months ended
June 30, 1994 (Unaudited) 13
Notes to Financial Statements,
June 30, 1994 (Unaudited) 14-16
Financial Highlights, year ended
December 28, 1990 (Commencement of
Operations) to December 31, 1991,
years ended December 31, 1992 and
December 31, 1993, and six months
ended June 30, 1994 (Unaudited) 18
PAGE 151
RATINGS OF CORPORATE DEBT SECURITIES
Moody's Investors Services, Inc.
Aaa - Bonds rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge."
Aa - Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds.
A - Bonds rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Baa - Bonds rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba-Bonds rated Ba are judged to have speculative elements:
their futures cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterize
bonds in this class.
B-Bonds rated B generally lack the characteristics of a
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa-Bonds rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with
respect to principal or interest.
Ca-Bonds rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked short-comings.
C-Lowest-rated; extremely poor prospects of ever
attaining investment standing.
PAGE 152
Standard & Poor's Corporation
AAA - This is the highest rating assigned by Standard & Poor's
to a debt obligation and indicates an extremely strong capacity
to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong.
A - Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB - Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB, C, CCC, CC-Bonds rated BB, B, CCC, and CC are regarded on
balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. BB
indicates the lowest degree of speculation and CC the highest
degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
D-In default.
PAGE 153
APPENDIX A
Chart 1
A line graph follows which plots semiannual equivalent yields
on 10-year government bonds from 1984 through 1994. The yields
for the United Kingdom, Germany, United States and Japan, during
this time period, are graphed on a scale of 4 to 14.
PAGE 154
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements.
International Bond, Global Government Bond and Short-Term
Global Income Funds
Condensed Financial Information (Financial Highlights) for
the Funds is included in Part A of the Registration
Statement.
Portfolio of Investments, Statement of Assets and
Liabilities, Statement of Operations, and Statement of
Changes in Net Assets of the Global Government Bond,
International Bond and Short-Term Global Income Funds are
included in each Fund's Annual Report to Shareholders, the
pertinent portions of which are incorporated by reference in
Part B of the Registration Statement.
Emerging Markets Bond Fund:
Inapplicable.
(b) Exhibits.
(1)(a) Articles of Amendment and Restatement of T. Rowe
Price International Funds, Inc., dated February 16,
1990 (filed with Amendment No. 42)
(1)(b) Articles Supplementary of T. Rowe Price
International Funds, Inc., dated March 4, 1991
(1)(c) Articles of Amendment of T. Rowe Price International
Funds, Inc., dated May 1, 1991
(1)(d) Articles Supplementary of T. Rowe Price
International Funds, Inc., dated October 18, 1991
(1)(e) Articles Supplementary of T. Rowe Price
International Funds, Inc., dated May 4, 1992 (filed
with Amendment No. 35)
PAGE 155
(1)(f) Articles Supplementary of T. Rowe Price
International Funds, Inc., dated November 4, 1993
(filed with Amendment No. 41)
(1)(g) Articles Supplementary of T. Rowe Price
International Funds, Inc. dated February 18, 1994
(filed with Amendment No. 42)
(1)(h) Articles Supplementary of T. Rowe Price
International Funds, Inc. (to be filed by amendment)
(2) By-Laws of Registrant, as amended to May 1, 1991 and
September 30, 1993 (filed with Amendment No. 41)
(3) Inapplicable
(4)(a) Specimen Stock Certificate for International Bond
Fund (filed with Amendment No. 10)
(4)(b) Specimen Stock Certificate for International Stock
Fund (filed with Amendment No. 10)
(4)(c) Specimen Stock Certificate for International
Discovery Fund (filed with Amendment No. 14)
(4)(d) Specimen Stock Certificate for European Stock Fund
(filed with Amendment No. 18)
(4)(e) Specimen Stock Certificate for New Asia Fund (filed
with Amendment No. 21)
(4)(f) Specimen Stock Certificate for Global Government
Bond Fund (filed with Amendment No. 24)
(4)(g) T. Rowe Price Japan Fund and T. Rowe Price Short-
Term Global Income Fund. See Article FIFTH, Capital
Stock, Paragraphs (A)-(E) of the Articles of
Amendment and Restatement filed with Amendment No.
