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Registration Nos. 002-54926/811-2603
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 52 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 32 /X/
T. ROWE PRICE PRIME RESERVE FUND, INC.
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Exact Name of Registrant as Specified in Charter
100 East Pratt Street, Baltimore, Maryland 21202
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Address of Principal Executive Offices
410-345-2000
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Registrant's Telephone Number, Including Area Code
Henry H. Hopkins
100 East Pratt Street, Baltimore, Maryland 21202
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Name and Address of Agent for Service
Approximate Date of Proposed Public Offering October 1, 1999
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It is proposed that this filing will become effective (check
appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/X/ On October 1, 1999, pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On (date), pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On (date) pursuant to paragraph (a)(2) 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.
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PROSPECTUS
October 1, 1999
T. ROWE PRICE
Prime ReserveFund
A money market fund primarily seeking preservation of capital and liquidity.
T. ROWE PRICE RAM LOGO
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
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T. Rowe Price Prime Reserve Fund, Inc.
Prospectus
October 1, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 ABOUT THE FUND
Objective, Strategy, Risks, and Expenses 1
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Other Information About the Fund 3
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Some Basics of Money Market Investing 6
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2 ABOUT YOUR ACCOUNT
Pricing Shares and Receiving 7
Sale Proceeds
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Distributions and Taxes 8
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Transaction Procedures and 10
Special Requirements
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3 MORE ABOUT THE FUND
Organization and Management 13
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Understanding Performance Information 14
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Investment Policies and Practices 15
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Financial Highlights 19
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4 INVESTING WITH T. ROWE PRICE
Account Requirements 21
and Transaction Information
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Opening a New Account 21
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Purchasing Additional Shares 23
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Exchanging and Redeeming 23
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Rights Reserved by the Fund 25
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Information About Your Services 26
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T. Rowe Price Brokerage 28
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Investment Information 29
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</TABLE>
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $159.2 billion for more than seven million
individual and institutional investor accounts as of June 30, 1999.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.
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ABOUT THE FUND
OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
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To help you decide whether this fund is appropriate for you, this section
reviews its major characteristics.
What is the fund's objective?
The fund's goals are preservation of capital, liquidity, and, consistent with
these, the highest possible current income.
What is the fund's principal investment strategy?
The fund, which is managed to provide a stable share price of $1.00, invests
in high-quality, U.S. dollar-denominated money market securities. The fund's
average weighted maturity will not exceed 90 days, and its yield will
fluctuate with changes in short-term interest rates. In selecting securities,
fund managers may examine the relationships among yields on various types and
maturities of money market securities in the context of their outlook for
interest rates. For example, commercial paper often offers a yield advantage
over Treasury bills. If rates are expected to fall, longer maturities, which
typically have higher yields than shorter maturities, may be purchased to try
to preserve the fund's income level. Conversely, shorter maturities may be
favored if rates are expected to rise.
The fund may sell holdings for a variety of reasons, such as to adjust the
portfolio's average maturity or quality, or to shift assets into
higher-yielding securities.
. For further details on the fund's investment program, please see the
question "What is the fund's investment program?" later in this section, or
see the Investment Policies and Practices section.
What are the main risks of investing in the fund?
Since the fund seeks to maintain a $1.00 share price, it should have little
risk of principal loss. However, there is no assurance the fund will avoid
principal losses in the rare event that holdings default or interest rates
rise sharply in an unusually short period.
The fund's yield will vary; it is not fixed for a specific period like the
yield on a bank certificate of deposit. This is a disadvantage when interest
rates are falling. An investment in the fund is not insured or guaranteed by
the FDIC or any other government agency. Although the fund seeks to preserve
the value of your investment at $1.00 per share, it is possible to lose money
by investing in the fund.
As with any mutual fund, there can be no guarantee the fund will achieve its
objective.
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T. ROWE PRICE
How can I tell if the fund is appropriate for me?
Consider your investment goals, your time horizon for achieving them, and
your tolerance for risk. Over time, money market securities have provided
greater stability but lower returns than bonds or stocks. If you have some
money for which safety and accessibility are more important than total return
or capital growth over time, the fund should be an appropriate investment.
The fund can be used for both regular and tax-deferred accounts, such as IRAs
and Keoghs.
How has the fund performed in the past?
The bar chart and the average annual total return table indicate risk by
illustrating how much returns can differ from one year to the next. The
fund's past performance is no guarantee of its future returns.
The fund can also experience short-term performance swings, as shown by the
best and worst calendar quarter returns during the years depicted in the
chart.
<TABLE>
<CAPTION>
Calendar Year Total Returns
"89" "90" "91" "92" "93" "94" "95" "96" "97" "98"
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.90 7.73 5.67 3.34 2.60 3.74 5.48 4.90 5.10 5.13
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</TABLE>
Quarter ended Total return
Best quarter 6/30/89 2.30%
Worst quarter 6/30/93 0.62%
The fund's total return for the six months ended 6/30/99 was 2.16%.
<TABLE>
Table 1 Average Annual Total Returns
<CAPTION>
Periods ended December 31, 1998
1 year 5 years 10 years
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<S> <C> <C> <C>
Prime Reserve Fund 5.13% 4.87% 5.24%
Lipper Money Market Funds Average 4.84 4.77 5.20
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</TABLE>
These figures include changes in principal value, reinvested dividends, and
capital gain distributions, if any.
What fees or expenses will I pay?
The fund is 100% no load. There are no fees or charges to buy or sell fund
shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
are no 12b-1 fees. Like all mutual funds, the fund charges the following:
. A management fee The percent of fund assets paid to the fund's investment
manager. The fund's fee comprises a group fee, 0.32% as of June 30, 1999, and
an individual fund fee of 0.05%.
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. "Other" administrative expenses Primarily the servicing of shareholder
accounts, such as providing statements and reports, disbursing dividends, and
providing custodial services.
<TABLE>
Table 2 Fees and Expenses of the Fund
<CAPTION>
Annual fund operating expenses
(expenses that are deducted from fund assets)
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<S> <C>
Management fee 0.37%/ // /
Other expenses 0.29%
Total annual fund operating 0.66%/ // /
expenses
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</TABLE>
Example. The following table gives you a rough idea of how expense ratios
may translate into dollars and helps you to compare the cost of investing in
this fund with that of other funds. Although your actual costs may be higher
or lower, the table shows how much you would pay if operating expenses remain
the same, you invest $10,000, you earn a 5% annual return, and you hold the
investment for the following periods:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
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<S> <C> <C> <C>
$67 $211 $368 $822
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</TABLE>
OTHER INFORMATION ABOUT THE FUND
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What are the fund's potential rewards?
The fund offers a relatively secure, liquid investment for money you may need
for occasional or unexpected expenses and for money awaiting investment in
longer-term bond or stock funds. In addition to preserving capital, the fund
seeks to provide the highest possible income available from low-risk,
short-term securities.
How does the portfolio manager try to reduce risk?
Consistent with the fund's objective, the portfolio manager uses various
tools to try to reduce risk and increase total return, including:
. Diversification of assets to reduce the impact of a single holding on the
fund's net asset value.
. Thorough credit research by our own analysts.
. Maturity adjustments to reflect the fund manager's interest rate outlook.
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T. ROWE PRICE
What is a money market fund?
A money market fund is a pool of assets invested in U.S. dollar-denominated,
short-term debt obligations with fixed or floating rates of interest and
maturities generally less than 13 months. Money funds can be taxable or
tax-exempt, depending on their investment program. Issuers can include the
U.S. government and its agencies, domestic and foreign banks and other
corporations, and states and municipalities. Because of the high degree of
safety they provide, money market funds typically offer the lowest return
potential of any type of mutual fund.
What is the fund's investment program?
The fund invests at least 95% of its total assets in prime money market
instruments, that is, securities receiving a credit rating within the highest
category assigned by at least two established rating agencies, or by one
rating agency if the security is rated by only one, or, if unrated, the
equivalent rating as established by T. Rowe Price. The fund's weighted
average maturity will not exceed 90 days. It will not purchase any security
with a maturity of more than 13 months. Its yield will fluctuate in response
to changes in interest rates, but the share price is managed to remain stable
at $1.00. Unlike most bank accounts or certificates of deposit, the fund is
not insured or guaranteed by the U.S. government.
What are the main risks of investing in money market funds?
Since they are managed to maintain a $1.00 share price, money market funds
should have little risk of principal loss. However, the potential for a loss
of principal could derive from:
. Credit risk This is the chance that any of the fund's holdings will have
its credit rating downgraded or will default (fail to make scheduled interest
or principal payments), potentially reducing the fund's income level and
share price. Regulations require that securities of money market funds be
rated in the highest two credit categories.
. Interest rate risk This risk refers to the decline in the prices of fixed
income securities and funds that may accompany a rise in the overall level of
interest rates. A sharp and unexpected rise in interest rates could cause a
money fund's price to drop below a dollar. However, the extremely short
maturity of securities held in money market portfolios -a means of achieving
an overall fund objective of principal safety-reduces their potential for
price fluctuation.
What are the main types of money market securities the fund can invest in?
. Commercial paper Unsecured promissory notes that corporations typically
issue to finance current operations and other expenditures.
. Treasury bills, notes and bonds Debt obligations sold at discount or at
face value and repaid at face value by the U.S. Treasury. Bills mature in one
year or less;
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INVESTING WITH T. ROWE PRICE
notes and bonds may have longer maturities at issue but will only be
purchased by the fund if they mature within 13 months of the purchase date.
All are backed by the full faith and credit of the U.S. government.
. Certificates of deposit Receipts for funds deposited at banks that
guarantee a fixed interest rate over a specified time period.
. Repurchase agreements Contracts, usually involving U.S. government
securities, that require one party to repurchase securities at a fixed price
on a designated date.
. Banker's acceptances Bank-issued commitments to pay for merchandise sold in
the import/export market.
. Agency notes Debt obligations of agencies sponsored by the U.S. government
that are not backed by the full faith and credit of the United States.
. Medium-term notes Unsecured corporate debt obligations that are
continuously offered in a broad range of maturities and structures.
. Bank notes Unsecured obligations of a bank that rank on an equal basis with
other kinds of deposits but do not carry FDIC insurance.
. Asset-backed securities Certificates, trusts, or similarly structured
investment vehicles whose principal and interest is backed by an underlying
pool of assets. The value of the asset pool often exceeds the value of the
security and may include a swap obligation or third-party guarantee.
. Funding agreements Short-term, privately placed, non-transferrable
obligations of insurance companies that often include an adjustable coupon
tied to market rates and the right to sell the agreement back to the issuer
prior to maturity.
The fund may also purchase other types of money market securities that meet
the fund's maturity and credit requirements.
Is there other information I can review before making a decision?
Investment Policies and Practices in Section 3 discusses various types of
portfolio securities the fund may purchase as well as types of investment
management practices the fund may use.
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T. ROWE PRICE
SOME BASICS OF MONEY MARKET INVESTING
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Is a fund's yield fixed or will it vary?
It will vary. Yield is calculated every day by dividing a fund's net income
per share, expressed at annual rates, by the share price. Since income in a
fund will fluctuate as the short-term securities in its portfolio mature and
the proceeds are reinvested, its yield will vary.
Is yield the same as total return?
Yes for money funds. The total return reported for the fund is the result of
reinvested distributions (income and capital gains) and the change in share
price for a given time period. Since money funds are managed to maintain a
stable share price, their yield and total return should be the same. Of
course, there is no guarantee a money fund will maintain a $1.00 share price.
What is credit quality and how does it affect yield?
Credit quality refers to a borrower's expected ability to make all required
interest and principal payments in a timely manner. Because highly rated
issuers represent less risk, they can borrow at lower interest rates than
less creditworthy issuers.
What is meant by a money market fund's maturity?
Every money market instrument has a stated maturity date when the issuer must
repay the entire principal to the investor. The fund has no maturity in the
strict sense of the word, but does have a dollar-weighted average maturity,
expressed in days. This number is an average of the maturities of the
underlying instruments, with each maturity "weighted" by the percentage of
fund assets it represents.
Do money market securities react to changes in interest rates?
Yes. As interest rates change, the prices of money market securities
fluctuate, but changes are usually small because of their very short
maturities. Investments are typically held until maturity in a money fund to
help the fund maintain a $1.00 share price.
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ABOUT YOUR ACCOUNT
PRICING SHARES AND RECEIVING SALE PROCEEDS
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Here are some procedures you should know when investing in a T. Rowe Price
fund.
How and when shares are priced
The share price (also called "net asset value" or NAV per share) for a fund
is calculated at the close of the New York Stock Exchange, normally 4 p.m.
ET, each day the New York Stock Exchange is open for business. To calculate
the NAV, the fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. Amortized cost is used to value money fund securities.
How your purchase, sale, or exchange price is determined
If we receive your request in correct form by 4 p.m. ET, your transaction
will be priced at that day's NAV. If we receive it after 4 p.m., it will be
priced at the next business day's NAV.
We cannot accept orders that request a particular day or price for your
transaction or any other special conditions.
Fund shares may be purchased through various third-party intermediaries
including banks, brokers, and investment advisers. Where authorized by a
fund, orders will be priced at the NAV next computed after receipt by the
intermediary. Consult your intermediary to determine when your orders will be
priced. The intermediary may charge a fee for its services.
Note: The time at which transactions and shares are priced and the time until
which orders are accepted may be changed in case of an emergency or if the
New York Stock Exchange closes at a time other than 4 p.m. ET.
How you can receive the proceeds from a sale
If your request is received by 4 p.m. ET in correct form, proceeds are
usually sent on the next business day. Proceeds can be sent to you by mail or
to your bank account by Automated Clearing House (ACH) transfer or bank wire.
Proceeds sent by ACH transfer should be credited the second day after the
sale. ACH is an automated method of initiating payments from, and receiving
payments in, your financial institution account. The ACH system is supported
by over 20,000 banks, savings banks, and credit unions. Proceeds sent by bank
wire should be credited to your account the next business day.
. Exception: Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to seven calendar days
after we receive your redemption request.
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T. ROWE PRICE
USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
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Dividends and Other Distributions
Dividend and capital gain distributions are reinvested in additional fund
shares in your account unless you select another option on your New Account
Form. The advantage of reinvesting distributions arises from compounding;
that is, you receive income dividends and capital gain distributions on a
rising number of shares.
Distributions not reinvested are paid by check or transmitted to your bank
account via ACH. If the Post Office 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 NAV on the day of the
reinvestment and to reinvest all subsequent distributions in shares of the
fund. No interest will accrue on amounts represented by uncashed distribution
or redemption checks.
Income dividends
. Money funds declare income dividends daily to shareholders of record as of
12 noon ET on that day. Wire purchase orders received before 12 noon ET
receive the dividend for that day. Other purchase orders receive the dividend
on the next business day after payment has been received.
. Dividends are ordinarily paid on the first business day of each month.
. Fund 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.
Capital gains
. A capital gain or loss is the difference between the purchase and sale price
of a security.
. If a fund has net capital gains for the year (after subtracting any capital
losses), they are usually declared and paid in December to shareholders of
record on a specified date that month.
Tax Information
You need to be aware of the possible tax consequences when:
. You sell fund shares, including an exchange from one fund to another.
. The fund makes a distribution to your account.
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Taxes on fund redemptions
When you sell shares in any fund, you may realize a gain or loss. An exchange
from one fund to another is still a sale for tax purposes.
In January, you will be sent Form 1099-B indicating the date and amount of
each sale you made in the fund during the prior year. This information will
also be reported to the IRS. For most new accounts or those opened by
exchange in 1984 or later, we will provide the gain or loss on the shares you
sold during the year, based on the "average cost," single category method.
This information is not reported to the IRS, and you do not have to use it.
You may calculate the cost basis using other methods acceptable to the IRS,
such as "specific identification."
To help you maintain accurate records, we send you a confirmation immediately
following each transaction you make (except for systematic purchases and
redemptions) and a year-end statement detailing all your transactions in each
fund account during the year.
Taxes on fund distributions
In January, you will be sent Form 1099-DIV indicating the tax status of any
dividend and capital gain distributions made to you. This information will
also be reported to the IRS. Distributions are generally taxable to you for
the year in which they were paid. You will be sent any additional information
you need to determine your taxes on fund distributions, such as the portion
of your dividends, if any, that may be exempt from state income taxes.
The tax treatment of a capital gain distribution is determined by how long
the fund held the portfolio securities, not how long you held shares in the
fund. Short-term (one year or less) capital gain distributions are taxable at
the same rate as ordinary income and long-term gains on securities held more
than 12 months are taxed at a maximum rate of 20%. However, if you realized a
loss on the sale or exchange of fund shares that you held six months or less,
your short-term loss will be reclassified to a long-term loss to the extent
of any long-term capital gain distribution received during the period you
held the shares.
Tax effect of buying shares before a capital gain distribution
If you buy shares shortly before or on the "record date" - the date that
establishes you as the person to receive the upcoming distribution - you will
receive a portion of the money you just invested in the form of a taxable
distribution. Therefore, you may wish to find out a fund's record date before
investing. Of course, a fund's share price may, at any time, reflect
undistributed capital gains or income and unrealized appreciation, which may
result in future taxable distributions.
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T. ROWE PRICE
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
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Purchase Conditions
Nonpayment
If you pay with a check or ACH transfer that does not clear or if your
payment is not timely received, your purchase will be canceled. You will be
responsible for any losses or expenses incurred by the fund or transfer
agent, and the fund can redeem shares you own in this or another identically
registered T. Rowe Price fund as reimbursement. The fund and its agents have
the right to reject or cancel any purchase, exchange, or redemption due to
nonpayment.
U.S. dollars
All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
banks.
Sale (Redemption) Conditions
Holds on immediate redemptions: 10-day hold
If you sell shares that you just purchased and paid for by check or ACH
transfer, the fund will process your redemption but will generally delay
sending you the proceeds for up to 10 calendar days to allow the check or
transfer to clear. 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. If, during the
clearing period, we receive a check drawn against your bond or money market
account, it will be returned marked "uncollected." (These holding periods do
not apply to purchases paid for by bank wire or automatic purchases through
your paycheck.)
Telephone, Tele*Access/(R)/, and personal computer transactions
Exchange and redemption services through telephone and Tele*Access are
established automatically when you sign the New Account Form unless you check
the boxes that state you do not want these services. Personal computer
transactions must be authorized separately. T. Rowe Price funds and their
agents use reasonable procedures designed to verify the identity of the
shareholder. If these procedures are followed, the funds and their agents are
not liable for any losses that may occur from acting on unauthorized
instructions. A confirmation is sent promptly after a transaction. Please
review it carefully and contact T. Rowe Price immediately about any
transaction you believe to be unauthorized. All telephone conversations are
recorded.
Redemptions over $250,000
Large sales can adversely affect a portfolio manager's ability to implement a
fund's investment strategy by causing the premature sale of securities that
would otherwise be held. If, in any 90-day period, you redeem (sell) more
than
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$250,000, or your sale amounts to more than 1% of fund net assets, the fund
has the right to pay the difference between the redemption amount and the
lesser of the two previously mentioned figures with securities from the fund.
Excessive Trading
Frequent trades, involving either substantial fund assets or a substantial
portion of your account or accounts controlled by you, can disrupt management
of the fund and raise its expenses. To deter such activity, we have adopted
an excessive trading policy. If you violate our excessive trading policy, you
may be barred indefinitely and without further notice from further purchases
of T. Rowe Price funds.
. Trades placed directly with T. Rowe Price If you trade directly with T.
Rowe Price, you can make one purchase and sale involving the same fund within
any 120-day period. For example, if you are in fund A, you can move
substantial assets from fund A to fund B and, within the next 120 days, sell
your shares in fund B to return to fund A or move to fund C. If you exceed
this limit, you are in violation of our excessive trading policy.
Two types of transactions are exempt from this policy: 1) trades solely in
money market funds (exchanges between a money fund and a nonmoney fund are
not exempt); and 2) systematic purchases or redemptions (see Information
About Your Services).
. Trades placed through intermediaries If you purchase fund shares through an
intermediary including a broker, bank, investment adviser, or other third
party and hold them for less than 60 calendar days, you are in violation of
our excessive trading policy.
Keeping Your Account Open
Due to the relatively high cost to a fund of maintaining small accounts, we
ask you to maintain an account balance of at least $1,000. If your balance is
below $1,000 for three months or longer, we have the right to close your
account after giving you 60 days in which to increase your balance.
Small Account Fee
Because of the disproportionately high costs of servicing accounts with low
balances, a $10 fee, paid to T. Rowe Price Services, the fund's transfer
agent, will automatically be deducted from nonretirement accounts with
balances falling below a minimum level. The valuation of accounts and the
deduction are expected to take place during the last five business days of
September. The fee will be deducted from accounts with balances below $2,000,
except for UGMA/ UTMA accounts, for which the limit is $500. The fee will be
waived for any investor whose T. Rowe Price mutual fund investments total
$25,000 or more. Accounts employing automatic investing (e.g., payroll
deduction, automatic
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T. ROWE PRICE
purchase from a bank account, etc.) are also exempt from the charge. The fee
will not apply to IRAs and other retirement plan accounts. (A separate
custodial fee may apply to IRAs and other retirement plan accounts.)
Signature Guarantees
You may need to have your signature guaranteed in certain situations, such
as:
. Written requests 1) to redeem over $100,000, or 2) to wire redemption
proceeds.
. Remitting redemption proceeds to any person, address, or bank account not on
record.
. Transferring redemption proceeds to a T. Rowe Price fund account with a
different registration (name or ownership) from yours.
. Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings institutions,
broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
accept guarantees from notaries public or organizations that do not provide
reimbursement in the case of fraud.
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MORE ABOUT THE FUND
ORGANIZATION AND MANAGEMENT
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How is the fund organized?
The fund was incorporated in Maryland in 1975 and is a "diversified, open-end
investment company," or mutual fund. In 1998, the fund issued a separate
class of shares known as the PLUS class. Mutual funds pool money received
from shareholders of each separate class into a single portfolio and try to
achieve specified objectives.
What is meant by "shares"?
As with all mutual funds, investors purchase shares when they put money in a
fund. These shares are part of a fund's authorized capital stock, but share
certificates are not issued.
Each share and fractional share entitles the shareholder to:
. Receive a proportional interest in a fund's income and capital gain
distributions.
. Cast one vote per share on certain fund matters, including the election of
fund directors, changes in fundamental policies, or approval of changes in
the fund's management contract.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and, to avoid unnecessary
costs to fund shareholders, do not do so except when certain matters, such as
a change in fundamental policies, must be decided. In addition, shareholders
representing at least 10% of all eligible votes may call a special meeting,
if they wish, for the purpose of voting on the removal of any fund director
or trustee. If a meeting is held and you cannot attend, you can vote by
proxy. Before the meeting, the fund will send you proxy materials that
explain the issues to be decided and include instructions on voting by mail
or telephone, or on the Internet.
Who runs the fund?
General Oversight
The fund is governed by a Board of Directors that meets regularly to review
the fund's investments, performance, expenses, and other business affairs.
The Board elects the fund's officers. The policy of the fund is that the
majority of Board members are independent of T. Rowe Price Associates, Inc.
(T. Rowe Price).
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T. ROWE PRICE
Portfolio Management
The fund has an Investment Advisory Committee with the following members:
Edward A. Wiese, Chairman, Patrice L. Berchtenbreiter Ely, Brian E. Burns,
Robert P. Campbell, Alan D. Levenson, Joseph K. Lynagh, James M. McDonald,
and Joan R. Potee. The committee chairman has day-to-day responsibility for
managing the fund and works with the committee in developing and executing
the fund's investment program. Mr. Wiese has been chairman of the fund's
committee since 1990. He joined T. Rowe Price in 1984 and has been managing
investments since 1985.
The Management Fee
This fee has two parts - an "individual fund fee," which reflects a fund's
particular characteristics, and a "group fee." The group fee, which is
designed to reflect the benefits of the shared resources of the T. Rowe Price
investment management complex, is calculated daily based on the combined net
assets of all T. Rowe Price funds (except the Spectrum Funds, and any
institutional, index, or private label mutual funds). The group fee schedule
(shown below) is graduated, declining as the asset total rises, so
shareholders benefit from the overall growth in mutual fund assets.
<TABLE>
Group Fee Schedule
<CAPTION>
<C> <S>
0.334%/a/ First $50 billion
0.305% Next $30 billion
0.300% Next $40 billion
0.295% Thereafter
--------------------------------------
</TABLE>
/a/ Represents a blended group fee rate containing various break points.
The fund's portion of the group fee is determined by the ratio of its daily
net assets to the daily net assets of all the T. Rowe Price funds described
previously. Based on combined T. Rowe Price funds' assets of over $96 billion
at June 30, 1999, the group fee was 0.32%. The individual fund fee is 0.05%.
UNDERSTANDING PERFORMANCE INFORMATION
----------------------------------------------------------
This section should help you understand the terms used to describe fund
performance. You will come across them in shareholder reports you receive
from us; in our newsletter, The Price Report; in T. Rowe Price
advertisements; and in the media.
<PAGE>
INVESTING WITH T. ROWE PRICE
Total Return
This tells you how much an investment in a fund has changed in value over a
given time period. It reflects any net increase or decrease in the share
price and assumes that all dividends and capital gains (if any) paid during
the period were reinvested in additional shares. Therefore, total return
numbers include the effect of compounding.
Advertisements for a fund may include cumulative or average annual total
return figures, which may be compared with various indices, other performance
measures, or other mutual funds.
Cumulative Total Return
This is the actual return of an investment for a specified period. A
cumulative return does not indicate how much the value of the investment may
have fluctuated during the period. For example, a fund could have a 10-year
positive cumulative return despite experiencing some negative years during
that time.
Average Annual Total Return
This is always hypothetical and should not be confused with actual
year-by-year results. It smooths out all the variations in annual performance
to tell you what constant year-by-year return would have produced the
investment's actual cumulative return. This gives you an idea of an
investment's annual contribution to your portfolio, provided you held it for
the entire period.
Yield
The current or "dividend" yield on a fund or any investment tells you the
relationship between the investment's current level of annual income and its
price on a particular day. The dividend yield reflects the actual income paid
to shareholders for a given period, annualized, and divided by the price at
the end of the period. For example, a fund providing $5 of annual income per
share and a price of $50 has a current yield of 10%. Yields can be calculated
for any time period. The fund may advertise "current" yield, reflecting the
latest seven-day income annualized, or an "effective" yield, which assumes
the income has been reinvested in the fund.
INVESTMENT POLICIES AND PRACTICES
----------------------------------------------------------
This section takes a detailed look at some of the types of securities the
fund may hold in its portfolio and the various kinds of investment practices
that may be used in day-to-day portfolio management. The fund's investment
program is subject to further restrictions and risks described in the
Statement of Additional Information.
<PAGE>
T. ROWE PRICE
Shareholder approval is required to substantively change the fund's
objectives and certain investment restrictions noted in the following section
as "fundamental policies." The managers also follow certain "operating
policies" which can be changed without shareholder approval. However,
significant changes are discussed with shareholders in fund reports. The fund
adheres to applicable investment restrictions and policies at the time it
makes an investment. Except as may be required by Rule 2a-7 under the
Investment Company Act of 1940, a later change in circumstances will not
require the sale of an investment if it was proper at the time it was made.
Changes in the fund's holdings, the fund's performance, and the contribution
of various investments are discussed in the shareholder reports sent to you.
Types of Portfolio Securities
In seeking to meet its investment objective, the fund may invest in any type
of short-term security or instrument whose investment characteristics are
consistent with the fund's investment program. The following pages describe
the principal types of portfolio securities and investment management
practices of the fund.
Operating policy Except as may be permitted by Rule 2a-7, the fund will not
purchase any security (other than a U.S. government security) if it would
cause the fund to have more than: (1) 5% of its total assets in securities of
that issuer, where the securities are prime securities (other than for
certain temporary, limited purposes); or (2) where the securities are not
prime securities, 5% of its total assets in such securities and 1% of its
total assets in the securities of that issuer.
Money Market Securities
Money market securities are IOUs issued by companies or governmental units.
Money market securities may be interest-bearing or discounted to reflect the
rate of interest paid. In the case of interest-bearing securities, the issuer
has a contractual obligation to pay coupon interest at a stated rate on
specific dates and to repay the face value on a specified date. In the case
of a discount security, no coupon interest is paid, but the security's price
is discounted so that the interest is realized when the security matures at
face value. In either case, an issuer may have the right to redeem or "call"
the security before maturity, and the investor may have to reinvest the
proceeds at lower market rates.
Except for adjustable rate instruments, a money market security's interest
rate, as reflected in the coupon rate or discount, is usually fixed for the
life of the security. Its current yield (coupon or discount as a percent of
current price) will fluctuate to reflect changes in interest rate levels. A
money market security's price usually rises when interest rates fall, and
vice versa.
<PAGE>
INVESTING WITH T. ROWE PRICE
Money market securities may be unsecured (backed by the issuer's general
creditworthiness only) or secured (also backed by specified collateral).
Certain money market securities have interest rates that are adjusted
periodically. These interest rate adjustments tend to minimize fluctuations
in the securities' principal values. When calculating its weighted average
maturity, the fund may shorten the maturity of these securities in accordance
with Rule 2a-7.
Asset-Backed Securities
An underlying pool of assets, such as credit card or automobile trade
receivables or corporate loans or bonds, backs these bonds and provides the
interest and principal payments to investors. On occasion, the pool of assets
may also include a swap obligation, which is used to change the cash flows on
the underlying assets. As an example, a swap may be used to allow floating
rate assets to back a fixed rate obligation. Credit quality depends primarily
on the quality of the underlying assets, the level of credit support, if any,
provided by the issuer, and the credit quality of the swap counterparty, if
any. The underlying assets (i.e., loans) are sometimes subject to
prepayments, which can shorten the security's weighted average life and may
lower its return. The value of these securities also may change because of
actual or perceived changes in the creditworthiness of the originator, the
servicing agent, the financial institution providing the credit support, or
the swap counterparty. There is no limit on the fund's investment in these
securities.
Foreign Securities
The fund may invest in certain foreign securities: dollar-denominated money
market securities of foreign issuers, foreign branches of U.S. banks, and
U.S. branches of foreign banks. Such investments increase a portfolio's
diversification and may enhance return, but they also involve some special
risks, such as exposure to potentially adverse local political and economic
developments; nationalization and exchange controls; potentially lower
liquidity and higher volatility; and possible problems arising from
accounting, disclosure, settlement, and regulatory practices that differ from
U.S. standards.
Operating policy The fund may invest without limit in U.S.
dollar-denominated foreign securities.
Private Placements
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, others may be illiquid, and their sale may involve
substantial delays and additional costs.
Operating policy The fund may invest up to 10% of its net assets in illiquid
securities.
<PAGE>
T. ROWE PRICE
Types of Investment Management Practices
Borrowing Money and Transferring Assets
The fund can borrow money from banks and other Price funds as a temporary
measure for emergency purposes, to facilitate redemption requests, or for
other purposes consistent with the fund's investment objective and program.
Such borrowings may be collateralized with fund assets, subject to
restrictions.
Fundamental policy Borrowings may not exceed 33/1//\\/3/\\% of total fund
assets.
Operating policy The fund 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
fund's total assets. The fund may not purchase additional securities when
borrowings exceed 5% of total assets.
Lending of Portfolio Securities
Like other mutual funds, the fund 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.
Fundamental policy The value of loaned securities may not exceed
33/1//\\/3/\\% of total fund assets.
Year 2000 Processing Issue
Many computer programs use two digits rather than four to identify the year.
These programs, if not adapted, will not correctly handle the change from
"99" to "00" on January 1, 2000, and will not be able to perform necessary
functions. The Year 2000 issue affects virtually all companies and
organizations.
T. Rowe Price has implemented steps intended to assure that major computer
systems and processes are capable of Year 2000 processing. While we have
worked with third parties to assess the adequacy of their compliance efforts
and have developed contingency plans intended to assure that third-party
noncompliance will not materially affect T. Rowe Price's operations, there is
no guarantee our operations will not be affected by Year 2000 problems.
Companies, organizations, governmental entities, and markets in which the T.
Rowe Price funds invest will be affected by the Year 2000 issue, but at this
time the funds cannot predict the degree of impact. For funds that invest in
foreign markets, especially emerging markets, it is possible foreign
companies and markets will not be as prepared for Year 2000 as domestic
companies and markets. To the extent the effect of Year 2000 is negative, the
fund's returns could be reduced.
<PAGE>
INVESTING WITH T. ROWE PRICE
FINANCIAL HIGHLIGHTS
----------------------------------------------------------
Table 4, which provides information about the fund's financial history, is
based on a single share outstanding throughout each fiscal year. The table is
part of the fund's financial statements, which are included in its annual
report and are incorporated by reference into the Statement of Additional
Information (available upon request). The total returns in the table
represent the rate that an investor would have earned or lost on an
investment in the fund (assuming reinvestment of all dividends and
distributions). The financial statements in the annual report were audited by
the fund's independent accountants, PricewaterhouseCoopers LLP.
<PAGE>
T. ROWE PRICE
<TABLE>
Table 4 Financial Highlights
<CAPTION>
Year ended May 31
1995 1996 1997 1998 1999
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income From Investment Operations
Net investment income 0.047 0.051 0.048 0.050 0.047
--------------------------------------------------
Net gains or losses
on securities (both
realized and -- -- -- -- --
unrealized)
--------------------------------------------------
Total from investment
operations 0.047 0.051 0.048 0.050 0.047
Less Distributions
Dividends (from net (0.047) (0.051) (0.048) (0.050) (0.047)
investment income)
--------------------------------------------------
Distributions (from -- -- -- -- --
capital gains)
--------------------------------------------------
Returns of capital -- -- -- -- --
--------------------------------------------------
Total distributions (0.047) (0.051) (0.048) (0.050) (0.047)
--------------------------------------------------
Net asset value, end $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
of period
--------------------------------------------------
Total return/a/ 4.85% 5.25% 4.92% 5.16% 4.82%
Ratios/Supplemental Data
Net assets, end of $ 3,841 $ 4,011 $ 4,561 $ 4,889 $ 5,169
period (in millions)
--------------------------------------------------
Ratio of expenses to 0.67% 0.66% 0.64% 0.63% 0.66%
average net assets
--------------------------------------------------
Ratio of net income 4.76% 5.07% 4.83% 5.06% 4.70%
to average net assets
-------------------------------------------------------------------------------
</TABLE>
/a/Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
<PAGE>
INVESTING WITH T. ROWE PRICE
ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
----------------------------------------------------------
Tax Identification Number
We must have your correct Social Security or corporate tax identification number
on a signed New Account Form or W-9 Form. Otherwise, federal law requires the
funds to withhold a percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. 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.
Always verify your transactions by carefully reviewing the confirmation we send
you. Please report any discrepancies to Shareholder Services promptly.
Employer-Sponsored Retirement Plans and Institutional Accounts T. Rowe Price
Trust Company 1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.
OPENING A NEW ACCOUNT
----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts
Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)
By Mail
Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address in the next paragraph. We do not accept third-party checks
to open new accounts, except for IRA Roll-
<PAGE>
T. ROWE PRICE
over checks that are properly endorsed. In addition, the fund does not accept
purchases made by credit card check.
Mail via United States Postal Service
T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD 21297-1300
Mail via private carriers/overnight services
T. Rowe Price Account Services Mailcode 17300 4515 Painters Mill Road Owings
Mills, MD 21117-4903
By Wire
Call Investor Services for an account number and give the following wire
information to your bank:
Receiving Bank: PNC Bank, N.A. (Pittsburgh) Receiving Bank ABA#: 043000096
Beneficiary: T. Rowe Price [fund name] Beneficiary Account: 1004397951
Originator to Beneficiary Information (OBI): name of owner(s) and account
number
Complete a New Account Form and mail it to one of the appropriate addresses
listed previously.
Note: No services will be established and IRS penalty withholding may occur
until a signed New Account Form is received. Also, retirement plan accounts and
IRAs cannot be opened by wire.
By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same 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. For limitations on exchanging, see
explanation of Excessive Trading under Transaction Procedures and Special
Requirements.
In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.
<PAGE>
INVESTING WITH T. ROWE PRICE
PURCHASING ADDITIONAL SHARES
----------------------------------------------------------
$100 minimum purchase; $50 minimum for retirement plans, Automatic Asset
Builder, and gifts or transfers to minors (UGMA/UTMA) accounts.
By ACH Transfer
Use Tele*Access or your personal computer or call Investor Services if you have
established electronic transfers using the ACH network.
By Wire
Call Shareholder Services or use the wire address listed in Opening a New
Account.
By Mail
1. Make your check payable to T. Rowe Price Funds (otherwise it may be
returned).
2. Mail the check to us at the following address with either a fund
reinvestment slip or a note indicating the fund you want to buy and your fund
account number.
3. Remember to provide your account number and the fund name on the memo line
of your check.
Mail via United States Postal Service
T. Rowe Price Funds Account Services P.O. Box 17300 Baltimore, MD 21297-1300
/(For //mail via private carriers and overnight services//, see previous /
/section.)/
By Automatic Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.
EXCHANGING AND REDEEMING SHARES
----------------------------------------------------------
Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)
<PAGE>
T. ROWE PRICE
Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers - By Wire under Information
About Your Services.
Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.
By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or express mail. For exchange
policies, please see Transaction Procedures and Special Requirements - Excessive
Trading.
By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:
Mail via United States Postal Service
for nonretirement and IRA accounts
T. Rowe Price Account Services P.O. Box 17302 Baltimore, MD 21297-1302
Mail via private carriers/overnight services
T. Rowe Price Account Services Mailcode 17302 4515 Painters Mill Road Owings
Mills, MD 21117-4903
For employer-sponsored retirement accounts
via U.S. Postal Service:
T. Rowe Price Trust Company P.O. Box 17479 Baltimore, MD 21297-1479
<PAGE>
INVESTING WITH T. ROWE PRICE
via private carriers and overnight services:
T. Rowe Price Trust Company Mailcode 17479 4515 Painters Mill Road Owings Mills,
MD 21117-1479
Redemptions from employer-sponsored retirement accounts must be in writing;
please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.
RIGHTS RESERVED BY THE FUND
----------------------------------------------------------
The fund and its agents reserve the following rights: (1) to waive or lower
investment minimums; (2) to accept initial purchases by telephone or mailgram;
(3) to refuse any purchase or exchange order; (4) to cancel or rescind any
purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; and (7) to act on
instructions believed to be genuine. These actions will be taken when, in the
sole discretion of management, they are deemed to be in the best interest of the
fund.
In an effort to protect the fund from the possible adverse effects of a
substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
<PAGE>
T. ROWE PRICE
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of the fund, except upon approval of the fund's management.
INFORMATION ABOUT YOUR SERVICES
----------------------------------------------------------
Shareholder Services 1-800-225-5132 Investor Services 1-800-638-5660
Many services are available to you as a T. Rowe Price shareholder; some you
receive automatically, and others you must authorize or request on the New
Account Form. By signing up for services on the New Account Form rather than
later on, you avoid having to complete a separate form and obtain a signature
guarantee. This section discusses some of the services currently offered. Our
Services Guide, which we mail to all new shareholders, contains detailed
descriptions of these and other services.
Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. For more
information, call Investor Services.
Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k), and 403(b)(7). For information
on IRAs, call Investor Services. For information on all other retirement plans,
including our no-load variable annuity, please call our Trust Company at
1-800-492-7670.
Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days
Tele*Access
24-hour service via toll-free number enables you to (1) access information on
fund yields, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, duplicate
statements, and tax forms; and (3) initiate purchase, redemption, and exchange
transactions in your accounts (see Electronic Transfers in this section).
<PAGE>
INVESTING WITH T. ROWE PRICE
Web Address www.troweprice.com
After authorizing this service, account transactions may also be conducted
through our Web site on the Internet. If you subscribe to America Online/(R)/,
you can access our Web site via keyword "T. Rowe Price" and conduct transactions
in your account.
Plan Account Line 1-800-401-3279
Plan Account Line
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.
Electronic Transfers
By ACH
With no charges to pay, you can initiate a purchase or redemption for as little
as $100 or as much as $100,000 between your bank account and fund account using
the ACH network. Enter instructions via Tele*Access or your personal computer,
or call Shareholder Services.
By Wire
Electronic transfers can be conducted via bank wire. There is currently a $5 fee
for wire redemptions under $5,000, and your bank may charge for incoming or
outgoing wire transfers regardless of size.
Checkwriting
(Not available for equity funds, or the High Yield or Emerging Markets Bond
Funds) You may write an unlimited number of free checks on any money market
fund, and most bond funds, with a minimum of $500 per check. Keep in mind,
however, that a check results in a redemption; a check written on a bond fund
will create a taxable event which you and we must report to the IRS.
Automatic Investing
($50 minimum) You can invest automatically in several different ways, including:
Automatic Asset Builder
You instruct us to move $50 or more from your bank account, or you can instruct
your employer to send all or a portion of your paycheck to the fund or funds you
designate.
<PAGE>
T. ROWE PRICE
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.
T. ROWE PRICE BROKERAGE
----------------------------------------------------------
To Open an Account 1-800-638-5660 For Existing Brokerage Investors
1-800-225-7720
This service gives you the opportunity to consolidate all of your investments
with one company. Investments available through our brokerage service include
stocks, options, bonds, and others at commission savings over full-service
brokers. We also provide a wide range of services, including:
Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Internet-Trader. Any trades entered through Tele-Trader save you an additional
10% on commissions. For stock trades entered through Internet-Trader, you will
pay a commission of $24.95 for up to 1,000 shares plus $.02 for each share over
1,000. Option trades entered through Internet-Trader save you 10% over our
standard commission schedule. All trades are subject to a $35 minimum commission
except stock trades placed through Internet-Trader.
Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to on-line research tools can help
you better evaluate economic trends and investment opportunities.
Dividend Reinvestment Service
Virtually all stocks held in customer accounts are eligible for this free
service.
/T. Rowe Price// Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./
<PAGE>
INVESTING WITH T. ROWE PRICE
INVESTMENT INFORMATION
----------------------------------------------------------
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety of
information in addition to account statements. Most of this information is also
available on our Web site at www.troweprice.com.
Shareholder Reports
Fund managers' reviews of their strategies and performance. If several members
of a household own the same fund, only one fund report is mailed to that
address. To receive additional copies, please call Shareholder Services or write
to us at P.O. Box 17630, Baltimore, Maryland 21297-1630.
The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies.
Performance Update
A quarterly review of all T. Rowe Price fund results.
Insights
Educational reports on investment strategies and financial markets.
Investment Guides
Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirees Financial Guide, Retirement Planning Kit,
and Tax Considerations for Investors.
<PAGE>
To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A Statement of Additional Information about the fund has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus. Further information about the fund's investments, including a review
of market conditions and the manager's recent strategies and their impact on
performance, is available in the annual and semiannual shareholder reports. To
obtain free copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.
Fund reports and Statements of Additional Information are also available from
the Securities and Exchange Commission by calling 1-800-SEC-0330 or by writing
the SEC's Public Reference Section, Washington, D.C. 20549-6009 (you will be
charged a duplicating fee); by visiting the SEC's public reference room; or by
consulting the SEC's Web site at www.sec.gov.
Walk-in
Investor Centers
For directions, call 1-800-225-5132 or visit our Web site
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
10090 Red Run Blvd. After October 18, 1999: Three Financial Center 4515
Painters Mill Rd.
Boston Area
386 Washington Street Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center 21800 Oxnard Street Suite 270 Woodland Hills
Tampa
4200 West Cypress St. 10th Floor
Washington, D.C.
900 17th Street, N.W. Farragut Square
For Mutual Fund or T. Rowe Price Brokerage Information
Investor Services
1-800-638-5660
For Existing Accounts
Shareholder Services
1-800-225-5132
For Yields, Prices, Account Information, or to Conduct Transactions
Tele*Access/(R)/
24 hours, 7 days 1-800-638-2587
Internet Address
www.troweprice.com
Plan Account Line
For retirement plan investors: The appropriate 800 number appears on your
retirement account statement.
LOGO
T. Rowe Price Associates, Inc. 100 East Pratt Street Baltimore, MD 21202
F44-040 10/1/99
1940 Act File No. 811-2603
<PAGE>
PROSPECTUS
October 1, 1999
T. ROWE PRICE
Prime Reserve Fund--PLUS Class
A money market fund seeking preservation of capital and liquidity, as well as
income. The PLUS class offers unlimited, no-minimum checkwriting and a VISA/(R)
/Gold ATM & Check Card.
T. ROWE PRICE RAM LOGO
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
T. Rowe Price Prime Reserve Fund--PLUS Class
Prospectus
October 1, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ABOUT THE FUND
1
Objective, Strategy, Risks, and Expenses 1
-----------------------------------------------
Other Information About the Fund 5
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Some Basics of Money Market Investing 7
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ABOUT YOUR ACCOUNT
2
The
T. Rowe Price
Prime Reserve Fund--
PLUS Class
9
Services
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Important Information About Your ATM 9
& Check Card
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Pricing Shares and Receiving 12
Sale Proceeds
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Distributions and Taxes 13
-----------------------------------------------
Transaction Procedures and 15
Special Requirements
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MORE ABOUT THE FUND
3
Organization and Management 19
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Understanding Performance Information 21
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Investment Policies and Practices 22
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Financial Highlights 25
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INVESTING WITH T. ROWE PRICE
4
Account Requirements 27
and Transaction Information
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Opening a New Account 27
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Purchasing Additional Shares 28
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Exchanging and Redeeming 29
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Rights Reserved by the Fund 30
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Information About Your Services 31
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Investment Information 32
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</TABLE>
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $159.2 billion for more than seven million
individual and institutional investor accounts as of June 30, 1999.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.
<PAGE>
ABOUT THE FUND
A Word About the Fund's Name and Structure. The Prime Reserve Fund - PLUS
Class is a share class of the T. Rowe Price Prime Reserve Fund. The PLUS
class is not a separate mutual fund; it has the same portfolio as the Prime
Reserve Fund but carries a different set of services (such as unlimited,
no-minimum checkwriting and a VISA/(R)/ Gold ATM & Check Card) and different
expenses, as discussed later in this prospectus.
OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
----------------------------------------------------------
This section reviews the fund's investment objective, strategy, and potential
risks.
What is the fund's objective?
The fund's goals are preservation of capital, liquidity, and, consistent with
these, the highest possible current income.
What is the fund's principal investment strategy?
The fund, which is managed to provide a stable share price of $1.00, invests
in high-quality, U.S. dollar-denominated money market securities. The fund's
average weighted maturity will not exceed 90 days, and its yield will
fluctuate with changes in short-term interest rates. In selecting securities,
fund managers may examine the relationships among yields on various types and
maturities of money market securities in the context of their outlook for
interest rates. For example, commercial paper often offers a yield advantage
over Treasury bills. If rates are expected to fall, longer maturities, which
typically have higher yields than shorter maturities, may be purchased to try
to preserve the fund's income level. Conversely, shorter maturities may be
favored if rates are expected to rise.
The fund may sell holdings for a variety of reasons, such as to adjust the
portfolio's average maturity or quality, or to shift assets into
higher-yielding securities.
. For further details on the fund's investment program, please see the
question "What is the fund's investment program?" later in this section, or
see the Investment Policies and Practices section.
What are the main risks of investing in the fund?
Since the fund seeks to maintain a $1.00 share price, it should have little
risk of principal loss. However, there is no assurance the fund will avoid
principal losses in the rare event that holdings default or interest rates
rise sharply in an unusually short period.
<PAGE>
T. ROWE PRICE
The fund's yield will vary; it is not fixed for a specific period like the
yield on a bank certificate of deposit. This is a disadvantage when interest
rates are falling. An investment in the fund is not insured or guaranteed by
the FDIC or any other government agency. Although the fund seeks to preserve
the value of your investment at $1.00 per share, it is possible to lose money
by investing in the fund.
As with any mutual fund, there can be no guarantee the fund will achieve its
objective.
How can I tell if the fund is appropriate for me?
Prime Reserve PLUS is a class of shares of the Prime Reserve Fund. Like that
fund, this class is appropriate if you have some money for which safety and
accessibility are more important than total return. Over time, money market
securities have shown greater stability and lower returns than bonds or
stocks.
Prime Reserve PLUS offers services that include unlimited, no-minimum
checkwriting and a VISA Gold ATM & Check Card. The cost of these services
will raise the expense ratio of the PLUS class above that of a typical money
fund that does not offer these expanded features.
How has the fund performed in the past?
Prime Reserve PLUS began operations on October 31, 1998, and therefore has a
limited performance history. As a point of comparison, however, the following
bar chart and table show 10 calendar years of returns for the Prime Reserve
Fund, which has the same management program and investment portfolio. Shares
of the other class are offered in a separate prospectus. (Note that prior to
the inception of Prime Reserve PLUS, Prime Reserve Fund had no share
classes.)
Because Prime Reserve PLUS has higher expenses than the Prime Reserve Fund,
its performance, had it existed over this period, would have been lower than
what is shown. Nevertheless, the bar chart and table indicate risk by showing
how much returns can differ over time. Of course, past performance is no
guarantee of future returns.
<TABLE>
<CAPTION>
Calendar Year Total Returns
"89" "90" "91" "92" "93" "94" "95" "96" "97" "98"
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.90 7.73 5.67 3.34 2.60 3.74 5.48 4.90 5.10 5.13
----------------------------------------------------------------------
</TABLE>
Quarter ended Total return
Best quarter 6/30/89 2.30%
Worst quarter 6/30/93 0.62%
The Prime Reserve Fund's total return for the six months ended
6/30/99 was 2.16%.
<PAGE>
INVESTING WITH T. ROWE PRICE
<TABLE>
Table 1 Average Annual Total Returns
<CAPTION>
Periods ended December 31, 1998
1 year 5 years 10 years
------------------------------------
<S> <C> <C> <C>
Prime Reserve Fund 5.13% 4.87% 5.24%
Lipper Money Market Funds Average 4.84 4.77 5.20
------------------------------------------------------------------------
</TABLE>
These figures include changes in principal value, reinvested dividends, and
capital gain distributions, if any.
What fees or expenses will I pay?
The fund is 100% no load. There are no fees or charges to buy or sell fund
shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
are no 12b-1 fees. Like all mutual funds, the fund charges the following:
. A management fee The percent of fund assets paid to the fund's investment
manager. The fund's fee comprises a group fee, 0.32% as of June 30, 1999, and
an individual fund fee of 0.05%.
. "Other" administrative expenses Primarily the servicing of shareholder
accounts, such as providing statements and reports, disbursing dividends, and
providing custodial services.
The PLUS class charges you for use of your VISA Gold ATM & Check Card. You
will be charged $1 for each automated teller machine (ATM) withdrawal using
the card; this fee is waived for the first two such transactions in each
month. This fee does not include any third-party fees charged at the ATM
machine.
The numbers in the next table provide an estimate of how much it will cost to
operate the PLUS class for a year, based on estimated expenses for the Prime
Reserve PLUS shares. These are costs you pay indirectly because they are
deducted from the fund's total assets before the daily share price is
calculated and before distributions are made.
<TABLE>
Table 2 Fees and Expenses of the Fund
<CAPTION>
Annual fund operating expenses
(expenses that are deducted from fund assets)
-------------------------------------------------------------------------------------
<S> <C>
Management fee 0.37%/a// /
Other expenses 0.45%
Total annual fund operating 0.82%/a// /
expenses
-------------------------------------------------------------------------------------
</TABLE>
/a/
To limit the fund's expenses during its initial period of operations, T. Rowe
Price contractually obligated itself to bear any expenses through April 30,
1999, to the extent such expenses would cause the ratio of expenses to
average net assets to exceed 1.00%. Effective May 1, 1999, T. Rowe Price
agreed to extend this expense limitation for a period of one year through
April 30, 2000. Fees waived or expenses paid or assumed under these
agreements are subject to reimbursement to T. Rowe Price by the fund whenever
the fund's expense ratio is below 1.00%; however, no reimbursement will be
made after April 30, 2000 (for the first agreement), or April 30, 2002 (for
the second agreement), or if it would result in the expense ratio exceeding
1.00%. Any amounts reim-
<PAGE>
T. ROWE PRICE
bursed will have the effect of increasing fees otherwise paid by the fund.
Example. The following table gives you a rough idea of how expense ratios
may translate into dollars and helps you to compare the cost of investing in
this fund with that of other funds. Although your actual costs may be higher
or lower, the table shows how much you would pay if operating expenses remain
the same, the expense limitation currently in place is not renewed, you
invest $10,000, you earn a 5% annual return, and you hold the investment for
the following periods:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----------------------------------------------------
<S> <C> <C> <C>
$102 $280 $473 $1,030
----------------------------------------------------
</TABLE>
In addition to typical fund expenses, Prime Reserve PLUS shareholders may be
assessed fees for use of their VISA Gold ATM & Check Card. You will be
charged $1 for each ATM withdrawal using the card; this fee is waived for the
first two such transactions in each month. These fees do not include any
third-party fees charged at the ATM machine.
OTHER INFORMATION ABOUT THE FUND
----------------------------------------------------------
What are some of the advantages of the Prime Reserve Fund--PLUS class?
A Prime Reserve PLUS account offers convenient access to your assets through
unlimited, no-minimum checkwriting and the use of a VISA Gold ATM & Check
Card. These services are discussed in more detail in Section 2 of this
prospectus.
What are the fund's potential rewards?
The fund offers a relatively secure, liquid investment for money you may need
for occasional or unexpected expenses and for money awaiting investment in
longer-term bond or stock funds. In addition to preserving capital, the fund
seeks to provide the highest possible income available from low-risk,
short-term securities.
How does the portfolio manager try to reduce risk?
Consistent with the fund's objective, the portfolio manager uses various
tools to try to reduce risk and increase total return, including:
. Diversification of assets to reduce the impact of a single holding on the
fund's net asset value.
. Thorough credit research by our own analysts.
. Maturity adjustments to reflect the fund manager's interest rate outlook.
<PAGE>
INVESTING WITH T. ROWE PRICE
What is a money market fund?
A money market fund is a pool of assets invested in U.S. dollar-denominated,
short-term debt obligations with fixed or floating rates of interest and
maturities generally less than 13 months. Money funds can be taxable or
tax-exempt, depending on their investment program. Issuers can include the
U.S. government and its agencies, domestic and foreign banks and other
corporations, and states and municipalities. Because of the high degree of
safety they provide, money market funds typically offer the lowest return
potential of any type of mutual fund.
What is the fund's investment program?
The fund invests at least 95% of its total assets in prime money market
instruments, that is, securities receiving a credit rating within the highest
category assigned by at least two established rating agencies, or by one
rating agency if the security is rated by only one, or, if unrated, the
equivalent rating as established by T. Rowe Price. The fund's weighted
average maturity will not exceed 90 days. It will not purchase any security
with a maturity of more than 13 months. Its yield will fluctuate in response
to changes in interest rates, but the share price is managed to remain stable
at $1.00. Unlike most bank accounts or certificates of deposit, the fund is
not insured or guaranteed by the U.S. government.
What are the main risks of investing in money market funds?
Since they are managed to maintain a $1.00 share price, money market funds
should have little risk of principal loss. However, the potential for a loss
of principal could derive from:
. Credit risk This is the chance that any of the fund's holdings will have
its credit rating downgraded or will default (fail to make scheduled interest
or principal payments), potentially reducing the fund's income level and
share price. Regulations require that securities of money market funds be
rated in the highest two credit categories.
. Interest rate risk This risk refers to the decline in the prices of fixed
income securities and funds that may accompany a rise in the overall level of
interest rates. A sharp and unexpected rise in interest rates could cause a
money fund's price to drop below a dollar. However, the extremely short
maturity of securities held in money market portfolios -a means of achieving
an overall fund objective of principal safety-reduces their potential for
price fluctuation.
What are the main types of money market securities the fund can invest in?
. Commercial paper Unsecured promissory notes that corporations typically
issue to finance current operations and other expenditures.
<PAGE>
T. ROWE PRICE
. Treasury bills, notes and bonds Debt obligations sold at discount or at
face value and repaid at face value by the U.S. Treasury. Bills mature in one
year or less; notes and bonds may have longer maturities at issue but will
only be purchased by the fund if they mature within 13 months of the purchase
date. All are backed by the full faith and credit of the U.S. government.
. Certificates of deposit Receipts for funds deposited at banks that
guarantee a fixed interest rate over a specified time period.
. Repurchase agreements Contracts, usually involving U.S. government
securities, that require one party to repurchase securities at a fixed price
on a designated date.
. Banker's acceptances Bank-issued commitments to pay for merchandise sold in
the import/export market.
. Agency notes Debt obligations of agencies sponsored by the U.S. government
that are not backed by the full faith and credit of the United States.
. Medium-term notes Unsecured corporate debt obligations that are
continuously offered in a broad range of maturities and structures.
. Bank notes Unsecured obligations of a bank that rank on an equal basis with
other kinds of deposits but do not carry FDIC insurance.
. Asset-backed securities Certificates, trusts, or similarly structured
investment vehicles whose principal and interest is backed by an underlying
pool of assets. The value of the asset pool often exceeds the value of the
security and may include a swap obligation or third-party guarantee.
. Funding agreements Short-term, privately placed, non-transferrable
obligations of insurance companies that often include an adjustable coupon
tied to market rates and the right to sell the agreement back to the issuer
prior to maturity.
The fund may also purchase other types of money market securities that meet
the fund's maturity and credit requirements.
Is there other information I can review before making a decision?
Investment Policies and Practices in Section 3 discusses various types of
portfolio securities the fund may purchase as well as types of investment
management practices the fund may use.
<PAGE>
INVESTING WITH T. ROWE PRICE
SOME BASICS OF MONEY MARKET INVESTING
----------------------------------------------------------
Is a fund's yield fixed or will it vary?
It will vary. Yield is calculated every day by dividing a fund's net income
per share, expressed at annual rates, by the share price. Since income in a
fund will fluctuate as the short-term securities in its portfolio mature and
the proceeds are reinvested, its yield will vary.
Is yield the same as total return?
Yes for money funds. The total return reported for the fund is the result of
reinvested distributions (income and capital gains) and the change in share
price for a given time period. Since money funds are managed to maintain a
stable share price, their yield and total return should be the same. Of
course, there is no guarantee a money fund will maintain a $1.00 share price.
What is credit quality and how does it affect yield?
Credit quality refers to a borrower's expected ability to make all required
interest and principal payments in a timely manner. Because highly rated
issuers represent less risk, they can borrow at lower interest rates than
less creditworthy issuers.
What is meant by a money market fund's maturity?
Every money market instrument has a stated maturity date when the issuer must
repay the entire principal to the investor. The fund has no maturity in the
strict sense of the word, but does have a weighted average maturity,
expressed in days. This number is an average of the maturities of the
underlying instruments, with each maturity "weighted" by the percentage of
fund assets it represents.
Do money market securities react to changes in interest rates?
Yes. As interest rates change, the prices of money market securities
fluctuate, but changes are usually small because of their very short
maturities. Investments are typically held until maturity in a money fund to
help the fund maintain a $1.00 share price.
<PAGE>
T. ROWE PRICE
THE T. ROWE PRICE PRIME RESERVE FUND--PLUS CLASS SERVICES
----------------------------------------------------------
Prime Reserve PLUS offers features not normally available from other mutual
funds. Subject to T. Rowe Price approval, including a credit review, you may
access your account as follows:
. Checkwriting You can write an unlimited number of checks against your
account to meet personal expenses. There is no minimum amount requirement for
the checks you write.
. VISA Gold ATM & Check Card You may use your ATM & Check Card to purchase
merchandise or services at participating establishments or to obtain cash
advances from any participating bank. Any of 362,000 worldwide bank branches
in the VISA system, as well as all establishments accepting the VISA card,
will honor your card. Presently, more than 12 million stores, restaurants,
and service outlets worldwide honor the VISA card. You may also obtain cash
using your card and personal identification number (PIN) from ATMs displaying
the VISA or Plus System/(R)/ name and logos.
Important note: Your PLUS account available balance must cover your checks,
use of your debit card, and other transactions; there is no extension of
credit.
IMPORTANT INFORMATION ABOUT YOUR ATM & CHECK CARD
----------------------------------------------------------
If you lose your ATM & Check Card or PIN, or believe someone has used or may
use your card or PIN without your permission, immediately notify T. Rowe
Price in one of the following ways:
. By telephone T. Rowe Price 1-800-222-7002
. By mail T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD
21297-1300
Some of the major features of the account are described in the next table.
See the VISA Gold ATM & Check Card Agreement and Disclosure Statement
included with your card for complete details. Use of the card is subject to
the terms and conditions described in this Agreement and Disclosure
Statement.
Your card may be subject to certain fees and daily transactions limits, some
of which are summarized in the following table. Most daily limits are imposed
for the duration of a "banking day," which can differ depending on the type
of transaction.
<PAGE>
ABOUT YOUR ACCOUNT
<TABLE>
Table 3 Fees and Limits on Your ATM & Check Card
<CAPTION>
Transaction Fees/a/ Transaction Limits/b/
------------------------------------------------- Dollar amount per day Banking day
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ATM withdrawals $500 12 a.m. to 12
$1 (waived for first two ATM a.m. ET,
withdrawals per month) 7 days per week
Cash advances None $10,000 (less amount of ATM 6 a.m. to 6 a.m.
withdrawals and ET,
purchases and 5 days a week/c/
authorizations)
Purchases and authorizations None $10,000 (less amount of cash 6 a.m. to 6 a.m.
advances and ATM ET,
withdrawals) 5 days a week/c/
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/
The fees listed in the table only include fees that are charged by the fund
and do not include fees that may be charged by third parties.
/b/
We reserve the right to impose a limit on the number of transactions you can
make per banking day. You will be allowed to make at least eight transactions
on any banking day under normal conditions. The system that processes these
transactions may have different limits.
/c/
The period from 6 a.m. Saturday to 6 a.m. Tuesday eastern time is considered
to be one banking day.
Additional fees
There is a $15 check reorder fee after you use the initial booklet of 100
checks. You will receive 200 checks with each reorder. You can write an
unlimited number of checks against your account to meet personal expenses. If
you request a copy of a check, an ATM receipt, or a sales/cash advance
receipt from T. Rowe Price, your account may be charged $2.50 for each
receipt or copy. We will assess your account $10 for the proper placement of
each stop-payment request on a check (stop payment is not available on the
ATM & Check Card transactions). We will assess your account a $15 fee when
you write a check against insufficient or uncollected funds, whether we (in
our sole discretion) pay the check or return it unpaid. We also reserve the
right to charge additional fees for excessive checkwriting activity.
Liability for unauthorized electronic transactions
Notify us at once if you believe your card has been lost or stolen or if you
believe unauthorized persons may know your PIN. Telephoning is the best way
to keep possible losses to a minimum. You could lose all the money and other
assets in your account if you never inform us of unauthorized use of your
card. If you notify us within two business days after you learn of the loss
or theft, you can lose no more than $50 if someone used your card or PIN
without your permission.
<PAGE>
T. ROWE PRICE
If you do not inform us within two business days after you learn of the loss
or theft of your card or PIN and we could have stopped someone from using
your card or PIN without your permission, you could lose as much as $500.
Also, tell us at once if your monthly account statement shows transactions
you did not make. If you do not notify us within 60 days after the account
statement was mailed to you, you may not recover any money you lost after 60
days if we could have prevented the unauthorized use.
In case of errors or questions about your electronic transactions
Notify us as soon as you can, as follows, if you think your account statement
or receipt is wrong or if you need additional information about a transaction
listed on your account statement or receipt.
. By telephone T. Rowe Price 1-800-222-7002
. By mail T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD
21297-1300
We must hear from you no later than 60 days after T. Rowe Price sent the
first monthly account statement on which the problem or error appeared.
You must give us the following information:
. Your name, address, and card number.
. A description of the error or the transaction you are unsure about, and an
explanation of why you believe it is in error or why you need more
information.
. The dollar amount of the suspected error.
If you telephone us, we may require that you send us your question or
complaint in writing within 10 business days.
Except as otherwise stated below, we will determine whether an error occurred
within 10 business days after we hear from you and will correct any error
promptly. If we need more time, however, we may take up to 45 days to
investigate your complaint or question. If we decide to do this, T. Rowe
Price will recredit your account within 10 business days for the amount you
think is in error while our investigation is pending. If we ask you to put
your complaint or question in writing and we do not receive it within 10
business days, T. Rowe Price may not recredit your account.
Longer periods apply to new fund shareholders and certain types of
transactions. For transactions occurring within the first 30 days after you
make your initial fund purchase, we will tell you the results of our
investigation within 20 business days after hearing from you and will correct
any error promptly. If we need more
<PAGE>
ABOUT YOUR ACCOUNT 11
time, however, we may take up to 90 business days to investigate your
complaints or questions. If we decide to do this, T. Rowe Price will recredit
your account within 20 business days for the amount you think is in error
while our investigation is pending. For all shareholders, we may take up to
90 days (instead of 45 days) to investigate transactions performed by you for
the purchase of goods and services with your card at merchant locations,
though the mail or by telephone, and any electronic transactions performed at
locations outside the United States.
In all cases, if we determine that there was no error, we will send you a
written explanation within three business days after we finish our
investigation and will collect any amounts recredited to you. Upon your
request we will give you copies of the documents that we used in our
investigation.
PRICING SHARES AND RECEIVING SALE PROCEEDS
----------------------------------------------------------
Here are some procedures you should know when investing in a T. Rowe Price
fund.
How and when shares are priced
The share price (also called "net asset value" or NAV per share) for each
class of shares is calculated at the close of the New York Stock Exchange,
normally 4 p.m. ET, each day the New York Stock Exchange is open for
business. To calculate the NAV, the fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. Amortized cost is used to value money fund
securities.
How your purchase, sale, or exchange price is determined
If we receive your request in correct form by 4 p.m. ET, your transaction
will be priced at that day's NAV. If we receive it after 4 p.m., it will be
priced at the next business day's NAV.
We cannot accept orders that request a particular day or price for your
transaction or any other special conditions.
Note: The time at which transactions and shares are priced and the time until
which orders are accepted may be changed in case of an emergency or if the
New York Stock Exchange closes at a time other than 4 p.m. ET.
How you can receive the proceeds from a sale
If your request is received by 4 p.m. ET in correct form, proceeds are
usually sent on the next business day. Proceeds can be sent to you by mail or
to your bank account by Automated Clearing House (ACH) transfer or bank wire.
Proceeds sent by ACH transfer should be credited the second day after the
sale. ACH is an automated method of initiating payments from, and receiving
payments in, your
<PAGE>
T. ROWE PRICE
financial institution account. The ACH system is supported by over 20,000
banks, savings banks, and credit unions. Proceeds sent by bank wire should be
credited to your account the next business day.
. Exception: Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to seven calendar days
after we receive your redemption request.
USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
----------------------------------------------------------
Dividends and Other Distributions
Dividend and capital gain distributions are reinvested in additional fund
shares in your account unless you select another option on your New Account
Form. The advantage of reinvesting distributions arises from compounding;
that is, you receive income dividends and capital gain distributions on a
rising number of shares.
Distributions not reinvested are paid by check or transmitted to your bank
account via ACH. If the Post Office 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 NAV on the day of the
reinvestment and to reinvest all subsequent distributions in shares of the
fund. No interest will accrue on amounts represented by uncashed distribution
or redemption checks.
Income dividends
. Money funds declare income dividends daily to shareholders of record as of
12 noon ET on that day. Wire purchase orders received before 12 noon ET
receive the dividend for that day. Other purchase orders receive the dividend
on the next business day after payment has been received.
. Dividends are ordinarily paid on the first business day of each month.
. Fund 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.
Capital gains
. A capital gain or loss is the difference between the purchase and sale price
of a security.
<PAGE>
ABOUT YOUR ACCOUNT 13
. If a fund has net capital gains for the year (after subtracting any capital
losses), they are usually declared and paid in December to shareholders of
record on a specified date that month.
Tax Information
You need to be aware of the possible tax consequences when:
. You sell fund shares, including an exchange from one fund to another.
. The fund makes a distribution to your account.
Taxes on fund redemptions
When you sell shares in any fund, you may realize a gain or loss. An exchange
from one fund to another is still a sale for tax purposes.
In January, you will be sent Form 1099-B indicating the date and amount of
each sale you made in the fund during the prior year. This information will
also be reported to the IRS. For most new accounts or those opened by
exchange in 1984 or later, we will provide the gain or loss on the shares you
sold during the year, based on the "average cost," single category method.
This information is not reported to the IRS, and you do not have to use it.
You may calculate the cost basis using other methods acceptable to the IRS,
such as "specific identification."
To help you maintain accurate records, we send you a confirmation immediately
following each transaction you make (except for systematic purchases and
redemptions) and a year-end statement detailing all your transactions in each
fund account during the year.
Taxes on fund distributions
In January, you will be sent Form 1099-DIV indicating the tax status of any
dividend and capital gain distributions made to you. This information will
also be reported to the IRS. Distributions are generally taxable to you for
the year in which they were paid. You will be sent any additional information
you need to determine your taxes on fund distributions, such as the portion
of your dividends, if any, that may be exempt from state income taxes.
The tax treatment of a capital gain distribution is determined by how long
the fund held the portfolio securities, not how long you held shares in the
fund. Short-term (one year or less) capital gain distributions are taxable at
the same rate as ordinary income and long-term gains on securities held more
than 12 months are taxed at a maximum rate of 20%. However, if you realized a
loss on the sale or exchange of fund shares that you held six months or less,
your short-term loss will be reclassified to a long-term loss to the extent
of any long-term capital gain distribution received during the period you
held the shares.
<PAGE>
T. ROWE PRICE
Tax effect of buying shares before a capital gain distribution
If you buy shares shortly before or on the "record date" - the date that
establishes you as the person to receive the upcoming distribution - you will
receive a portion of the money you just invested in the form of a taxable
distribution. Therefore, you may wish to find out a fund's record date before
investing. Of course, a fund's share price may, at any time, reflect
undistributed capital gains or income and unrealized appreciation, which may
result in future taxable distributions.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
----------------------------------------------------------
Purchase Conditions
Nonpayment
If you pay with a check or ACH transfer that does not clear or if your
payment is not timely received, your purchase will be canceled. You will be
responsible for any losses or expenses incurred by the fund or transfer
agent, and the fund can redeem shares you own in this or another identically
registered T. Rowe Price fund as reimbursement. The fund and its agents have
the right to reject or cancel any purchase, exchange, or redemption due to
nonpayment.
U.S. dollars; type of check
All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
banks.
Sale (Redemption) Conditions
Holds on immediate redemptions
If you sell shares that you just purchased and paid for by check or ACH
transfer, the fund will process your redemption but will generally delay
sending you the proceeds for up to seven business days to allow the check or
transfer to clear. 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. If, during the
clearing period, we receive a check drawn against your bond or money market
account, it will be returned marked "uncollected." (These holding periods do
not apply to purchases paid for by bank wire or automatic purchases through
your paycheck.)
Your redemption proceeds may also be delayed if there are outstanding
authorizations on your ATM & Check Card. If you sell shares and there are
authorizations pending, the fund will process your redemption, but may hold
redemption proceeds up to five business days to allow time for the pending
transactions to clear.
We will redeem shares from your account to cover transactions in the
following order:
<PAGE>
ABOUT YOUR ACCOUNT 15
. ATM & Check Card transactions (including ATM withdrawals, merchandise
purchases, and cash advances);
. ACH transfers;
. checkwriting;
. all other redemption requests (including exchanges, sweeps to a discount
brokerage account, outgoing wires, and redemption checks).
Telephone and personal computer transactions
Exchange and redemption services by telephone are established automatically
when you sign the New Account Form unless you check the boxes that state you
do not want these services. Personal computer transactions must be authorized
separately. T. Rowe Price funds and their agents use reasonable procedures
designed to verify the identity of the shareholder. If these procedures are
followed, the funds are not liable for any losses that may occur from acting
on unauthorized instructions. A confirmation is sent promptly after a
transaction. Please review it carefully and contact T. Rowe Price immediately
about any transaction you believe to be unauthorized. All telephone
conversations are recorded.
ATM & Check Card transactions
. Use of your card results in an immediate reduction of your available
balance. Your available balance is the dollar value of your PLUS account
excluding any amounts subject to the seven business day hold or that have
otherwise been placed on hold to ensure payments of ATM withdrawals, cash
advances, purchases, other transactions, or authorizations.
. You cannot stop payment on any ATM & Check Card transaction.
. Purchase authorizations will reduce your balance even if the authorization
is pending and has not yet resulted in a transaction.
. Transactions using the ATM & Check Card may not exceed your available
balance.
Redemptions over $250,000
Large sales can adversely affect a portfolio manager's ability to implement a
fund's investment strategy by causing the premature sale of securities that
would otherwise be held. If, in any 90-day period, you redeem (sell) more
than $250,000, or your sale amounts to more than 1% of fund net assets, the
fund has the right to pay the difference between the redemption amount and
the lesser of the two previously mentioned figures with securities from the
fund.
<PAGE>
T. ROWE PRICE
Excessive Trading
Frequent trades, involving either substantial fund assets or a substantial
portion of your account or accounts controlled by you, can disrupt management
of the fund and raise its expenses. To deter such activity, we have adopted
an excessive trading policy. If you violate our excessive trading policy, you
may be barred indefinitely and without further notice from further purchases
of T. Rowe Price funds.
. Trades placed directly with T. Rowe Price If you trade directly with T.
Rowe Price, you can make one purchase and sale involving the same fund within
any 120-day period. For example, if you are in fund A, you can move
substantial assets from fund A to fund B and, within the next 120 days, sell
your shares in fund B to return to fund A or move to fund C. If you exceed
this limit, you are in violation of our excessive trading policy.
Two types of transactions are exempt from this policy: 1) trades solely in
money market funds (exchanges between a money fund and a nonmoney fund are
not exempt); and 2) systematic purchases or redemptions (see Information
About Your Services).
. Trades placed through intermediaries If you purchase fund shares through an
intermediary including a broker, bank, investment adviser, or other third
party and hold them for less than 60 calendar days, you are in violation of
our excessive trading policy.
Keeping Your Account Open
Due to the relatively high cost to a fund of maintaining small accounts, we
ask you to maintain an account balance of at least $1,000. If your balance is
below $1,000 for three months or longer, we have the right to close your
account after giving you 60 days in which to increase your balance.
Small Account Fee
Because of the disproportionately high costs of servicing accounts with low
balances, a $10 fee, paid to T. Rowe Price Services, the fund's transfer
agent, will automatically be deducted from nonretirement accounts with
balances falling below a minimum level. The valuation of accounts and the
deduction are expected to take place during the last five business days of
September. The fee will be deducted from accounts with balances below $2,000,
except for UGMA/ UTMA accounts, for which the limit is $500. The fee will be
waived for any investor whose T. Rowe Price mutual fund investments total
$25,000 or more. Accounts employing automatic investing (e.g., payroll
deduction, automatic purchase from a bank account, etc.) are also exempt from
the charge. The fee will not apply to IRAs and other retirement plan
accounts. (A separate custodial fee may apply to IRAs and other retirement
plan accounts.)
<PAGE>
ABOUT YOUR ACCOUNT 17
Signature Guarantees
You may need to have your signature guaranteed in certain situations, such
as:
. Written requests 1) to redeem over $100,000, or 2) to wire redemption
proceeds.
. Remitting redemption proceeds to any person, address, or bank account not on
record.
. Transferring redemption proceeds to a T. Rowe Price fund account with a
different registration (name or ownership) from yours.
. Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings institutions,
broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
accept guarantees from notaries public or organizations that do not provide
reimbursement in the case of fraud.
<PAGE>
T. ROWE PRICE
ORGANIZATION AND MANAGEMENT
----------------------------------------------------------
How is the fund organized?
The fund was incorporated in Maryland in 1975 and is a "diversified, open-end
investment company," or mutual fund. In 1998, the fund issued a separate
class of shares known as the PLUS class. Mutual funds pool money received
from shareholders of each separate class into a single portfolio and try to
achieve specified objectives.
What is meant by "shares"?
As with all mutual funds, investors purchase shares when they put money in a
fund. These shares are part of a fund's authorized capital stock, but share
certificates are not issued.
Each share and fractional share entitles the shareholder to:
. Receive a proportional interest in a fund's income and capital gain
distributions. The income dividends for the Prime Reserve PLUS shares will
differ from those of the regular Prime Reserve Fund shares to the extent the
expense ratio of the Prime Reserve PLUS shares differ.
. Cast one vote per share on certain fund matters, including the election of
fund directors, changes in fundamental policies, or approval of changes in
the fund's management contract. Prime Reserve PLUS shareholders have
exclusive voting rights on matters affecting only the Prime Reserve PLUS
shares.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and, to avoid unnecessary
costs to fund shareholders, do not do so except when certain matters, such as
a change in fundamental policies, must be decided. In addition, shareholders
representing at least 10% of all eligible votes may call a special meeting,
if they wish, for the purpose of voting on the removal of any fund director
or trustee. If a meeting is held and you cannot attend, you can vote by
proxy. Before the meeting, the fund will send you proxy materials that
explain the issues to be decided and include instructions on voting by mail
or telephone, or on the Internet.
Who runs the fund?
General Oversight
The fund is governed by a Board of Directors that meets regularly to review
the fund's investments, performance, expenses, and other business affairs.
The Board elects the fund's officers. The policy of the fund is that the
majority of Board members are independent of T. Rowe Price Associates, Inc.
(T. Rowe Price).
<PAGE>
MORE ABOUT THE FUND
Portfolio Management
The fund has an Investment Advisory Committee with the following members:
Edward A. Wiese, Chairman, Patrice L. Berchtenbreiter Ely, Brian E. Burns,
Robert P. Campbell, Alan D. Levenson, Joseph K. Lynagh, James M. McDonald,
and Joan R. Potee. The committee chairman has day-to-day responsibility for
managing the fund and works with the committee in developing and executing
the fund's investment program. Mr. Wiese has been chairman of the fund's
committee since 1990. He joined T. Rowe Price in 1984 and has been managing
investments since 1985.
The Management Fee
This fee has two parts - an "individual fund fee," which reflects a fund's
particular characteristics, and a "group fee." The group fee, which is
designed to reflect the benefits of the shared resources of the T. Rowe Price
investment management complex, is calculated daily based on the combined net
assets of all T. Rowe Price funds (except the Spectrum Funds, and any
institutional, index, or private label mutual funds). The group fee schedule
(shown below) is graduated, declining as the asset total rises, so
shareholders benefit from the overall growth in mutual fund assets.
<TABLE>
Group Fee Schedule
<CAPTION>
<C> <S>
0.334%/a/ First $50 billion
0.305% Next $30 billion
0.300% Next $40 billion
0.295% Thereafter
--------------------------------------
</TABLE>
/a/ Represents a blended group fee rate containing various break points.
The fund's portion of the group fee is determined by the ratio of its daily
net assets to the daily net assets of all the T. Rowe Price funds described
previously. Based on combined T. Rowe Price funds' assets of over $96 billion
at June 30, 1999, the group fee was 0.32%. The individual fund fee is 0.05%.
UNDERSTANDING PERFORMANCE INFORMATION
----------------------------------------------------------
This section should help you understand the terms used to describe fund
performance. You will come across them in shareholder reports you receive
from us; in our newsletter, The Price Report; in T. Rowe Price
advertisements; and in the media.
<PAGE>
T. ROWE PRICE
Total Return
This tells you how much an investment in a fund has changed in value over a
given time period. It reflects any net increase or decrease in the share
price and assumes that all dividends and capital gains (if any) paid during
the period were reinvested in additional shares. Therefore, total return
numbers include the effect of compounding.
Advertisements for a fund may include cumulative or average annual total
return figures, which may be compared with various indices, other performance
measures, or other mutual funds.
Cumulative Total Return
This is the actual return of an investment for a specified period. A
cumulative return does not indicate how much the value of the investment may
have fluctuated during the period. For example, a fund could have a 10-year
positive cumulative return despite experiencing some negative years during
that time.
Average Annual Total Return
This is always hypothetical and should not be confused with actual
year-by-year results. It smooths out all the variations in annual performance
to tell you what constant year-by-year return would have produced the
investment's actual cumulative return. This gives you an idea of an
investment's annual contribution to your portfolio, provided you held it for
the entire period.
Yield
The current or "dividend" yield on a fund or any investment tells you the
relationship between the investment's current level of annual income and its
price on a particular day. The dividend yield reflects the actual income paid
to shareholders for a given period, annualized, and divided by the price at
the end of the period. For example, a fund providing $5 of annual income per
share and a price of $50 has a current yield of 10%. Yields can be calculated
for any time period. The fund may advertise "current" yield, reflecting the
latest seven-day income annualized, or an "effective" yield, which assumes
the income has been reinvested in the fund.
INVESTMENT POLICIES AND PRACTICES
----------------------------------------------------------
This section takes a detailed look at some of the types of securities the
fund may hold in its portfolio and the various kinds of investment practices
that may be used in day-to-day portfolio management. The fund's investment
program is subject to further restrictions and risks described in the
Statement of Additional Information.
<PAGE>
INVESTING WITH T. ROWE PRICE
Shareholder approval is required to substantively change the fund's
objectives and certain investment restrictions noted in the following section
as "fundamental policies." The managers also follow certain "operating
policies" which can be changed without shareholder approval. However,
significant changes are discussed with shareholders in fund reports. The fund
adheres to applicable investment restrictions and policies at the time it
makes an investment. Except as may be required by Rule 2a-7 under the
Investment Company Act of 1940, a later change in circumstances will not
require the sale of an investment if it was proper at the time it was made.
Changes in the fund's holdings, the fund's performance, and the contribution
of various investments are discussed in the shareholder reports sent to you.