19, Article II, Shareholders, Sections 2.01-2.11 and
Article VIII, Capital Stock, Sections 8.01-8.06 of
the Bylaws filed as an Exhibit to this Registration
Statement.
(5)(a) Investment Management Agreement between Registrant
and Rowe Price-Fleming International, Inc., on
behalf of T. Rowe Price International Bond Fund,
dated May 1, 1990 (filed with Amendment No. 42)
PAGE 156
(5)(b) Investment Management Agreement between Registrant
and Rowe Price-Fleming International, Inc., on
behalf of T. Rowe Price International Stock Fund,
dated May 1, 1990 (filed with Amendment No. 42)
(5)(c) Investment Management Agreement between Registrant
and Rowe Price-Fleming International, Inc., on
behalf of T. Rowe Price International Discovery
Fund, dated May 1, 1991 (filed with Amendment No.
42)
(5)(d) Investment Management Agreement between Registrant
and Rowe Price-Fleming International, Inc., on
behalf of T. Rowe Price European Stock Fund, dated
May 1, 1990 (filed with Amendment No. 42)
(5)(e) Investment Management Agreement between Registrant
and Rowe Price-Fleming International, Inc., on
behalf of T. Rowe Price New Asia Fund, dated May 1,
1991 (filed with Amendment No. 42)
(5)(f) Investment Management Agreement between Registrant
and Rowe Price-Fleming International, Inc., on
behalf of T. Rowe Price Global Government Bond Fund,
dated November 7, 1990 (filed with Amendment No. 42)
(5)(g) Investment Management Agreement between Registrant
and Rowe Price-Fleming International, Inc., on
behalf of T. Rowe Price Japan Fund, dated November
6, 1991 (filed with Amendment No. 42)
(5)(h) Investment Management Agreement between Registrant
and Rowe Price-Fleming International, Inc., on
behalf of T. Rowe Price Short-Term Global Income
Fund, dated April 23, 1992 (filed with Amendment No.
42)
(5)(i) Investment Management Agreement between Registrant
and Rowe Price-Fleming International, Inc., on
behalf of T. Rowe Price Latin America Fund, dated
November 3, 1993 (filed with Amendment No. 41)
(5)(j) Investment Management Agreement between Registrant
and Rowe Price-Fleming International, Inc., on
behalf of T. Rowe Price Emerging Markets Bond Fund
(to be filed by amendment)
PAGE 157
(6) Underwriting Agreement between Registrant and T.
Rowe Price Investment Services, Inc., dated May 1,
1990 (filed with Amendment No. 42)
(7) Inapplicable
(8)(a) Custodian Agreement between T. Rowe Price Funds and
State Street Bank and Trust Company dated September
28, 1987, as amended June 24, 1988, October 19,
1988, February 22, 1989, July 19, 1989, September
15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990,
July 18, 1990, October 15, 1990, February 13, 1991,
March 6, 1991, September 12, 1991, November 6, 1991,
April 23, 1992, September 2, 1992, November 3, 1992,
December 16, 1992, December 21, 1992, January 28,
1993, April 22, 1993, September 16, 1993, and
November 3, 1993 (to be filed by amendment)
(8)(b) Subcustodian Agreement between The Chase Manhattan
Bank, N.A., and State Street Bank and Trust Company,
dated September 1, 1985 (filed with Amendment No. 7)
(8)(c) Subcustodian Agreement between Registrant, on behalf
of T. Rowe Price International Bond Fund, T. Rowe
Price International Discovery Fund, European Stock
Fund, New Asia Fund, Global Government Bond Fund,
Japan Fund, Short-Term Global Income Fund and Latin
America Fund State Street Bank and Trust Company,
and The Chase Manhattan Bank, N.A. dated January 1,
1989 as amended February 12, 1990, July 18, 1990,
October 15, 1990, November 6, 1991, April 23, 1992,
and November 3, 1993 (to be filed by amendment)
(9)(a) Transfer Agency and Service Agreement between T.
Rowe Price Services, Inc. and T. Rowe Price Funds,
dated January 1, 1994 (to be filed by amendment)
(9)(b) Agreement between T. Rowe Price Associates, Inc. and
T. Rowe Price Funds for Fund Accounting Services,
dated January 1, 1994 (to be filed by amendment)
(9)(c) Agreement between T. Rowe Price Retirement Plan
Services, Inc. and the Taxable Funds, dated January
1, 1994 (to be filed by amendment)
PAGE 158
(10) Opinion of Counsel, dated October 14, 1994
(11) Inapplicable
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16)(a) Total Return Performance Methodology
(16)(b) T. Rowe Price Global Government Bond Fund; T. Rowe
Price International Bond Fund; and T. Rowe Price
Short-Term Global Income Fund. The Registrant
hereby incorporates by reference the methodology
used in calculating the performance information
included in Post-Effective Amendment No. 34 and
Amendment No. 12 of the T. Rowe Price New Income
Fund, Inc. (SEC. File Nos. 2-48848 and 811-2396)
dated April 27, 1988.
(17) Financial Data Schedule as of October 14,1994
Item 25. Persons Controlled by or Under Common Control With
Registrant.
None.
Item 26. Number of Holders of Securities
As of October 31, 1993, there were 189,000 shareholders in
the T. Rowe Price International Stock Fund.
As of October 31, 1993, there were 27,000 shareholders in
the T. Rowe Price International Discovery Fund.
As of October 31, 1993, there were 27,000 shareholders in
the T. Rowe Price European Stock Fund.
As of October 31, 1993, there were 106,000 shareholders in
the T. Rowe Price New Asia Fund.
As of December 31, 1993, there were 3,000 shareholders in
the T. Rowe Price Global Government Bond Fund.
PAGE 159
As of December 31, 1993, there were 31,000 shareholders in
the T. Rowe Price International Bond Fund.
As of December 31, 1993, there were 5,000 shareholders in
the T. Rowe Price Short-Term Global Income Fund.
As of October 31, 1993, there were 9,000 shareholders in the
T. Rowe Price Japan Fund.
As of December 15, 1993, there were zero shareholders in the
T. Rowe Price Latin America Fund.
As of October 14, 1994 there were zero shareholders in the
T. Rowe Price Emerging Markets Bond Fund.
Item 27. Indemnification
The Registrant maintains comprehensive Errors and Omissions
and Officers and Directors insurance policies written by the
Evanston Insurance Company, The Chubb Group and ICI Mutual.
These policies provide coverage for the named insureds, which
include T. Rowe Price Associates, Inc. ("Price Associates"), Rowe
Price-Fleming International, Inc., T. Rowe Price Investment
Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price Trust
Company, T. Rowe Price Stable Asset Management, Inc., RPF
International Bond Fund and thirty-eight other investment
companies, namely, T. Rowe Price Growth Stock Fund, Inc., T. Rowe
Price New Horizons Fund, Inc., T. Rowe Price New Era Fund, Inc.,
T. Rowe Price New Income Fund, Inc., T. Rowe Price Prime Reserve
Fund, Inc., T. Rowe Price Tax-Free Income Fund, Inc., T. Rowe
Price Tax-Exempt Money Fund, Inc., T. Rowe Price Growth & Income
Fund, Inc., T. Rowe Price Tax-Free Short-Intermediate Fund, Inc.,
T. Rowe Price Short-Term Bond Fund, Inc., T. Rowe Price High
Yield Fund, Inc., T. Rowe Price Tax-Free High Yield Fund, Inc.,
T. Rowe Price New America Growth Fund, T. Rowe Price Equity
Income Fund, T. Rowe Price GNMA Fund, T. Rowe Price Capital
Appreciation Fund, T. Rowe Price State Tax-Free Income Trust, T.