Types of Portfolio Securities
In seeking to meet its investment objective, the fund may invest in any type
of short-term security or instrument whose investment characteristics are
consistent with the fund's investment program. The following pages describe
the principal types of portfolio securities and investment management
practices of the fund.
Operating policy Except as may be permitted by Rule 2a-7, the fund will not
purchase any security (other than a U.S. government security) if it would
cause the fund to have more than: (1) 5% of its total assets in securities of
that issuer, where the securities are prime securities (other than for
certain temporary, limited purposes); or (2) where the securities are not
prime securities, 5% of its total assets in such securities and 1% of its
total assets in the securities of that issuer.
Money Market Securities
Money market securities are IOUs issued by companies or governmental units.
Money market securities may be interest-bearing or discounted to reflect the
rate of interest paid. In the case of interest-bearing securities, the issuer
has a contractual obligation to pay coupon interest at a stated rate on
specific dates and to repay the face value on a specified date. In the case
of a discount security, no coupon interest is paid, but the security's price
is discounted so that the interest is realized when the security matures at
face value. In either case, an issuer may have the right to redeem or "call"
the security before maturity, and the investor may have to reinvest the
proceeds at lower market rates.
Except for adjustable rate instruments, a money market security's interest
rate, as reflected in the coupon rate or discount, is usually fixed for the
life of the security. Its current yield (coupon or discount as a percent of
current price) will fluctuate to reflect changes in interest rate levels. A
money market security's price usually rises when interest rates fall, and
vice versa.
<PAGE>
T. ROWE PRICE
Money market securities may be unsecured (backed by the issuer's general
creditworthiness only) or secured (also backed by specified collateral).
Certain money market securities have interest rates that are adjusted
periodically. These interest rate adjustments tend to minimize fluctuations
in the securities' principal values. When calculating its weighted average
maturity, the fund may shorten the maturity of these securities in accordance
with Rule 2a-7.
Asset-Backed Securities
An underlying pool of assets, such as credit card or automobile trade
receivables or corporate loans or bonds, backs these bonds and provides the
interest and principal payments to investors. On occasion, the pool of assets
may also include a swap obligation, which is used to change the cash flows on
the underlying assets. As an example, a swap may be used to allow floating
rate assets to back a fixed rate obligation. Credit quality depends primarily
on the quality of the underlying assets, the level of credit support, if any,
provided by the issuer, and the credit quality of the swap counterparty, if
any. The underlying assets (i.e., loans) are sometimes subject to
prepayments, which can shorten the security's weighted average life and may
lower its return. The value of these securities also may change because of
actual or perceived changes in the creditworthiness of the originator, the
servicing agent, the financial institution providing the credit support, or
the swap counterparty. There is no limit on the fund's investment in these
securities.
Foreign Securities
The fund may invest in certain foreign securities: dollar-denominated money
market securities of foreign issuers, foreign branches of U.S. banks, and
U.S. branches of foreign banks. Such investments increase a portfolio's
diversification and may enhance return, but they also involve some special
risks, such as exposure to potentially adverse local political and economic
developments; nationalization and exchange controls; potentially lower
liquidity and higher volatility; and possible problems arising from
accounting, disclosure, settlement, and regulatory practices that differ from
U.S. standards.
Operating policy The fund may invest without limit in U.S.
dollar-denominated foreign securities.
Private Placements
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, others may be illiquid, and their sale may involve
substantial delays and additional costs.
Operating policy The fund may invest up to 10% of its net assets in illiquid
securities.
<PAGE>
INVESTING WITH T. ROWE PRICE
Types of Investment Management Practices
Borrowing Money and Transferring Assets
The fund can borrow money from banks and other Price funds as a temporary
measure for emergency purposes, to facilitate redemption requests, or for
other purposes consistent with the fund's investment objective and program.
Such borrowings may be collateralized with fund assets, subject to
restrictions.
Fundamental policy Borrowings may not exceed 33/1//\\/3/\\% of total fund
assets.
Operating policy The fund 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
fund's total assets. The fund may not purchase additional securities when
borrowings exceed 5% of total assets.
Lending of Portfolio Securities
Like other mutual funds, the fund 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.
Fundamental policy The value of loaned securities may not exceed
33/1//\\/3/\\% of total fund assets.
Year 2000 Processing Issue
Many computer programs use two digits rather than four to identify the year.
These programs, if not adapted, will not correctly handle the change from
"99" to "00" on January 1, 2000, and will not be able to perform necessary
functions. The Year 2000 issue affects virtually all companies and
organizations.
T. Rowe Price has implemented steps intended to assure that major computer
systems and processes are capable of Year 2000 processing. While we have
worked with third parties to assess the adequacy of their compliance efforts
and have developed contingency plans intended to assure that third-party
noncompliance will not materially affect T. Rowe Price's operations, there is
no guarantee our operations will not be affected by Year 2000 problems.
Companies, organizations, governmental entities, and markets in which the T.
Rowe Price funds invest will be affected by the Year 2000 issue, but at this
time the funds cannot predict the degree of impact. For funds that invest in
foreign markets, especially emerging markets, it is possible foreign
companies and markets will not be as prepared for Year 2000 as domestic
companies and markets. To the extent the effect of Year 2000 is negative, the
fund's returns could be reduced.
<PAGE>
T. ROWE PRICE
FINANCIAL HIGHLIGHTS
----------------------------------------------------------
Table 4, which provides information about the fund's financial history, is
based on a single share outstanding throughout each fiscal year. The table is
part of the Prime Reserve Fund's financial statements, which are included in
its annual report and are incorporated by reference into the Statement of
Additional Information (available upon request). The total returns in the
table represent the rate that an investor would have earned or lost on an
investment in the fund (assuming reinvestment of all dividends and
distributions). The financial statements in the annual report were audited by
the fund's independent accountants, PricewaterhouseCoopers LLP.
<PAGE>
INVESTING WITH T. ROWE PRICE
<TABLE>
Table 4 Financial Highlights
<CAPTION>
11/01/98/*/
through
Prime Reserve Fund--PLUS Class 5/31/99
------------------------------------ ------------------------
-------------
<S> <C> <C> <S>
Net asset value, beginning
of period $ 1.000
Income From Investment Operations
Net investment income 0.025/a/
------------------------
Net gains or losses on securities --
(both realized and unrealized)
------------------------
Total from investment operations 0.025
Less Distributions
Dividends (from net investment (0.025)/a/
income)
------------------------
Distributions (from capital --
gains)
------------------------
Returns of capital --
------------------------
Total distributions (0.025)/a/
------------------------
Net asset value, end of period $ 1.000
------------------------
Total return 2.50%/a/
Ratios/Supplemental Data
Net assets, end of period $ 20
(in millions)
------------------------
Ratio of expenses to average 0.82%/ab/
net assets
------------------------
Ratio of net income to average 4.22%/ab/
net assets
-------------------------------------------------------------------------
</TABLE>
/a/
Excludes expenses in excess of a 1.00% voluntary expense limitation in effect
through April 30, 2000.
/b/ Annualized.
/*/ Inception date.
<PAGE>
T. ROWE PRICE
ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
----------------------------------------------------------
Tax Identification Number
We must have your correct Social Security number on a signed New Account Form or
W-9 Form. Otherwise, federal law requires the funds to withhold a percentage
(currently 31%) of your dividends, capital gain distributions, and redemptions,
and may subject you to an IRS fine. 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.
Always verify your transactions by carefully reviewing the confirmation we send
you. Please report any discrepancies to Shareholder Services promptly.
OPENING A NEW ACCOUNT
----------------------------------------------------------
Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)
By Mail
Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address in the next paragraph. We do not accept third-party checks
to open new accounts. In addition, the fund does not accept purchases made by
credit card check.
Mail via United States Postal Service
T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD 21297-1300
Mail via private carriers/overnight services
T. Rowe Price Account Services Mailcode 17300 4515 Painters Mill Road Owings
Mills, MD 21117-4903
By Wire
Call Investor Services for an account number and give the following wire
information to your bank:
<PAGE>
INVESTING WITH T. ROWE PRICE
Receiving Bank: PNC Bank, N.A. (Pittsburgh) Receiving Bank ABA#: 043000096
Beneficiary: T. Rowe Price [fund name] Beneficiary Account: 1004397951
Originator to Beneficiary Information (OBI): name of owner(s) and account
number
Complete a New Account Form and mail it to one of the appropriate addresses
listed previously.
Note: No services will be established and IRS penalty withholding may occur
until we receive a signed New Account Form. ATM & Check Card and checkwriting
privileges are subject to a T. Rowe Price approval process.
PURCHASING ADDITIONAL SHARES
----------------------------------------------------------
There is no subsequent purchase minimum on this fund. There is a $50 minimum for
Automatic Asset Builder transactions.
By ACH Transfer
Use touch-tone telephone servicing or your personal computer or call Investor
Services if you have established electronic transfers using the ACH network.
By Wire
Call Shareholder Services or use the wire address listed in Opening a New
Account.
By Mail
1. Make your check payable to T. Rowe Price Funds (otherwise it may be
returned).
2. Mail the check to us at the following address with either a fund
reinvestment slip or a note indicating the fund you want to buy and your fund
account number.
3. Remember to provide your account number and the fund name on the memo line
of your check.
<PAGE>
T. ROWE PRICE
Mail via United States Postal Service
T. Rowe Price Funds Account Services P.O. Box 17300 Baltimore, MD 21297-1300
/(For //mail via private carriers and overnight services//, see previous /
/section.)/
By Automatic Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.
EXCHANGING AND REDEEMING SHARES
----------------------------------------------------------
Exchange Service
Although you cannot open a Prime Reserve PLUS account via exchange, you can
purchase additional shares of this fund by moving money from other identically
registered T. Rowe Price accounts to your existing account in this fund.
Remember, exchanges are purchases and sales for tax purposes. (Exchanges into a
state tax-free fund are limited to investors living in states where the fund is
registered.)
Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers - By Wire under Information
About Your Services.
Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.
By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or touch-tone telephone (if you
have previously authorized these services), mailgram, or express mail. For
exchange policies, please see Transaction Procedures and Special Requirements -
Excessive Trading.
<PAGE>
INVESTING WITH T. ROWE PRICE
By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:
Mail via United States Postal Service
T. Rowe Price Account Services P.O. Box 17302 Baltimore, MD 21297-1302
Mail via private carriers/overnight services
T. Rowe Price Account Services Mailcode 17302 4515 Painters Mill Road Owings
Mills, MD 21117-4903
RIGHTS RESERVED BY THE FUND
----------------------------------------------------------
The fund and its agents reserve the following rights: (1) to waive or lower
investment minimums; (2) to accept initial purchases by telephone or mailgram;
(3) to refuse any purchase or exchange order; (4) to cancel or rescind any
purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; and (7) to act on
instructions believed to be genuine. These actions will be taken when, in the
sole discretion of management, they are deemed to be in the best interest of the
fund.
<PAGE>
T. ROWE PRICE
In an effort to protect the fund from the possible adverse effects of a
substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of the fund, except upon approval of the fund's management.
INFORMATION ABOUT YOUR SERVICES
----------------------------------------------------------
Shareholder Services 1-800-222-7002
You may be eligible for a variety of services as a PLUS shareholder; some you
receive automatically, others you must authorize or request on the New Account
Form. By signing up for services on the New Account Form rather than later on,
you avoid having to complete a separate form and obtain a signature guarantee.
This section discusses some of the services currently offered. Our Services
Guide, which we mail to all new shareholders, contains detailed descriptions of
these and other services.
Automated Services 24 hours, 7 days
Telephone services
24-hour service via toll-free number enables you to (1) access information on
fund yields, prices, distributions, account balances, and your latest
transaction; (2) request prospectuses, services forms, duplicate statements, and
tax forms; and (3) initiate purchase, redemption, and exchange transactions in
your accounts (see Electronic Transfers in this section).
Web Address www.troweprice.com
After obtaining proper authorization, account transactions may also be conducted
through our Web site on the Internet. If you subscribe to America Online, you
can access our Web site via keyword "T. Rowe Price" and conduct transactions in
your account.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.
<PAGE>
INVESTING WITH T. ROWE PRICE
Electronic Transfers
By ACH
With no charges to pay, you can initiate a purchase or redemption for as little
as $100 or as much as $100,000 between your bank account and fund account using
the ACH network. Enter instructions via touch-tone telephone or your personal
computer, or call Shareholder Services.
By Wire
Electronic transfers can be conducted via bank wire. There is currently a $5 fee
for wire redemptions under $5,000, and your bank may charge for incoming or
outgoing wire transfers regardless of size.
Checkwriting
You may write an unlimited number of checks on your Prime Reserve PLUS account.
There is no minimum check amount requirement. Canceled checks will not be
returned to you by the bank. The check number, amount of each check, payee, and
the date posted will normally appear on your monthly statement.
Automatic Investing
($50 minimum) You can invest automatically in several different ways, including:
Automatic Asset Builder
You instruct us to move $50 or more from your bank account, or you can instruct
your employer to send all or a portion of your paycheck to the fund or funds you
designate.
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.
INVESTMENT INFORMATION
----------------------------------------------------------
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety of
information in addition to account statements. Most of this information is also
available on our Web site at www.troweprice.com.
<PAGE>
T. ROWE PRICE
Shareholder Reports
Fund managers' reviews of their strategies and performance. If several members
of a household own the same fund, only one fund report is mailed to that
address. To receive additional copies, please call Shareholder Services or write
to us at P.O. Box 17630, Baltimore, Maryland 21297-1630.
The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies.
Performance Update
A quarterly review of all T. Rowe Price fund results.
Insights
Educational reports on investment strategies and financial markets.
Investment Guides
Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirees Financial Guide, Retirement Planning Kit,
and Tax Considerations for Investors.
<PAGE>
INVESTING WITH T. ROWE PRICE
<PAGE>
To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A Statement of Additional Information about the fund has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus. Further information about the fund's investments, including a review
of market conditions and the manager's recent strategies and their impact on
performance, is available in the annual and semiannual shareholder reports. To
obtain free copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.
Fund reports and Statements of Additional Information are also available from
the Securities and Exchange Commission by calling 1-800-SEC-0330 or by writing
the SEC's Public Reference Section, Washington, D.C. 20549-6009 (you will be
charged a duplicating fee); by visiting the SEC's public reference room; or by
consulting the SEC's Web site at www.sec.gov.
For Existing Accounts
Shareholder Services
1-800-222-7002
Internet Address
www.troweprice.com
Headquarters
100 East Pratt St. Baltimore, MD 21202
Walk-in
Investor Centers
For directions, call 1-800-225-5132 or visit our Web site
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
10090 Red Run Blvd. After October 18, 1999: Three Financial Center 4515
Painters Mill Rd.
Boston Area
386 Washington Street Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center 21800 Oxnard Street Suite 270 Woodland Hills
Tampa
4200 West Cypress St. 10th Floor
Washington, D.C.
900 17th Street, N.W. Farragut Square
T. Rowe Price Associates, Inc.
100 East Pratt Street Baltimore, MD 21202
1940 Act File No. 811-2603
F25-040 10/1/99
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
The date of this Statement of Additional Information is October 1, 1999.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE GNMA FUND
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. Rowe Price Prime Reserve Fund--PLUS Class
(A Separate Class of T. Rowe Price Prime Reserve Fund, Inc.)
RESERVE INVESTMENT FUNDS, INC.
Government Reserve Investment Fund
Reserve Investment Fund
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
and
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
-------------------------------------------------------------------------------
Mailing Address: T. Rowe Price Investment Services, Inc. 100 East Pratt
Street Baltimore, Maryland 21202 1-800-638-5660
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the appropriate fund prospectus dated October 1,
1999, which may be obtained from T. Rowe Price Investment Services, Inc.
("Investment Services"). Shareholders of the T. Rowe Price Prime Reserve
Fund-PLUS Class should refer to the Prime Reserve Fund for information
relating to their investment.
Each fund's financial statements for the year ended May 31, 1999, and the
report of independent accountants are included in each fund's Annual Report
and incorporated by reference into this Statement of Additional Information.
If you would like a prospectus or an annual or semiannual shareholder report
for a fund of which you are not a shareholder, please call 1-800-638-5660. A
prospectus with more complete information, including management fees and
expenses, will be sent to you. Please read it carefully.
Government Reserve and Reserve Investment Funds are not available for direct
purchase by members of the public.
C22-043 10/1/99
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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Page Page
---- ----
<S> <C> <C> <C> <C>
Capital Stock Management of the Funds
- ------------------------------ -----------------------------------------------
Code of Ethics Net Asset Value Per Share
- ------------------------------ -----------------------------------------------
Custodian Portfolio Management Practices
- ------------------------------ -----------------------------------------------
Distributor for the Portfolio Transactions
Funds
- ------------------------------ -----------------------------------------------
Dividends and Pricing of Securities
Distributions
- ------------------------------ -----------------------------------------------
Federal Registration Principal Holders of Securities
of Shares
- ------------------------------ -----------------------------------------------
Independent Ratings of Commercial Paper
Accountants
- ------------------------------ -----------------------------------------------
Investment Management Ratings of Corporate Debt Securities
Services
- ------------------------------ -----------------------------------------------
Investment Objectives Risk Factors
and Policies
- ------------------------------ -----------------------------------------------
Investment Performance Shareholder Services
by Outside Parties
- ------------------------------ -----------------------------------------------
Investment Program Tax Status
- ------------------------------ -----------------------------------------------
Investment Yield Information
Restrictions
- ------------------------------ -----------------------------------------------
Legal Counsel
- ------------------------------ -----------------------------------------------
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
-------------------------------------------------------------------------------
The following information supplements the discussion of each fund's
investment objectives and policies discussed in each fund's prospectus.
The funds will not make a material change in their investment objectives
without obtaining shareholder approval. Unless otherwise specified, the
investment programs and restrictions of the funds are not fundamental
policies. Each fund's operating policies are subject to change by each Board
of Directors/Trustees without shareholder approval. However, shareholders
will be notified of a material change in an operating policy. Each fund's
fundamental policies may not be changed without the approval of at least a
majority of the outstanding shares of the 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. References to the following are as
indicated:
Investment Company Act of 1940 ("1940 Act")
Securities and Exchange Commission ("SEC")
T. Rowe Price Associates, Inc. ("T. Rowe Price")
Moody's Investors Service, Inc. ("Moody's")
Standard & Poor's Corporation ("S&P")
Internal Revenue Code of 1986 ("Code")
Rowe Price-Fleming International, Inc. ("Price-Fleming")
Throughout this Statement of Additional Information, "the fund" is intended
to refer to each fund listed on the cover page, unless otherwise indicated.
RISK FACTORS
-------------------------------------------------------------------------------
Reference is also made to the sections entitled "Types of Securities" and
"Portfolio Management Practices" for discussions of the risks associated with
the investments and practices described therein as they apply to the fund.
<PAGE>
All Funds
Debt Obligations
Yields on short-, intermediate-, and long-term debt securities are dependent
on a variety of factors, including the general conditions of the money and
bond markets, the size of a particular offering, the maturity of the
obligation, and the credit quality and rating of the issue. Debt securities
with longer maturities tend to have 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 debt securities,
and a decline in interest rates will generally increase the value of
portfolio debt securities. The ability of the fund to achieve its investment
objective is also dependent on the continuing ability of the issuers of the
debt securities in which the fund invests to meet their obligations for the
payment of interest and principal when due. Although the fund seeks to reduce
risk by portfolio diversification, credit analysis, and attention to trends
in the economy, industries and financial markets, such efforts will not
eliminate all risk. There can, of course, be no assurance that the fund will
achieve its investment objective.
After purchase by the fund, a debt security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the fund.
For the Government Reserve Investment, Prime Reserve, Reserve Investment, and
U.S. Treasury Money Funds, the procedures set forth in Rule 2a-7, under the
1940 Act, may require the prompt sale of any such security. For the other
funds, neither event will require a sale of such security by the fund.
However, T. Rowe Price will consider such event in its determination of
whether the fund should continue to hold the security. To the extent that the
ratings given by Moody's or S&P may change as a result of changes in such
organizations or their rating systems, the fund will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in the prospectus. When purchasing unrated
securities, T. Rowe Price, under the supervision of the fund's Board of
Directors/Trustees, determines whether the unrated security is of a quality
comparable to that which the fund is allowed to purchase.
Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S.
Treasury Money Funds
There can be no assurance that the fund will achieve its investment objective
or be able to maintain its net asset value per share at $1.00. The price of
the fund is not guaranteed or insured by the U.S. government and its yield is
not fixed. An increase in interest rates could reduce the value of the fund's
portfolio investments, and a decline in interest rates could increase the
value.
All Funds except Government Reserve Investment, Prime Reserve, Reserve
Investment, and U.S. Treasury Money Funds
Because of its investment policy, the fund may or may not be suitable or
appropriate for all investors. The fund is not a money market fund and is not
an appropriate investment for those whose primary objective is principal
stability. The value of the portfolio securities of the fund will fluctuate
based upon market conditions. Although the 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 fund will achieve
its investment objective.
Mortgage-backed securities differ from conventional bonds in that principal
is paid back over the life of the security rather than at maturity. As a
result, the holder of a mortgage-backed security (i.e., the fund) receives
monthly scheduled payments of principal and interest, and may receive
unscheduled principal payments representing prepayments on the underlying
mortgages. The incidence of unscheduled principal prepayments is also likely
to increase in mortgage pools owned by the fund when prevailing mortgage loan
rates fall below the mortgage rates of the securities underlying the
individual pool. The effect of such prepayments in a falling rate environment
is to (1) cause the fund to reinvest principal payments at the then lower
prevailing interest rate, and (2) reduce the potential for capital
appreciation beyond the face amount of the security. Conversely, the fund may
realize a gain on prepayments of mortgage pools trading at a discount. Such
prepayments will provide an early return of principal which may then be
reinvested at the then higher prevailing interest rate.
<PAGE>
The market value of adjustable rate mortgage securities ("ARMs"), like other
U.S. government securities, will generally vary inversely with changes in
market interest rates, declining when interest rates rise and rising when
interest rates decline. Because of their periodic adjustment feature, ARMs
should be more sensitive to short-term interest rates than long-term rates.
They should also display less volatility than long-term mortgage-backed
securities. Thus, while having less risk of a decline during periods of
rapidly rising rates, ARMs may also have less potential for capital
appreciation than other investments of comparable maturities. Interest rate
caps on mortgages underlying ARM securities may prevent income on the ARM
from increasing to prevailing interest rate levels and cause the securities
to decline in value. In addition, to the extent ARMs are purchased at a
premium, mortgage foreclosures and unscheduled principal prepayments may
result in some loss of the holders' principal investment to the extent of the
premium paid. On the other hand, if ARMs are purchased at a discount, both a
scheduled payment of principal and an unscheduled prepayment of principal
will increase current and total returns and will accelerate the recognition
of income which when distributed to shareholders will be taxable as ordinary
income.
Corporate Income, High Yield, and Personal Strategy Funds
Special Risks of Investing in Junk Bonds The following special considerations
are additional risk factors associated with the fund's investments in
lower-rated debt securities.
. Youth and Growth of the Lower-Rated Debt Securities Market The market for
lower-rated debt securities is relatively new and its growth has paralleled a
long economic expansion. Past experience may not, therefore, provide an
accurate indication of future performance of this market, particularly during
periods of economic recession. An economic downturn or increase in interest
rates is likely to have a greater negative effect on this market, the value
of lower-rated debt securities in the fund's portfolio, the fund's net asset
value and the ability of the bonds' issuers to repay principal and interest,
meet projected business goals and obtain additional financing than on
higher-rated securities. These circumstances also may result in a higher
incidence of defaults than with respect to higher-rated securities. An
investment in this fund is more speculative than investment in shares of a
fund which invests only in higher-rated debt securities.
. Sensitivity to Interest Rate and Economic Changes Prices of lower-rated debt
securities may be more sensitive to adverse economic changes or corporate
developments than higher-rated investments. Debt securities with longer
maturities, which may have higher yields, may increase or decrease in value
more than debt securities with shorter maturities. Market prices of
lower-rated debt securities structured as zero coupon or pay-in-kind
securities are affected to a greater extent by interest rate changes and may
be more volatile than securities which pay interest periodically and in cash.
Where it deems it appropriate and in the best interests of fund shareholders,
the fund may incur additional expenses to seek recovery on a debt security on
which the issuer has defaulted and to pursue litigation to protect the
interests of security holders of its portfolio companies.
. Liquidity and Valuation 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.
<PAGE>
. Taxation Special tax considerations are associated with investing in
lower-rated debt securities structured as zero coupon or pay-in-kind
securities. The fund accrues income on these securities prior to the receipt
of cash payments. The fund must distribute substantially all of its income to
its shareholders to qualify for pass-through treatment under the tax laws and
may, therefore, have to dispose of its portfolio securities to satisfy
distribution requirements.
Corporate Income, High Yield, New Income, Personal Strategy, and Short-Term
Bond Funds
. Risk Factors of Foreign Investing There are special risks in foreign
investing. Certain of these risks are inherent in any mutual fund while
others relate more to the countries in which the fund will invest. Many of
the risks are more pronounced for investments in developing or emerging
market countries, such as many of the countries of Asia, Latin America,
Eastern Europe, Russia, Africa, 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.
. Political and Economic Factors Individual foreign economies of certain
countries 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 1994-1995,
the Mexican peso plunged in value setting off a severe crisis in the Mexican
economy. Asia is still coming to terms with its own crisis and recessionary
conditions sparked off by widespread currency weakness in late 1997. In 1998,
there was substantial turmoil in markets throughout the world. 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 and hostile relations 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 fund invests 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 fund's assets denominated in that currency. Such changes will
also affect the fund's 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 fund's
securities denominated in that currency would be expected to decline.
. Investment and Repatriation of Restrictions Foreign investment in the
securities markets of certain foreign countries is restricted or controlled
in varying degrees. These restrictions limit at times and preclude investment
in certain of such countries and increase the cost and expenses of the fund.
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. In 1998, the
government of Malaysia imposed currency controls which effectively made it
impossible for foreign investors to convert Malaysian ringgits to foreign
currencies.
<PAGE>
. Market Characteristics It is contemplated that most foreign securities will
be purchased in over-the-counter markets or on securities 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.
Investments in certain markets may be made through American Depository
Receipts ("ADRs") traded in the United States. Foreign securities markets are
generally not as developed or efficient as, and more volatile than, those in
the United States. While growing in volume, they usually have substantially
less volume than U.S. markets and the fund's portfolio securities may be less
liquid and subject to more rapid and erratic price movements than securities
of comparable U.S. companies. Securities may trade at price/earnings
multiples higher than comparable United States securities and such levels may
not be sustainable. Commissions on foreign securities are generally higher
than commissions on United States exchanges, and while there is an increasing
number of overseas securities markets that have adopted a system of
negotiated rates, a number are still subject to an established schedule of
minimum commission rates. There is generally less government supervision and
regulation of foreign securities 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 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 the fund.
. Investment Funds The fund 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 fund's investment in these funds
is subject to the provisions of the 1940 Act. If the fund invests in such
investment funds, the fund's shareholders will bear not only their
proportionate share of the expenses of the fund (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 is often 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 fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the fund's
shareholders.
. 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.
. 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. The collapse of the ruble from its crawling peg
exchange rate against the U.S. dollar has set back the path of reform for
several years. 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 the fund's assets
invested in such countries, and these
<PAGE>
authorities may not qualify as a foreign custodian under the 1940 Act 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. The 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
Inflation Most Latin American countries have experienced, at one time or
another, severe and persistent levels of inflation, including, in some cases,
hyperinflation. This has, in turn, 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.
Political Instability 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.
Foreign Currency 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. For example, in late 1994 the value of
the Mexican peso lost more than one-third of its value relative to the
dollar. Certain Latin American countries also restrict the free conversion of
their currency into foreign currencies, including the U.S. dollar. There is
no significant foreign exchange market for many 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.
Sovereign Debt A number of Latin American countries are 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.
INVESTMENT PROGRAM
-------------------------------------------------------------------------------
Types of Securities
Set forth below is additional information about certain of the investments
described in each fund's prospectus.
Debt Securities
Fixed income securities in which the fund may invest include, but are not
limited to, those described below.
All Funds
. U.S. Government Obligations Bills, notes, bonds, and other 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; 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.
The GNMA, U.S. Treasury Money, Intermediate, and Long-Term Funds and GRIF may
only invest in these securities if they are supported by the full faith and
credit of the U.S. government.
<PAGE>
All Funds except GNMA, Government Reserve Investment, U.S. Treasury Money,
Intermediate, and Long-Term Funds
. 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. The fund may invest in U.S. banks, foreign branches of U.S. banks,
U.S. branches of foreign banks, and foreign branches of foreign banks.
. Corporate Debt Securities Outstanding nonconvertible corporate debt
securities (e.g., bonds and debentures) which have one year or less remaining
to maturity. Corporate notes may have fixed, variable, or floating rates.
. Commercial Paper Short-term promissory notes issued by corporations
primarily to finance short-term credit needs. Certain notes may have floating
or variable rates.
. Foreign Government Securities Issued or guaranteed by a foreign government,
province, instrumentality, political subdivision, or similar unit thereof.
. Savings and Loan Obligations Negotiable certificates of deposit and other
short-term debt obligations of savings and loan associations.
. Supranational Agencies Securities of certain supranational entities, such as
the International Development Bank.
All Funds except Government Reserve Investment, Prime Reserve, Reserve
Investment, and U.S. Treasury Money Funds
Mortgage-Related Securities
Mortgage-related securities in which the fund may invest include, but are not
limited to, those described below. The GNMA, U.S. Treasury Intermediate and
U.S. Treasury Long-Term Funds may only invest in these securities to the
extent they are backed by the full faith and credit of the U.S. government.
. Mortgage-Backed Securities Mortgage-backed securities are securities
representing an interest in a pool of mortgages. The mortgages may be of a
variety of types, including adjustable rate, conventional 30-year fixed rate,
graduated payment, and 15-year. Principal and interest payments made on the
mortgages in the underlying mortgage pool are passed through to the fund.
This is in contrast to traditional bonds where principal is normally paid
back at maturity in a lump sum. Unscheduled prepayments of principal shorten
the securities' weighted average life and may lower their total return. (When
a mortgage in the underlying mortgage pool is prepaid, an unscheduled
principal prepayment is passed through to the fund. This principal is
returned to the fund at par. As a result, if a mortgage security were trading
at a premium, its total return would be lowered by prepayments, and if a
mortgage security were trading at a discount, its total return would be
increased by prepayments.) The value of these securities also may change
because of changes in the market's perception of the creditworthiness of the
federal agency that issued them. In addition, the mortgage securities market
in general may be adversely affected by changes in governmental regulation or
tax policies.
. U.S. Government Agency Mortgage-Backed Securities These are obligations
issued or guaranteed by the United States government or one of its agencies
or instrumentalities, such as the Government National Mortgage Association
("Ginnie Mae" or "GNMA"), the Federal National Mortgage Association ("Fannie
Mae" or "FNMA") the Federal Home Loan Mortgage Corporation ("Freddie Mac" or
"FHLMC"), and the Federal Agricultural Mortgage Corporation ("Farmer Mac" or
"FAMC"). FNMA, FHLMC, and FAMC obligations are not backed by the full faith
and credit of the U.S. government as GNMA certificates are, but they are
supported by the instrumentality's right to borrow from the United States
Treasury. U.S. Government Agency Mortgage-Backed Certificates provide for the
pass-through to investors of their pro-rata share of monthly payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans, net of any fees paid to the guarantor of such securities and
the servicer of the underlying mortgage loans. Each of GNMA, FNMA, FHLMC, and
FAMC guarantees timely distributions of interest to certificate holders. GNMA
and FNMA guarantee timely distributions of scheduled principal. FHLMC has in
the past
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guaranteed only the ultimate collection of principal of the underlying
mortgage loan; however, FHLMC now issues mortgage-backed securities (FHLMC
Gold PCS) which also guarantee timely payment of monthly principal
reductions.
. Ginnie Mae Certificates Ginnie Mae is a wholly owned corporate
instrumentality of the United States within the Department of Housing and
Urban Development. The National Housing Act of 1934, as amended (the "Housing
Act"), authorizes Ginnie Mae to guarantee the timely payment of the principal
of and interest on certificates that are based on and backed by a pool of
mortgage loans insured by the Federal Housing Administration under the
Housing Act, or Title V of the Housing Act of 1949 ("FHA Loans"), or
guaranteed by the Department of Veterans Affairs under the Servicemen's
Readjustment Act of 1944, as amended ("VA Loans"), or by pools of other
eligible mortgage loans. The Housing Act provides that the full faith and
credit of the United States government is pledged to the payment of all
amounts that may be required to be paid under any guaranty. In order to meet
its obligations under such guaranty, Ginnie Mae is authorized to borrow from
the United States Treasury with no limitations as to amount.
. Fannie Mae Certificates Fannie Mae is a federally chartered and privately
owned corporation organized and existing under the Federal National Mortgage
Association Charter Act of 1938. FNMA Certificates represent a pro-rata
interest in a group of mortgage loans purchased by Fannie Mae. FNMA
guarantees the timely payment of principal and interest on the securities it
issues. The obligations of FNMA are not backed by the full faith and credit
of the U.S. government.
. Freddie Mac Certificates Freddie Mac is a corporate instrumentality of the
United States created pursuant to the Emergency Home Finance Act of 1970, as
amended ("FHLMC Act"). Freddie Mac Certificates represent a pro-rata interest
in a group of mortgage loans ("Freddie Mac Certificates") purchased by
Freddie Mac. Freddie Mac guarantees timely payment of interest and principal
on certain securities it issues and timely payment of interest and eventual
payment of principal on other securities it issues. The obligations of
Freddie Mac are obligations solely of Freddie Mac and are not backed by the
full faith and credit of the U.S. government.
. Farmer Mac Certificates Farmer Mac is a federally chartered instrumentality
of the United States established by Title VIII of the Farm Credit Act of
1971, as amended ("Charter Act"). Farmer Mac was chartered primarily to
attract new capital for financing of agricultural real estate by making a
secondary market in certain qualified agricultural real estate loans. Farmer
Mac provides guarantees of timely payment of principal and interest on
securities representing interests in, or obligations backed by, pools of
mortgages secured by first liens on agricultural real estate ("Farmer Mac
Certificates"). Similar to Fannie Mae and Freddie Mac, Farmer Mac
Certificates are not supported by the full faith and credit of the U.S.
government; rather, Farmer Mac may borrow from the U.S. Treasury to meet its
guaranty obligations.
As discussed above, prepayments on the underlying mortgages and their effect
upon the rate of return of a mortgage-backed security, is the principal
investment risk for a purchaser of such securities, like the fund. Over time,
any pool of mortgages will experience prepayments due to a variety of
factors, including (1) sales of the underlying homes (including
foreclosures), (2) refinancings of the underlying mortgages, and (3)
increased amortization by the mortgagee. These factors, in turn, depend upon
general economic factors, such as level of interest rates and economic
growth. Thus, investors normally expect prepayment rates to increase during
periods of strong economic growth or declining interest rates, and to
decrease in recessions and rising interest rate environments. Accordingly,
the life of the mortgage-backed security is likely to be substantially
shorter than the stated maturity of the mortgages in the underlying pool.
Because of such variation in prepayment rates, it is not possible to predict
the life of a particular mortgage-backed security, but FHA statistics
indicate that 25- to 30-year single family dwelling mortgages have an average
life of approximately 12 years. The majority of Ginnie Mae Certificates are
backed by mortgages of this type, and, accordingly, the generally accepted
practice treats Ginnie Mae Certificates as 30-year securities which prepay in
full in the 12th year. FNMA and Freddie Mac Certificates may have differing
prepayment characteristics.
Fixed rate mortgage-backed securities bear a stated "coupon rate" which
represents the effective mortgage rate at the time of issuance, less certain
fees to GNMA, FNMA and FHLMC for providing the guarantee, and the issuer for
assembling the pool and for passing through monthly payments of interest and
principal.
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Payments to holders of mortgage-backed securities consist of the monthly
distributions of interest and principal less the applicable fees. The actual
yield to be earned by a holder of mortgage-backed securities is calculated by
dividing interest payments by the purchase price paid for the mortgage-backed
securities (which may be at a premium or a discount from the face value of
the certificate).
Monthly distributions of interest, as contrasted to semiannual distributions
which are common for other fixed interest investments, have the effect of
compounding and thereby raising the effective annual yield earned on
mortgage-backed securities. Because of the variation in the life of the pools
of mortgages which back various mortgage-backed securities, and because it is
impossible to anticipate the rate of interest at which future principal
payments may be reinvested, the actual yield earned from a portfolio of
mortgage-backed securities will differ significantly from the yield estimated
by using an assumption of a certain life for each mortgage-backed security
included in such a portfolio as described above.
. Collateralized Mortgage Obligations (CMOs) CMOs are bonds that are
collateralized by whole loan mortgages or mortgage pass-through securities.
The bonds issued in a CMO deal are divided into groups, and each group of
bonds is referred to as a "tranche." Under the traditional CMO structure, the
cash flows generated by the mortgages or mortgage pass-through securities in
the collateral pool are used to first pay interest and then pay principal to
the CMO bondholders. The bonds issued under such CMO structure are retired
sequentially as opposed to the pro-rata return of principal found in
traditional pass-through obligations. Subject to the various provisions of
individual CMO issues, the cash flow generated by the underlying collateral
(to the extent it exceeds the amount required to pay the stated interest) is
used to retire the bonds. Under the CMO structure, the repayment of principal
among the different tranches is prioritized in accordance with the terms of
the particular CMO issuance. The "fastest-pay" tranche of bonds, as specified
in the prospectus for the issuance, would initially receive all principal
payments. When that tranche of bonds is retired, the next tranche, or
tranches, in the sequence, as specified in the prospectus, receive all of the
principal payments until they are retired. The sequential retirement of bond
groups continues until the last tranche, or group of bonds, is retired.
Accordingly, the CMO structure allows the issuer to use cash flows of long
maturity, monthly-pay collateral to formulate securities with short,
intermediate and long final maturities and expected average lives.
In recent years, new types of CMO tranches have evolved. These include
floating rate CMOs, planned amortization classes, accrual bonds and CMO
residuals. These newer structures affect the amount and timing of principal
and interest received by each tranche from the underlying collateral. Under
certain of these new structures, given 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 the fund invests, the
investment may be subject to a greater or lesser risk of prepayment than
other types of mortgage-related securities.
The primary risk of any mortgage security is the uncertainty of the timing of
cash flows. For CMOs, the primary risk results from the rate of prepayments
on the underlying mortgages serving as collateral and from the structure of
the deal (priority of the individual tranches not prepayments). An increase
or decrease in prepayment rates (resulting from a decrease or increase in
mortgage interest rates) will affect the yield, average life and price of
CMOs. The prices of certain CMOs, depending on their structure and the rate
of prepayments, can be volatile. Some CMOs may also not be as liquid as other
securities.
. U.S. Government Agency Multiclass Pass-Through Securities Unlike CMOs, U.S.
Government Agency Multiclass Pass-Through Securities, which include FNMA
Guaranteed REMIC Pass-Through Certificates and FHLMC Multi-Class Mortgage
Participation Certificates, are ownership interests in a pool of Mortgage
Assets. Unless the context indicates otherwise, all references herein to CMOs
include multiclass pass-through securities.
. Multi-Class Residential Mortgage Securities Such securities represent
interests in pools of mortgage loans to residential home buyers made by
commercial banks, savings and loan associations or other financial
institutions. Unlike GNMA, FNMA and FHLMC securities, the payment of
principal and interest on Multi-Class Residential Mortgage Securities is not
guaranteed by the U.S. government or any of its agencies. Accordingly, yields
on Multi-Class Residential Mortgage Securities have been historically higher
than the yields on U.S. government mortgage securities. However, the risk of
loss due to default on such instruments is higher since they are not
guaranteed by the U.S. government or its agencies. Additionally, pools of
such
<PAGE>
securities may be divided into senior or subordinated segments. Although
subordinated mortgage securities may have a higher yield than senior mortgage
securities, the risk of loss of principal is greater because losses on the
underlying mortgage loans must be borne by persons holding subordinated
securities before those holding senior mortgage securities.
. Privately Issued Mortgage-Backed Certificates These are pass-through
certificates issued by non-governmental issuers. Pools of conventional
residential mortgage loans created by such issuers generally offer a higher
rate of interest than government and government-related pools because there
are no direct or indirect government guarantees of payment. Timely payment of
interest and principal of these pools is, however, generally supported by
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are issued by
government entities, private insurance or the mortgage poolers. Such
insurance and guarantees and the creditworthiness of the issuers thereof will
be considered in determining whether a mortgage-related security meets the
fund's quality standards. The fund may buy mortgage-related securities
without insurance or guarantees if through an examination of the loan
experience and practices of the poolers, the investment manager determines
that the securities meet the fund's quality standards.