Rowe Price California Tax-Free Income Trust, T. Rowe Price
Science & Technology Fund, Inc., T. Rowe Price Small-Cap Value
Fund, Inc., Institutional International Funds, Inc., T. Rowe
Price U.S. Treasury Funds, Inc., T. Rowe Price Index Trust, Inc.,
T. Rowe Price Spectrum Fund, Inc., T. Rowe Price Balanced Fund,
Inc., T. Rowe Price Adjustable Rate U.S. Government Fund, Inc.,
T. Rowe Price Mid-Cap Growth Fund, Inc., T. Rowe Price OTC Fund,
Inc., T. Rowe Price Tax-Free Insured Intermediate Bond Fund,
Inc., T. Rowe Price Dividend Growth Fund, Inc., T. Rowe Price
Blue Chip Growth Fund, Inc., T. Rowe Price Summit Funds, Inc., T.
PAGE 160
Rowe Price Summit Municipal Funds, Inc., T. Rowe Price Equity
Series, Inc., T. Rowe Price International Series, Inc., T. Rowe
Price Fixed Income Series, Inc., T. Rowe Price Personal Strategy
Funds, Inc., and T. Rowe Price Value Fund, Inc. The Registrant
and the thirty-eight investment companies listed above, with the
exception of T. Rowe Price Equity Series, Inc., T. Rowe Price
Fixed Income Series, Inc., T. Rowe Price International Series,
Inc. and Institutional International Funds, Inc., will be
collectively referred to as the Price Funds. With respect to all
such Price Funds excluding the Registrant, T. Rowe Price
International Series, Inc. and Institutional International Funds,
Inc., their investment manager is Price Associates. The
investment manager to the Registrant, T. Rowe Price International
Series, Inc., and Institutional International Funds, Inc. is Rowe
Price-Fleming International, Inc. ("Manager") which is 50% owned
by TRP Finance, Inc., a wholly-owned subsidiary of Price
Associates, 25% owned by Copthall Overseas Limited, a wholly-
owned subsidiary of Robert Fleming Holdings Limited, and 25%
owned by Jardine Fleming International Holdings Limited. In
addition to the corporate insureds, the policies also cover the
officers, directors, and employees of each of the named insureds.
The premium is allocated among the named corporate insureds in
accordance with the provisions of Rule 17d-1(d)(7) under the
Investment Company Act of 1940.
Article X, Section 10.01 of the Registrant's By-Laws
provides as follows:
Section 10.01. Indemnification and Payment of Expenses
in Advance: The Corporation shall indemnify any individual
("Indemnitee") who is a present or former director, officer,
employee, or agent of the Corporation, or who is or has been
serving at the request of the Corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, who,
by reason of his position was, is, or is threatened to be
made a party to any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter collectively
referred to as a "Proceeding") against any judgments,
penalties, fines, settlements, and reasonable expenses
(including attorneys' fees) incurred by such Indemnitee in
connection with any Proceeding, to the fullest extent that
such indemnification may be lawful under Maryland law. The
Corporation shall pay any reasonable expenses so incurred by
such Indemnitee in defending a Proceeding in advance of the
final disposition thereof to the fullest extent that such
PAGE 161
advance payment may be lawful under Maryland law. Subject
to any applicable limitations and requirements set forth in
the Corporation's Articles of Incorporation and in these By-
Laws, any payment of indemnification or advance of expenses
shall be made in accordance with the procedures set forth in
Maryland law.
Notwithstanding the foregoing, nothing herein shall
protect or purport to protect any Indemnitee against any
liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of
his office ("Disabling Conduct").
Anything in this Article X to the contrary
notwithstanding, no indemnification shall be made by the
Corporation to any Indemnitee unless:
(a) there is a final decision on the merits by a court
or other body before whom the Proceeding was
brought that the Indemnitee was not liable by
reason of Disabling Conduct; or
(b) in the absence of such a decision, there is a
reasonable determination, based upon a review of
the facts, that the Indemnitee was not liable by
reason of Disabling Conduct, which determination
shall be made by:
(i) the vote of a majority of a quorum of
directors who are neither "interested
persons" of the Corporation as defined in
Section 2(a)(19) of the Investment Company
Act of 1940, nor parties to the Proceeding;
or
(ii) an independent legal counsel in a written
opinion.
Anything in this Article X to the contrary
notwithstanding, any advance of expenses by the Corporation
to any Indemnitee shall be made only upon the undertaking by
such Indemnitee to repay the advance unless it is ultimately
determined that such Indemnitee is entitled to
indemnification as above provided, and only if one of the
following conditions is met:
PAGE 162
(a) the Indemnitee provides a security for his
undertaking; or
(b) the Corporation shall be insured against losses
arising by reason of any lawful advances; or
(c) there is a determination, based on a review of
readily available facts, that there is reason to
believe that the Indemnitee will ultimately be
found entitled to indemnification, which
determination shall be made by:
(i) a majority of a quorum of directors who are
neither "interested persons" of the
Corporation as defined in Section 2(a)(19) of
the Investment Company Act, nor parties to
the Proceeding; or
(ii) an independent legal counsel in a written
opinion.
Section 10.02 of the Registrant's By-Laws provides as
follows:
Section 10.02. Insurance of Officers, Directors,
Employees and Agents: To the fullest extent permitted by
applicable Maryland law and by Section 17(h) of the
Investment Company Act, as from time to time amended, the
Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or
agent of the Corporation, or who is or was serving at the
request of the Corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against any liability asserted
against him and incurred by him in or arising out of his
position, whether or not the Corporation would have the
power to indemnify him against such liability.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
PAGE 163
payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Manager.
M. David Testa, who is Chairman of the Board of the Manager, is
presently a Managing Director of Price Associates and a Director
of Fleming International Fixed Interest Management Limited.
George J. Collins, a Director of the Manager, is Chief Executive
Officer, President, and Managing Director of Price Associates.
D. William J. Garrett, a Director of the Manager, is Chairman of
Robert Fleming Securities Limited, a Director of Robert Fleming
Holdings Limited ("Robert Fleming Holdings"), a parent of the
Manager which is a United Kingdom holding company duly organized
and existing under the laws of the United Kingdom, Robert Fleming
Management Services Limited, Robert Fleming Management Services
Limited, Robert Fleming & Co. Limited, and Fleming Investments
Limited. Mr. Garrett also serves as Director and/or officer of
other companies related to or affiliated with the above listed
companies.
P. John Manser, a Director of the Manager, is Chief Executive of
Robert Fleming Holdings, Chairman of Robert Fleming & Co.
Limited, Director of Jardine Fleming Group Limited, Robert
Fleming Management Services Limited, Fleming Investment
Management Limited, Robert Fleming Asset Management Limited,
Jardine Fleming Holdings Limited, and Robert Fleming Asset
Management Limited and also serves as a director of the U.K.
Securities and Investments Board. Mr. Manser also serves as
Director and/or officer of other companies related to or
affiliated with the above listed companies.
George A. Roche, a Vice President and a Director of the Manager,
is Chief Financial Officer and a Managing Director of Price
Associates.
PAGE 164
Charles H. Salisbury, Jr., a Vice President and a Director of the
Manager, is a Managing Director of Price Associates.
Alan H. Smith, a Director of the Manager, is Managing Director of
Jardine Fleming Group Limited and Jardine Fleming Holdings
Limited, Chairman of Jardine Fleming Investment Management
Limited, Jardine Fleming & Company Limited and Jardine Fleming
Securities Limited and a Director of Robert Fleming Holdings.
Mr. Smith also serves as Director and/or officer of other
companies related to or affiliated with the above listed
companies.
Alvin M. Younger, Jr., the Secretary and Treasurer of the
Manager, is a Managing Director and the Secretary and Treasurer
of Price Associates.
With the exception of Christopher D. Alderson, Peter B. Askew,
David P. Boardman, Richard J. Bruce, Ann B. Cranmer, Mark J. T.