. Stripped Mortgage-Backed Securities These instruments are a type of
potentially high-risk derivative. They represent interests in a pool of
mortgages, the cash flow of which has been separated into its interest and
principal components. "IOs" (interest only securities) receive the interest
portion of the cash flow while "POs" (principal only securities) receive the
principal portion. IOs and POs are usually structured as tranches of a CMO.
Stripped Mortgage-Backed Securities may be issued by U.S. government agencies
or by private issuers similar to those described above with respect to CMOs
and privately issued mortgage-backed certificates. As interest rates rise and
fall, the value of IOs tends to move in the same direction as interest rates.
The value of the other mortgage-backed securities described herein, like
other debt instruments, will tend to move in the opposite direction compared
to interest rates. Under the Code, POs may generate taxable income from the
current accrual of original issue discount, without a corresponding
distribution of cash to the fund.
The cash flows and yields on IO and PO classes are extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
mortgage assets. In the case of IOs, prepayments affect the amount, but not
the timing, of cash flows provided to the investor. In contrast, prepayments
on the mortgage pool affect the timing, but not the amount, of cash flows
received by investors in POs. For example, a rapid or slow rate of principal
payments may have a material adverse effect on the prices of IOs or POs,
respectively. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, an investor may fail to fully recoup
its initial investment in an IO class of a stripped mortgage-backed security,
even if the IO class is rated AAA or Aaa or is derived from a full faith and
credit obligation. Conversely, if the underlying mortgage assets experience
slower than anticipated prepayments of principal, the price on a PO class
will be affected more severely than would be the case with a traditional
mortgage-backed security.
The staff of the SEC has advised the fund that it believes the fund should
treat IOs and POs, other than government-issued IOs or POs backed by fixed
rate mortgages, as illiquid securities and, accordingly, limit its
investments in such securities, together with all other illiquid securities,
to 15% of the fund's net assets. Under the staff's position, the
determination of whether a particular government-issued IO or PO backed by
fixed rate mortgages is liquid may be made on a case by case basis under
guidelines and standards established by the fund's Board of
Directors/Trustees. The fund's Board of Directors/Trustees has delegated to
T. Rowe Price the authority to determine the liquidity of these investments
based on the following guidelines: the type of issuer; type of collateral,
including age and prepayment characteristics; rate of interest on coupon
relative to current market rates and the effect of the rate on the potential
for prepayments; complexity of the issue's structure, including the number of
tranches; size of the issue and the number of dealers who make a market in
the IO or PO.
. Adjustable Rate Mortgage Securities ARMs, like fixed rate mortgages, have a
specified maturity date, and the principal amount of the mortgage is repaid
over the life of the mortgage. Unlike fixed rate mortgages, the interest rate
on ARMs is adjusted at regular intervals based on a specified, published
interest rate "index" such as a Treasury rate index. The new rate is
determined by adding a specific interest amount, the "margin," to the
<PAGE>
interest rate of the index. Investment in ARM securities allows the fund to
participate in changing interest rate levels through regular adjustments in
the coupons of the underlying mortgages, resulting in more variable current
income and lower price volatility than longer-term fixed rate mortgage
securities. ARM securities are a less effective means of locking in long-term
rates than fixed rate mortgages since the income from adjustable rate
mortgages will increase during periods of rising interest rates and decline
during periods of falling rates.
. Characteristics of Adjustable Rate Mortgage Securities-Interest Rate Indices
The interest rates paid on adjustable rate securities are readjusted
periodically to an increment over some predetermined interest rate index.
Such readjustments occur at intervals ranging from one to 60 months or
longer. There are three main categories of indexes: (1) those based on U.S.
Treasury securities; (2) those derived from a calculated measure such as a
cost of funds index ("COFI") or a moving average of mortgage rates; and (3)
those based on actively traded or prominently posted short-term, interest
rates. Commonly utilized indexes include the one-year, three-year and
five-year constant maturity Treasury rates, the three-month Treasury bill
rate, the 180-day Treasury bill rate, rates on longer-term Treasury
securities, the 11th District Federal Home Loan Bank Cost of Funds, the
National Median Cost of Funds, the one-month, three-month, six-month or
one-year London Interbank Offered Rate ("LIBOR"), the prime rate of a
specific bank, or commercial paper rates. Some indexes, such as the one-year
constant maturity Treasury rate, closely mirror changes in market interest
rate levels. Others, such as the 11th District Home Loan Bank Cost of Funds
index, tend to lag behind changes in market rate levels. The market value of
the fund's assets and of the net asset value of the fund's shares will be
affected by the length of the adjustment period, the degree of volatility in
the applicable indexes and the maximum increase or decrease of the interest
rate adjustment on any one adjustment date, in any one year and over the life
of the securities. These maximum increases and decreases are typically
referred to as "caps" and "floors," respectively.
A number of factors affect the performance of the COFI and may cause the COFI
to move in a manner different from indices based upon specific interest
rates, such as the One Year Treasury Index. Additionally, there can be no
assurance that the COFI will necessarily move in the same direction or at the
same rate as prevailing interest rates. Furthermore, any movement in the COFI
as compared to other indices based upon specific interest rates may be
affected by changes instituted by the FHLB of San Francisco in the method
used to calculate the COFI. To the extent that the COFI may reflect interest
changes on a more delayed basis than other indices, in a period of rising
interest rates, any increase may produce a higher yield later than would be
produced by such other indices, and in a period of declining interest rates,
the COFI may remain higher than other market interest rates which may result
in a higher level of principal prepayments on mortgage loans which adjust in
accordance with the COFI than mortgage loans which adjust in accordance with
other indices.
LIBOR is the interest rate that the most creditworthy international banks
dealing in U.S. dollar-denominated deposits and loans charge each other for
large dollar-denominated loans. LIBOR is also usually the base rate for large
dollar-denominated loans in the international market. LIBOR is generally
quoted for loans having rate adjustments at one-, three-, six- or 12- month
intervals.
Caps and Floors ARMs will frequently have caps and floors which limit the
maximum amount by which the interest rate to the residential borrower may
move up or down, respectively, each adjustment period and over the life of
the loan. Interest rate caps on ARM securities may cause them to decrease in
value in an increasing interest rate environment. Such caps may also prevent
their income from increasing to levels commensurate with prevailing interest
rates. Conversely, interest rate floors on ARM securities may cause their
income to remain higher than prevailing interest rate levels and result in an
increase in the value of such securities. However, this increase may be
tempered by the acceleration of prepayments.
Mortgage securities generally have a maximum maturity of up to 30 years.
However due to the adjustable rate feature of ARM securities, their prices
are considered to have volatility characteristics which approximate the
average period of time until the next adjustment of the interest rate. As a
result, the principal volatility of ARM securities may be more comparable to
short- and intermediate-term securities than to longer-term fixed rate
mortgage securities. Prepayments however, will increase their principal
volatility. See also the discussion of Mortgage-Backed Securities. Several
characteristics of ARMs may make them more susceptible to prepayments than
other Mortgage-Backed Securities. An adjustable rate mortgagor has greater
incentives to refinance into a
<PAGE>
fixed rate mortgage during favorable interest rate environments, in order to
avoid interest rate risk. Also, homes financed with adjustable rate mortgages
may be sold more frequently because of the prevalence of first-time home
buyers in the adjustable rate mortgage market. Also, delinquency and
foreclosure rates are higher in this market since many buyers use adjustable
rate mortgages to purchase homes that they could not otherwise finance on a
fixed rate basis. Significant increases in the index rates for the adjustable
rate mortgages may also result in increased delinquency and default rates,
which in turn, may affect prepayment rates on the ARMs.
. Other Mortgage-Related Securities The fund expects that governmental,
government-related or private entities may create mortgage loan pools
offering pass-through investments in addition to those described above. The
mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage instruments whose principal or interest
payments may vary or whose terms to maturity may differ from customary
long-term fixed rate mortgages. As new types of mortgage-related securities
are developed and offered to investors, the investment manager will,
consistent with the fund's objective, policies and quality standards,
consider making investments in such new types of securities.
All Funds except GNMA, Government Reserve Investment, U.S. Treasury Money,
Intermediate, and Long-Term Funds
Asset-Backed Securities
The credit quality of most asset-backed securities depends primarily on the
credit quality of the assets underlying such securities, how well the entity
issuing the security is insulated from the credit risk of the originator or
any other affiliated entities and the amount and quality of any credit
support provided to the securities. The rate of principal payment on
asset-backed securities generally depends on the rate of principal payments
received on the underlying assets which in turn may be affected by a variety
of economic and other factors. As a result, the yield on any asset-backed
security is difficult to predict with precision and actual yield to maturity
may be more or less than the anticipated yield to maturity. Asset-backed
securities may be classified as pass-through certificates or collateralized
obligations.
Pass-through certificates are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of assets.
Pass-through certificates usually provide for payments of principal and
interest received to be passed through to their holders, usually after
deduction for certain costs and expenses incurred in administering the pool.
Because pass-through certificates represent an ownership interest in the
underlying assets, the holders thereof bear directly the risk of any defaults
by the obligors on the underlying assets not covered by any credit support.
See "Types of Credit Support."
Asset-backed securities issued in the form of debt instruments, also known as
collateralized obligations, are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Such assets are most often trade, credit card or
automobile receivables. The assets collateralizing such asset-backed
securities are pledged to a trustee or custodian for the benefit of the
holders thereof. Such issuers generally hold no assets other than those
underlying the asset-backed securities and any credit support provided. As a
result, although payments on such asset-backed securities are obligations of
the issuers, in the event of defaults on the underlying assets not covered by
any credit support (see "Types of Credit Support"), the issuing entities are
unlikely to have sufficient assets to satisfy their obligations on the
related asset-backed securities.
. Methods of Allocating Cash Flows While many asset-backed securities are
issued with only one class of security, many asset-backed securities are
issued in more than one class, each with different payment terms. Multiple
class asset-backed securities are issued for two main reasons. First,
multiple classes may be used as a method of providing credit support. This is
accomplished typically through creation of one or more classes whose right to
payments on the asset-backed security is made subordinate to the right to
such payments of the remaining class or classes. See "Types of Credit
Support." Second, multiple classes may permit the issuance of securities with
payment terms, interest rates or other characteristics differing both from
those of each other and from those of the underlying assets. Examples include
so-called "strips" (asset-backed securities entitling
<PAGE>
the holder to disproportionate interests with respect to the allocation of
interest and principal of the assets backing the security), and securities
with class or classes having characteristics which mimic the characteristics
of non-asset-backed securities, such as floating interest rates (i.e.,
interest rates which adjust as a specified benchmark changes) or scheduled
amortization of principal.
Asset-backed securities in which the payment streams on the underlying assets
are allocated in a manner different than those described above may be issued
in the future. The fund may invest in such asset-backed securities if such
investment is otherwise consistent with its investment objectives and
policies and with the investment restrictions of the fund.
. Types of Credit Support Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on underlying assets to make
payments, such securities may contain elements of credit support. Such credit
support falls into two classes: liquidity protection and protection against
ultimate default by an obligor on the underlying assets. Liquidity protection
refers to the provision of advances, generally by the entity administering
the pool of assets, to ensure that scheduled payments on the underlying pool
are made in a timely fashion. Protection against ultimate default ensures
ultimate payment of the obligations on at least a portion of the assets in
the pool. Such protection may be provided through guarantees, insurance
policies or letters of credit obtained from third parties "external credit
enhancement", through various means of structuring the transaction "internal
credit enhancement" or through a combination of such approaches. Examples of
asset-backed securities with credit support arising out of the structure of
the transaction include "senior-subordinated securities" (multiple class
asset-backed securities with certain classes subordinate to other classes as
to the payment of principal thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class)
and asset-backed securities that have "reserve funds" (where cash or
investments, sometimes funded from a portion of the initial payments on the
underlying assets, are held in reserve against future losses) or that have
been "over collateralized" (where the scheduled payments on, or the principal
amount of, the underlying assets substantially exceeds that required to make
payment of the asset-backed securities and pay any servicing or other fees).
The degree of credit support provided on each issue is based generally on
historical information respecting the level of credit risk associated with
such payments. Depending upon the type of assets securitized, historical
information on credit risk and prepayment rates may be limited or even
unavailable. Delinquency or loss in excess of that anticipated could
adversely affect the return on an investment in an asset-backed security.
. Automobile Receivable Securities The fund may invest in asset-backed
securities which are backed by receivables from motor vehicle installment
sales contracts or installment loans secured by motor vehicles ("Automobile
Receivable Securities"). Since installment sales contracts for motor vehicles
or installment loans related thereto ("Automobile Contracts") typically have
shorter durations and lower incidences of prepayment, Automobile Receivable
Securities generally will exhibit a shorter average life and are less
susceptible to prepayment risk.
Most entities that issue Automobile Receivable Securities create an
enforceable interest in their respective Automobile Contracts only by filing
a financing statement and by having the servicer of the Automobile Contracts,
which is usually the originator of the Automobile Contracts, take custody
thereof. In such circumstances, if the servicer of the Automobile Contracts
were to sell the same Automobile Contracts to another party, in violation of
its obligation not to do so, there is a risk that such party could acquire an
interest in the Automobile Contracts superior to that of the holders of
Automobile Receivable Securities. Also, although most Automobile Contracts
grant a security interest in the motor vehicle being financed, in most states
the security interest in a motor vehicle must be noted on the certificate of
title to create an enforceable security interest against competing claims of
other parties. Due to the large number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the Automobile
Contracts underlying the Automobile Receivable Security, usually is not
amended to reflect the assignment of the seller's security interest for the
benefit of the holders of the Automobile Receivable Securities. Therefore,
there is the possibility that recoveries on repossessed collateral may not,
in some cases, be available to support payments on the securities. In
addition, various state and federal securities laws give the motor vehicle
owner the right to assert against the holder of the owner's Automobile
Contract certain defenses such owner would have against
<PAGE>
the seller of the motor vehicle. The assertion of such defenses could reduce
payments on the Automobile Receivable Securities.
. Credit Card Receivable Securities The fund may invest in asset-backed
securities backed by receivables from revolving credit card agreements
("Credit Card Receivable Securities"). Credit balances on revolving credit
card agreements ("Accounts") are generally paid down more rapidly than are
Automobile Contracts. Most of the Credit Card Receivable Securities issued
publicly to date have been Pass-Through Certificates. In order to lengthen
the maturity of Credit Card Receivable Securities, most such securities
provide for a fixed period during which only interest payments on the
underlying Accounts are passed through to the security holder and principal
payments received on such Accounts are used to fund the transfer to the pool
of assets supporting the related Credit Card Receivable Securities of
additional credit card charges made on an Account. The initial fixed period
usually may be shortened upon the occurrence of specified events which signal
a potential deterioration in the quality of the assets backing the security,
such as the imposition of a cap on interest rates. The ability of the issuer
to extend the life of an issue of Credit Card Receivable Securities thus
depends upon the continued generation of additional principal amounts in the
underlying account during the initial period and the non-occurrence of
specified events. An acceleration in cardholders' payment rates or any other
event which shortens the period during which additional credit card charges
on an Account may be transferred to the pool of assets supporting the related
Credit Card Receivable Security could shorten the weighted average life and
yield of the Credit Card Receivable Security.
Credit cardholders are entitled to the protection of a number of state and
federal consumer credit laws, many of which give such holder the right to set
off certain amounts against balances owed on the credit card, thereby
reducing amounts paid on Accounts. In addition, unlike most other
asset-backed securities, Accounts are unsecured obligations of the
cardholder.
. Other Assets Asset-backed securities backed by assets other than those
described above, including, but not limited to, small-business loans and
accounts receivable, equipment leases, commercial real estate loans, boat
loans and manufacturing housing loans. The fund may invest in such securities
in the future if such investment is otherwise consistent with its investment
objective and policies.
There are, of course, other types of securities that are, or may become
available, which are similar to the foregoing and the funds may invest in
these securities.
High Yield Fund
Collateralized Bond or Loan Obligations
Collateralized Bond Obligations ("CBOs") are bonds collateralized by
corporate bonds and Collateralized Loan Obligations ("CLOs") are bonds
collateralized by bank loans. CBOs and CLOs are structured into tranches, and
payments are allocated such that each tranche has a predictable cash flow
stream and average life. CBOs are fairly recent entrants to the fixed income
market. Most CBOs issued to date have been collateralized by high yield bonds
or loans, with heavy credit enhancement.
Loan Participations and Assignments
Loan participations and assignments (collectively "participations") will
typically be participating interests in loans made by a syndicate of banks,
represented by an agent bank which has negotiated and structured the loan, to
corporate borrowers to finance internal growth, mergers, acquisitions, stock
repurchases, leveraged buy-outs and other corporate activities. Such loans
may also have been made to governmental borrowers, especially governments of
developing countries which is referred to as Loans to Developing Countries
debt ("LDC debt"). LDC debt will involve the risk that the governmental
entity responsible for the repayment of the debt may be unable or unwilling
to do so when due. The loans underlying such participations may be secured or
unsecured, and the fund may invest in loans collateralized by mortgages on
real property or which have no collateral. The loan participations themselves
may extend for the entire term of the loan or may extend only for short
"strips" that correspond to a quarterly or monthly floating rate interest
period on the underlying loan. Thus, a term or revolving credit that extends
for several years may be subdivided into shorter periods.
<PAGE>
The loan participations in which the fund will invest will also vary in legal
structure. Occasionally, lenders assign to another institution both the
lender's rights and obligations under a credit agreement. Since this type of
assignment relieves the original lender of its obligations, it is called a
novation. More typically, a lender assigns only its right to receive payments
of principal and interest under a promissory note, credit agreement or
similar document. A true assignment shifts to the assignee the direct
debtor-creditor relationship with the underlying borrower. Alternatively, a
lender may assign only part of its rights to receive payments pursuant to the
underlying instrument or loan agreement. Such partial assignments, which are
more accurately characterized as "participating interests," do not shift the
debtor-creditor relationship to the assignee, who must rely on the original
lending institution to collect sums due and to otherwise enforce its rights
against the agent bank which administers the loan or against the underlying
borrower.
There may not be a recognizable, liquid public market for loan
participations. To the extent this is the case, the fund would consider the
loan participation as illiquid and subject to the fund's restriction on
investing no more than 15% of its net assets in illiquid securities.
Where required by applicable SEC positions, the fund will treat both the
corporate borrower and the bank selling the participation interest as an
issuer for purposes of its fundamental investment restriction on
diversification.
Various service fees received by the fund from loan participations, may be
treated as non-interest income depending on the nature of the fee
(commitment, takedown, commission, service or loan origination). To the
extent the service fees are not interest income, they will not qualify as
income under Section 851(b) of the Code. Thus the sum of such fees plus any
other non-qualifying income earned by the fund cannot exceed 10% of total
income.
Trade Claims
Trade claims are non-securitized rights of payment arising from obligations
other than borrowed funds. Trade claims typically arise when, in the ordinary
course of business, vendors and suppliers extend credit to a company by
offering payment terms. Generally, when a company files for bankruptcy
protection, payments on these trade claims cease and the claims are subject
to compromise along with the other debts of the company. Trade claims
typically are bought and sold at a discount reflecting the degree of
uncertainty with respect to the timing and extent of recovery. In addition to
the risks otherwise associated with low-quality obligations, trade claims
have other risks, including the possibility that the amount of the claim may
be disputed by the obligor.
Over the last few years a market for the trade claims of bankrupt companies
has developed. Many vendors are either unwilling or lack the resources to
hold their claim through the extended bankruptcy process with an uncertain
outcome and timing. Some vendors are also aggressive in establishing reserves
against these receivables, so that the sale of the claim at a discount may
not result in the recognition of a loss.
Trade claims can represent an attractive investment opportunity because these
claims typically are priced at a discount to comparable public securities.
This discount is a reflection of both a less liquid market, a smaller
universe of potential buyers and the risks peculiar to trade claim investing.
It is not unusual for trade claims to be priced at a discount to public
securities that have an equal or lower priority claim.
As noted above, investing in trade claims does carry some unique risks which
include:
. Establishing the Amount of the Claim Frequently, the supplier's estimate of
its receivable will differ from the customer's estimate of its payable.
Resolution of these differences can result in a reduction in the amount of
the claim. This risk can be reduced by only purchasing scheduled claims
(claims already listed as liabilities by the debtor) and seeking
representations from the seller.
. Defenses to Claims The debtor has a variety of defenses that can be asserted
under the bankruptcy code against any claim. Trade claims are subject to
these defenses, the most common of which for trade claims relates to
preference payments. (Preference payments are all payments made by the debtor
during the 90 days prior to the filing. These payments are presumed to have
benefited the receiving creditor at the expense of the other creditors. The
receiving creditor may be required to return the payment unless it can show
the payments were received in the ordinary course of business.) While none of
these defenses can result in any additional
<PAGE>
liability of the purchaser of the trade claim, they can reduce or wipe out
the entire purchased claim. This risk can be reduced by seeking
representations and indemnification from the seller.
. Documentation/Indemnification Each trade claim purchased requires
documentation that must be negotiated between the buyer and seller. This
documentation is extremely important since it can protect the purchaser from
losses such as those described above. Legal expenses in negotiating a
purchase agreement can be fairly high. Additionally, it is important to note
that the value of an indemnification depends on the seller's credit.
. Volatile Pricing Due to Illiquid Market There are only a handful of brokers
for trade claims and the quoted price of these claims can be volatile.
Generally, it is expected that Trade Claims would be considered illiquid
investments.
. No Current Yield/Ultimate Recovery Trade claims are almost never entitled to
earn interest. As a result, the return on such an investment is very
sensitive to the length of the bankruptcy, which is uncertain. Although not
unique to trade claims, it is worth noting that the ultimate recovery on the
claim is uncertain and there is no way to calculate a conventional yield to
maturity on this investment. Additionally, the exit for this investment is a
plan of reorganization which may include the distribution of new securities.
These securities may be as illiquid as the original trade claim investment.
. Tax Issue Although the issue is not free from doubt, it is likely that Trade
Claims would be treated as non-securities investments. As a result, any gains
would be considered "non-qualifying" under the Code. The fund may have up to
10% of its gross income (including capital gains) derived from non-qualifying
sources.
Zero Coupon and Pay-in-Kind Bonds
A zero coupon security has no cash coupon payments. Instead, the issuer sells
the security at a substantial discount from its maturity value. The interest
received by the investor from holding this security to maturity is the
difference between the maturity value and the purchase price. The advantage
to the investor is that reinvestment risk of the income received during the
life of the bond is eliminated. However, zero-coupon bonds, like other bonds,
retain interest rate and credit risk and usually display more price
volatility than those securities that pay a cash coupon.
Pay-in-Kind ("PIK") Instruments are securities that pay interest in either
cash or additional securities, at the issuer's option, for a specified
period. PIKs, like zero coupon bonds, are designed to give an issuer
flexibility in managing cash flow. PIK bonds can be either senior or
subordinated debt and trade flat (i.e., without accrued interest). The price
of PIK bonds is expected to reflect the market value of the underlying debt
plus an amount representing accrued interest since the last payment. PIK's
are usually less volatile than zero coupon bonds, but more volatile than cash
pay securities.
For federal income tax purposes, these types of bonds will require the
recognition of gross income each year even though no cash may be paid to the
fund until the maturity or call date of the bond. The fund will nonetheless
be required to distribute substantially all of this gross income each year to
comply with the Internal Revenue Code, and such distributions could reduce
the amount of cash available for investment by the fund.
High Yield, New Income, and Personal Strategy Funds
Warrants
The fund may acquire warrants. Warrants can be highly volatile and have no
voting rights, pay no dividends, and have no rights with respect to the
assets of the corporation issuing them. Warrants basically are options to
purchase securities at a specific price valid for a specific period of time.
They do not represent ownership of the securities, but only the right to buy
them. Warrants differ from call options in that warrants are issued by the
issuer of the security which may be purchased on their exercise, whereas call
options may be written or issued by anyone. The prices of warrants do not
necessarily move parallel to the prices of the underlying securities.
<PAGE>
Corporate Income, High Yield, New Income, Personal Strategy, Short-Term Bond,
and Short-Term U.S. Government Funds
Hybrid Instruments
Hybrid Instruments (a type of potentially high-risk derivative) have been
developed and combine the elements of futures contracts or options with those
of debt, preferred equity, or a depository instrument (hereinafter "Hybrid
Instruments"). Generally, a Hybrid Instrument will be a debt security,
preferred stock, depository share, trust certificate, certificate of deposit,
or other evidence of indebtedness on which a portion of or all interest
payments, and/or the principal or stated amount payable at maturity,
redemption, or retirement, is determined by reference to prices, changes in
prices, or differences between prices, of securities, currencies,
intangibles, goods, articles, or commodities (collectively "Underlying
Assets") or by another objective index, economic factor, or other measure,
such as interest rates, currency exchange rates, commodity indices, and
securities indices (collectively "Benchmarks"). Thus, 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.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing
total return. For example, a fund may wish to take advantage of expected
declines in interest rates in several European countries, but avoid the
transaction costs associated with buying and currency-hedging the foreign
bond positions. One solution would be to purchase a U.S. dollar-denominated
Hybrid Instrument whose redemption price is linked to the average three-year
interest rate in a designated group of countries. The redemption price
formula would provide for payoffs of greater than par if the average interest
rate was lower than a specified level, and payoffs of less than par if rates
were above the specified level. Furthermore, the fund could limit the
downside risk of the security by establishing a minimum redemption price so
that the principal paid at maturity could not be below a predetermined
minimum level if interest rates were to rise significantly. The purpose of
this arrangement, known as a structured security with an embedded put option,
would be to give the fund the desired European bond exposure while avoiding
currency risk, limiting downside market risk, and lowering transactions
costs. Of course, there is no guarantee that the strategy will be successful,
and the fund could lose money if, for example, interest rates do not move as
anticipated or credit problems develop with the issuer of the Hybrid.
The risks of investing in Hybrid Instruments reflect a combination of the
risks of investing in securities, options, futures and currencies. Thus, an
investment in a Hybrid Instrument may entail significant risks that are not
associated with a similar investment in a traditional debt instrument that
has a fixed principal amount, is denominated in U.S. dollars, or bears
interest either at a fixed rate or a floating rate determined by reference to
a common, nationally published benchmark. The risks of a particular Hybrid
Instrument will, of course, depend upon the terms of the instrument, but may
include, without limitation, the possibility of significant changes in the
Benchmarks or the prices of Underlying Assets to which the instrument is
linked. Such risks generally depend upon factors which are unrelated to the
operations or credit quality of the issuer of the Hybrid Instrument and which
may not be readily foreseen by the purchaser, such as economic and political
events, the supply and demand for the Underlying Assets, and interest rate
movements. In recent years, various Benchmarks and prices for Underlying
Assets have been highly volatile, and such volatility may be expected in the
future. Reference is also made to the discussion of futures, options, and
forward contracts herein for a discussion of the risks associated with such
investments.
Hybrid Instruments are potentially more volatile and carry greater market
risks than traditional debt instruments. Depending on the structure of the
particular Hybrid Instrument, changes in a Benchmark may be magnified by the
terms of the Hybrid Instrument and have an even more dramatic and substantial
effect upon the value of the Hybrid Instrument. Also, the prices of the
Hybrid Instrument and the Benchmark or Underlying Asset 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
<PAGE>
principal loss (or gain). The latter scenario may result if "leverage" is
used to structure the Hybrid Instrument. Leverage risk occurs when the Hybrid
Instrument is structured so that a given change in a Benchmark or Underlying
Asset is multiplied to produce a greater value change in the Hybrid
Instrument, thereby magnifying the risk of loss as well as the potential for
gain.
Hybrid Instruments may also carry liquidity risk since the instruments are
often "customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are willing and able to buy such
instruments in the secondary market may be smaller than that for more
traditional debt securities. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market without the
guarantee of a central clearing organization or in a transaction between the
fund and the issuer of the Hybrid Instrument, the creditworthiness of the
counter party of issuer of the Hybrid Instrument would be an additional risk
factor which the fund would have to consider and monitor. 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.
The various risks discussed above, particularly the market risk of such
instruments, may in turn cause significant fluctuations in the net asset
value of the fund. Accordingly, the fund will limit its investments in Hybrid
Instruments to 10% of total assets. However, because of their volatility, it
is possible that the fund's investment in Hybrid Instruments will account for
more than 10% of the fund's return (positive or negative).
All Funds
When-Issued Securities and Forward Commitment Contracts
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, liquid, high-grade debt securities, or
other suitable cover as permitted by the SEC 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.
Additional Adjustable Rate Securities
Certain securities may be issued with adjustable interest rates that are
reset periodically by predetermined formulas or indexes in order to minimize
movements in the principal value of the investment. Such securities may have
long-term maturities, but may be treated as a short-term investment under
certain conditions. Generally, as interest rates decrease or increase, the
potential for capital appreciation or depreciation on these securities is
less than for fixed-rate obligations. These securities may take the following
forms:
Variable Rate Securities Variable rate instruments are those whose terms
provide for the adjustment of their interest rates on set dates and which,
upon such adjustment, can reasonably be expected to have a market value that
approximates it par value. A variable rate instrument, the principal amount
of which is scheduled to be paid in 397 days or less, is deemed to have a
maturity equal to the period remaining until the next readjustment of the
interest rate. A variable rate instrument which is subject to a demand
feature entitles the purchaser to receive the principal amount of the
underlying security or securities, either (i) upon notice of no
<PAGE>
more than 30 days or (ii) at specified intervals not exceeding 397 days and
upon no more than 30 days' notice, is deemed to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest
rate or the period remaining until the principal amount can be recovered
through demand.
Floating Rate Securities Floating rate instruments are those whose terms
provide for the adjustment of their interest rates whenever a specified
interest rate changes and which, at any time, can reasonably be expected to
have a market value that approximates its par value. The maturity of a
floating rate instrument is deemed to be the period remaining until the date
(noted on the face of the instrument) on which the principal amount must be
paid, or in the case of an instrument called for redemption, the date on
which the redemption payment must be made. Floating rate instruments with
demand features are deemed to have a maturity equal to the period remaining
until the principal amount can be recovered through demand.
Put Option Bonds Long-term obligations with maturities longer than one year
may provide purchasers an optional or mandatory tender of the security at par
value at predetermined intervals, often ranging from one month to several
years (e.g., a 30-year bond with a five-year tender period). These
instruments are deemed to have a maturity equal to the period remaining to
the put date.
Corporate Income, High Yield, New Income, Personal Strategy, Prime Reserve,
Reserve Investment, Short-Term Bond, and Short-Term U.S. Government Funds
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 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% (10% for Government Reserve Investment,
Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds) of the
value of its net assets is 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. T. Rowe Price, 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% (10% for Government Reserve
Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds)
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, T. Rowe Price will consider the trading markets for the
specific security taking into account the unregistered nature of a Rule 144A
security. In addition, T. Rowe Price could consider the following: (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% (10% for Government Reserve Investment,
Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds) 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>
New Income and Short-Term Bond Funds
Industry Concentration
When the market for corporate debt securities is dominated by issues in the
gas utility, gas transmission utility, electric utility, telephone utility,
or petroleum industry, the fund will as a matter of Fundamental policy
concentrate 25% or more, but not more than 50%, of its assets, in any one
such industry, if the fund has cash for such investment (i.e., the fund will
not sell portfolio securities to raise cash) and, if in T. Rowe Price's
judgment, the return available and the marketability, quality, and
availability of the debt securities of such industry justifies such
concentration in light of the fund's investment objectives. Domination would
exist with respect to any one such industry, when, in the preceding 30-day
period, more than 25% of all new-issue corporate debt offerings (within the
four highest grades of Moody's or S&P's and with maturities of 10 years or
less) of $25,000,000 or more consisted of issues in such industry. Although
the fund will normally purchase corporate debt securities in the secondary
market as opposed to new offerings, T. Rowe Price believes that the new
issue-based dominance standard, as defined above, is appropriate because it
is easily determined and represents an accurate correlation to the secondary
market. Investors should understand that concentration in any industry may
result in increased risk. Investments in any of these industries may be
affected by environmental conditions, energy conservation programs, fuel
shortages, difficulty in obtaining adequate return on capital in financing
operations and large construction programs, and the ability of the capital
markets to absorb debt issues. In addition, it is possible that the public
service commissions which have jurisdiction over these industries may not
grant future increases in rates sufficient to offset increases in operating
expenses. These industries also face numerous legislative and regulatory
uncertainties at both federal and state government levels. Management
believes that any risk to the fund which might result from concentration in
any industry will be minimized by the fund's practice of diversifying its
investments in other respects. The fund's policy with respect to industry
concentration is a Fundamental policy. (For investment restriction on
industry concentration, see "Investment Restrictions").
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,
within such period of time which coincides with the normal settlement period
for purchases and sales of such securities in the respective markets. The
fund will not have the right to vote on 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 T. Rowe Price to be of good standing and will not be made unless, in the
judgment of T. Rowe Price, the consideration to be earned from such loans
would justify the risk.
Interfund Borrowing and Lending
The fund is a party to an exemptive order received from the SEC on December
8, 1998, that permits it to borrow money from and/or lend money to other
funds in the T. Rowe Price complex ("Price Funds"). All loans are set at an
interest rate between the rate charged on overnight repurchase agreements and
short-term bank loans. All loans are subject to numerous conditions designed
to ensure fair and equitable treatment of all participating funds. The
program is subject to the oversight and periodic review of the Boards of
Directors of the Price Funds.
<PAGE>
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 T. Rowe Price's
approved list. 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) (A) Prime Reserve, U.S.
Treasury Money, Government Reserve Investment, and Reserve Investment
Funds--the underlying securities are either U.S. government securities or
securities that, at the time the repurchase agreement is entered into, are
rated in the highest rating category by the requisite number of NRSROs (as
required by Rule 2a-7 under the 1940 Act) and otherwise are of the type
(excluding maturity limitations) which the fund's investment guidelines would
allow it to purchase directly, (B) GNMA, High Yield, New Income, Personal
Strategy, Short-Term Bond, Short-Term U.S. Government, and U.S. Treasury
Intermediate and Long-Term Funds--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 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 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.
Reverse Repurchase Agreements
Although the fund has no current intention of engaging in reverse repurchase
agreements, the fund reserves the right to do so. Reverse repurchase
agreements are ordinary repurchase agreements in which a fund is the seller
of, rather than the investor in, securities, and agrees to repurchase them at
an agreed upon time and price. Use of a reverse repurchase agreement may be
preferable to a regular sale and later repurchase of the securities because
it avoids certain market risks and transaction costs. A reverse repurchase
agreement may be viewed as a type of borrowing by the fund, subject to
Investment Restriction (1). (See "Investment Restrictions.")
Money Market Reserves
It is expected that the fund will invest its cash reserves primarily in one
or more money market funds established for the exclusive use of the T. Rowe
Price family of mutual funds and other clients of T. Rowe Price and
Price-Fleming. Currently, two such money market funds are in
operation-Reserve Investment Fund ("RIF") and Government Reserve Investment
Fund ("GRF"), each a series of the Reserve Investment Funds, Inc. (The Prime
Reserve and U.S. Treasury Money Funds will not purchase shares of either
fund, and the GNMA and U.S. Treasury Intermediate and U.S. Treasury Long-Term
Funds can only purchase shares of GRF.) Additional series may be created in
the future. These funds were created and operate under an Exemptive Order
issued by the SEC (Investment Company Act Release No. IC-22770, July 29,
1997).
Both funds must comply with the requirements of Rule 2a-7 under the 1940 Act
governing money market funds. The RIF invests at least 95% of its total
assets in prime money market instruments receiving the highest credit rating.
The GRF invests primarily in a portfolio of U.S. government-backed
securities, primarily U.S. Treasuries, and repurchase agreements thereon.
The RIF and GRF provide a very efficient means of managing the cash reserves
of the fund. While neither RIF or GRF pay an advisory fee to the Investment
Manager, they will incur other expenses. However, the RIF and GRF are
expected by T. Rowe Price to operate at very low expense ratios. The fund
will only invest in RIF or GRF to the extent it is consistent with its
objective and program.
Neither fund is insured or guaranteed by the U.S. government, and there is no
assurance they will maintain a stable net asset value of $1.00 per share.
<PAGE>
High Yield Fund
Short Sales
The fund may make short sales for hedging purposes to protect the fund
against companies whose credit is deteriorating. Short sales are transactions
in which the fund sells a security it does not own in anticipation of a
decline in the market value of that security. The fund's short sales would be
limited to situations where the fund owns a debt security of a company and
would sell short the common or preferred stock or another debt security at a
different level of the capital structure of the same company. No securities
will be sold short if, after the effect is given to any such short sale, the
total market value of all securities sold short would exceed 2% of the value
of the fund's net assets.
To complete a short sale transaction, the fund must borrow the security to
make delivery to the buyer. The fund then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. The price at such time may be more or less than the price at
which the security was sold by the fund. Until the security is replaced, the
fund is required to pay to the lender amounts equal to any dividends or
interest which accrue during the period of the loan. To borrow the security,
the fund also may be required to pay a premium, which would increase the cost
of the security sold. The proceeds of the short sale will be retained by the
broker, to the extent necessary to meet margin requirements, until the short
position is closed out.
Until the fund replaces a borrowed security in connection with a short sale,
the fund will: (a) maintain daily a segregated account, containing cash, U.S.
government securities or other suitable cover as permitted by the SEC, at
such a level that (i) the amount deposited in the account plus the amount
deposited with the broker as collateral will equal the current value of the
security sold short and (ii) the amount deposited in the segregated account
plus the amount deposited with the broker as collateral will not be less than
the market value of the security at the time its was sold short; or (b)
otherwise cover its short position.
The fund will incur a loss as a result of the short sale if the price of the
security sold short increases between the date of the short sale and the date
on which the fund replaces the borrowed security. The fund will realize a
gain if the security sold short declines in price between those dates. This
result is the opposite of what one would expect from a cash purchase of a
long position in a security. The amount of any gain will be decreased, and
the amount of any loss increased, by the amount of any premium, dividends or
interest the fund may be required to pay in connection with a short sale. Any
gain or loss on the security sold short would be separate from a gain or loss
on the fund security being hedged by the short sale.
The Taxpayer Relief Act of 1997 requires a mutual fund to recognize gain upon
entering into a constructive sale of stock, a partnership interest, or
certain debt positions occurring after June 8, 1997. A constructive sale is
deemed to occur if the fund enters into a short sale, an offsetting notional
principal contract, or a futures or forward contract which is substantially
identical to the appreciated position. Some of the transactions in which the
fund is permitted to invest may cause certain appreciated positions in
securities held by the fund to qualify as a "constructive sale," in which
case it would be treated as sold and the resulting gain subjected to tax or,
in the case of a mutual fund, distributed to shareholders. If this were to
occur, the fund would be required to distribute such gains even though it
would receive no cash until the later sale of the security. Such
distributions could reduce the amount of cash available for investment by the
fund. Because these rules do not apply to "straight" debt transactions, it is
not anticipated that they will have a significant impact on the fund;
however, the effect cannot be determined until the issuance of clarifying
regulations.
All Funds except Government Reserve Investment, Prime Reserve, Reserve
Investment, and U.S. Treasury Money Funds
Options
Options are a type of potentially high-risk derivative.
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 the fund. In
writing covered call options, the fund expects to generate additional
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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 T. Rowe Price'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", and the
writer (seller) has the obligation to sell, 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 generally will write only covered call options. This means that the
fund will either 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. From time to time, the fund will write a call option that is not
covered as indicated above but where the fund will establish and maintain
with its custodian for the term of the option, an account consisting of cash,
U.S. government securities, other liquid high-grade debt obligations, or
other suitable cover as permitted by the SEC having a value equal to the
fluctuating market value of the optioned securities or currencies. While such
an option would be "covered" with sufficient collateral to satisfy SEC
prohibitions on issuing senior securities, this type of strategy would expose
the fund to the risks of writing uncovered options.
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
generally 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. If the fund
writes an uncovered option as described above, it will bear the risk of
having to purchase the security subject to the option at a price higher than
the exercise price of the option. As the price of a security could appreciate
substantially, the fund's loss could be significant.
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, T. Rowe Price, 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, the latest asked price. The
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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 option
is likely to be offset in whole or in part by appreciation of the underlying
security or currency owned by the fund.
The fund will not write a covered call option if, as a result, the aggregate
market value of all portfolio securities or currencies covering written call
or put options exceeds 25% of the market value of the fund's net assets. 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 to 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, other liquid high-grade debt obligations, or other suitable cover
as determined by the SEC, 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 T.
Rowe Price wishes to purchase the underlying security or currency for the
fund's portfolio at a price lower than the current market price of
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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 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.
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. 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 next.
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 currency where T. Rowe Price 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.
The fund will not commit more than 5% of its assets to premiums when
purchasing put and call 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 purchase
<PAGE>
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 next.
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.
The fund will not 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.
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 Over-the-Counter ("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.