Edwards, John R. Ford, Stephen Ilott, Christopher Rothery, James
B. M. Seddon, Benedict R. F. Thomas, David J. L. Warren, and
Martin G. Wade, all officers of the Manager are officers and/or
employees of Price Associates and may also be officers and/or
directors of one or more subsidiaries of Price Associates and/or
one or more of the registered investment companies which Price
Associates or the Manager serves as investment adviser. Messrs.
Boardman and Askew, Executive Vice President and Vice President
of the Manager, respectively, and Messrs. Ilott and Rothery are
employees of Fleming International Fixed Interest Management
Limited, an investment adviser registered under the Investment
Advisers Act of 1940. Ms. Cranmer is an employee of Fleming
Investment Management Limited. Mr. Wade, who is President of the
Manager, is also a Non-Executive Director of Holdings.
RPFI International Partners, Limited Partnership, is a Delaware
limited partnership organized in 1985 for the purpose of
investing in a diversified group of small and medium-sized
rapidly growing non- U.S. companies. The Manager is the general
partner of this partnership, and certain clients of the Manager
are its limited partners.
See also "Management of Fund," in the Registrant's Statement of
Additional Information.
Item 29. Principal Underwriters.
(a) The principal underwriter for the Registrant is
Investment Services. Investment Services acts as the principal
PAGE 165
underwriter for the other thirty-eight Price Funds. Investment
Services is a wholly-owned subsidiary of the Manager, is
registered as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities
Dealers, Inc. Investment Services has been formed for the
limited purpose of distributing the shares of the Price Funds and
will not engage in the general securities business. Since the
Price Funds are sold on a no-load basis, Investment Services will
not receive any commissions or other compensation for acting as
principal underwriter.
(b) The address of each of the directors and officers of
Investment Services listed below is 100 East Pratt Street,
Baltimore, Maryland 21202.
Positions and
Name and Principal Positions and Offices Offices With
Business Address With Underwriter Registrant
__________________ ______________________ ______________
James S. Riepe President and Director Vice President
Henry H. Hopkins Vice President and Vice President
Director
Mark E. Rayford Director None
Charles E. Vieth Vice President and None
Director
Patricia M. Archer Vice President None
Edward C. Bernard Vice President None
Joseph C. Bonasorte Vice President None
Meredith C. Callanan Vice President None
Victoria C. Collins Vice President None
Christopher W. Dyer Vice President None
Mark S. Finn Vice President and None
Assistant Controller
Forrest R. Foss Vice President None
Patricia O. Goodyear Vice President None
James W. Graves Vice President None
Andrea G. Griffin Vice President None
Thomas Grizzard Vice President None
David J. Healy Vice President None
Joseph P. Healy Vice President None
Walter J. Helmlinger Vice President None
Eric G. Knauss Vice President None
Douglas G. Kremer Vice President None
Sharon Renae Krieger Vice President None
Keith Wayne Lewis Vice President None
David A. Lyons Vice President None
PAGE 166
Sarah McCafferty Vice President None
Maurice A. Minerbi Vice President None
George A. Murnaghan Vice President Vice President
Steven E. Norwitz Vice President None
Kathleen M. O'Brien Vice President None
Charles S. Peterson Vice President None
Pamela D. Preston Vice President None
Lucy B. Robins Vice President None
John R. Rockwell Vice President None
William F. Wendler, II Vice President Vice President
Jane F. White Vice President None
Thomas R. Woolley Vice President None
Alvin M. Younger, Jr. Secretary and Treasurer None
Joseph P. Croteau Controller None
Catherine L. Berkenkemper Assistant Vice President None
Patricia S. Butcher Assistant Vice President None
Laura H. Chasney Assistant Vice President None
George H. Finney Assistant Vice President None
John A. Galateria Assistant Vice President None
Keith J. Langrehr Assistant Vice President None
C. Lillian Matthews Assistant Vice President None
Tom J. Mauer Assistant Vice President None
Janice D. McCrory Assistant Vice President None
Sandra J. McHenry Assistant Vice President None
JeanneMarie B. Patella Assistant Vice President None
Arthur J. Siber Assistant Vice President None
Mary A. Tamberrino Assistant Vice President None
Monica R. Tucker Assistant Vice President None
Linda C. Wright Assistant Vice President None
Nolan L. North Assistant Treasurer None
Barbara A. VanHorn Assistant Secretary None
(c) Not applicable. Investment Services will not receive
any compensation with respect to its activities as underwriter
for the Price Funds since the Price Funds are sold on a no-load
basis.
Item 30. Location of Accounts and Records.
All accounts, books, and other documents required to be
maintained by T. Rowe Price International Funds, Inc. under
Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder will be maintained by T. Rowe Price International
Funds, Inc. at its offices at 100 East Pratt Street, Baltimore,
Maryland 21202. Transfer, dividend disbursing, and shareholder
service activities are performed by T. Rowe Price Services, Inc.,
at 100 East Pratt Street, Baltimore, Maryland 21202. Custodian
PAGE 167
activities for T. Rowe Price International Funds, Inc. are
performed at State Street Bank and Trust Company's Service Center
(State Street South), 1776 Heritage Drive, Quincy, Massachusetts
02171. Custody of Fund portfolio securities which are purchased
outside the United States is maintained by The Chase Manhattan
Bank, N.A., London in its foreign branches or with other U.S.
banks. The Chase Manhattan Bank, N.A., London is located at
Woolgate House, Coleman Street, London EC2P 2HD, England.
Item 31. Management Services.
Registrant is not a party to any management related service
contract, other than as set forth in the Prospectus.
Item 32. Undertakings.
(a) Inapplicable.
(b) The Emerging Markets Bond Fund will file, within four
to six months from the effective date of its
registration statement, a post-effective amendment
using financial statements which need not be certified.
(c) If requested to do so by the holders of at least 10% of
all votes entitled to be cast, the Registrant will call
a meeting of shareholders for the purpose of voting on
the question of removal of a director or directors and
will assist in communications with other shareholders
to the extent required by Section 16(c).
(d) Each series of the Registrant agrees to furnish, upon
request and without change, a copy of its latest Annual
Report to each person to whom its prospectus is
delivered.
PAGE 168
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baltimore, State of Maryland, this
14th day of October, 1994.
T. ROWE PRICE INTERNATIONAL FUNDS,
INC.
/s/M. David Testa
By: M. David Testa
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Registration Statement has been signed below by
the following persons in the capacities and on the dates
indicated:
SIGNATURE TITLE DATE
_________ ______ _____
/s/M. David Testa Chairman of the Board October 14, 1994
M. David Testa (Chief Executive Officer)
/s/Carmen F. Deyesu Treasurer October 14, 1994
Carmen F. Deyesu (Chief Financial Officer)
/s/Martin G. Wade President and Director October 14, 1994
Martin G. Wade
/s/Leo C. Bailey Director October 14, 1994
Leo C. Bailey
/s/Anthony W. Deering Director October 14, 1994
Anthony W. Deering
/s/Donald W. Dick, Jr. Director October 14, 1994
Donald W. Dick, Jr.
/s/Addison Lanier Director October 14, 1994
Addison Lanier
October 14, 1994
T. Rowe Price International Funds, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Dear Sirs:
In connection with the proposed registration of an
indefinite number of shares of Capital Stock of your Company, I
have examined certified copies of your Company's Articles of
Amendment and Restatement dated February 16, 1990, as amended,
February 18, 1994, and the By-Laws of your Company as presently
in effect.
I am of the opinion that:
(i) your Company is a corporation duly organized and
existing under the laws of Maryland; and
(ii) each of such authorized shares of Capital Stock of your
Company, upon payment in full of the price fixed by the
Board of Directors of your Company, will be legally and
validly issued and will be fully paid and non-
assessable.
I hereby consent to the use of this opinion as an exhibit to
the Company's Registration Statement on Form N-1A to be filed
with the Securities and Exchange Commission for the registration
under the Securities Act of 1933 of an indefinite number of
shares of Capital Stock of your Company.
Sincerely,
/s/Henry H. Hopkins
Henry H. Hopkins
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