<PAGE>
High Yield Fund
Spread Option Transactions
The fund may purchase from and sell to securities dealers covered spread
options. Such covered spread options are not presently exchange listed or
traded. The purchase of a spread option gives the fund the right to put, or
sell, a security that it owns at a fixed dollar spread or fixed yield spread
in relationship to another security that the fund does not own, but which is
used as a benchmark. The risk to the fund in purchasing covered spread
options is the cost of the premium paid for the spread options and any
transaction costs. In addition, there is no assurance that closing
transactions will be available. The purchase of spread options will be used
to protect the fund against adverse changes in prevailing credit quality
spreads, i.e., the yield spread between high-quality and lower-quality
securities. Such protection is only provided during the life of the spread
option. The security covering the spread option will be maintained in a
segregated account by the fund's custodian. The fund does not consider a
security covered by a spread option to be "pledged" as that term is used in
the fund's policy limiting the pledging or mortgaging of its assets. The fund
may also buy and sell uncovered spread options. Such options would be used
for the same purposes and be subject to similar risks as covered spread
options. However, in an uncovered spread option, the fund would not own
either of the securities involved in the spread.
All Funds except Government Reserve Investment, Prime Reserve, Reserve
Investment, and U.S. Treasury Money Funds
Futures Contracts
Futures contracts are a type of potentially high-risk derivative.
Transactions in Futures
The funds may enter into futures contracts including stock index, interest
rate, and currency futures ("futures" or "futures contracts").
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
T. Rowe Price 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 CFTC. 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.
Regulatory Limitations
If the fund purchases or sells futures contracts or related options which do
not qualify as bona fide hedging under applicable CFTC rules, the aggregate
initial margin deposits and premium required to establish those positions
cannot exceed 5% of the liquidation 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
<PAGE>
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 instances involving the purchase of futures contracts or the writing of
call or put options thereon by the fund, an amount of cash, liquid assets, or
other suitable cover as permitted by the SEC, equal to the market value of
the futures contracts and options thereon (less any related margin deposits),
will be identified by the fund to cover the position, or alternative cover
(such as owning an offsetting position) 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 other 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.
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, or liquid assets 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 market."
Although certain futures contracts, by their terms, require actual future
delivery of and payment for the underlying 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
<PAGE>
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.
For example, the S&P's 500 Stock Index is made up of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The S&P 500
Index assigns relative weightings to the common stocks included in the Index,
and the Index fluctuates with changes in the market values of those common
stocks. In the case of futures contracts on the S&P 500 Index, the contracts
are to buy or sell 250 units. Thus, if the value of the S&P 500 Index were
$150, one contract would be worth $37,500 (250 units x $150). The stock index
futures contract specifies that no delivery of the actual stocks making up
the index will take place. Instead, settlement in cash occurs. Over the life
of the contract, the gain or loss realized by the fund will equal the
difference between the purchase (or sale) price of the contract and the price
at which the contract is terminated. For example, if the fund enters into a
futures contract to buy 250 units of the S&P 500 Index at a specified future
date at a contract price of $150 and the S&P 500 Index is at $154 on that
future date, the fund will gain $1,000 (250 units x gain of $4). If the fund
enters into a futures contract to sell 250 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500 Index is at
$152 on that future date, the fund will lose $500 (250 units x loss of $2).
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 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.
Margin deposits required on futures trading are low. 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.
. 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 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
<PAGE>
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 next, 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. T. Rowe Price 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 T. Rowe Price'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, T. Rowe Price 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 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 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 T. Rowe Price 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 (another type of potentially high-risk derivative) 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 margin account which represents the amount by which the market price
of the futures
<PAGE>
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
nondiscriminatory manner.
Special Risks of Transactions in Options on Futures Contracts
The risks described under "Special Risks in Transactions on Futures
Contracts" are substantially the same as the risks of using options on
futures. If the fund were to write an option on a futures contract, it would
be required to deposit and maintain initial and variation margin in the same
manner as a regular futures contract. 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: (1) there may be insufficient trading
interest in certain options; (2) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (3) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options, or underlying instruments; (4) unusual or
unforeseen circumstances may interrupt normal operations on an exchange; (5)
the facilities of an exchange or a clearing corporation may not at all times
be adequate to handle current trading volume; or (6) 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,
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 CFTC 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
<PAGE>
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.
U.S. Treasury Intermediate and Long-Term Funds
Limitations on Futures and Options for Intermediate and Long-Term Funds
The funds will not purchase a futures contract or 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 the fund's net asset value. In addition, neither
of the funds will enter into a futures transaction if it would be obligated
to purchase or deliver under outstanding open futures contracts amounts which
would exceed 15% of the fund's total assets.
A fund will not write a covered call option if, as a result, the aggregate
market value of all portfolio securities covering call options or subject to
delivery under put options exceeds 15% of the market value of the fund's
total assets.
A fund will not write a covered put option if, as a result, the aggregate
market value of all portfolio securities subject to such put options or
covering call options exceeds 15% of the market value of the fund's total
assets.
The funds have no current intention of investing in options on securities.
However, they reserve the right to do so in the future and could be subject
to the following limitations: a fund may invest up to 15% of its total assets
in premiums on put options and 15% of its total assets in premiums on call
options. The total amount of a fund's total assets invested in futures and
options will not exceed 15% of the fund's total assets.
Corporate Income, High Yield, New Income, Personal Strategy, and Short-Term
Bond Funds
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 T. Rowe Price 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
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
<PAGE>
short-term hedging strategy is highly uncertain. Under normal circumstances,
consideration of the prospect for currency parties will be incorporated into
the longer term investment decisions made with regard to overall
diversification strategies. However, T. Rowe Price 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.
Third, the fund may use forward contracts when the fund wishes to hedge out
of the dollar into a foreign currency in order to create a synthetic bond or
money market instrument-the security would be issued in U.S. dollars but the
dollar component would be transformed into a foreign currency through a
forward contract.
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, currency
available for cover of the forward contract(s) or other suitable cover as
permitted by the SEC. 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 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 T. Rowe Price. 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 there are costs
associated with 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 options, futures, and forward foreign
exchange contracts, including options and futures on currencies, which will
be treated as Section 1256 contracts or straddles.
Transactions that 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 (taxable at a maximum rate of 20%) or loss and
40% short-term capital gain or loss regardless of the holding period of the
instrument (ordinary income or loss for foreign exchange contracts). The fund
will
<PAGE>
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.
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. 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 losses, if the security covering the option was held for
more than 12 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. Tax regulations could be issued limiting 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.
As a result of the "Taxpayer Relief Act of 1997," entering into certain
options, futures contracts, or forward contracts may result in the
"constructive sale" of offsetting stocks or debt securities of the fund. See
"Portfolio Management Practices-Short Sales" for further discussion.
INVESTMENT RESTRICTIONS
-------------------------------------------------------------------------------
Fundamental policies may not be changed without the approval of the lesser of
(1) 67% of the 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
fund's Board of Directors/Trustees 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. Calculation of the
fund's total assets for compliance with any of the following fundamental or
operating policies or any other investment restrictions set forth in the
fund's prospectus or Statement of Additional Information will not include
cash collateral held in connection with securities lending activities.
Fundamental Policies
As a matter of fundamental policy, the fund may not:
(1) Borrowing Borrow money except that the fund may (i) borrow for
non-leveraging, temporary or emergency purposes; and (ii) engage in
reverse repurchase agreements and make other investments or engage in
other transactions, which may involve a borrowing, in a manner consistent
with the fund's investment objective and program, provided that the
combination of (i) and (ii) shall not exceed 33/1//\\/3/\\% of the value
of the fund's total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage permitted by
law. Any borrowings which come to exceed this amount will be reduced in
accordance with applicable law. The fund may borrow from banks, other
Price Funds, or other persons to the extent permitted by applicable law;
(2) Commodities Purchase or sell physical commodities; except that the fund
(other than the Prime Reserve, U.S. Treasury Money, Government Reserve
Investment, and Reserve Investment Funds) may enter into futures
contracts and options thereon;
<PAGE>
(3) (a)
Industry Concentration (All Funds except High Yield, New Income, Prime
Reserve, Reserve Investment, and Short-Term Bond Funds) Purchase the
securities of any issuer if, as a result, more than 25% of the value of
the fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry;
(b)
Industry Concentration (High Yield Fund) Purchase the securities of any
issuer if, as a result, more than 25% of the value of the fund's total
assets would be invested in the securities of issuers having their
principal business activities in the same industry; 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;
(c) Industry Concentration (New Income Fund) Purchase the securities of
any issuer if, as a result, more than 25% of the value of the fund's
total assets would be invested in the securities of issuers having their
principal business activities in the same industry; provided, however,
that the fund will invest more than 25% of its total assets, but not more
than 50%, in any one of the gas utility, gas transmission utility,
electric utility, telephone utility, and petroleum industries under
certain circumstances, and further provided that this limitation does not
apply to securities of the banking industry including, but not limited
to, certificates of deposit and bankers' acceptances;
(d)
Industry Concentration (Prime Reserve and Reserve Investment Funds)
Purchase the securities of any issuer if, as a result, more than 25% of
the value of the fund's total assets would be invested in the securities
of issuers having their principal business activities in the same
industry; provided, however, that this limitation does not apply to
securities of the banking industry including, but not limited to,
certificates of deposit and bankers' acceptances; and
(e)
Industry Concentration (Short-Term Bond Fund) Purchase the securities of
any issuer if, as a result, more than 25% of the value of the fund's
total assets would be invested in the securities of issuers having their
principal business activities in the same industry; provided, however,
that the fund will normally invest more than 25% of its total assets in
the securities of the banking industry including, but not limited to,
bank certificates of deposit and bankers' acceptances when the fund's
position in issues maturing in one year or less equals 35% or more of the
fund's total assets; provided, further, that the fund will invest more
than 25% of its total assets, but not more than 50%, in any one of the
gas utility, gas transmission utility, electric utility, telephone
utility, and petroleum industries under certain circumstances;
(4) Loans Make loans, although the fund may (i) lend portfolio securities and
participate in an interfund lending program with other Price Funds
provided that no such loan may be made if, as a result, the aggregate of
such loans would exceed 33/1//\\/3/\\% of the value of the fund's total
assets; (ii) purchase money market securities and enter into repurchase
agreements; and (iii) acquire publicly distributed or privately placed
debt securities and purchase debt;
(5) Percent Limit on Assets Invested in Any One Issuer Purchase a security
if, as a result, with respect to 75% of the value of its total assets,
more than 5% of the value of the fund's total assets would be invested in
the securities of a single issuer, except securities issued or guaranteed
by the U.S. government or any of its agencies or instrumentalities;
(6) Percent Limit on Share Ownership of Any One Issuer Purchase a security
if, as a result, with respect to 75% of the value of the fund's total
assets, more than 10% of the outstanding voting securities of any issuer
would be held by the fund (other than obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities);
(7) Real Estate Purchase or sell real estate, including limited partnership
interests therein, unless acquired as a result of ownership of securities
or other instruments (but this shall not prevent the fund from investing
in securities or other instruments backed by real estate or securities of
companies engaged in the real estate business);
(8) Senior Securities Issue senior securities except in compliance with the
1940 Act; or
<PAGE>
(9) Underwriting Underwrite securities issued by other persons, except to the
extent that the fund may be deemed to be an underwriter within the
meaning of the 1933 Act 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 restriction (1), the Government Reserve
Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money
Funds have no current intention of engaging in any borrowing
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 semiannual and
annual reports. It is the position of the Staff of the SEC that foreign
governments are industries for purposes of this restriction.
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.
For purposes of investment restriction (5), the fund will consider a
repurchase agreement fully collateralized with U.S. government securities
to be U.S. government securities.
Operating Policies
As a matter of operating policy, the fund may not:
(1) Borrowing 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) (a)
Equity Securities (All Funds except High Yield and New Income Funds)
Purchase any equity security or security convertible into an equity
security except as set forth in its prospectus and operating policy on
investment companies;
(b)
Equity Securities (High Yield Fund) Invest more than 20% of the fund's
total assets in equity securities (including up to 5% in warrants);
(c)
Equity Securities (New Income Fund) Invest more than 25% of the fund's
total assets in equity securities;
(4) 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 options would exceed 5% of the fund's net asset value;
(5) Illiquid Securities Purchase illiquid securities if, as a result, more
than 15% (10% for the Government Reserve Investment, Prime Reserve,
Reserve Investment, and U.S. Treasury Money Funds) of its net assets
would be invested in such securities;
(6) Investment Companies Purchase securities of open-end or closed-end
investment companies except (i) in compliance with the 1940 Act; (ii)
securities of the Reserve Investment or Government Reserve Investment
Funds; or (iii) in the case of the Government Reserve Investment, Prime
Reserve, Reserve Investment, and U.S. Treasury Money Funds, only
securities of other money market funds;
<PAGE>
(7) 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;
(8) Mortgaging Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the fund as security for indebtedness except as may be
necessary in connection with permissible borrowings or investments and
then such mortgaging, pledging or hypothecating may not exceed
33/1//\\/3/\\% of the fund's total assets at the time of borrowing or
investment;
(9) Oil and Gas Programs Purchase participations or other direct interests
in, or enter into leases with respect to oil, gas, or other mineral
exploration or development programs if, as a result thereof, more than 5%
of the value of the total assets of the fund would be invested in such
programs;
(10) 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;
(11) (a) Short Sales (All Funds except High Yield Fund) Effect short sales of
securities;
(b)
Short Sales (High Yield Fund) Effect short sales of securities, other
than as set forth in its prospectus and Statement of Additional
Information; or
(12) Warrants Invest in warrants if, as a result thereof, more than 10% of
the value of the net assets of the fund would be invested in warrants.
Personal Strategy Funds
Notwithstanding anything in the above fundamental and operating restrictions
to the contrary, the fund may invest all of its assets in a single investment
company or a series thereof in connection with a "master-feeder" arrangement.
Such an investment would be made where the fund (a "Feeder"), and one or more
other funds with the same investment objective and program as the fund,
sought to accomplish its investment objective and program by investing all of
its assets in the shares of another investment company (the "Master"). The
Master would, in turn, have the same investment objective and program as the
fund. The fund would invest in this manner in an effort to achieve the
economies of scale associated with having a Master fund make investments in
portfolio companies on behalf of a number of Feeder funds.
MANAGEMENT OF THE FUNDS
-------------------------------------------------------------------------------
The officers and directors/trustees of the fund 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 fund's
directors/trustees who are considered "interested persons" of T. Rowe Price
as defined under Section 2(a)(19) of the 1940 Act are noted with an asterisk
(*). These directors/trustees are referred to as inside directors by virtue
of their officership, directorship, and/or employment with T. Rowe Price.
All Funds except Personal Strategy Funds
Independent Directors/Trustees/(a)/
CALVIN W. BURNETT, PH.D., 3/16/32, President, Coppin State College; Director,
Maryland Chamber of Commerce and Provident Bank of Maryland; Former
President, Baltimore Area Council Boy Scouts of America; Vice President,
Board of Directors, The Walters Art Gallery; Address: 2500 West North Avenue,
Baltimore, Maryland 21216
ANTHONY W. DEERING, 1/28/45, Director, Chairman of the Board, 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
<PAGE>
F. PIERCE LINAWEAVER, 8/22/34, President, F. Pierce Linaweaver & Associates,
Inc.; Consulting Environmental & Civil Engineer(s); formerly (1987-1991)
Executive Vice President, EA Engineering, Science, and Technology, Inc., and
President, EA Engineering, Inc., Baltimore, Maryland; Address: Green Spring
Station, 2360 West Joppa Road, Suite 224, Lutherville, Maryland 21093
JOHN G. SCHREIBER, 10/21/46, Owner/President, Schreiber Investments, Inc., a
real estate investment company; Director, AMLI Residential Properties Trust
and Urban Shopping Centers, Inc.; Partner, Blackstone Real Estate Partners,
L.P.; Director and formerly Executive Vice President, JMB Realty Corporation,
a national real estate investment manager and developer; Address: 1115 East
Illinois Road, Lake Forest, Illinois 60045
Personal Strategy Funds
DONALD W. DICK, JR., 1/27/43, Principal, EuroCapital Advisors, LLC, an
acquisition and management advisory firm; formerly (5/89-6/95) Principal,
Overseas Partners, Inc., a financial investment firm; formerly (6/65-3/89)
Director and Vice President; Consumer Products Division, McCormick & Company,
Inc., international food processors; Director, Waverly, Inc., Baltimore,
Maryland; Address: 925 Cleveland Street, #177, Greenville, South Carolina
29601
DAVID K. FAGIN, 4/9/38, Chairman and Chief Executive Officer, Western
Exploration and Development, Ltd.; Director Golden Star Resources Ltd. and
Miranda Mining Development Corporation; formerly (7/91- 9/97) Chairman,
Chief Executive Officer, Golden Star Resources Ltd.; (1986-7/91) President,
Chief Operating Officer and Director, Homestake Mining Company; Address: 1700
Lincoln Street, Suite 4710, Denver, Colorado 80203
HANNE M. MERRIMAN, 11/16/41, Retail business consultant; formerly President
and Chief Operating Officer (1991-92), Nan Duskin, Inc., a women's specialty
store, Director (1984-90) and Chairman (1989-90) Federal Reserve Bank of
Richmond, and President and Chief Executive Officer (1988-89), Honeybee,
Inc., a division of Spiegel, Inc.; Director, Central Illinois Public Service
Company, CIPSCO Incorporated, Finlay Enterprises, Inc., The Rouse Company,
State Farm Mutual Automobile Insurance Company and USAir Group, Inc.;
Address: 3201 New Mexico Avenue, N.W., Suite 350, Washington, D.C. 20016
HUBERT D. VOS, 8/2/33, Owner/President, Stonington Capital Corporation, a
private investment company; Address: 1114 State Street, Suite 247, P.O. Box
90409, Santa Barbara, California 93190-0409
PAUL M. WYTHES, 6/23/33, Founding General Partner, Sutter Hill Ventures, a
venture capital limited partnership, providing equity capital to young high
technology companies throughout the United States; Director, Teltone
Corporation, Interventional Technologies Inc. and Stuart Medical, Inc.;
Address: 755 Page Mill Road, Suite A200, Palo Alto, California 94304-1005
(a) Unless otherwise indicated, the Independent Directors/Trustees have been
at their respective companies for at least five years.
Inside Directors/Trustees/Officers
All Funds
* JAMES S. RIEPE, 6/25/43, Director/Trustee and Vice President -Vice Chairman
of the Board, Managing Director, and Director, T. Rowe Price; Chairman of the
Board, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc.,
and T. Rowe Price Retirement Plan Services, Inc.; Chairman of the Board,
President, and Trust Officer, T. Rowe Price Trust Company; Director,
Price-Fleming and General Re Corporation
HENRY H. HOPKINS, 12/23/42, Vice President-Vice President, Price-Fleming and
T. Rowe Price Retirement Plan Services, Inc.; Director and 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
PATRICIA S. LIPPERT, 1/12/53, Secretary-Assistant Vice President, T. Rowe
Price and T. Rowe Price Investment Services, Inc.
<PAGE>
CARMEN F. DEYESU, 8/1/41, Treasurer-Vice President, T. Rowe Price, T. Rowe
Price Services, Inc., and T. Rowe Price Trust Company
DAVID S. MIDDLETON, 1/18/56, Controller-Vice President, T. Rowe Price and T.
Rowe Price Trust Company
INGRID I. VORDEMBERGE, 9/27/35, Assistant Vice President-Employee, T. Rowe
Price
Corporate Income Fund
* WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board-Director and Managing
Director, T. Rowe Price; Chartered Financial Analyst
* M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director,
Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
Trust Company; Chartered Financial Analyst
ROBERT M. RUBINO, 8/2/53, President-Vice President, T. Rowe Price
MARK J. VASELKIV, 7/22/58, Executive Vice President-Vice President, T. Rowe
Price
STEVEN G. BROOKS, 8/5/54, Vice President-Vice President, T. Rowe Price;
Chartered Financial Analyst
PATRICK S. CASSIDY, 8/27/64, Vice President-Vice President, T. Rowe Price;
Chartered Financial Analyst
DEBRA R. DIES, 5/12/71, Vice President-Credit Analyst, T. Rowe Price;
formerly employed at J.P. Morgan Securities
VIRGINIA A. STIRLING, 9/5/51, Vice President-Vice President, T. Rowe Price
THOMAS E. TEWKSBURY, 8/1/61, Vice President-Vice President, T. Rowe Price;
formerly senior bond trader, Scudder, Stevens & Clark, New York, New York
THEA N. WILLIAMS, 12/20/61, Vice President-Vice President, T. Rowe Price
GNMA Fund
* WILLIAM T. REYNOLDS, 5/26/48, Trustee-Director and Managing Director, T.
Rowe Price; Chartered Financial Analyst
* M. DAVID TESTA, 4/22/44, Trustee-Chairman of the Board and Director,
Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
Trust Company; Chartered Financial Analyst
CONNICE A. BAVELY, 3/5/51, President-Vice President and Senior Portfolio
Manager, T. Rowe Price; formerly founding partner and Senior Vice President
of Atlantic Asset Management Partners, LLC; Special Partner and Portfolio
Manager at Weiss Peck and Greer
DEBORAH L. BOYER, 1/2/68, Executive Vice President-Assistant Vice President,
T. Rowe Price; formerly Assistant Vice President and Government Bond Trader
for First Chicago NBD Corporation
ALAN D. LEVENSON, 7/17/58, Vice President-Vice President, T. Rowe Price
EDMUND M. NOTZON, 10/1/45, Vice President-Managing Director, T. Rowe Price;
Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst
EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price
Government Reserve Investment and Reserve Investment Funds
* WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board-Director and Managing
Director, T. Rowe Price; Chartered Financial Analyst
* M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director,
Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
Trust Company; Chartered Financial Analyst
<PAGE>
EDWARD A. WIESE, 4/12/59, President-Vice President, T. Rowe Price; Chartered
Financial Analyst
ROBERT P. CAMPBELL, 1/31/56, Executive Vice President-Vice President, T. Rowe
Price and Price-Fleming
JAMES M. MCDONALD, 9/29/49, Executive Vice President-Vice President, T. Rowe
Price
PATRICE BERCHTENBREITER ELY, 1/13/53, Vice President-Vice President, T. Rowe
Price
BRIAN E. BURNS, 10/6/60, Vice President-Assistant Vice President, T. Rowe
Price
JOAN R. POTEE, 11/23/47, Vice President-Vice President, T. Rowe Price
ROBERT M. RUBINO, 8/2/53, Vice President-Vice President, T. Rowe Price
EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price
High Yield Fund
* WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board-Director and Managing
Director, T. Rowe Price; Chartered Financial Analyst
* M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director,
Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
Trust Company; Chartered Financial Analyst
MARK J. VASELKIV, 7/22/58, President-Vice President, T. Rowe Price
JANET G. ALBRIGHT, 3/31/57, Vice President-Vice President, T. Rowe Price
ANDREW M. BROOKS, 2/16/56, Vice President-Vice President, T. Rowe Price
PAUL A. KARPERS, 11/14/67, Vice President-Employee, T. Rowe Price; formerly
an Investment Analyst at the Vanguard Group, Philadelphia, Pennsylvania
NATHANIEL S. LEVY, 07/13/62, Vice President-Vice President, T. Rowe Price
KEVIN P. LOOME, 10/19/67, Vice President-Employee, T. Rowe Price; formerly a
Corporate Finance Analyst for Morgan Stanley in both London and New York
MICHAEL J. MCGONIGLE, 10/14/66, Vice President-Assistant Vice President, T.
Rowe Price
EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price
HUBERT M. STILES, JR., 6/22/47, Vice President-Vice President, T. Rowe Price
THOMAS E. TEWKSBURY, 8/1/61, Vice President-Vice President, T. Rowe Price;
formerly senior bond trader, Scudder, Stevens & Clark, New York, New York
THEA N. WILLIAMS, 12/20/61, Vice President-Vice President, T. Rowe Price
WALTER P. STUART, 3/27/60, Vice President-Employee, T. Rowe Price
New Income Fund
* WILLIAM T. REYNOLDS, 5/26/48, Director and President-Director and Managing
Director, T. Rowe Price; Chartered Financial Analyst
* M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director,
Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
Trust Company; Chartered Financial Analyst
ROBERT M. RUBINO, 8/2/53, Executive Vice President-Vice President, T. Rowe
Price
CONNICE A. BAVELY, 3/5/51, Vice President-Vice President and Senior Portfolio
Manager, T. Rowe Price; formerly founding partner and Senior Vice President
of Atlantic Asset Management Partners, LLC; Special Partner and Portfolio
Manager at Weiss Peck and Greer
<PAGE>
STEVEN G. BROOKS, 8/5/54, Vice President-Vice President, T. Rowe Price;
Chartered Financial Analyst
PATRICK S. CASSIDY, 8/27/64, Vice President-Vice President, T. Rowe Price;
Chartered Financial Analyst
DEBRA R. DIES, 5/12/71, Vice President-Credit Analyst, T. Rowe Price;
formerly employed at J.P. Morgan Securities
VEENA A. KUTLER, 12/22/56, Vice President-Vice President, T. Rowe Price, T.
Rowe Price Trust Company, and Price-Fleming
ALAN D. LEVENSON, 7/17/58, Vice President-Vice President, T. Rowe Price
JAMES M. MCDONALD, 9/29/49, Vice President-Vice President, T. Rowe Price
EDMUND M. NOTZON, 10/1/45, Vice President-Managing Director, T. Rowe Price;
Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst
JOAN R. POTEE, 11/23/47, Vice President-Vice President, T. Rowe Price
THEODORE E. ROBSON, 2/10/65, Vice President-Assistant Vice President, T. Rowe
Price
EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price
VIRGINIA A. STIRLING, 9/5/51, Vice President-Vice President, T. Rowe Price
SUSAN G. TROLL, 8/27/66, Vice President-Vice President and Analyst, T. Rowe
Price; formerly Vice President at Merrill Lynch Asset Management; Certified
Public Accountant
Personal Strategy Balanced, Growth, and Income Funds
* JAMES A.C. KENNEDY, 8/17/53, Director-Director and Managing Director, T.
Rowe Price; Chartered Financial Analyst
* M. DAVID TESTA, 4/22/44, Chairman of the Board-Chairman of the Board and
Director, Price-Fleming; Vice Chairman of the Board, Chief Investment
Officer, and Managing Director, T. Rowe Price; Vice President and Director,
T. Rowe Price Trust Company; Chartered Financial Analyst
EDMUND M. NOTZON, 10/1/45, President-Managing Director, T. Rowe Price; Vice
President, T. Rowe Price Trust Company; Chartered Financial Analyst
STEPHEN W. BOESEL, 12/28/44, Executive Vice President-Managing Director, T.
Rowe Price
LARRY J. PUGLIA, 8/25/60, Executive Vice President-Vice President, T. Rowe
Price; Chartered Financial Analyst
JOHN H. LAPORTE, JR., 7/26/45, Vice President-Director and Managing Director,
T. Rowe Price; Chartered Financial Analyst
MARY C. MUNOZ, 12/2/62, Vice President-Assistant Vice President, T. Rowe
Price
DONALD J. PETERS, 7/3/59, Vice President-Vice President, T. Rowe Price
WILLIAM T. REYNOLDS, 5/26/48, Vice President-Director and Managing Director,
T. Rowe Price; Chartered Financial Analyst
BRIAN C. ROGERS, 6/27/55, Vice President-Director and Managing Director, T.
Rowe Price; Vice President, T. Rowe Price Trust Company; Chartered Financial
Analyst
MARK J. VASELKIV, 7/22/58, Vice President-Vice President, T. Rowe Price
JUDITH B. WARD, 10/12/62, Vice President-Employee, T. Rowe Price
RICHARD T. WHITNEY, 5/7/58, Vice President-Managing Director, T. Rowe Price;
Vice President, Price-Fleming and T. Rowe Price Trust Company; Chartered
Financial Analyst
<PAGE>
J. JEFFREY LANG, 1/10/62, Assistant Vice President-Assistant Vice President,
T. Rowe Price; Vice President, T. Rowe Price Trust Company
Prime Reserve Fund
* WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board-Director and Managing
Director, T. Rowe Price; Chartered Financial Analyst
* M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director,
Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
Trust Company; Chartered Financial Analyst
EDWARD A. WIESE, 4/12/59, President-Vice President, T. Rowe Price; Chartered
Financial Analyst
ROBERT P. CAMPBELL, 1/31/56, Executive Vice President-Vice President, T. Rowe
Price and Price-Fleming
JAMES M. MCDONALD, 9/29/49, Executive Vice President-Vice President, T. Rowe
Price
PATRICE BERCHTENBREITER ELY, 1/13/53, Vice President-Vice President, T. Rowe
Price
BRIAN E. BURNS, 10/6/60, Vice President-Assistant Vice President, T. Rowe
Price
JOAN R. POTEE, 11/23/47, Vice President-Vice President, T. Rowe Price
ROBERT M. RUBINO, 8/2/53, Vice President-Vice President, T. Rowe Price
EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price
SUSAN G. TROLL, 8/27/66, Vice President-Vice President and Analyst, T. Rowe
Price; formerly Vice President at Merrill Lynch Asset Management; Certified
Public Accountant
Short-Term Bond Fund
* WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board-Director and Managing
Director, T. Rowe Price; Chartered Financial Analyst
* M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director,
Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
Trust Company; Chartered Financial Analyst
EDWARD A. WIESE, 4/12/59, President-Vice President, T. Rowe Price; Chartered
Financial Analyst
CONNICE A. BAVELY, 3/5/51, Vice President-Vice President and Senior Portfolio
Manager, T. Rowe Price; formerly founding partner and Senior Vice President
of Atlantic Asset Management Partners, LLC; Special Partner and Portfolio
Manager at Weiss Peck and Greer
STEVEN G. BROOKS, 8/5/54, Vice President-Vice President, T. Rowe Price;
Chartered Financial Analyst
ROBERT P. CAMPBELL, 1/31/56, Vice President-Vice President, T. Rowe Price and
Price-Fleming
PATRICK S. CASSIDY, 8/27/64, Vice President-Vice President, T. Rowe Price;
Chartered Financial Analyst
DEBRA R. DIES, 5/12/71, Vice President-Credit Analyst, T. Rowe Price;
formerly employed at J.P. Morgan Securities
CHARLES B. HILL, 9/22/61, Vice President-Vice President, T. Rowe Price
JAMES M. MCDONALD, 9/29/49, Vice President-Vice President, T. Rowe Price
CHERYL A. MICKEL, 1/11/67, Vice President-Assistant Vice President, T. Rowe
Price
THEODORE E. ROBSON, 2/10/65, Vice President-Assistant Vice President, T. Rowe
Price
ROBERT M. RUBINO, 8/2/53, Vice President-Vice President, T. Rowe Price
EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price
VIRGINIA A. STIRLING, 9/5/51, Vice President-Vice President, T. Rowe Price
<PAGE>
Short-Term U.S. Government Fund
* WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board-Director and Managing
Director, T. Rowe Price; Chartered Financial Analyst
* M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director,
Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
Trust Company; Chartered Financial Analyst
CONNICE A. BAVELY, 3/5/51, President-Vice President and Senior Portfolio
Manager, T. Rowe Price; formerly founding partner and Senior Vice President
of Atlantic Asset Management Partners, LLC; Special Partner and Portfolio
Manager at Weiss Peck and Greer
JAMES M. MCDONALD, 9/29/49, Vice President-Vice President, T. Rowe Price
EDMUND M. NOTZON, 10/1/45, Vice President-Managing Director, T. Rowe Price;
Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst
EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price
DANIEL O. SHACKELFORD, 3/11/58, Vice President-Vice President, T. Rowe Price
EDWARD A. WIESE, 4/12/59, Vice President-Vice President, T. Rowe Price;
Chartered Financial Analyst
U.S. Treasury Intermediate, Long-Term, and Money Funds
* WILLIAM T. REYNOLDS, 5/26/48, Director and President-Director and Managing
Director, T. Rowe Price; Chartered Financial Analyst
* M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director,
Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and
Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price
Trust Company; Chartered Financial Analyst
EDWARD A. WIESE, 4/12/59, Executive Vice President-Vice President, T. Rowe
Price; Chartered Financial Analyst
CONNICE A. BAVELY, 3/5/51, Vice President-Vice President and Senior Portfolio
Manager, T. Rowe Price; formerly founding partner and Senior Vice President
of Atlantic Asset Management Partners, LLC; Special Partner and Portfolio
Manager at Weiss Peck and Greer
PATRICE BERCHTENBREITER ELY, 1/13/53, Vice President-Vice President, T. Rowe
Price
BRIAN E. BURNS, 10/6/60, Vice President-Assistant Vice President, T. Rowe
Price
ROBERT P. CAMPBELL, 1/31/56, Vice President-Vice President, T. Rowe Price and
Price-Fleming
JEROME A. CLARK, 1/2/61, Vice President-Vice President, T. Rowe Price
ALAN D. LEVENSON, 7/17/58, Vice President-Vice President, T. Rowe Price
JAMES M. MCDONALD, 9/29/49, Vice President-Vice President, T. Rowe Price
CHERYL A. MICKEL, 1/11/67, Vice President-Assistant Vice President, T. Rowe
Price
EDMUND M. NOTZON, 10/1/45, Vice President-Managing Director, T. Rowe Price;
Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst
JOAN R. POTEE, 11/23/47, Vice President-Vice President, T. Rowe Price
ROBERT M. RUBINO, 8/2/53, Vice President-Vice President, T. Rowe Price
EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price
<PAGE>
Compensation Table
The funds do not pay pension or retirement benefits to their officers or
directors/trustees. Also, any director/trustee of a fund who is an officer or
employee of T. Rowe Price or Price-Fleming does not receive any remuneration
from the fund.
<TABLE>
<CAPTION>
Name of Person, Aggregate Compensation from Total Compensation from Fund and
Position Fund(a) Fund Complex Paid to Directors/ Trustees(b)
- -------- -------------------------------------------- -----------
- ----------------------- --------------------------------------
<S> <C> <C>
Corporate Income Fund
Calvin W. Burnett, Ph.D., $65
Trustee $1,476 ,000
81,
Anthony W. Deering, Trustee 1,338 000
F. Pierce Linaweaver, Trustee 1,476 66,000
John G. Schreiber, Trustee 1,476 65,500
- -----------------------------------------------------------------------------------------------------------------------------------
GNMA Fund
Calvin W. Burnett, Ph.D., $2, $65
Trustee 423 ,000
81,
Anthony W. Deering, Trustee 1,677 000
F. Pierce Linaweaver, Trustee 2,423 66,000
John G. Schreiber, Trustee 2,423 65,500
- -----------------------------------------------------------------------------------------------------------------------------------
High Yield Fund
Calvin W. Burnett, Ph.D., $65
Director $2,960 ,000
81,
Anthony W. Deering, Director 1,917 000
F. Pierce Linaweaver, Director 2,960 66,000
John G. Schreiber, Director 2,960 65,500
- -----------------------------------------------------------------------------------------------------------------------------------
New Income Fund
Calvin W. Burnett, Ph.D., $65
Director $3,334 ,000
81,
Anthony W. Deering, Director 2,065 000
F. Pierce Linaweaver, Director 3,334 66,000
John G. Schreiber, Director 3,334 65,500
- -----------------------------------------------------------------------------------------------------------------------------------
Personal Strategy Balanced Fund
Donald W. Dick, Jr., Director $1,150 $81,000
David K. Fagin, Director 1,256 65,000
Hanne M. Merriman, Director 1,256 65,000
Hubert D. Vos, Director 1,256 66,000
Paul M. Wythes, Director 1,150 80,000
- -----------------------------------------------------------------------------------------------------------------------------------
Personal Strategy Growth Fund
Donald W. Dick, Jr., Director $1,074 $81,000
David K. Fagin, Director 1,114 65,000
Hanne M. Merriman, Director 1,114 65,000
Hubert D. Vos, Director 1,114 66,000
Paul M. Wythes, Director 1,074 80,000
- -----------------------------------------------------------------------------------------------------------------------------------
Personal Strategy Income Fund
Donald W. Dick, Jr., Director $1,080 $81,000
David K. Fagin, Director 1,121 65,000
Hanne M. Merriman, Director 1,121 65,000
Hubert D. Vos, Director 1,121 66,000
Paul M. Wythes, Director 1,080 80,000
- -----------------------------------------------------------------------------------------------------------------------------------
Prime Reserve Fund
Calvin W. Burnett, Ph.D., $65
Director $6,312 ,000
81,
Anthony W. Deering, Director 3,109 000
F. Pierce Linaweaver, Director 6,312 66,000
John G. Schreiber, Director 6,312 65,500
- -----------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Fund
Calvin W. Burnett, Ph.D., $65
Director $1,611 ,000
81,
Anthony W. Deering, Director 1,396 000
F. Pierce Linaweaver, Director 1,611 66,000
John G. Schreiber, Director 1,611 65,500
- -----------------------------------------------------------------------------------------------------------------------------------
Short-Term U.S. Government Fund
Calvin W. Burnett, Ph.D., $65
Director $1,479 ,000
81,
Anthony W. Deering, Director 1,340 000
F. Pierce Linaweaver, Director 1,479 66,000
John G. Schreiber, Director 1,479 65,500
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Intermediate Fund
Calvin W. Burnett, Ph.D., $65
Director $1,567 ,000
81,
Anthony W. Deering, Director 1,370 000
F. Pierce Linaweaver, Director 1,567 66,000
John G. Schreiber, Director 1,567 65,500
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Long-Term Fund
Calvin W. Burnett, Ph.D., $65
Director $1,960 ,000
81,
Anthony W. Deering, Director 1,520 000
F. Pierce Linaweaver, Director 1,960 66,000
John G. Schreiber, Director 1,960 65,500
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Money Fund
Calvin W. Burnett, Ph.D., $65
Director $1,762 ,000
81,
Anthony W. Deering, Director 1,446 000
F. Pierce Linaweaver, Director 1,762 66,000
John G. Schreiber, Director 1,762 65,500
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(a) Amounts in this column are based on accrued compensation from June 1,
1998 to May 31, 1999.
(b) Amounts in this column are based on compensation received from January
1, 1998, to December 31, 1998. The T. Rowe Price complex included 88 funds
as of December 31, 1998.
Note: Government Reserve Investment and Reserve Investments Funds will not
incur director's fees.
All Funds
The fund's Executive Committee, consisting of the fund's interested
directors/trustees, has been authorized by its respective Board of
Directors/Trustees to exercise all 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.
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
-------------------------------------------------------------------------------
As of the date of the prospectus, the officers and directors/trustees of the
fund, as a group, owned less than 1% of the outstanding shares of the fund.
As of June 30, 1999, the following shareholders beneficially owned more than
5% of the outstanding shares of the fund:
GNMA, High Yield, New Income, and U.S. Treasury Long-Term Funds: Yachtcrew &
Co., T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore,
Maryland 21202;
Government Reserve Investment Fund: Barnaclesail, c/o T. Rowe Price
Associates, Inc., 100 East Pratt Street, Baltimore, Maryland 21202;
Bridgesail & Co., c/o T. Rowe Price Associates, Inc., 100 East Pratt Street,
Baltimore, Maryland 21202
Reserve Investment Fund: Eye & Co., c/o T. Rowe Price Associates, Inc., 100
East Pratt Street, Baltimore, Maryland 21202; Taskforce & Co., c/o T. Rowe
Price Associates, Inc., 100 East Pratt Street, Baltimore, Maryland 21202;
Shorebird & Co., c/o T. Rowe Price Associates, Inc., 100 East Pratt Street,
Baltimore, Maryland 21202; Tuna & Co., c/o T. Rowe Price Associates, Inc.,
100 East Pratt Street, Baltimore, Maryland 21202
U.S. Treasury Intermediate Fund: First American Trust Co., Managed Omnibus,
421 N Main Street, Santa Ana, California 92701-4699.
INVESTMENT MANAGEMENT SERVICES
-------------------------------------------------------------------------------
Services
Under the Management Agreement, T. Rowe Price provides the fund with
discretionary investment services. Specifically, T. Rowe Price is responsible
for supervising and directing the investments of the fund in accordance with
the fund's investment objectives, program, and restrictions as provided in
its prospectus and this Statement of Additional Information. T. Rowe Price is
also responsible for effecting all security transactions on behalf of the
fund, including the negotiation of commissions and the allocation of
principal business and portfolio brokerage. In addition to these services, T.
Rowe Price provides the fund with certain corporate administrative services,
including: maintaining the fund's corporate existence and corporate records;
registering and qualifying fund shares under federal laws; monitoring the
financial, accounting, and administrative functions of the fund; maintaining
liaison with the agents employed by the fund such as the fund's custodian and
transfer agent; assisting the fund in the coordination of such agents'
activities; and permitting T. Rowe Price's employees to serve as officers,
directors/trustees, and committee members of the fund without cost to the
fund.
The Management Agreement also provides that T. Rowe Price, its
directors/trustees, officers, employees, and certain other persons performing
specific functions for the fund will only be liable to the fund for losses
resulting from willful misfeasance, bad faith, gross negligence, or reckless
disregard of duty.
All Funds except Government Reserve Investment and Reserve Investment Funds
Management Fee
The fund pays T. Rowe Price 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 T. Rowe Price on the first business day of the
next succeeding calendar month and is calculated as described next.
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 the Price 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
<PAGE>
multiplying the fraction of one (1) over the number 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:
<TABLE>
Price Funds' Annual Group Base Fee Rate for Each
Level of Assets
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
0.480% First $1 billion 0.360% Next $2 billion 0.310% Next $16 billion
------------------------------------------------------------------------------
0.450% Next $1 billion 0.350% Next $2 billion 0.305% Next $30 billion
------------------------------------------------------------------------------
0.420% Next $1 billion 0.340% Next $5 billion 0.300% Next $40 billion
------------------------------------------------------------------------------
0.390% Next $1 billion 0.330% Next $10 billion 0.295% Thereafter
------------------------------------------------------------------------------
0.370% Next $1 billion 0.320% Next $10 billion
</TABLE>
For the purpose of calculating the Group Fee, the Price Funds include all the
mutual funds distributed by Investment Services, (excluding the T. Rowe Price
Spectrum Funds, and any institutional, index, 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 individual Fund Fee
Rate and multiplying this product by the net assets of the fund for that day,
as determined in accordance with the fund's prospectus as of the close of
business on the previous business day on which the fund was open for
business. The individual fund fees of each fund are listed in the following
chart:
<TABLE>
<CAPTION>
<S> <C>
Corporate Income Fund 0.15%
GNMA Fund 0.15
High Yield Fund 0.30
New Income Fund 0.15
Personal Strategy Balanced Fund 0.25
Personal Strategy Growth Fund 0.30
Personal Strategy Income Fund 0.15
Prime Reserve Fund 0.05
Prime Reserve Fund-PLUS Class 0.05
Short-Term Bond Fund 0.10
Short-Term U.S. Government Fund 0.10
U.S. Treasury Intermediate Fund 0.05
U.S. Treasury Long-Term Fund 0.05
U.S. Treasury Money Fund 0.00
</TABLE>
<PAGE>
The following chart sets forth the total management fees, if any, paid to T.
Rowe Price by each fund, during the last three years:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Corporate Income $ 71,000 (a) (a)
GNMA 5,388,000 $ 4,928,000 $ 4,398,000
High Yield 10,598,000 9,797,000 8,206,000
New Income 9,740,000 9,047,000 7,984,000
Personal Strategy Balanced 2,479,000 1,685,000 897,000
Personal Strategy Growth 1,010,000 514,000 92,000
Personal Strategy Income 897,000 206,000 22,000
Prime Reserve 18,779,000 17,281,000 16,431,000
Prime Reserve Fund-PLUS Class 15,000 (a) --
Short-Term Bond 1,423,000 1,478,000 1,795,000
Short-Term U.S. Government 457,000 317,000 250,000
U.S. Treasury Intermediate 931,000 724,000 694,000
U.S. Treasury Long-Term 1,150,000 687,000 276,000
U.S. Treasury Money 2,890,000 2,668,000 2,585,000
- ------------------------------- --------------------------------
</TABLE>
(a) Due to the fund's expense limitation in effect at that time, no
management fee was paid by the fund to T. Rowe Price.
Limitation on Fund Expenses
The Management Agreement between the fund and T. Rowe Price provides that the
fund will bear all expenses of its operations not specifically assumed by T.
Rowe Price.
The following chart sets forth expense ratio limitations and the periods for
which they are effective. For each, T. Rowe Price has agreed to bear any fund
expenses which would cause the fund's ratio of expenses to average net assets
to exceed the indicated percentage limitations. The expenses borne by T. Rowe
Price 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.
<TABLE>
<CAPTION>
Fund Limitation Period Expense Ratio Reimbursement
---- ----------------- Limitation Date
---------- ----
<S> <S> <C> <C>
Prime Reserve Fund- May 1, 1999 -April
PLUS Class (a) 30, 2000 1.00% April 30, 2002
June 1, 1999 - May
Corporate Income(b) 31, 2001 0.80 May 31, 2003
Personal Strategy June 1, 1998 - May
Growth(c) 31, 2000 1.10 May 31, 2002
Personal Strategy June 1, 1998 -May 31,
Income(d) 2000 0.90 May 31, 2002
Short-Term U.S. June 1, 1998 -May 31, 0.70 May 31, 2002
Government(e) 2000
- --------------------------------------------------------------------------------
</TABLE>
(a) The Prime Reserve Fund-PLUS Class operated under a 1.00% limitation
that expired April 30, 1999. The reimbursement period for this
limitation extends through April 30, 2000.
(b) The Corporate Income Fund operated under a 0.80% limitation that
expired May 31, 1999. The reimbursement period for this limitation
extends through May 31, 2001.
(c) The Personal Strategy Growth Fund previously operated under a 1.10%
limitation that expired May 31, 1998. The reimbursement period for
this limitation extends through May 31, 2000.
(d) The Personal Strategy Income Fund previously operated under a 0.95%
limitation that expired May 31, 1998. The reimbursement period for
this limitation extends through May 31, 2000.
(e) The Short-Term U.S. Government Fund previously operated under a 0.70%
limitation that expired May 31, 1998. The reimbursement period for
this limitation extends through May 31, 2000.
<PAGE>
Each of the above-referenced fund's Management Agreement also provides that
one or more additional expense limitations periods (of the same or different
time periods) may be implemented after the expiration of the current expense
limitation, and that with respect to any such additional limitation period,
the fund may reimburse T. Rowe Price, provided the reimbursement does not
result in the fund's aggregate expenses exceeding the additional expense
limitation.
Corporate Income Fund
Pursuant to the current expense limitation, $171,000 of management fees were
not accrued by the fund for the year ended May 31, 1999. Additionally,
$149,000 of unaccrued fees and expenses related to a prior period are subject
to reimbursement through May 31, 2000.
U.S. Treasury Long-Term Fund
The fund operated under a 0.80% limitation that expired May 31, 1999. The
reimbursement period for this limitation extends through May 31, 2001.
Personal Strategy Balanced Fund
Pursuant to the previous expense limitation, $62,000 of unaccrued 1997
management fees were repaid during the year ended May 31, 1999.
Personal Strategy Growth Fund
Pursuant to the expense limitation, $77,000 of management fees were not
accrued by the fund for the year ended May 31, 1999. Additionally, $287,000
of unaccrued management fees related to a previous expense limitation are
subject to reimbursement through May 31, 2000.
Personal Strategy Income Fund
Pursuant to the expense limitation, $10,000 of management fees were not
accrued by the fund for the year ended May 31, 1999. Additionally, $238,000
of unaccrued management fees related to a previous expense limitation are
subject to reimbursement through May 31, 2000.
Short-Term U.S. Government Fund
Pursuant to the current expense limitation, $92,000 of management fees were
not accrued by the fund for the year ended May 31, 1998. Additionally,
$266,000 of unaccrued management fees remain subject to reimbursement through
May 31, 2000.
GNMA, High Yield, New Income, Short-Term Bond, and U.S. Treasury Long-Term
Funds
T. Rowe Price Spectrum Fund, Inc.
The funds listed above are a party to a Special Servicing Agreement
("Agreement") between and among T. Rowe Price Spectrum Fund, Inc. ("Spectrum
Fund"), T. Rowe Price, and various other T. Rowe Price funds which, along
with the fund, 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.
<PAGE>
Management Fee
Government Reserve Investment and Reserve Investment Funds
Neither fund pays T. Rowe Price an investment management fee.
Management Related Services
As noted above, the Management Agreement spells out the expenses to be paid
by the fund. In addition to the Management Fee, the fund pays for the
following: shareholder service expenses; custodial, accounting, legal, and
audit fees; costs of preparing and printing prospectuses and reports sent to
shareholders; registration fees and expenses; proxy and annual meeting
expenses (if any); and director/trustee fees and expenses.
T. Rowe Price Services, Inc., a wholly owned subsidiary of T. Rowe Price,
acts as the fund's transfer and dividend disbursing agent and provides
shareholder and administrative services. Services for certain types of
retirement plans are provided by T. Rowe Price Retirement Plan Services,
Inc., also a wholly owned subsidiary. The address for each is 100 East Pratt
St., Baltimore, MD 21202. Additionally, T. Rowe Price, under a separate
agreement with the funds, provides accounting services to the funds.
The funds paid the expenses shown in the following table for the fiscal year
ended May 31, 1999, to T. Rowe Price and its affiliates.
<TABLE>
<CAPTION>
Transfer Agent and Retirement
Fund Shareholder Services Subaccounting Accounting Services
---- -------------------- Services -------------------
--------
<S> <C> <C> <C>
Corporate Income $ 88,000 $ 14,000 $ 73,000
GNMA 1,757,000 235,000 122,875
Government Reserve
Investment -- -- 61,708
High Yield 2,401,000 194,000 168,000
New Income 2,604,000 1,523,000 110,116
Personal Strategy
Balanced 153,000 1,070,000 74,000
Personal Strategy
Growth 164,000 386,000 73,000
Personal Strategy
Income 76,000 394,000 73,000
Prime Reserve 5,247,000 4,665,000 93,000
Prime Reserve
Fund-PLUS Class 7,000 -- --
Reserve Investment 9,566 -- 61,708
Short-Term Bond 352,000 260,000 123,000
Short-Term U.S.
Government 152,000 14,000 103,000
U.S. Treasury
Intermediate 213,000 137,000 62,417
U.S. Treasury
Long-Term 575,000 36,000 62,417
U.S. Treasury Money 633,835 542,245 61,708
- ------------------------
</TABLE>
All Funds except Government Reserve Investment and Reserve Investment Funds
DISTRIBUTOR FOR THE FUNDS
-------------------------------------------------------------------------------
Investment Services, a Maryland corporation formed in 1980 as a wholly owned
subsidiary of T. Rowe Price, serves as the fund's 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 the fund's shares is continuous.
Investment Services is located at the same address as the fund and T. Rowe
Price-100 East Pratt Street, Baltimore, Maryland 21202.
<PAGE>
Investment Services serves as distributor to the fund pursuant to an
Underwriting Agreement ("Underwriting Agreement"), which provides that the
fund will pay all fees and expenses in connection with: necessary state
filings; 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 the fund. Investment Services' expenses are paid by
T. Rowe Price.
Investment Services acts as the agent of the fund in connection with the sale
of its shares in the various states 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 fund.
CUSTODIAN
-------------------------------------------------------------------------------
State Street Bank and Trust Company is the custodian for the fund's U.S.
securities and cash, but it does not participate in the fund's 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. State Street Bank's main office is at 225 Franklin Street,
Boston, Massachusetts 02110.
The fund (other than GNMA, Prime Reserve, U.S. Treasury Intermediate,
Long-Term, Money, Government Reserve Investment, and Reserve Investment
Funds) has 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 as are approved in
accordance with regulations under the 1940 Act. The address for The Chase
Manhattan Bank, N.A., London is Woolgate House, Coleman Street, London, EC2P
2HD, England.
SHAREHOLDER SERVICES BY OUTSIDE PARTIES
-------------------------------------------------------------------------------
The fund from time to time may enter into agreements with outside parties
through which shareholders hold fund shares. The shares would be held by such
parties in omnibus accounts. The agreements would provide for payments by the
fund to the outside party for shareholder services provided to shareholders
in the omnibus accounts.
CODE OF ETHICS
-------------------------------------------------------------------------------
The fund's investment adviser (T. Rowe Price) has a written Code of Ethics
which requires all employees to obtain prior clearance before engaging in
personal securities transactions. In addition, all employees must report
their personal securities transactions within 10 days of their execution.
Employees will not be permitted to effect transactions in a security: if
there are pending client orders in the security; the security has been
purchased or sold by a client within seven calendar days; the security is
being considered for purchase for a client; or the security is subject to
internal trading restrictions. In addition, employees are prohibited from
profiting from short-term trading (e.g., purchases and sales involving the
same security within 60 days). Any material violation of the Code of Ethics
is reported to the Board of the fund. The Board also reviews the
administration of the Code of Ethics on an annual basis.
<PAGE>
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 T. Rowe Price. T. Rowe Price is also
responsible for implementing these decisions, including the negotiation of
commissions and the allocation of portfolio brokerage and principal business.
The fund's purchases and sales of 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 (except to the extent it purchases
equity securities (High Yield, New Income, and Personal Strategy Funds
only)). However, it is included because T. Rowe Price does manage a
significant number of common stock portfolios which do engage in agency
transactions and pay commissions and because some research and services
resulting from the payment of such commissions may benefit the fund.
How Brokers and Dealers Are Selected
Equity Securities
In purchasing and selling equity securities, it is T. Rowe Price's policy to
obtain quality execution at the most favorable prices through responsible
brokers and dealers and, in the case of agency transactions, at competitive
commission rates. However, under certain conditions, the fund may pay higher
brokerage commissions in return for brokerage and research services. As a
general practice, over-the-counter orders are executed with market-makers. In
selecting among market-makers, T. Rowe Price generally seeks to select those
it believes to be actively and effectively trading the security being
purchased or sold. In selecting broker-dealers to execute the fund's
portfolio transactions, consideration is given to such factors as the price
of the security, the rate of the commission, the size and difficulty of the
order, the reliability, integrity, financial condition, general execution and
operational capabilities of competing brokers and dealers, their expertise in
particular markets and brokerage and research services provided by them. It
is not the policy of T. Rowe Price to seek the lowest available commission
rate where it is believed that a broker or dealer charging a higher
commission rate would offer greater reliability or provide better price or
execution services.
Fixed Income Securities
Fixed income securities are generally purchased from the issuer or a primary
market-maker acting as principal for the securities on a net basis, with no
brokerage commission being paid by the client although the price usually
includes an undisclosed compensation. Transactions placed through dealers
serving as primary market-makers reflect the spread between the bid and asked
prices. Securities may also be purchased from underwriters at prices which
include underwriting fees.
With respect to equity and fixed income securities, T. Rowe Price may effect
principal transactions on behalf of the fund with a broker or dealer who
furnishes brokerage and/or research services, designate any such broker or
dealer to receive selling concessions, discounts or other allowances, or
otherwise deal with any such broker or dealer in connection with the
acquisition of securities in underwritings. T. Rowe Price may receive
research services in connection with brokerage transactions, including
designations in fixed price offerings.
How Evaluations Are Made of the Overall Reasonableness of Brokerage Commissions
Paid
On a continuing basis, T. Rowe Price seeks to determine what levels of
commission rates are reasonable in the marketplace for transactions executed
on behalf of the fund. In evaluating the reasonableness of commission rates,
T. Rowe Price considers: (a) historical commission rates; (b) rates which
other institutional investors are paying, based on available public
information; (c) rates quoted by brokers and dealers; (d) the size of a
particular transaction, in terms of the number of shares, dollar amount, and
number of clients involved; (e) the complexity of a particular transaction in
terms of both execution and settlement; (f) the level and type of business
done with a particular firm over a period of time; and (g) the extent to
which the broker or dealer has capital at risk in the transaction.
<PAGE>
Descriptions of Research Services Received From Brokers and Dealers
T. Rowe Price receives a wide range of research services from brokers and
dealers. These services include information on the economy, industries,
groups of securities, individual companies, statistical information,
accounting and tax law interpretations, political developments, legal
developments affecting portfolio securities, technical market action, pricing
and appraisal services, credit analysis, risk measurement analysis,
performance analysis and analysis of corporate responsibility issues. These
services provide both domestic and international perspective. Research
services are received primarily in the form of written reports, computer
generated services, telephone contacts and personal meetings with security
analysts. In addition, such services may be provided in the form of meetings
arranged with corporate and industry spokespersons, economists, academicians
and government representatives. In some cases, research services are
generated by third parties but are provided to T. Rowe Price by or through
broker-dealers.
Research services received from brokers and dealers are supplemental to T.
Rowe Price's own research effort and, when utilized, are subject to internal
analysis before being incorporated by T. Rowe Price into its investment
process. As a practical matter, it would not be possible for T. Rowe Price's
Equity Research Division to generate all of the information presently
provided by brokers and dealers. T. Rowe Price pays cash for certain research
services received from external sources. T. Rowe Price also allocates
brokerage for research services which are available for cash. While receipt
of research services from brokerage firms has not reduced T. Rowe Price's
normal research activities, the expenses of T. Rowe Price could be materially
increased if it attempted to generate such additional information through its
own staff. To the extent that research services of value are provided by
brokers or dealers, T. Rowe Price may be relieved of expenses which it might
otherwise bear.
T. Rowe Price has a policy of not allocating brokerage business in return for
products or services other than brokerage or research services. In accordance
with the provisions of Section 28(e) of the Securities Exchange Act of 1934,
T. Rowe Price may from time to time receive services and products which serve
both research and non-research functions. In such event, T. Rowe Price makes
a good faith determination of the anticipated research and non-research use
of the product or service and allocates brokerage only with respect to the
research component.
Commissions to Brokers Who Furnish Research Services
Certain brokers and dealers who provide quality brokerage and execution
services also furnish research services to T. Rowe Price. With regard to the
payment of brokerage commissions, T. Rowe Price has adopted a brokerage
allocation policy embodying the concepts of Section 28(e) of the Securities
Exchange Act of 1934, which permits an investment adviser to cause an account
to pay commission rates in excess of those another broker or dealer would
have charged for effecting the same transaction, if the adviser determines in
good faith that the commission paid is reasonable in relation to the value of
the brokerage and research services provided. The determination may be viewed
in terms of either the particular transaction involved or the overall
responsibilities of the adviser with respect to the accounts over which it
exercises investment discretion. Accordingly, while T. Rowe Price cannot
readily determine the extent to which commission rates or net prices charged
by broker-dealers reflect the value of their research services, T. Rowe Price
would expect to assess the reasonableness of commissions in light of the
total brokerage and research services provided by each particular broker. T.
Rowe Price may receive research, as defined in Section 28(e), in connection
with selling concessions and designations in fixed price offerings in which
the funds participate.
Internal Allocation Procedures
T. Rowe Price has a policy of not precommitting a specific amount of business
to any broker or dealer over any specific time period. Historically, the
majority of brokerage placement has been determined by the needs of a
specific transaction such as market-making, availability of a buyer or seller
of a particular security, or specialized execution skills. However, T. Rowe
Price does have an internal brokerage allocation procedure for that portion
of its discretionary client brokerage business where special needs do not
exist, or where the business may be allocated among several brokers or
dealers which are able to meet the needs of the transaction.
<PAGE>
Each year, T. Rowe Price assesses the contribution of the brokerage and
research services provided by brokers or dealers, and attempts to allocate a
portion of its brokerage business in response to these assessments. Research
analysts, counselors, various investment committees, and the Trading
Department each seek to evaluate the brokerage and research services they
receive from brokers or dealers and make judgments as to the level of
business which would recognize such services. In addition, brokers or dealers
sometimes suggest a level of business they would like to receive in return
for the various brokerage and research services they provide. Actual
brokerage received by any firm may be less than the suggested allocations but
can, and often does, exceed the suggestions, because the total business is
allocated on the basis of all the considerations described above. In no case
is a broker or dealer excluded from receiving business from T. Rowe Price
because it has not been identified as providing research services.
Miscellaneous
T. Rowe Price's brokerage allocation policy is consistently applied to all
its fully discretionary accounts, which represent a substantial majority of
all assets under management. Research services furnished by brokers or
dealers through which T. Rowe Price effects securities transactions may be
used in servicing all accounts (including non-fund accounts) managed by T.
Rowe Price. Conversely, research services received from brokers or dealers
which execute transactions for the fund are not necessarily used by T. Rowe
Price exclusively in connection with the management of the fund.
From time to time, orders for clients may be placed through a computerized
transaction network.
The fund does not allocate business to any broker-dealer on the basis of its
sales of the fund's shares. However, this does not mean that broker-dealers
who purchase fund shares for their clients will not receive business from the
fund.
Some of T. Rowe Price's other clients have investment objectives and programs
similar to those of the fund. T. Rowe Price may occasionally make
recommendations to other clients which result in their purchasing or selling
securities simultaneously with the fund. As a result, the demand for
securities being purchased or the supply of securities being sold may
increase, and this could have an adverse effect on the price of those
securities. It is T. Rowe Price's policy not to favor one client over another
in making recommendations or in placing orders. T. Rowe Price frequently
follows the practice of grouping orders of various clients for execution
which generally results in lower commission rates being attained. In certain
cases, where the aggregate order is executed in a series of transactions at
various prices on a given day, each participating client's proportionate
share of such order reflects the average price paid or received with respect
to the total order. T. Rowe Price has established a general investment policy
that it will ordinarily not make additional purchases of a common stock of a
company for its clients (including the T. Rowe Price Funds) if, as a result
of such purchases, 10% or more of the outstanding common stock of such
company would be held by its clients in the aggregate.
At the present time, T. Rowe Price does not recapture commissions or
underwriting discounts or selling group concessions in connection with
taxable securities acquired in underwritten offerings. T. Rowe Price does,
however, attempt to negotiate elimination of all or a portion of the
selling-group concession or underwriting discount when purchasing tax-exempt
municipal securities on behalf of its clients in underwritten offerings.
<PAGE>
Other
For the fiscal years ended May 31, 1999, 1998, and 1997, the fund's engaged
in portfolio transactions involving broker-dealers in the following amounts:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Corporate Income $ 148,017,000 $ 151,154,000 $ 176,025,000
GNMA 1,928,467,000 3,404,198,000 3,521,560,000
Government Reserve
Investment 125,867,962,000 46,218,342,000 --
High Yield 3,133,849,000 5,081,624,000 7,709,749,000
New Income 3,883,982,000 7,287,233,000 9,166,858,000
Personal Strategy
Balanced 443,414,000 589,959,000 796,969,000
Personal Strategy Growth 177,166,000 225,909,000 354,770,000
Personal Strategy Income 263,137,000 188,714,000 350,204,000
Prime Reserve 32,055,326,000 64,296,588,000 84,827,266,000
Reserve Investment 82,675,097,000 66,138,193,000 --
Short-Term Bond 268,240,000 1,113,884,000 3,380,454,000
Short-Term U.S.
Government 355,887,000 332,928,000 640,894,000
U.S. Treasury
Intermediate 343,197,000 507,228,000 806,082,000
U.S. Treasury Long-Term 509,554,000 604,802,000 352,705,000
U.S. Treasury Money 4,583,442,000 5,373,760,000 6,115,390,000
- --------------------------- ----------------------------------
</TABLE>
With respect to the GNMA, Government Reserve, Prime Reserve, Reserve
Investment, Short-Term U.S. Government, U.S. Treasury Intermediate, Long-Term
and Money Funds, the entire amount for each of these years represented
principal transactions as to which the funds have no knowledge of the profits
or losses realized by the respective broker-dealers for the fiscal years
ended May 31, 1999, 1998, and 1997.
With respect to the Corporate Income, High Yield, New Income, Short-Term
Bond, Personal Strategy Balanced, Personal Strategy Growth, and Personal
Strategy Income Funds, the following amounts consisted of principal
transactions as to which the funds have no knowledge of the profits or losses
realized by the respective broker-dealers for the fiscal years ended May 31,
1999, 1998, and 1997.
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Corporate Income $ 132,909,000 $ 147,537,000 $ 174,157,000
High Yield 2,667,387,000 3,854,884,000 7,056,968,000
New Income 3,624,940,000 7,223,043,000 9,061,109,000
Personal Strategy Balanced 245,489,000 441,500,000 630,132,000
Personal Strategy Growth 78,262,000 147,604,000 303,598,000
Personal Strategy Income 148,720,000 159,536,000 327,683,000
Short-Term Bond 237,228,000 1,085,314,000 3,372,793,000
- ---------------------------- --------------------------------
</TABLE>
<PAGE>
The following amounts involved trades with brokers acting as agents or
underwriters for the fiscal years ended May 31, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Corporate Income $ 15,108,000 $ 3,617,000 $ 1,868,000
High Yield 466,462,000 1,226,740,000 652,781,000
New Income 259,042,000 64,189,000 105,749,000
Personal Strategy Balanced 197,925,000 148,459,000 472,000
Personal Strategy Growth 98,904,000 78,305,000 73,000
Personal Strategy Income 114,417,000 29,178,000 81,000
Short-Term Bond 31,012,000 28,570,000 7,661,000
- ---------------------------- -------------------------------
</TABLE>
The amounts shown below involved trades with brokers acting as agents or
underwriters, in which such brokers received total commissions, including
discounts received in connection with underwritings for the fiscal years
ended May 31, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Corporate Income $ 53,000 $ 79,000 $ 90,000
High Yield 11,755,000 30,944,000 17,280,000
New Income 1,041,000 133,000 74,000
Personal Strategy Balanced 281,000 174,000 75,000
Personal Strategy Growth 82,000 46,000 17,000
Personal Strategy Income 134,000 47,000 18,000
Short-Term Bond 105,000 123,000 23,000
- ---------------------------- --------------------------------
</TABLE>
The percentage of total portfolio transactions, placed with firms which
provided research, statistical, or other services to T. Rowe Price in
connection with the management of the funds, or in some cases, to the funds
for the fiscal years ended May 31, 1999, 1998, and 1997, are shown below:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Corporate Income 96% 92% 82%
GNMA 86 98 98
Government Reserve Investment 78 97 N/A
High Yield 95 88 83
New Income 94 95 87
Personal Strategy Balanced 20 21 14
Personal Strategy Growth 29 32 37
Personal Strategy Income 16 39 11
Prime Reserve 78 87 79
Reserve Investment 65 77 N/A
Short-Term Bond 93 85 81
Short-Term U.S. Government 100 95 85
U.S. Treasury Intermediate 100 96 99
U.S. Treasury Long-Term 99 100 100
U.S. Treasury Money 61 57 71
- ------------------------------- --------------------------------
</TABLE>
<PAGE>
The portfolio turnover rates for the following funds for the fiscal years
ended May 31, 1999, 1998, and 1997, are as follows:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Corporate Income 140.8% 146.0% 119.5%
GNMA 86.7 120.6 115.9
High Yield 95.6 129.6 111.3
New Income 94.3 147.3 87.1
Personal Strategy Balanced 34.3 41.5 54.0
Personal Strategy Growth 36.1 33.3 39.6
Personal Strategy Income 48.9 30.9 44.8
Short-Term Bond 51.6 73.0 103.9
Short-Term U.S. Government 145.3 107.5 82.9
U.S. Treasury Intermediate 61.2 112.8 57.9
U.S. Treasury Long-Term 74.1 80.8 67.6
- ---------------------------- --------------------------------
</TABLE>
Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S.
Treasury Money Funds
The fund, in pursuing its objectives, may engage in short-term trading to
take advantage of market variations. The fund will seek to protect principal,
improve liquidity of its securities, or enhance yield by purchasing and
selling securities based upon existing or anticipated market discrepancies.
PRICING OF SECURITIES
-------------------------------------------------------------------------------
Corporate Income, GNMA, High Yield, New Income, Personal Strategy, Short-Term
Bond, Short-Term U.S. Government, U.S. Treasury Intermediate, and Long-Term
Funds
Debt securities are generally traded in the over-the-counter market.
Investments in domestic securities with remaining maturities of one year or
more and foreign securities are stated at fair value using a bid-side
valuation as furnished by dealers who make markets in such securities or by
an independent pricing service, which considers yield or price of bonds of
comparable quality, coupon, maturity, and type, as well as prices quoted by
dealers who make markets in such securities. Domestic securities with
remaining maturities less than one year are stated at fair value which is
determined by using a matrix system that establishes a value for each
security based on bid-side money market yields. The Personal Strategy Funds
value short-term debt securities at their cost in local currency which, when
combined with accrued interest, approximates fair value.
There are a number of pricing services available, and the Board of
Directors/Trustees, on the basis of an ongoing evaluation of these services,
may use or may discontinue the use of any pricing service in whole or part.
Corporate Income, High Yield, New Income, and Personal Strategy Funds
Equity securities listed or regularly traded on a securities exchange are
valued at the last quoted sales price at the time the valuations are made. A
security that is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such
security. Listed securities not traded on a particular day and securities
regularly traded in the over-the-counter market are valued at the mean of the
latest bid and asked prices. Other equity securities are valued at a price
within the limits of the latest bid and asked prices deemed by the Board of
Directors/Trustees, or by persons delegated by the Board, best to reflect
fair value.
<PAGE>
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S.
Treasury Money Funds
Securities are valued at amortized cost.
Corporate Income, High Yield, New Income, Personal Strategy, and Short-Term
Bond Funds
For the purposes of determining the fund's net asset value per share, the
U.S. dollar value of all assets and liabilities initially expressed in
foreign currencies is determined by using the mean of the bid and offer
prices of such currencies against U.S. dollars quoted by a major bank.
All Funds
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value, are stated at fair
value as determined in good faith by or under the supervision of the officers
of the fund, as authorized by the Board of Directors/Trustees.
Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S.
Treasury Money Funds
Maintenance of Money Fund's Net Asset Value Per Share at $1.00
It is the policy of the fund to attempt to maintain a net asset value of
$1.00 per share by using the amortized cost method of valuation permitted by
Rule 2a-7 under the 1940 Act. Under this method, securities are valued by
reference to the fund's acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than by reference to their market
value. Under Rule 2a-7:
(a) The Board of Directors must establish written procedures reasonably
designed, taking into account current market conditions and the fund's
investment objectives, to stabilize the fund's net asset value per share,
as computed for the purpose of distribution, redemption and repurchase,
at a single value;
(b) The fund must (i) maintain a dollar-weighted average portfolio maturity
appropriate to its objective of maintaining a stable price per share,
(ii) not purchase any instrument with a remaining maturity greater than
397 days, and (iii) maintain a dollar-weighted average portfolio maturity
of 90 days or less;
(c) The fund must limit its purchase of portfolio instruments, including
repurchase agreements, to those U.S. dollar-denominated instruments which
the fund's Board of Directors determines present minimal credit risks,
and which are eligible securities as defined by Rule 2a-7; and
(d) The Board of Directors must determine that (i) it is in the best interest
of the fund and its shareholders to maintain a stable net asset value per
share under the amortized cost method; and (ii) the fund will continue to
use the amortized cost method only so long as the Board of Directors
believes that it fairly reflects the market based net asset value per
share.
Although the fund believes that it will be able to maintain its net asset
value at $1.00 per share under most conditions, there can be no absolute
assurance that it will be able to do so on a continuous basis. If the fund's
net asset value per share declined, or was expected to decline, below $1.00
(rounded to the nearest one cent), the Board of Directors of the fund might
temporarily reduce or suspend dividend payments in an effort to maintain the
net asset value at $1.00 per share. As a result of such reduction or
suspension of dividends, an investor would receive less income during a given
period than if such a reduction or suspension had not taken place. Such
action could result in an investor receiving no dividend for the period
during which he holds his shares and in his receiving, upon redemption, a
price per share lower than that which he paid. On the other hand, if the
fund's net asset value per share were to increase, or were anticipated to
increase above $1.00 (rounded to the nearest one cent), the Board of
Directors of the fund might supplement dividends in an effort to maintain the
net asset value at $1.00 per share.
<PAGE>
Prime Reserve and Reserve Investment Funds
Prime Money Market Securities Defined
Prime money market securities are those which are described as First Tier
Securities under Rule 2a-7 of the 1940 Act. These include any security with a
remaining maturity of 397 days or less that is rated (or that has been issued
by an issuer that is rated with respect to a class of short-term debt
obligations, or any security within that class that is comparable in priority
and security with the security) by any two nationally recognized statistical
rating organizations (NRSROs) (or if only one NRSRO has issued a rating, that
NRSRO) in the highest rating category for short-term debt obligations (within
which there may be sub-categories). First Tier Securities also include
unrated securities comparable in quality to rated securities, as determined
by T. Rowe Price under the supervision of the fund's Board of Director.
All Funds
NET ASSET VALUE PER SHARE
-------------------------------------------------------------------------------
The purchase and redemption price of the fund's shares is equal to the fund's
net asset value per share or share price. The 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 the fund is normally
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, Dr. Martin Luther King, Jr. Holiday, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
Determination of net asset value (and the offering, sale redemption and
repurchase of shares) for the 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 the NYSE is restricted, (c) during which an emergency
exists as a result of which disposal by the 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 SEC (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (b), (c),
or (d) exist.
DIVIDENDS AND DISTRIBUTIONS
-------------------------------------------------------------------------------
Unless you elect otherwise, the fund's annual capital gain distribution, 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 one
day, although the exact timing is subject to change and can be as great as 10
days.
TAX STATUS
-------------------------------------------------------------------------------
The fund intends to qualify as a "regulated investment company" under
Subchapter M of the Code.
A portion of the dividends paid by certain the Growth and Income Funds may be
eligible for the dividends-received deduction applicable to corporate
shareholders. The dividends of the Spectrum International Fund will not be
eligible for this deduction, if, as expected, none of the fund's income
consists of dividends paid by U.S. corporations. Long-term capital gain
distributions paid from these funds are never eligible for the
dividends-received 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 by December 31 of
each year equal to at least 98% of ordinary income (as of December 31) and
capital gains (as
<PAGE>
of October 31) in order to avoid a federal excise tax and distribute within
12 months 100% of ordinary income and capital gains as of December 31 to
avoid a federal income tax.
At the time of your purchase, the 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 as a capital gain
distribution. For federal income tax purposes, the 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.
If, in any taxable year, the 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, if any, without
deduction for dividends or other distributions to shareholders; and (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).
Taxation of Foreign Shareholders
The Code provides that dividends from net income 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 dividends 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 the
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.
To the extent the fund invests in foreign securities, the following would
apply:
Passive Foreign Investment Companies
The fund may purchase the securities of certain foreign investment funds or
trusts called passive foreign investment companies. Such trusts have been the
only or primary way to invest in certain countries. In addition to bearing
their proportionate share of the trust's expenses (management fees and
operating expenses), shareholders will also indirectly bear similar expenses
of such trusts. Capital gains on the sale of such holdings are considered
ordinary income regardless of how long the fund held its investment. 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 are distributed to shareholders.
To avoid such tax and interest, the fund intends to treat these securities as
sold on the last day of its fiscal year and recognize any gains for tax
purposes at that time; deductions for losses are allowable only to the extent
of any gains resulting from these deemed sales for prior taxable years. Such
gains and losses will be treated as ordinary income. The fund will be
required to distribute any resulting income even though it has not sold the
security and received cash to pay such distributions.
Foreign Currency Gains and Losses
Foreign currency gains and losses, including the portion of gain or loss on
the sale of debt securities attributable to foreign exchange rate
fluctuations, are taxable as ordinary income. If the net effect of these
transactions is a gain, the ordinary income dividend paid by the fund will be
increased. If the result is a loss, the income dividend paid by the fund will
be decreased, or to the extent such dividend has already been paid, it may be
classified as a return of capital. Adjustments to reflect these gains and
losses will be made at the end of the fund's taxable year.
<PAGE>
YIELD INFORMATION
-------------------------------------------------------------------------------
GNMA and Short-Term U.S. Government Funds
In conformity with regulations of the SEC, an income factor is calculated for
each security in the portfolio based upon the security's coupon rate. The
income factors are then adjusted for any gains or losses which have resulted
from prepayments of principal during the period. 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.
The yields of the GNMA and Short-Term U.S. Government Funds calculated under
the above-described method for the month ended May 31, 1999, were 6.08% and
4.69%, respectively.
Corporate Income, High Yield, New Income, Short-Term Bond, U.S. Treasury
Intermediate, and Long-Term Funds
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 yield as
determined in conformity with regulations of the SEC. The income factors are
then totaled 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.
If applicable, a taxable-equivalent yield is calculated by dividing this
yield by one minus the effective federal, state, and/or city or local income
tax rates. 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.
The yields of the Corporate Income, High Yield, New Income, Short-Term Bond,
Intermediate, and Long-Term Treasury Funds calculated under the
above-described method for the month ended May 31, 1999, were 7.40%, 9.39%,
6.06%, 5.54%, 5.10%, and 5.48%, respectively.
Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S.
Treasury Money Funds
The fund's current and historical yield for a period is calculated by
dividing the net change in value of an account (including all dividends
accrued and dividends reinvested in additional shares) by the account value
at the beginning of the period to obtain the base period return. This base
period return is divided by the number of days in the period, then multiplied
by 365 to arrive at the annualized yield for that period. The fund's
annualized compound yield for such period is compounded by dividing the base
period return by the number of days in the period, and compounding that
figure over 365 days.
The seven-day yields ending May 31, 1999, for the Prime Reserve, and U.S.
Treasury Money Funds were 4.26% and 4.05%, respectively, and the funds'
compound yield for the same period were 4.35% and 4.13%, respectively.
All Funds
INVESTMENT PERFORMANCE
-------------------------------------------------------------------------------
Total Return Performance
The 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
<PAGE>
shareholder in the fund. Total return is calculated as the percentage change
between the beginning value of a static account in the 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 gain
dividends. The results shown are historical and should not be considered
indicative of the future performance of the fund. Each average annual
compound rate of return is derived from the cumulative performance of the
fund over the time period specified. The annual compound rate of return for
the fund over any other period of time will vary from the average.
<TABLE>
<CAPTION>
Cumulative Performance Percentage Change
1 Yr. 5 Yrs. 10 Yrs. % Since Inception
Fund Ended Ended Ended Inception Date
---- 5/31/99 5/31/99 5/31/99 5/31/99 ----
------- ------- ------- -------
<S> <C> <C> <C> <C> <S>
Corporate Income -1.21% -- -- 24.35% 10/31/95
GNMA 3.88 44.08% 115.75% 174.85 11/26/85
High Yield 2.73 55.93 128.77 303.12 12/31/84
New Income 1.02 38.95 108.83 729.66 08/31/73
Personal Strategy Balanced 8.37 -- -- 104.17 07/29/94
Personal Strategy Growth 10.01 -- -- 128.60 07/29/94
Personal Strategy Income 6.43 -- -- 82.64 07/29/94
Prime Reserve 4.82 27.61 63.65 431.48 01/26/76
Prime Reserve Fund-PLUS Class -- -- -- 2.50 11/01/98
Short-Term Bond 4.23 28.03 80.15 180.43 03/02/84
Short-Term U.S. Government 4.39 31.84 -- 42.70 09/30/91
U.S. Treasury Intermediate 4.28 37.66 -- 99.08 09/29/89
U.S. Treasury Long-Term 3.06 53.60 -- 123.39 09/29/89
U.S. Treasury Money 4.46 26.13 60.03 161.60 06/28/82
- ------------------------------- -----------
</TABLE>
<TABLE>
<CAPTION>
Average Annual Compound Rates of Return
1 Yr. 5 Yrs. 10 Yrs. % Since Inception
Fund Ended Ended Ended Inception Date
---- 5/31/99 5/31/99 5/31/99 5/31/99 ----
------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Corporate Income -1.21% -- -- 6.27% 10/31/95
GNMA 3.88 7.58% 7.99% 7.77 11/26/85
High Yield 2.73 9.29 8.63 10.16 12/31/84
New Income 1.02 6.80 7.64 8.56 08/31/73
Personal Strategy Balanced 8.37 -- -- 15.90 07/29/94
Personal Strategy Growth 10.01 -- -- 18.63 07/29/94
Personal Strategy Income 6.43 -- -- 13.30 07/29/94
Prime Reserve 4.82 5.00 5.05 7.42 01/26/76
Short-Term Bond 4.23 5.07 6.06 7.00 03/02/84
Short-Term U.S. Government 4.39 5.68 -- 4.75 09/30/91
U.S. Treasury Intermediate 4.28 6.60 -- 7.38 09/29/89
U.S. Treasury Long-Term 3.06 8.96 -- 8.67 09/29/89
U.S. Treasury Money 4.46 4.75 4.81 5.85 06/28/82
- ---------------------------- -----------
</TABLE>
<PAGE>
Outside Sources of Information
From time to time, in reports and promotional literature: (1) the fund's
total return performance, ranking, or any other measure of the fund's
performance may be compared to any one or combination of the following: (a) a
broad-based index; (b) other groups of mutual funds, including T. Rowe Price
Funds, tracked by independent research firms ranking entities, or financial
publications; (c) indices of securities comparable to those in which the fund
invests; (2) the Consumer Price Index (or any other measure for inflation,
government statistics, such as GNP may be used to illustrate investment
attributes of the fund or the general economic, business, investment, or
financial environment in which the fund operates; (3) various financial,
economic and market statistics developed by brokers, dealers and other
persons may be used to illustrate aspects of the fund's performance; (4) the
effect of tax-deferred compounding on the fund's investment returns, or on
returns in general in both qualified and nonqualified retirement plans or any
other tax advantage product, may be illustrated by graphs, charts, etc.; and
(5) the sectors or industries in which the fund invests may be compared to
relevant indices or surveys in order to evaluate the fund's historical
performance or current or potential value with respect to the particular
industry or sector.
Other Publications
From time to time, in newsletters and other publications issued by Investment
Services, T. Rowe Price mutual fund portfolio managers may discuss economic,
financial and political developments in the U.S. and abroad and how these
conditions have affected or may affect securities prices or the fund;
individual securities within the fund's portfolio; and their philosophy
regarding the selection of individual stocks, including why specific stocks
have been added, removed or excluded from the fund's portfolio.
Other Features and Benefits
The fund is a member of the T. Rowe Price family of funds and may help
investors achieve various long-term investment goals, which include, but are
not limited to, 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 and/or Investment Services may be made available.
Redemptions in Kind
In the unlikely event a shareholder were to receive an in kind redemption of
portfolio securities of the fund, brokerage fees could be incurred by the
shareholder in a subsequent sale of such securities.
Issuance of Fund Shares for Securities
Transactions involving issuance of Fund 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 objective and policies of the Fund; (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.
All Funds except GNMA Fund
CAPITAL STOCK
-------------------------------------------------------------------------------
The fund's 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, conversions 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
<PAGE>
aggregate number of shares of stock or the number of shares of stock of any
class or series that the fund has authorized to issue without shareholder
approval.
Except to the extent that the fund's Board of Directors might provide by
resolution that holders of shares of a particular class are entitled to vote
as a class on specified matters presented for a vote of the holders of all
shares entitled to vote on such matters, there would be no right of class
vote unless and to the extent that such a right might be construed to exist
under Maryland law. The Charter contains no provision entitling the holders
of the present class of capital stock to a vote as a class on any matter.
Accordingly, the preferences, rights, and other characteristics attaching to
any class of shares, including the present class of capital stock, might be
altered or eliminated, or the class might be combined with another class or
classes, by action approved by the vote of the holders of a majority of all
the shares of all classes entitled to be voted on the proposal, without any
additional right to vote as a class by the holders of the capital stock or of
another affected class or classes.
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 fund, a special meeting of
shareholders of the fund shall be called by the Secretary of the fund on the
written request of shareholders entitled to cast at least 10% of all the
votes of the fund entitled to be cast at such meeting. Shareholders
requesting such a meeting must pay to the fund the reasonably estimated costs
of preparing and mailing the notice of the meeting. The fund, however, will
otherwise assist the shareholders seeking to hold the special meeting in
communicating to the other shareholders of the fund to the extent required by
Section 16(c) of the 1940 Act.
GNMA Fund
Description of the Fund
For tax and business reasons, the fund was organized in 1985 as a
Massachusetts Business Trust, and is registered with the SEC under the 1940
Act as diversified, open-end investment companies, commonly known as "mutual
fund."
The Declaration of Trust permits the Board of Trustees to issue an unlimited
number of full and fractional shares of a single class. The Declaration of
Trust also provides that the Board of Trustees may issue additional series or
classes of shares. Each share represents an equal proportionate beneficial
interest in the fund. In the event of the liquidation of the fund, each share
is entitled to a pro-rata share of the net assets of the fund.
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 trustees (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 trustees unless and
until such time as less than a majority of the trustees holding office have
been elected by shareholders, at which time the trustees then in office will
call a shareholders' meeting for the election of trustees. Pursuant to
Section 16(c) of the 1940 Act, holders of record of not less than two-thirds
of the outstanding shares of the fund may remove a trustee by a vote cast in
person or by proxy at a meeting called for that purpose. Except as set forth
above, the trustees shall continue to hold office and may appoint successor
trustees. Voting rights are not cumulative, so that the holders of more than
50% of the shares voting in the election of trustees can, if they choose to
do so, elect all the trustees of the Trust, in which event the holders of the
remaining shares will be unable to elect any person as a trustee. No
amendments may be made to the Declaration of Trust without the affirmative
vote of a majority of the outstanding shares of the Trust.
<PAGE>
Shares have no preemptive or conversion rights; the right of redemption and
the privilege of exchange are described in the prospectus. Shares are fully
paid and nonassessable, except as set forth below. The Trust may be
terminated (i) upon the sale of its assets to another diversified, open-end
management investment company, if approved by the vote of the holders of
two-thirds of the outstanding shares of the Trust, or (ii) upon liquidation
and distribution of the assets of the Trust, if approved by the vote of the
holders of a majority of the outstanding shares of the Trust. If not so
terminated, the Trust will continue indefinitely.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the fund. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations
of the fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the fund or a
Trustee. The Declaration of Trust provides for indemnification from fund
property for all losses and expenses of any shareholder held personally
liable for the obligations of the fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the fund itself would be unable to meet its
obligations, a possibility which T. Rowe Price believes is remote. Upon
payment of any liability incurred by the fund, the shareholders of the fund
paying such liability will be entitled to reimbursement from the general
assets of the fund. The Trustees intend to conduct the operations of the fund
is such a way so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of such fund.
FEDERAL REGISTRATION OF SHARES
-------------------------------------------------------------------------------
The fund's shares (except for Government Reserve and Reserve Investment
Funds) are registered for sale under the 1933 Act. Registration of the fund's
shares is not required under any state law, but the fund is required to make
certain filings with and pay fees to the states in order to sell its shares
in the states.
LEGAL COUNSEL
-------------------------------------------------------------------------------
Swidler Berlin Shereff Friedman, LLP, whose address is 919 Third Avenue, New
York, New York 10022-9998, is legal counsel to the fund.
INDEPENDENT ACCOUNTANTS
-------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 250 West Pratt Street, 21st Floor, Baltimore,
Maryland 21201, are the independent accountants to the funds.
The financial statements of the funds for the year ended May 31, 1999, and
the report of independent accountants are included in each fund's Annual
Report for the year ended May 31, 1999. A copy of each 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 May 31, 1999, are incorporated into this Statement
of Additional Information by reference:
<PAGE>
<TABLE>
<CAPTION>
ANNUAL REPORT REFERENCES:
CORPORATE GNMA PRIME
INCOME FUND FUND RESERVE
----------- ---- FUND
----
<S> <C> <C> <C>
Financial Highlights 8 7 8
Statement of Net Assets, May 31, 1999 9-14 8-10 9-18
Statement of Operations, year ended
May 31, 1999 15 11 19
Statement of Changes in Net Assets, years
ended
May 31, 1999 and May 31, 1998 16 12 20
Notes to Financial Statements, May 31,
1999 17-20 13-16 21-22
Report of Independent Accountants 21 17 23
</TABLE>
<TABLE>
<CAPTION>
PERSONAL PERSONAL PERSONAL
STRATEGY STRATEGY STRATEGY
BALANCED FUND GROWTH FUND INCOME FUND
------------- ----------- -----------
<S> <C> <C> <C>
Financial Highlights 2 2 2
Portfolio of Investments, May 31, 3-2
1999 7 3-26 3-26
Statement of Assets and 2
Liabilities, May 31, 1999 8 27 27
Statement of Operations, year ended 2
May 31, 1999 9 28 28
Statement of Changes in Net Assets,
years ended
May 31, 1999 and May 31, 1998 30 29 29
Notes to Financial Statements, May
31, 1999 31-34 30-33 30-34
Report of Independent Accountants 35 34 35
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD SHORT-TERM SHORT-TERM U.S.
FUND BOND FUND GOVERNMENT FUND
---- --------- ---------------
<S> <C> <C> <C>
Financial Highlights 9 8 9
Statement of Net Assets, May 31,
1999 10-22 9-13 10-13
Statement of Operations, year ended
May 31, 1999 23 14 14
Statement of Changes in Net Assets,
years ended
May 31, 1999 and May 31, 1998 24 15 15
Notes to Financial Statements, May
31, 1999 25-28 16-19 16-19
Report of Independent Accountants 29 20 20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. TREASURY U.S. TREASURY U.S. TREASURY
INTERMEDIATE LONG-TERM MONEY
FUND FUND FUND
---- ---- ----
<S> <C> <C> <C>
Financial Highlights 12 13 11
Statement of Net Assets, May 31,
1999 16-18 19-20 14-15
Statement of Operations, year
ended
May 31, 1999 21 21 21
Statement of Changes in Net
Assets, years ended
May 31, 1999 and May 31, 1998 23 24 22
Notes to Financial Statements,
May 31, 1999 25-28 25-28 25-28
Report of Independent
Accountants 29 29 29
</TABLE>
<TABLE>
<CAPTION>
RESERVE GOVERNMENT
INVESTMENT FUND RESERVE
--------------- INVESTMENT FUND
---------------
<S> <C> <C>
Financial Highlights 1 2
Statement of Net Assets, May 31, 1999 3-5 6
Statement of Operations, period from August
25, 1997 (commencement of operations) to
May 31, 1999 7 7
Statement of Changes in Net Assets, period
from August 25, 1997 (commencement of
operations)
to May 31, 1999 8 9
Notes to Financial Statements, May 31, 1999 10-12 10-12
Report of Independent Accountants 13 13
</TABLE>
<TABLE>
<CAPTION>
NEW INCOME
FUND
----
<S> <C>
Financial Highlights 10
Portfolio of Investments, May 31, 1999 11-17
Statement of Assets and Liabilities, May 31, 1999 18
Statement of Operations, year ended May 31, 1999 19
Statement of Changes in Net Assets, years ended
May 31, 1999 and May 31, 1998 20
Notes to Financial Statements, May 31, 1999 21-24
Report of Independent Accountants 25
</TABLE>
RATINGS OF COMMERCIAL PAPER
-------------------------------------------------------------------------------
Moody's Investors Service, Inc. The rating of Prime-1 is the highest
commercial paper rating assigned by Moody's. Among the factors considered by
Moody's in assigning rating are the following: valuation of the management of
the issuer; economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas;
evaluation of the issuer's products in relation to competition and customer
acceptance; liquidity; amount and quality of long-term debt; trend of
earnings over a period of 10 years; financial strength of the parent company
and the relationships which exist with the issuer; and recognition by the
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is
rated P1, P2, or P3.
<PAGE>
Standard & Poor's Corporation Commercial paper rated A (highest quality) by
S&P has the following characteristics: liquidity ratios are adequate to meet
cash requirements; long-term senior debt is rated "A" or better, although in
some cases "BBB" credits may be allowed. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are
unquestioned. The relative strength or weakness of the above factors
determines whether the issuer's commercial paper is rated A1, A2, or A3.
Fitch IBCA, Inc. Fitch 1-Highest grade Commercial paper assigned this rating
is regarded as having the strongest degree of assurance for timely payment.
Fitch 2-Very good grade Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Government Reserve Investment, Prime Reserve, and Reserve Investment Funds
RATINGS OF CORPORATE DEBT SECURITIES
-------------------------------------------------------------------------------
Moody's Investors Service, 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 know 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-Bonds rated C represent the lowest-rated, and have extremely poor prospects
of attaining investment standing.
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.
<PAGE>
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, B, CCC, CC, C-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.
Fitch IBCA, Inc.
AAA-High grade, broadly marketable, suitable for investment by trustees and
fiduciary institutions, and liable to but slight market fluctuation other
than through changes in the money rate. The prime feature of a "AAA" bond is
the showing of earnings several times or many times interest requirements for
such stability of applicable interest that safety is beyond reasonable
question whenever changes occur in conditions. Other features may enter, such
as wide margin of protection through collateral, security or direct lien on
specific property. Sinking funds or voluntary reduction of debt by call or
purchase or often factors, while guarantee or assumption by parties other
than the original debtor may influence their rating.
AA-Of safety virtually beyond question and readily salable. Their merits are
not greatly unlike those of "AAA" class but a bond so rated may be junior
though of strong lien, or the margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured, but
influenced as to rating by the lesser financial power of the enterprise and
more local type of market.
A-Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB-Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions ad
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB, B, CCC, CC, and C are regarded on balance as predominantly speculative
with respect to the issuer's capacity to repay interest and repay principal
in accordance with the terms of the obligation for bond issues not in
default. BB indicates the lowest degree of speculation and C the highest
degree of speculation. The rating takes into consideration special features
of the issue, its relationship to other obligations of the issuer, and the
current and prospective financial condition and operating performance of the
issuer.
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(1)(a) Articles of Incorporation of Registrant, dated October 31, 1975
(electronically filed with Amendment No. 25 dated April 25, 1994)
(1)(b) Articles of Amendment, dated January, 30, 1976, March 2, 1981, May 1,
1981 and July 16, 1982 (electronically filed with Amendment No. 25
dated April 25, 1994)
(1)(c) Articles Supplementary of Registrant, dated October 15, 1998
(2) By-Laws of Registrant
(3) Article SEVENTH, Section I--Issue of the Corporation's Shares and
Section II--Redemption and Repurchase of the Corporation's Shares, in
their entirety, from the Registrant's Articles of Incorporation is
hereby incorporated by reference from Amendment No. 25 electronically
filed and dated April 25, 1994 and Article II, Stockholders, in its
entirety, and Article VIII, Capital Stock, in its entirety, from the
Registrant's By-Laws are also hereby incorporated by reference from
Amendment No. 25 electronically filed and dated April 25, 1994
(4) Investment Management Agreement between Registrant and T. Rowe Price
Associates, Inc., dated July 1, 1987 (electronically filed with
Amendment No. 25 dated April 25, 1994)
(5) Underwriting Agreement between Registrant and T. Rowe Price Investment
Services, Inc., dated May 1, 1981 (electronically filed with Amendment
No. 25 dated April 25, 1994)
(6) Inapplicable
(7) Custody Agreements
(7)(a) Custodian Agreement between T. Rowe Price Funds and State Street Bank
and Trust Company, dated January 28, 1998, as amended November 4, 1998
and April 21, 1999
(8) Other Agreements
<PAGE>
(8)(a) Transfer Agency and Service Agreement between T. Rowe Price Services,
Inc. and T. Rowe Price Funds, dated January 1, 1999, as amended April
21, 1999
(8)(b) Agreement between T. Rowe Price Associates, Inc. and T. Rowe Price
Funds for Fund Accounting Services, dated January 1, 1999, as amended
April 21, 1999
(8)(c) Agreement between T. Rowe Price Retirement Plan Services, Inc. and the
Taxable Funds, dated January 1, 1999
(9) Opinion of Counsel
(10) Consent of Independent Accountants
(11) Inapplicable
(12) Inapplicable
(13) Inapplicable
(14) Financial Data Schedule
(15) Rule 18F-3 Plan (electronically filed with Amendment No. 32 dated
August 20, 1998)
(16) Other Exhibits
(a) Power of Attorney
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 25. INDEMNIFICATION
The Registrant maintains comprehensive Errors and Omissions and
Officers and Directors insurance policies written by the Evanston Insurance
Company and ICI Mutual. These policies provide coverage for T. Rowe Price
Associates, Inc. ("Manager"), and its subsidiaries and affiliates as listed in
Item 26 of this Registration Statement (with the exception of the T. Rowe Price
Associates Foundation, Inc.), and fifty other investment companies, all of which
are mutual funds in the T. Rowe Price family of funds. In addition to the
corporate insureds, the policies also cover the officers, directors, and
employees of the Manager, its subsidiaries, and affiliates. 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.
<PAGE>
GENERAL. The Charter of the Corporation provides that to the fullest extent
permitted by Maryland or federal law, no director or officer of the Corporation
shall be personally liable to the Corporation or the holders of Shares for money
damages and each director and officer shall be indemnified by the Corporation;
PROVIDED, HOWEVER, that nothing therein shall be deemed to protect any director
or officer of the Corporation against any liability to the Corporation of the
holders of Shares to which such director or officer 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 or her office.
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 applicable Maryland
law, as from time to time amended. 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 advance payment
may be lawful under applicable Maryland Law, as from time to time amended.
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 applicable Maryland law, as from time to time amended.
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").
<PAGE>
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:
(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 of 1940, 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
<PAGE>
applicable Maryland law and by Section 17(h) of the Investment Company Act of
1940, 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 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER
Rowe Price-Fleming International, Inc. ("PRICE-FLEMING"), a Maryland
corporation, is a corporate joint venture 50% owned by TRP Finance, Inc., a
wholly owned subsidiary of the Manager. Price-Fleming was incorporated in
Maryland in 1979 to provide investment counsel service with respect to foreign
securities for institutional investors in the United States. In addition to
managing private counsel client accounts, Price-Fleming also sponsors registered
investment companies which invest in foreign securities, serves as general
partner of RPFI International Partners, Limited Partnership, and provides
investment advice to the T. Rowe Price Trust Company, trustee of the
International Common Trust Fund.
T. Rowe Price Investment Services, Inc. ("INVESTMENT SERVICES"), a
wholly owned subsidiary of the Manager, was incorporated in Maryland in 1980 for
the purpose of acting as the principal underwriter and distributor for the
Investment Companies which Manager sponsors and serves as investment adviser
(the "PRICE FUNDS"). Investment Services is registered as a broker--
<PAGE>
dealer under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. In 1984, Investment Services expanded
its activities to include a brokerage service.
TRP Distribution, Inc., a wholly owned subsidiary of Investment
Services, was incorporated in Maryland in 1991. It was organized for, and
engages in, the sale of certain investment related products prepared by
Investment Services and T. Rowe Price Retirement Plan Services.
T. Rowe Price Associates Foundation, Inc. (the "FOUNDATION"), was
incorporated in 1981 (and is not a subsidiary of the Manager). The Foundation's
overall objective emphasizes various community needs by giving to a broad range
of educational, civic, cultural, and health-related institutions. The Foundation
has a very generous matching gift program whereby employee gifts designated to
qualifying institutions are matched according to established guidelines.
T. Rowe Price Services, Inc. ("PRICE SERVICES"), a wholly owned
subsidiary of the Manager, was incorporated in Maryland in 1982 and is
registered as a transfer agent under the Securities Exchange Act of 1934. Price
Services provides transfer agent, dividend disbursing, and certain other
services, including shareholder services, to the Price Funds.
T. Rowe Price Retirement Plan Services, Inc. ("RPS"), a wholly owned
subsidiary of the Manager, was incorporated in Maryland in 1991 and is
registered as a transfer agent under the Securities Exchange Act of 1934. RPS
provides administrative, recordkeeping, and subaccounting services to
administrators of employee benefit plans.
T. Rowe Price Trust Company ("TRUST COMPANY"), a wholly owned
subsidiary of the Manager, is a Maryland-chartered limited-service trust
company, organized in 1983 for the purpose of providing fiduciary services. The
Trust Company serves as trustee and/or custodian for certain qualified employee
benefit plans, individual retirement accounts, and common trust funds and as
trustee/investment agent for one trust and other retirement plans.
T. Rowe Price Investment Technologies, Inc. was incorporated in
Maryland in 1996. A wholly owned subsidiary of the Manager, it owns the
technology rights, hardware, and software of the Manager and affiliated
companies and provides technology services to them.
TRPH Corporation, a wholly owned subsidiary of the Manager, was
organized in 1997 to acquire an interest in a UK-based corporate finance
advisory firm.
<PAGE>
T. Rowe Price Threshold Fund Associates, Inc., a wholly owned
subsidiary of the Manager, was incorporated in Maryland in 1994 and serves as
the general partner of T. Rowe Price Threshold Fund III, L.P., a Delaware
limited partnership.
T. Rowe Price Threshold Fund III, L.P., a Delaware limited partnership,
was organized in 1994 by the Manager and invests in private financings of small
companies with high growth potential; the Manager is the General Partner of the
partnership.
RPFI International Partners, L.P., is a Delaware limited partnership
organized in 1985 for the purpose of investing in a diversified group of small
and medium-sized non-U.S. companies. Price-Fleming is the general partner of
this partnership, and certain institutional investors, including advisory
clients of Price-Fleming, are its limited partners.
T. Rowe Price Stable Asset Management, Inc. ("STABLE ASSET
MANAGEMENT"), was incorporated in Maryland in 1988 as a wholly owned subsidiary
of the Manager. Stable Asset Management is registered as an investment adviser
under the Investment Advisers Act of 1940, and specializes in the management of
investment portfolios which seek stable and consistent investment returns
through the use of guaranteed investment contracts, bank investment contracts,
structured investment contracts issued by insurance companies and banks, as well
as short-term fixed income securities.
T. Rowe Price Recovery Fund Associates, Inc., a Maryland corporation,
is a wholly owned subsidiary of the Manager organized in 1988 for the purpose of
serving as General Partner of T. Rowe Price Recovery Fund, L.P., a Delaware
limited partnership which invests in financially distressed companies.
T. Rowe Price Recovery Fund II Associates, L.L.C., is a Maryland
limited liability company organized in 1996. Wholly owned by the Manager and the
Trust Company, it serves as General Partner of T. Rowe Price Recovery Fund II,
L.P., a Delaware limited partnership which also invests in financially
distressed companies.
T. Rowe Price (Canada), Inc. ("TRP CANADA") is a Maryland corporation
organized in 1988 as a wholly owned subsidiary of the Manager. This entity is
registered as an investment adviser under the Investment Advisers Act of 1940 as
well as with the Ontario Securities Commission to provide advisory services to
individual and institutional clients residing in Canada.
T. Rowe Price Insurance Agency, Inc., is a wholly owned subsidiary of
the Manager, organized in Maryland in 1994 and
<PAGE>
licensed to do business in several states to act primarily as a distributor of
proprietary variable annuity products.
Since 1983, the Manager has organized several distinct Maryland limited
partnerships, which are informally called the Pratt Street Ventures
partnerships, for the purpose of acquiring interests in growth-oriented
businesses.
TRP Suburban, Inc., is a Maryland corporation organized in 1990 as a
wholly owned subsidiary of the Manager. It entered into agreements with McDonogh
School and CMANE-McDonogh-Rowe Limited Partnership to construct an office
building in Owings Mills, Maryland, which currently houses the Manager's
transfer agent, plan administrative services, retirement plan services, and
operations support functions.
TRP Suburban Second, Inc., a wholly owned Maryland subsidiary of T.
Rowe Price Associates, Inc., was incorporated in 1995 to primarily engage in the
development and ownership of real property located in Owings Mills, Maryland.
TRP Finance, Inc., a wholly owned subsidiary of the Manager, is a
Delaware corporation organized in 1990 to manage certain passive corporate
investments and other intangible assets.
T. Rowe Price Strategic Partners Fund II, L.P. ("STRATEGIC PARTNERS
FUNDS") is a Delaware limited partnerships organized in 1992, for the purpose of
investing in small public and private companies seeking capital for expansion or
undergoing a restructuring of ownership. The general partner of T. Rowe Price
Strategic Partners Fund II, L.P. is T. Rowe Price Strategic Partners II, L.P., a
Delaware limited partnership whose general partner is T. Rowe Price Strategic
Partners Associates, Inc.
Listed below are the directors, executive officers and managing
directors of the Manager who have other substantial businesses, professions,
vocations, or employment aside from that of Director of the Manager:
DIRECTORS
JAMES E. HALBKAT, JR., Director of the Manager. Mr. Halbkat is President of U.S.
Monitor Corporation, a provider of public response systems. Mr. Halbkat's
address is: P.O. Box 23109, Hilton Head Island, South Carolina 29925.
DONALD B. HEBB, JR., Director of the Manager. Mr. Hebb is the managing general
partner of ABS Capital Partners. Mr. Hebb's address is One South Street, 25th
Floor, Baltimore, Maryland 21202.
<PAGE>
RICHARD L. MENSCHEL, Director of the Manager. Mr. Menschel is a limited partner
of The Goldman Sachs Group, L.P., an investment banking firm. Mr. Menschel's
address is: 85 Broad Street, 2nd Floor, New York, New York 10004.
ROBERT L. STRICKLAND, Director of the Manager. Mr. Strickland retired as
Chairman of Lowe's Companies, Inc., a retailer of specialty home supplies, as of
January 31, 1998 and continues to serve as a Director. He is a Director of
Hannaford Bros., Co., a food retailer. Mr. Strickland's address is: 2000 W.
First Street, Suite 604, Winston-Salem, North Carolina 27104.
PHILIP C. WALSH, Director of the Manager. Mr. Walsh is a retired mining industry
executive. Mr. Walsh's address is: Pleasant Valley, Peapack, New Jersey 07977.
ANNE MARIE WHITTEMORE, Director of the Manager. Mrs. Whittemore is a partner of
the law firm of McGuire, Woods, Battle & Boothe L.L.P. and a Director of Owens &
Minor, Inc.; Fort James Corporation; and Albemarle Corporation. Mrs.
Whittemore's address is: One James Center, Richmond, Virginia 23219.
With the exception of Messrs. Halbkat, Hebb, Menschel, Strickland, Walsh, and
Mrs. Whittemore, all of the following directors of the Manager are employees of
the Manager.
HENRY H. HOPKINS, Director and Managing Director of the Manager; Director of T.
Rowe Price Insurance Agency, Inc.; Vice President and Director of T. Rowe Price
(Canada), Inc., T. Rowe Price Investment Services, Inc., T. Rowe Price Services,
Inc., T. Rowe Price Threshold Fund Associates, Inc., T. Rowe Price Trust
Company, TRP Distribution, Inc., and TRPH Corporation; Director of T. Rowe Price
Insurance Agency, Inc.; Vice President of Price-Fleming, T. Rowe Price Real
Estate Group, Inc., T. Rowe Price Retirement Plan Services, Inc., T. Rowe Price
Stable Asset Management, Inc., and T. Rowe Price Strategic Partners Associates,
Inc.
JAMES A.C. KENNEDY, Director and Managing Director of the Manager; President and
Director of T. Rowe Price Strategic Partners Associates, Inc.; Director and Vice
President of T. Rowe Price Threshold Fund Associates, Inc.
JOHN H. LAPORTE, JR., Director and Managing Director of the Manager.
WILLIAM T. REYNOLDS, Director and Managing Director of the Manager; Chairman of
the Board of T. Rowe Price Stable Asset Management, Inc.; Director of TRP
Finance, Inc.
<PAGE>
JAMES S. RIEPE, Vice-Chairman of the Board, Director, and Managing Director of
the Manager; Chairman of the Board and President of T. Rowe Price Trust Company;
Chairman of the Board of T. Rowe Price (Canada), Inc., T. Rowe Price Investment
Services, Inc., T. Rowe Price Investment Technologies, Inc., T. Rowe Price
Retirement Plan Services, Inc., and T. Rowe Price Services, Inc.; Director of
Price-Fleming, T. Rowe Price Insurance Agency, Inc., and TRPH Corporation;
Director and President of TRP Distribution, Inc., TRP Suburban Second, Inc., and
TRP Suburban, Inc.; and Director and Vice President of T. Rowe Price Stable
Asset Management, Inc.
GEORGE A. ROCHE, Chairman of the Board, President, and Managing Director of the
Manager; Chairman of the Board of TRP Finance, Inc.; Director of Price-Fleming,
T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Strategic
Partners, Inc., and Director and Vice President of T. Rowe Price Threshold Fund
Associates, Inc., TRP Suburban Second, Inc., and TRP Suburban, Inc.
BRIAN C. ROGERS, Director and Managing Director of the Manager; Vice President
of T. Rowe Price Trust Company.
M. DAVID TESTA, Vice-Chairman of the Board, Director, Chief Investment Officer,
and Managing Director of the Manager; Chairman of the Board of Price-Fleming;
President and Director of T. Rowe Price (Canada), Inc.; Director and Vice
President of T. Rowe Price Trust Company; and Director of TRPH Corporation.
ADDITIONAL EXECUTIVE OFFICERS
EDWARD C. BERNARD, Managing Director of the Manager; Director and President of
T. Rowe Price Insurance Agency, Inc. and T. Rowe Price Investment Services,
Inc.; Director of T. Rowe Price Services, Inc.; Vice President of TRP
Distribution, Inc.
MICHAEL A. GOFF, Managing Director of the Manager; Director and the President of
T. Rowe Price Investment Technologies, Inc.
CHARLES E. VIETH, Managing Director of the Manager; Director and President of T.
Rowe Price Retirement Plan Services, Inc.; Director and Vice President of T.
Rowe Price Investment Services, Inc. and T. Rowe Price Services, Inc.; Vice
President of T. Rowe Price (Canada), Inc., T. Rowe Price Trust Company, and TRP
Distribution, Inc.
ALVIN M. YOUNGER, JR., Chief Financial Officer, Managing Director, Secretary,
and Treasurer of the Manager; Director, Vice President, Treasurer, and Secretary
of TRP Suburban Second, Inc. and TRP Suburban, Inc.; Director of TRP Finance,
Inc.; Secretary and Treasurer for Price-Fleming, T. Rowe Price (Canada), Inc.,
T. Rowe Price Insurance Agency, Inc., T. Rowe Price Investment Services,
<PAGE>
Inc., T. Rowe Price Real Estate Group, Inc., T. Rowe Price Retirement Plan
Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price Stable Asset
Management, Inc., T. Rowe Price Strategic Partners Associates, Inc., T. Rowe
Price Threshold Fund Associates, Inc., T. Rowe Price Trust Company, TRP
Distribution, Inc., and TRPH Corporation; Treasurer and Clerk of T. Rowe Price
Insurance Agency of Massachusetts, Inc.
ADDITIONAL MANAGING DIRECTORS
PRESTON G. ATHEY, Managing Director of the Manager.
BRIAN W.H. BERGHUIS, Managing Director of the Manager.
STEPHEN W. BOESEL, Managing Director of the Manager; Vice President of T. Rowe
Price Trust Company.
GREGORY A. McCRICKARD, Managing Director of the Manager; Vice President of T.
Rowe Price Trust Company.
MARY J. MILLER, Managing Director of the Manager.
CHARLES A. MORRIS, Managing Director of the Manager.
GEORGE A. MURNAGHAN, Managing Director of the Manager; Executive Vice President
of Price-Fleming; Vice President of T. Rowe Price Investment Services, Inc. and
T. Rowe Price Trust Company.
EDMUND M. NOTZON III, Managing Director of the Manager; Vice President of T.
Rowe Price Trust Company.
WAYNE D. O'MELIA, Managing Director of the Manager; Director and President of T.
Rowe Price Services, Inc.; Vice President of T. Rowe Price Trust Company.
LARRY J. PUGLIA, Managing Director of the Manager; Vice President of T. Rowe
Price (Canada), Inc.
JOHN R. ROCKWELL, Managing Director of the Manager; Director and Senior Vice
President of T. Rowe Price Retirement Plan Services, Inc.; Director and Vice
President of T. Rowe Price Stable Asset Management, Inc. and T. Rowe Price Trust
Company; Vice President of T. Rowe Price Investment Services, Inc.
R. TODD RUPPERT, Managing Director of the Manager; President and Director of
TRPH Corporation; Vice President of T. Rowe Price Retirement Plan Services, Inc.
and T. Rowe Price Trust Company.
ROBERT W. SMITH, Managing Director of the Manager; Vice President of
Price-Fleming.
<PAGE>
WILLIAM J. STROMBERG, Managing Director of the Manager.
RICHARD T. WHITNEY, Managing Director of the Manager; Vice President of
Price-Fleming and T. Rowe Price Trust Company.
Certain directors and officers of the Manager are also officers and/or
directors of one or more of the Price Funds and/or one or more of the affiliated
entities listed herein.
See also "Management of Fund," in Registrant's Statement of Additional
Information.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) The principal underwriter for the Registrant is Investment Services.
Investment Services acts as the principal underwriter for eighty-eight
mutual funds, including the following investment companies: 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
International Funds, 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 California
Tax-Free Income Trust, T. Rowe Price State 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 Short-Term U.S. Government Fund, Inc., T. Rowe Price Mid-Cap
Growth Fund, Inc., T. Rowe Price Small-Cap Stock Fund, Inc., T. Rowe
Price Tax-Free 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. 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., T. Rowe Price Value Fund, Inc., T. Rowe Price
Capital Opportunity Fund, Inc., T. Rowe Price Corporate Income Fund,
Inc., T. Rowe Price Health Sciences Fund, Inc., T. Rowe Price Mid-Cap
Value Fund, Inc., Institutional Equity Funds, Inc., T. Rowe Price
Financial
<PAGE>
Services Fund, Inc., T. Rowe Price Diversified Small-Cap Growth Fund,
Inc., T. Rowe Price Tax-Efficient Funds, Inc., Reserve Investment
Funds, Inc., T. Rowe Price Media & Telecommunications Fund, Inc., and
T. Rowe Price Real Estate Fund, Inc. 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.
<TABLE>
<CAPTION>
NAME POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
UNDERWRITER REGISTRANT
<C> <S> <S>
James S. Riepe Chairman of the Board Director and Vice
and Director President
Edward C. Bernard President and Director None
Henry H. Hopkins Vice President and Director Vice President
Charles E. Vieth Vice President and Director None
Patricia M. Archer Vice President None
Steven J. Banks Vice President None
John T. Bielski Vice President None
Darrell N. Braman Vice President None
Ronae M. Brock Vice President None
Meredith C. Callanan Vice President None
Ann R. Campbell Vice President None
Christine M. Carolan Vice President None
Joseph A. Carrier Vice President None
Laura H. Chasney Vice President None
Renee M. Christoff Vice President None
Christopher W. Dyer Vice President None
Christine S. Fahlund Vice President None
Forrest R. Foss Vice President None
Thomas A. Gannon Vice President None
Andrea G. Griffin Vice President None
Douglas E. Harrison Vice President None
David J. Healy Vice President None
Joseph P. Healy Vice President None
Walter J. Helmlinger Vice President None
Valerie King-Calloway Vice President None
Eric G. Knauss Vice President None
Sharon R. Krieger Vice President None
Steven A. Larson Vice President None
Jeanette M. LeBlanc Vice President None
Keith W. Lewis Vice President None
Kim Lewis-Collins Vice President None
Gayle A. Lomax Vice President None
Sarah McCafferty Vice President None
Maurice A. Minerbi Vice President None
Mark J. Mitchell Vice President None
Nancy M. Morris Vice President None
George A. Murnaghan Vice President None
Steven E. Norwitz Vice President None
Kathleen M. O'Brien Vice President None
Barbara A. O'Connor Vice President None
David Oestreicher Vice President None
Robert Petrow Vice President None
Pamela D. Preston Vice President None
George D. Riedel Vice President None
Lucy B. Robins Vice President None
John R. Rockwell Vice President None
Kenneth J. Rutherford Vice President None
Alexander Savich Vice President None
Kristin E. Seeberger Vice President None
Donna B. Singer Vice President None
William W. Strickland, Jr. Vice President None
Jerome Tuccille Vice President None
Charles E. Vieth Vice President None
William F. Wendler II Vice President None
Jane F. White Vice President None
Thomas R. Woolley Vice President None
Alvin M. Younger, Jr. Secretary and Treasurer None
Barbara A. O'Connor Controller None
Theodore J. Zamerski III Assistant Controller None
Matthew B. Alstead Assistant Vice President None
Kimberly B. Andersen Assistant Vice President None
Richard J. Barna Assistant Vice President None
Catherine L.Berkenkemper Assistant Vice President None
Edwin J. Brooks III Assistant Vice President None
Carl A. Cox Assistant Vice President None
Charles R. Dicken Assistant Vice President None
Cheryl L. Emory Assistant Vice President None
John A. Galateria Assistant Vice President None
Edward F. Giltenan Assistant Vice President None
Jason L. Gounaris Assistant Vice President None
Janelyn A. Healey Assistant Vice President None
R. Emmett Higdon Assistant Vice President None
Sandra J. Kiefler Assistant Vice President None
Suzanne M. Knoll Assistant Vice President None
Patricia S. Lippert Assistant Vice President Secretary
Teresa M. Loeffert Assistant Vice President None
C. Lillian Matthews Assistant Vice President None
Janice D. McCrory Assistant Vice President None
Quinn C. McDonald Assistant Vice President None
Danielle N. Nicholson Assistant Vice President None
JeanneMarie B. Patella Assistant Vice President None
Kylelane Purcell Assistant Vice President None
David A. Roscum Assistant Vice President None
Matthew A. Scher Assistant Vice President None
Carole H. Smith Assistant Vice President None
John A. Stranovsky Assistant Vice President None
Nolan L. North Assistant Treasurer None
Barbara A. Van Horn Assistant Secretary None
</TABLE>
<PAGE>
<PAGE>
(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 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and other documents required to be maintained by
the Registrant under Section 31(a) of the Investment Company Act of 1940 and the
rules thereunder will be maintained by the Registrant 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
10090 Red Run Blvd., Owings Mills, Maryland 21117. Custodian activities for the
Registrant are performed at State Street Bank and Trust Company's Service Center
(State Street South), 1776 Heritage Drive, Quincy, Massachusetts 02171.
ITEM 29. MANAGEMENT SERVICES
Registrant is not a party to any management-related service contract,
other than as set forth in the Prospectus or Statement of Additional
Information.
ITEM 30. UNDERTAKINGS
(a) Not applicable
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Baltimore, State of Maryland, this
September 29, 1999.
T. Rowe Price Prime Reserve Fund, Inc.
/s/William T. Reynolds
By: William T. Reynolds
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/William T. Reynolds Chairman of the Board September 29, 1999
William T. Reynolds (Chief Executive Officer)
/s/Carmen F. Deyesu Treasurer (Chief September 29, 1999
Carmen F. Deyesu Financial Officer)
* Director September 29, 1999
Calvin W. Burnett
* Director September 29, 1999
Anthony W. Deering
* Director September 29, 1999
F. Pierce Linaweaver
/s/James S. Riepe Director and September 29, 1999
James S. Riepe Vice President
* Director September 29, 1999
John G. Schreiber
/s/M. David Testa Director September 29, 1999
M. David Testa
/s/Henry H. Hopkins Attorney-In-Fact September 29, 1999
Henry H. Hopkins
BY-LAWS
OF
T. ROWE PRICE PRIME RESERVE FUND, INC.
AS AMENDED:
JULY 25, 1978
JANUARY 23, 1979
MAY 1, 1981
JANUARY 20, 1982
APRIL 14, 1982
JANUARY 1, 1983
JANUARY 21, 1988
APRIL 20, 1990
JULY 1, 1991
JULY 20, 1993
JANUARY 18, 1994
JULY 21, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I. NAME OF CORPORATION, LOCATION OF OFFICES AND
SEAL 1
1.01.Name 1
1.02.Principal Offices 1
1.03.Seal 1
ARTICLE II. STOCKHOLDERS 1
2.01.Annual Meetings 1
2.02.Special Meetings 2
2.03.Place of Meetings 2
2.04.Notice of Meetings 2
2.05.Voting - In General 3
2.06.Stockholders Entitled to Vote 3
2.07.Voting - Proxies 3
2.08.Quorum 3
2.09.Absence of Quorum 4
2.10.Stock Ledger and List of Stockholders 4
ARTICLE III. BOARD OF DIRECTORS 4
3.01.Number and Term of Office 4
3.02.Qualification of Directors 4
3.03.Election of Directors 4
3.04.Removal of Directors 5
3.05.Vacancies and Newly Created Directorships 5
3.06.General Powers 5
3.07.Power to Issue and Sell Stock 5
3.08.Power to Declare Dividends 6
3.09.Annual and Regular Meetings 6
3.10.Special Meetings 6
3.11.Notice 7
3.12.Waiver of Notice 7
3.13.Quorum and Voting 7
3.14.Conference Telephone 7
3.15.Compensation 7
3.16.Action without a Meeting 7
3.17.Director Emeritus 7
<PAGE>
ARTICLE IV. EXECUTIVE COMMITTEE AND OTHER COMMITTEES 8
4.01.How Constituted 8
4.02.Powers of the Executive Committee 8
4.03.Other Committees of the Board of Directors 8
4.04.Proceedings, Quorum and Manner of Acting 8
4.05.Other Committees 8
ARTICLE V. OFFICERS 9
5.01.General 9
5.02.Election, Term of Office and Qualifications 9
5.03.Resignation 9
5.04.Removal 9
5.05.Vacancies and Newly Created Offices 9
5.06.Chairman of the Board 9
5.07.President 10
5.08.Vice President 10
5.09.Treasurer and Assistant Treasurers 10
5.10.Secretary and Assistant Secretaries 11
5.11.Subordinate Officers 11
5.12.Remuneration 11
ARTICLE VI. CUSTODY OF SECURITIES AND CASH 11
6.01.Employment of a Custodian 11
6.02.Central Certificate Service 12
6.03.Cash Assets 12
6.04.Free Cash Accounts 12
6.05.Action Upon Termination of Custodian Agreement 12
ARTICLE VII. EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES 13
7.01.Execution of Instruments 13
7.02.Voting of Securities 13
ARTICLE VIII. CAPITAL STOCK 13
8.01.Ownership of Shares 13
8.02.Transfer of Capital Stock 13
8.03.Transfer Agents and Registrars 14
8.04.Transfer Regulations 14
<PAGE>
8.05.Fixing of Record Date 14
8.06.Lost, Stolen or Destroyed Certificates 14
ARTICLE IX. FISCAL YEAR, ACCOUNTANT 15
9.01.Fiscal Year 15
9.02.Accountant 15
ARTICLE X. INDEMNIFICATION AND INSURANCE 16
10.01.Indemnification and Payment of Expenses in Advance 16
10.02.Insurance of Officers, Directors, Employees and Agents 17
ARTICLE XI. AMENDMENTS 17
11.01. General 17
11.02. By Stockholders Only 18
ARTICLE XII. MISCELLANEOUS 18
12.01. Use of the Term "Annual Meeting" 18
<PAGE>
T. ROWE PRICE PRIME RESERVE FUND, INC.
(A Maryland Corporation)
BY-LAWS
ARTICLE I
---------
NAME OF CORPORATION,
LOCATION OF OFFICES AND SEAL
----------------------------
Section 1.01. NAME: The name of the Corporation is T. ROWE PRICE PRIME
----
RESERVE FUND, INC.
(Section 1.01. Name, as amended May 1, 1981.)
----
Section 1.02. PRINCIPAL OFFICES: The principal office of the Corporation in
-----------------
the State of Maryland shall be located in the City of Baltimore. The Corporation
may, in addition, establish and maintain such other offices and places of
business, within or without the State of Maryland, as the Board of Directors may
from time to time determine. [ MGCL, Sections 2-103(4), 2-108(a)(1) ]<F1>
Section 1.03. SEAL: The corporate seal of the Corporation shall be circular
----
in form, and shall bear the name of the Corporation, the year of its
incorporation, and the words "Corporate Seal, Maryland". The form of the seal
shall be subject to alteration by the Board of Directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or Director of the Corporation shall have
authority to affix the corporate seal of the Corporation to any document
requiring the same. [ MGCL, Sections 2-103(3) ]
ARTICLE II
----------
STOCKHOLDERS
------------
Section 2.01. ANNUAL MEETINGS: The Corporation shall not be required to
---------------
hold an annual meeting of its shareholders in any year unless the Investment
Company Act of 1940 requires an election of directors by shareholders. In the
event that the Corporation shall be so required to hold an annual meeting, such
meeting shall be held at a date and time set by the Board of Directors, which
date shall be no later than 120 days after the occurrence of the event requiring
the meeting. Any shareholders' meeting held in accordance with the preceding
sentence shall for all purposes
- -------------------------
<F1> Bracketed citations are to the General Corporation Law of the State of
Maryland ("MGCL") or to the United States Investment Company Act of 1940, as
amended (the "Investment Company Act"), or to Rules of the United States
Securities and Exchange Commission thereunder ("SEC Rules"). The citations are
inserted for reference only and do not constitute a part of the By-Laws.
<PAGE>
constitute the annual meeting of shareholders for the fiscal year of the
Corporation in which the meeting is held. At any such meeting, the shareholders
shall elect directors to hold the offices of any directors who have held office
for more than one year or who have been elected by the Board of Directors to
fill vacancies which result from any cause. Except as the Articles of
Incorporation or statute provides otherwise, Directors may transact any business
within the powers of the Corporation as may properly come before the meeting.
Any business of the Corporation may be transacted at the annual meeting without
being specially designated in the notice, except such business as is
specifically required by statute to be stated in the notice. [ MGCL, Section
2-501 ]
(Section 2.01. Annual Meetings, as amended April 20, 1990)
---------------
Section 2.02. SPECIAL MEETINGS: Special meetings of the shareholders may be
----------------
called at any time by the Chairman of the Board, the President, any Vice
President, or by the Board of Directors. Special meetings of the shareholders
shall be called by the Secretary on the written request of shareholders entitled
to cast at least ten (10) percent of all the votes entitled to be cast at such
meeting, provided that (a) such request shall state the purpose or purposes of
the meeting and the matters proposed to be acted on, and (b) the shareholders
requesting the meeting shall have paid to the Corporation the reasonably
estimated cost of preparing and mailing the notice thereof, which the Secretary
shall determine and specify to such shareholders. Unless requested by
shareholders entitled to cast a majority of all the votes entitled to be cast at
the meeting, a special meeting need not be called to consider any matter which
is substantially the same as a matter voted upon at any special meeting of the
shareholders held during the preceding twelve (12) months. [ MGCL, Section 2-502
]
(Section 2.02. Special Meetings, as amended July 20, 1993)
----------------
Section 2.03. PLACE OF MEETINGS: All stockholders' meetings shall be held
-----------------
at such place within the United States as may be fixed from time to time by the
Board of Directors. [ MGCL, Section 2-503 ]
Section 2.04. NOTICE OF MEETINGS: Not less than ten (10) days, nor more
------------------
than ninety (90) days before each shareholders' meeting, the Secretary or an
Assistant Secretary of the Corporation shall give to each shareholder entitled
to vote at the meeting, and each other shareholder entitled to notice of the
meeting, written notice stating (1) the time and place of the meeting, and (2)
the purpose or purposes of the meeting if the meeting is a special meeting or if
notice of the purpose is required by statute to be given. Such notice shall be
personally delivered to the shareholder, or left at his residence or usual place
of business, or mailed to him at this address or transmitted to the shareholder
by electronic mail to any electronic mail address of the shareholder or by any
other electronic means in all cases as such address appears on the records of
the Corporation. No notice of a shareholders' meeting need be given to any
shareholder who shall sign a written waiver of such notice, whether before or
after the meeting, which is filed with the records of shareholders' meetings, or
to any shareholder who is present at the meeting in person or by proxy. Notice
of adjournment of a shareholders' meeting to another time or place need not be
given if such time and place are announced at the meeting, unless the
adjournment is for more than one hundred twenty (120) days after the original
record date. [ MGCL, Sections 2-504, 2-511(d) ]
(Section 2.04. Notice of Meetings, as amended July 21, 1999)
------------------
<PAGE>
Section 2.05. VOTING - IN GENERAL: At every stockholders' meeting each
-------------------
stockholder shall be entitled to one vote for each share of stock of the
Corporation validly issued and outstanding and held by such stockholder, except
that no shares held by the Corporation shall be entitled to a vote. Fractional
shares shall be entitled to fractional votes. Except as otherwise specifically
provided in the Articles of Incorporation or these By-Laws or as required by
provisions of the United States Investment Company Act, as amended from time to
time, all matters shall be decided by a vote of the majority of the votes cast.
The vote upon any question shall be by ballot whenever requested by any person
entitled to vote, but, unless such a request is made, voting may be conducted in
any way approved by the meeting. [ MGCL, Sections 2-506(a)(2), 2-507(a),
2-509(b) ]
Section 2.06. STOCKHOLDERS ENTITLED TO VOTE: If, pursuant to Section 8.05
-----------------------------
hereof, a record date has been fixed for the determination of stockholders
entitled to notice of or to vote at any stockholders' meeting, each stockholder
of the Corporation shall be entitled to vote in person or by proxy, each share
or fraction of a share of stock standing in his name on the books of the
Corporation on such record date and outstanding at the time of the meeting. If
no record date has been fixed for the determination of stockholders, the record
date for the determination of stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day on which
notice of the meeting is mailed or the day 30 days before the meeting, whichever
is the closer date to the meeting, or, if notice is waived by all stockholders,
at the close of business on the tenth day next preceding the day on which the
meeting is held. [ MGCL, Sections 2-507, 2-511 ]
Section 2.07. VOTING - PROXIES: A shareholder may authorize another person
----------------
to act as proxy for the shareholder by: (i) signing a writing authorizing
another person to act as proxy, (ii) the shareholder's authorized agent signing
the writing or causing the shareholder's signature to be affixed to the writing
by any reasonable means, including facsimile signature, or (iii) transmitting,
or authorizing the transmission of, an authorization for the person to act as
proxy to the person authorized to act as proxy or any other person authorized to
receive the proxy authorization on behalf of the person authorized to act as the
proxy, including a proxy solicitation firm or proxy support service
organization. The authorization may be transmitted by a telegram, cablegram,
datagram, electronic mail, or any other electronic or telephonic means. A copy,
facsimile telecommunication, or other reliable reproduction of the writing or
transmission may be substituted for the original writing or transmission for any
purpose for which the original writing or transmission could be used. No proxy
shall be valid more than eleven (11) months after its date unless it provides
for a longer period. [ MGCL, Section 2-507(b) and (c) ]
(Section 2.07. Voting - Proxies, as amended July 21, 1999)
----------------
Section 2.08. QUORUM: The presence at any stockholders' meeting, in person
------
or by proxy, of stockholders entitled to cast a majority of the votes entitled
to be cast at the meeting shall be necessary and sufficient to constitute a
quorum for the transaction of business. [ MGCL, Section 2-506 ]
Section 2.09. ABSENCE OF QUORUM: In the absence of a quorum, the holders of
-----------------
a majority of shares entitled to vote at the meeting and present thereat in
person or by proxy, or, if no stockholder entitled to vote is present thereat in
person or by proxy, any officer present thereat entitled to preside at or act as
Secretary of such meeting, may adjourn the meeting sine die or from
--------
<PAGE>
time to time. Any business that might have been transacted at the meeting
originally called may be transacted at any such adjourned meeting at which a
quorum is present.
Section 2.10. STOCK LEDGER AND LIST OF STOCKHOLDERS: It shall be the duty
-------------------------------------
of the Secretary or Assistant Secretary of the Corporation to cause an original
or duplicate stock ledger to be maintained at the office of the Corporation's
transfer agent, containing the names and addresses of all stockholders and the
number of shares of each class held by each stockholder. Such stock ledger may
be in written form or any other form capable of being converted into written
form within a reasonable time for visual inspection. Any one or more persons,
who together are and for at least six months have been stockholders of record of
at least 5% of the outstanding capital stock of the Corporation, may submit
(unless the Corporation at the time of the request maintains a duplicate stock
ledger at its principal office) a written request to any officer of the
Corporation or its resident agent in Maryland for a list of the stockholders of
the Corporation. Within 20 days after such a request, there shall be prepared
and filed at the Corporation's principal office a list containing the names and
addresses of all stockholders of the Corporation and the number of shares of
each class held by each stockholder, certified as correct by an officer of the
Corporation, by its stock transfer agent, or by its registrar. [ MGCL, Sections
2-209, 2-513 ]
ARTICLE III
-----------
BOARD OF DIRECTORS
------------------
Section 3.01. NUMBER AND TERM OF OFFICE: The Board of Directors shall
-------------------------
consist of six Directors, which number may be increased or decreased by a
resolution of a majority of the entire Board of Directors, provided that the
number of Directors shall not be less than three nor more than 15. Each Director
(whenever elected) shall hold office until the next annual meeting of
stockholders or until his successor is elected and qualifies or until his
earlier death, resignation or removal. [ MGCL, Sections 2-402 ]
Section 3.02. QUALIFICATION OF DIRECTORS: No member of the Board of
--------------------------
Directors need be a stockholder of the Corporation but at least one member of
the Board of Directors shall be a person who is not an interested person (as
such term is defined in the Investment Company Act of 1940, as amended) of the
investment adviser of the Corporation nor an officer or employee of the
Corporation. [ Investment Company Act, Section 10(d) ]
Section 3.03. ELECTION OF DIRECTORS: Until the first annual meeting of
---------------------
shareholders or until successors are duly elected and qualified, the Board of
Directors shall consist of the persons named as such in the Articles of
Incorporation. Thereafter, except as otherwise provided in Sections 3.04 and
3.05 hereof, at each annual meeting, the shareholders shall elect Directors to
hold office until the next annual meeting and/or until their successors are
elected and qualify. In the event that Directors are not elected at an annual
shareholders' meeting, then Directors may be elected at a special shareholders'
meeting. Directors shall be elected by vote of the holders of a majority of the
shares present in person or by proxy and entitled to vote thereon. [ MGCL,
Section 2-404 ]
(Section 3.03. Election of Directors, as amended January 21, 1988)
---------------------
<PAGE>
Section 3.04. REMOVAL OF DIRECTORS: At any meeting of stockholders, duly
--------------------
called and at which a quorum is present, the stockholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any Director or Directors from office, either with or without
cause, and may elect a successor or successors to fill any resulting vacancies
for the unexpired terms of removed Directors. [ MGCL, Sections 2-406, 2-407 ]
Section 3.05. VACANCIES AND NEWLY CREATED DIRECTORSHIPS: If any vacancies
-----------------------------------------
shall occur in the Board of Directors by reason of resignation, removal or
otherwise, or if the authorized number of Directors shall be increased, the
Directors then in office shall continue to act, and such vacancies (if not
previously filled by the stockholders) may be filled by a majority of the
Directors then in office, whether or not a quorum, provided that, immediately
after filling such vacancy, at least two-thirds of the Directors then holding
office shall have been elected to such office by the stockholders of the
Corporation. In the event that at any time, other than the time preceding the
first meeting of stockholders, less than a majority of the Directors of the
Corporation holding office at that time were so elected by the stockholders, a
meeting of the stockholders shall be held promptly and in any event within 60
days for the purpose of electing Directors to fill any existing vacancies in the
Board of Directors unless the Securities and Exchange Commission shall by order
extend such period. Except as provided in Section 3.04 hereof, a Director
elected by the Board of Directors to fill a vacancy shall be elected to hold
office until the next annual meeting of stockholders or until his successor is
elected and qualifies. [ MGCL, Section 2-407; Investment Company Act, Section
16(a) ]
Section 3.06. GENERAL POWERS:
--------------
(a)
The property, affairs and business of the Corporation shall be managed by the
Board of Directors, which may exercise all the powers of the Corporation except
such as are by law, by the Articles of Incorporation or by these By-Laws
conferred upon or reserved to the stockholders of the Corporation. [ MGCL,
Section 2-401 ]
(b)
All acts done by any meeting of the Directors or by any person acting as a
Director, so long as his successor shall not have been duly elected or
appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the Directors or such person acting as a
Director or that they or any of them were disqualified, be as valid as if the
Directors or such person, as the case may be, had been duly elected and were or
was qualified to be Directors or a Director of the Corporation.
Section 3.07. POWER TO ISSUE AND SELL STOCK: The Board of Directors may
-----------------------------
from time to time authorize by resolution the issuance and sale of any of the
Corporation's authorized shares to such persons as the Board of Directors shall
deem advisable and such resolution shall fix the consideration or minimum
consideration for which such shares are to be issued, or a formula or method
pursuant to which such consideration is to be fixed and determined, and shall
include a fair description of any consideration other than money and a statement
of the actual value of such consideration as then determined in the opinion of
the Board of Directors or a statement that in the opinion of the Board of
Directors such consideration is or will be not less than a stated sum. [ MGCL,
Section 2-203 ]
<PAGE>
Section 3.08. POWER TO DECLARE DIVIDENDS:
--------------------------
(a)
The Board of Directors, from time to time as they may deem advisable, may
declare and the Corporation pay dividends, in cash, property or shares of the
Corporation available for dividends out of any source available for dividends,
to the stockholders according to their respective rights and interests. [ MGCL,
Section 2-309 ]
(b)
The Board of Directors shall cause to be accompanied by a written statement any
dividend payment wholly or partly from any source other than the Corporation's
accumulated undistributed net income (determined in accordance with good
accounting practice and the rules and regulations of the Securities and Exchange
Commission then in effect) not including profits or losses realized upon the
sale of securities or other properties. Such statement shall adequately disclose
the source or sources of such payment and the basis of calculation and shall be
otherwise in such form as the Securities and Exchange Commission may prescribe.
[ Investment Company Act, Section 19; SEC Rule 19a-1; MGCL, Section 2-309(c) ]
(c)
Notwithstanding the above provisions of this Section 3.08, the Board of
Directors may at any time declare and distribute pro rata among the stockholders
a stock dividend out of the Corporation's authorized but unissued shares of
stock, including any shares previously purchased by the Corporation, provided
--------
that such dividend shall not be distributed in shares of any class with respect
to any shares of a different class. The shares so distributed shall be issued at
the par value thereof, and there shall be transferred to stated capital, at the
time such dividend is paid, an amount of surplus equal to the aggregate par
value of the shares issued as a dividend and there may be transferred from
earned surplus to capital surplus such additional amount as the Board of
Directors may determine. [ MGCL, Section 2-309 ]
Section 3.09. ANNUAL AND REGULAR MEETINGS: The annual meeting of the Board
---------------------------
of Directors for choosing officers and transacting other proper business shall
be held immediately after the annual shareholders' meeting at such place as may
be specified in the notice of such meeting of the Board of Directors, or, in the
absence of such annual shareholders' meeting, at such time and place as the
Board of Directors may provide. The Board of Directors from time to time may
provide by resolution for the holding of regular meetings and fix their time and
place (within or outside the State of Maryland). [ MGCL, Section 2-409(a) ]
(Section 3.09. Annual and Regular Meetings, as amended January 21, 1988)
---------------------------
Section 3.10. SPECIAL MEETINGS: Special meetings of the Board of Directors
----------------
shall be held whenever called by the Chairman of the Board, the President (or,
in the absence or disability of the President, by any Vice President), the
Treasurer, or two or more Directors, at the time and place (within or outside
the State of Maryland) specified in the respective notices or waivers of notice
of such meetings.
Section 3.11. NOTICE: Notice of annual, regular and special meetings,
------
stating the time and place, shall be mailed to each Director at his residence or
regular place of business or caused to be delivered to him personally or to be
transmitted to him by telegraph, cable or wireless at least two days before the
day on which the meeting is to be held. Such notice need not include a statement
of the business to be transacted at, or the purpose of, the meeting. [ MGCL,
Section 2-409(b) ]
<PAGE>
Section 3.12. WAIVER OF NOTICE: No notice of any meeting need be given to
----------------
any Director who attends such meeting in person or to any Director who waives
notice of such meeting in writing (which waiver shall be filed with the records
of such meeting), whether before or after the holding of the meeting. [ MGCL,
Section 2-409(c) ]
Section 3.13. QUORUM AND VOTING: At all meetings of the Board of Directors
-----------------
the presence of one-third of the total number of Directors authorized, but not
less than two Directors, shall constitute a quorum for the transaction of
business. In the absence of a quorum, a majority of the Directors present may
adjourn the meeting, from time to time, until a quorum shall be present. The
action of a majority of the Directors present may adjourn the meeting, from time
to time, until a quorum shall be present. The action of a majority of the
Directors present at a meeting at which a quorum is present shall be the action
of the Board of Directors unless the concurrence of a greater proportion is
required for such action by law, by the Articles of Incorporation or by these
By-Laws. [ MGCL, Section 2-408 ]
Section 3.14. CONFERENCE TELEPHONE: Members of the Board of Directors or of
--------------------
any committee designated by the Board may participate in a meeting of the Board
or of such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation by such means
shall constitute presence in person at such meeting. [ MGCL, Section 2-409(d) ]
Section 3.15. COMPENSATION: Each Director may receive such remuneration for
------------
his services as shall be fixed from time to time by resolution of the Board of
Directors.
Section 3.16. ACTION WITHOUT A MEETING: Any action required or permitted to
------------------------
be taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting if a written consent thereto is signed by all members
of the Board or of such committee and such written consent is filed with the
minutes of proceedings of the Board or committee. [ MGCL, Section 2-408(c) ]
Section 3.17. DIRECTOR EMERITUS: Upon the retirement of a Director of the
-----------------
Corporation, the Board of Directors may designate such retired Director as a
Director Emeritus. The position of Director Emeritus shall be honorary only and
shall not confer upon such Director Emeritus any responsibility, or voting
authority, whatsoever with respect to the Corporation. A Director Emeritus may,
but shall not be required to attend the meetings of the Board of Directors and
receive materials normally provided Directors relating to the Corporation. The
Board of Directors may establish such compensation as it may deem appropriate
under the circumstances to be paid by the Fund to a Director Emeritus.
(Section 3.17. Director Emeritus, as amended January 23, 1979)
-----------------
<PAGE>
ARTICLE IV
----------
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
----------------------------------------
Section 4.01. HOW CONSTITUTED: By resolution adopted by the Board of
---------------
Directors, the Board may appoint from among its members one or more committees,
including an Executive Committee, each consisting of at least two Directors.
Each member of a committee shall hold office during the pleasure of the Board.
The President shall be a member of the Executive Committee. [ MGCL, Section
2-411 ]
Section 4.02. POWERS OF THE EXECUTIVE COMMITTEE: Unless otherwise provided
---------------------------------
by resolution of the Board of Directors, the Executive Committee, in the
intervals between meetings of the Board of Directors, shall have and may
exercise all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation except the power to declare a dividend,
to issue stock, or to recommend to stockholders and action requiring
stockholders' approval. [ MGCL, Section 2-411(a) ]
Section 4.03. OTHER COMMITTEES OF THE BOARD OF DIRECTORS: To the extent
------------------------------------------
provided by resolution of the Board, other committees shall have and may
exercise any of the powers that may lawfully be granted to the Executive
Committee. [ MGCL, Section 2-411(a) ]
Section 4.04. PROCEEDINGS, QUORUM AND MANNER OF ACTING: In the absence of
----------------------------------------
appropriate resolution of the Board of Directors, each committee may adopt such
rules and regulations governing its proceedings, quorum and manner of acting as
it shall deem proper and desirable, provided that the quorum shall not be less
than two Directors. In the absence of any member of any such committee, the
members thereof present at any meeting, whether or not they constitute a quorum,
may appoint a member of the Board of Directors to act in the place of such
absent member. [ MGCL, Section 2-411(b) ]
Section 4.05. OTHER COMMITTEES: The Board of Directors may appoint other
----------------
committees, each consisting of one or more persons who need not be Directors.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the Board of Directors, but shall not
exercise any power which may lawfully be exercised only by the Board of
Directors or a committee thereof.
ARTICLE V
---------
OFFICERS
--------
Section 5.01. GENERAL: The officers of the Corporation shall be a
-------
President, one or more Vice Presidents (one or more of whom may be designated
Executive Vice President), a Secretary, and a Treasurer, and may include one or
more Assistant Secretaries, one or more Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of Section
<PAGE>
5.11 hereof. The Board of Directors may elect, but shall not be required to
elect, a Chairman of the Board. [ MGCL, Section 2-412 ]
Section 5.02. ELECTION, TERM OF OFFICE AND QUALIFICATIONS: The officers of
-------------------------------------------
the Corporation (except those appointed pursuant to Section 5.11 hereof) shall
be elected by the Board of Directors at its first meeting and thereafter at each
annual meeting of the Board. If any officer or officers are not elected at any
such meeting, such officer or officers may be elected at any subsequent regular
or special meeting of the Board. Except as provided in Sections 5.03, 5.04, and
5.05 hereof, each officer elected by the Board of Directors shall hold office
until the next annual meeting of the Board of Directors and until his successor
shall have been chosen and qualified. Any person may hold two or more offices of
the Corporation, except that neither the Chairman of the Board nor the President
may hold the office of Vice President, but no person shall execute acknowledge
or verify any instrument in more than one capacity if such instrument is
required by law, the Articles of Incorporation or these By-Laws to be executed,
acknowledged or verified by two or more officers. The Chairman of the Board and
the President shall be selected from among the Directors of the Corporation and
may hold such offices only so long as they continue to be Directors. No other
officer need be a Director. [ MGCL, Sections 2-413, 2-415 ]
(Section 5.02. Election, Term of Office and Qualifications: as amended January
--------------------------------------------
21, 1988)
Section 5.03. RESIGNATION: Any officer may resign his office at any time by
-----------
delivering a written resignation to the Board of Directors, the President, the
Secretary, or any Assistant Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
Section 5.04. REMOVAL: Any officer may be removed from office by the Board
-------
of Directors whenever in the judgment of the Board of Directors the best
interests of the Corporation will be served thereby. [ MGCL, Section 2-413(c) ]
Section 5.05. VACANCIES AND NEWLY CREATED OFFICES: If any vacancy shall
-----------------------------------
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Board of Directors at any meeting or, in
the case of any office created pursuant to Section 5.11 hereof, by any officer
upon whom such power shall have been conferred by the Board of Directors. [
MGCL, Section 2-413(d) ]
Section 5.06. CHAIRMAN OF THE BOARD: The Chairman of the Board, if there be
---------------------
such an officer, shall preside at all stockholders' meetings and at all meetings
of the Board of Directors. He may sign (unless the President or a Vice President
shall have signed) certificates representing stock of the Corporation authorized
for issuance by the Board of Directors and shall have such other powers and
perform such other duties as may be assigned to him from time to time by the
Board of Directors.
(Section 5.06. Chairman of the Board, as amended July 25, 1978)
---------------------
Section 5.07. PRESIDENT: The President shall be the chief executive and
---------
operating officer of the Corporation and, at the request of or in the absence or
disability of the Chairman of the Board or if no Chairman of the Board has been
chosen, he shall preside at all stockholders' meetings and at all meetings of
the Board of Directors and shall in general exercise the powers and perform the
duties
<PAGE>
of the Chairman of the Board. He shall be ex officio a member of all standing
----------
committees of the Board of Directors. Subject to the supervision of the Board of
Directors, he shall have general charge of the business, affairs, property and
operation of the Corporation and its officers, employees and agents. He may sign
(unless the Chairman or a Vice President shall have signed) certificates
representing stock of the Corporation authorized for issuance by the Board of
Directors. Except as the Board of Directors may otherwise order, he may sign in
the name and on behalf of the Corporation all deeds, bonds, contracts or
agreements. He shall exercise such other powers and perform such other duties as
from time to time may be assigned to him by the Board of Directors.
(Section 5.07. President, as amended July 25, 1978)
---------
Section 5.08. VICE PRESIDENT: The Board of Directors shall, from time to
--------------
time, designate and elect one or more Vice Presidents (one or more of whom may
be designated Executive Vice President) who shall have such powers and perform
such duties as from time to time may be assigned to them by the Board of
Directors or the President. At the request or in the absence or disability of
the President, the Vice President (or, if there are two or more Vice Presidents,
the Vice President in order of seniority of tenure in such office or in such
other order as the Board of Directors may determine) may perform all the duties
of the President and, when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. Any Vice President may sign
(unless the Chairman, the President or another Vice President shall have signed)
certificates representing stock of the Corporation authorized for issuance by
the Board of Directors.
Section 5.09. TREASURER AND ASSISTANT TREASURERS: The Treasurer shall be
----------------------------------
the principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation and of the performance
by the custodian of its duties with respect thereto. He may countersign (unless
an Assistant Treasurer or Secretary or Assistant Secretary shall have
countersigned) certificates representing stock of the Corporation authorized for
issuance by the Board of Directors. He shall render to the Board of Directors,
whenever directed by the Board, an account of the financial condition of the
Corporation and of all his transactions as Treasurer; and as soon as possible
after the close of each fiscal year he shall make and submit to the Board of
Directors a like report for such fiscal year. He shall cause to be prepared
annually a full and correct statement of the affairs of the Corporation,
including a balance sheet and a financial statement of operations for the
preceding fiscal year, which shall be submitted at the annual meeting of
stockholders and filed within 20 days thereafter at the principal office of the
Corporation. He shall perform all the acts incidental to the office of
Treasurer, subject to the control of the Board of Directors. Any Assistant
Treasurer may perform such duties of the Treasurer as the Treasurer or the Board
of Directors may assign, and, in the absence of the Treasurer, he may perform
all the duties of the Treasurer.
Section 5.10. SECRETARY AND ASSISTANT SECRETARIES: The Secretary shall
-----------------------------------
attend to the giving and serving of all notices of the Corporation and shall
record all proceedings of the meetings of the stockholders and Directors in one
or more books to be kept for that purpose. He shall keep in safe custody the
seal of the Corporation and shall have charge of the records of the Corporation,
including the stock books and such other books and papers as the Board of
Directors may direct and such books, reports, certificates and other documents
required by law to be kept, all of which shall at all reasonable times be open
to inspection by any Director. He shall countersign (unless the
<PAGE>
Treasurer, an Assistant Treasurer or an Assistant Secretary shall have
countersigned) certificates representing stock of the Corporation authorized for
issuance by the Board of Directors. He shall perform such other duties as
appertain to his office or as may be required by the Board of Directors. Any
Assistant Secretary may perform such duties of the Secretary as the Secretary or
the Board of Directors may assign, and, in the absence of the Secretary, he may
perform all the duties of the Secretary.
Section 5.11. SUBORDINATE OFFICERS: The Board of Directors from time to
--------------------
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties. [ MGCL, Section
2-412(b) ]
Section 5.12. REMUNERATION: The salaries or other compensation of the
------------
officers of the Corporation shall be fixed from time to time by resolution of
the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 5.11 hereof.
ARTICLE VI
----------
CUSTODY OF SECURITIES AND CASH
------------------------------
Section 6.01. EMPLOYMENT OF A CUSTODIAN: The Corporation shall place and at
-------------------------
all times maintain in the custody of a Custodian (including any sub-custodian
for the Custodian) all funds, securities and similar investments owned by the
Corporation. The Custodian (and any sub-custodian) shall be a bank having an
aggregate capital, surplus and undivided profits of not less than $10,000,000.
The Custodian shall be appointed and its remuneration fixed by the Board of
Directors. [ Investment Company Act, Section 17(f) ]
Section 6.02. CENTRAL CERTIFICATE SERVICE: Subject to such rules,
---------------------------
regulations and orders as the Securities and Exchange Commission may adopt as
necessary or appropriate for the protection of investors, the Corporation's
Custodian may deposit all or any part of the securities owned by the Corporation
in a system for the central handling of securities established by a national
securities exchange or national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, pursuant to which system all securities of
any particular class or series of any issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of such securities. [ Investment Company Act, Section
17(f) ]
Section 6.03. CASH ASSETS: The cash proceeds from the sale of securities
-----------
and similar investments and other cash assets of the Corporation shall be kept
in the custody of a bank or banks appointed pursuant to Section 6.01 hereof, or
in accordance with such rules and regulations or orders as the Securities and
Exchange Commission may from time to time prescribe for the protection of
<PAGE>
investors, except that the Corporation may maintain a checking account in a bank
or banks, each having an aggregate capital, surplus and undivided profits of not
less than $10,000,000, provided that the balance of such account or the
--------
aggregate balances of such accounts shall at no time exceed the amount of the
fidelity bond, maintained pursuant to the requirements of the Investment Company
Act of 1940 and rules and regulations thereunder, covering the officers or
employees authorized to draw on such account or accounts. [ Investment Company
Act, Section 17(f) ]
Section 6.04. FREE CASH ACCOUNTS: The Corporation may, upon resolution of
------------------
its Board of Directors, maintain a petty cash account free of the foregoing
requirements of this Article VI in an amount not to exceed $500, provided that
--------
such account is operated under the imprest system and is maintained subject to
adequate controls approved by the Board of Directors over disbursements and
reimbursements including, but not limited to, fidelity bond coverage for persons
having access to such funds. [ Investment Company Act, Rule 17f-3 ]
Section 6.05. ACTION UPON TERMINATION OF CUSTODIAN AGREEMENT: Upon
----------------------------------------------
resignation of a custodian of the Corporation or inability of a custodian to
continue to serve, the Board of Directors shall promptly appoint a successor
custodian, but in the event that no successor custodian can be found who has the
required qualifications and is willing to serve, the Board of Directors shall
call as promptly as possible a special meeting of the stockholders to determine
whether the Corporation shall function without a custodian or shall be
liquidated. If so directed by vote of the holders of a majority of the
outstanding shares of stock of the Corporation, the custodian shall deliver and
pay over all property of the Corporation held by it as specified in such vote.
ARTICLE VII
-----------
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
----------------------------------------------
Section 7.01. EXECUTION OF INSTRUMENTS: All deeds, documents, transfers,
------------------------
contracts, agreements, requisitions or orders, promissory notes, assignments,
endorsements, checks and drafts for the payment of money by the Corporation, and
other instruments requiring execution by the Corporation shall be signed by the
Chairman, the President, a Vice President, or the Treasurer, or as the Board of
Directors may otherwise, from time to time, authorize. Any such authorization
may be general or confined to specific instances.
Section 7.02. VOTING OF SECURITIES: Unless otherwise ordered by the Board
--------------------
of Directors, the Chairman, the President or any Vice President shall have full
power and authority on behalf of the Corporation to attend and to act and to
vote, or in the name of the Corporation to execute proxies to vote, at any
meeting of stockholders of any company in which the Corporation may hold stock.
At any such meeting such officer shall possess and may exercise (in person or by
proxy) any and all rights, powers and privileges incident to the ownership of
such stock. The Board of Directors may by resolution from time to time confer
like powers upon any other person or persons. [ MGCL, Section 2-509 ]
<PAGE>
ARTICLE VIII
------------
CAPITAL STOCK
-------------
Section 8.01. OWNERSHIP OF SHARES:
--------------------
(a)
Certificates certifying the ownership of shares will not be issued for shares
purchased or otherwise acquired after July 1, 1991. The ownership of shares,
full or fractional, shall be recorded on the books of the Corporation or its
agent. The record books of the Corporation as kept by the Corporation or its
agent, as the case may be, shall be conclusive as to the number of shares held
from time to time by each such shareholder. The Corporation reserves the right
to require the surrender of outstanding certificates if the Board of Directors
so determines. [ MGCL, Section 2-210(c) ]
(b)
Every certificate exchanged, surrendered for redemption or otherwise returned to
the Corporation shall be marked "Cancelled" with the date of cancellation.
(Section 8.01. Ownership of Shares, as amended July 1, 1991)
-------------------
Section 8.02. TRANSFER OF CAPITAL STOCK:
-------------------------
(a)
Shares of stock of the Corporation shall be transferable only upon the books of
the Corporation kept for such purpose and, if one or more certificates
representing such shares have been issued, upon surrender to the Corporation or
its transfer agent or agents of such certificate or certificates duly endorsed
or accompanied by appropriate evidence of assignment, transfer, succession or
authority to transfer.
(b)
The Corporation shall be entitled to treat the holder of record of any share of
stock as the absolute owner thereof for all purposes, and accordingly shall not
be bound to recognize any legal, equitable or other claim or interest in such
share on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise expressly provided by the statutes of
the State of Maryland.
Section 8.03. TRANSFER AGENTS AND REGISTRARS: The Board of Directors may,
------------------------------
from time to time, appoint or remove transfer agents and registrars of transfers
of shares of stock of the Corporation, and it may appoint the same person as
both transfer agent and registrar.
(Section 8.03. Transfer Agents and Registrars, as amended July 1, 1991)
------------------------------
Section 8.04. TRANSFER REGULATIONS: The shares of stock of the Corporation
--------------------
may be freely transferred, and the Board of Directors may, from time to time,
adopt lawful rules and regulations with reference to the method of transfer of
the shares of stock of the Corporation.
Section 8.05. FIXING OF RECORD DATE: The Board of Directors may fix in
---------------------
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in
<PAGE>
writing without a meeting, or to receive payment of any dividend or other
distribution or allotment of any rights, or to exercise any rights in respect of
any change, conversion or exchange of stock, or for any other proper purpose,
provided that such record date shall be a date not more than 60 days nor, in the
- --------
case of a meeting of stockholders, less than 10 days prior to the date on which
the particular action, requiring such determination of stockholders, is to be
taken. In such case, only such stockholders as shall be stockholders of record
on the record date so fixed shall be entitled to such notice of, and to vote at,
such meeting or adjournment, or to give such consent, or to receive payment of
such dividend or other distribution, or to receive such allotment of rights, or
to exercise such rights, or to take other action, as the case may be,
notwithstanding any transfer of any shares on the books of the Corporation after
any such record date. [ MGCL, Section 2-511 ]
Section 8.06. LOST, STOLEN OR DESTROYED CERTIFICATES: If a certificate for
--------------------------------------
stock of the Corporation is alleged to have been lost, stolen or destroyed, no
new certificate will be issued. Instead, ownership of the shares formerly
represented by the lost, stolen or destroyed certificate shall be recorded on
the books of the Corporation or its agent, in accordance with the provisions of
Section 8.01 of these By-Laws. Before recording ownership of such shares, the
Board of Directors, or any officer authorized by the Board, may, in its
discretion, require the owner of the lost, stolen, or any destroyed certificate
(or his legal representative) to give the Corporation a bond or other indemnity,
in such form and in such amount as the Board or any such officer may direct and
with such surety or sureties as may be satisfactory to the Board or any such
officer, sufficient to indemnify the Corporation against any claim that may be
made against it on account of the alleged loss, theft, or destruction of any
such certificate. [ MGCL, Section 2-213 ]
(Section 8.06. Lost, Stolen or Destroyed Certificates, as amended July 1, 1991)
--------------------------------------
ARTICLE IX
----------
FISCAL YEAR, ACCOUNTANT
-----------------------
Section 9.01. FISCAL YEAR: The fiscal year of the Corporation shall be the
-----------
twelve (12) calendar months beginning on the 1st day of June in each year and
ending on the last day of the following May, or such other period of twelve (12)
calendar months as the Board of Directors may by resolution prescribe.
(Section 9.01. Fiscal Year, as amended January 1, 1983 and January 18, 1994.)
-----------
Section 9.02. ACCOUNTANT:
----------
(a)
The Corporation shall employ an independent public accountant or firm of
independent public accountants as its accountant to examine the accounts of the
Corporation and to sign and certify financial statements filed by the
Corporation. The accountant's certificates and reports shall be addressed both
to the Board of Directors and to the stockholders.
(b)
A majority of the members of the Board of Directors who are not interested
persons (as such term is defined in the Investment Company Act of 1940, as
amended) of the
<PAGE>
Corporation shall select the accountant, by vote cast in person, at any meeting
held before the first annual stockholders' meeting, and thereafter shall select
the accountant annually, by vote cast in person, at a meeting held within 30
days before or after the beginning of the fiscal year of the Corporation or 30
days before the annual stockholders' meeting in that year. Such selection shall
be submitted for ratification or rejection at the next succeeding annual
stockholders' meeting. If such meeting shall reject such selection, the
accountant shall be selected by majority vote of the Corporation's outstanding
voting securities, either at the meeting at which the rejection occurred or at a
subsequent meeting of stockholders called for the purpose.
(c)
Any vacancy occurring between annual meetings, due to the death or resignation
of the accountant, may be filled by the vote of a majority of those members of
the Board of Directors who are not interested persons (as so defined) of the
Corporation, cast in person at a meeting called for the purpose of voting on
such action.
(d)
The employment of the accountant shall be conditioned upon the right of the
Corporation by vote of a majority of the outstanding voting securities at any
meeting called for the purpose to terminate such employment forthwith without
any penalty. [ Investment Company Act, (S)32(a) ]
ARTICLE X
---------
INDEMNIFICATION AND INSURANCE
-----------------------------
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 applicable Maryland
law, as from time to time amended. 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 advance payment
may be lawful under applicable Maryland law, as from time to time amended.
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 applicable Maryland law, as from time to time amended.
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").
<PAGE>
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, 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:
(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. 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 of 1940, 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. [ MGCL, Section 2-418(k) ]
(ARTICLE X, INDEMNIFICATION AND INSURANCE as amended January 20, 1982)
-----------------------------
<PAGE>
ARTICLE XI
----------
AMENDMENTS
----------
Section 11.01. GENERAL: Except as provided in Section 11.02 hereof, all
-------
By-Laws of the Corporation, whether adopted by the Board of Directors or the
stockholders, shall be subject to amendment, alteration, or repeal, and new
By-Laws may be made, by the affirmative vote of a majority of either:
(a)
the holders of record of the outstanding shares of stock of the Corporation
entitled to vote, at any annual or special meeting the notice or waiver of
notice of which shall have specified or summarized the proposed amendment,
alteration, repeal, or new By-Law; or
(b)
the Directors present at any regular or special meeting at which a quorum is
present if the notice or waiver of notice thereof or material sent to the
Directors in connection therewith on or prior to the last date for the giving of
such notice under these By-Laws shall have specified or summarized the proposed
amendment, alteration, repeal, or new By-Law.
Section 11.02. BY STOCKHOLDERS ONLY:
--------------------
(a)
No amendment of any section of these By-Laws shall be made except by the
stockholders of the Corporation if the stockholders shall have provided in the
By-Laws that such section may not be amended, altered, or repealed except by the
stockholders.
(b)
From and after the issue of any shares of the Capital Stock of the Corporation,
no amendment of this Article XI shall be made except by the stockholders of the
Corporation.
ARTICLE XII
-----------
MISCELLANEOUS
-------------
Section 12.01. USE OF THE TERM "ANNUAL MEETING": The use of the term
--------------------------------
"annual meeting" in these By-Laws shall not be construed as implying a
requirement that a shareholder meeting be held annually.
(ARTICLE XII, MISCELLANEOUS as added January 21, 1988)
-------------
The Custodian Agreement dated January 28, 1998, as amended, between State
Street Bank and Trust Company and T. Rowe Price Funds.
<PAGE>
CUSTODIAN AGREEMENT
THIS AGREEMENT is made as of January 28, 1998 by and between each entity
set forth on Appendix A hereto (as such Appendix A may be amended from time to
time) which executes a copy of this Agreement (each referred to herein as the
"FUND"), and State Street Bank and Trust Company, a Massachusetts trust company
with its principal place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "CUSTODIAN").
WITNESSETH:
WHEREAS, each Fund desires to retain the Custodian to act as custodian of
certain of the assets of the Fund, and the Custodian is willing to provide such
services to each Fund, upon the terms and conditions hereinafter set forth; and
WHEREAS, except as otherwise set forth herein, this Agreement is intended
to supersede that certain custodian contract among the parties hereto dated
September 28, 1987, as amended; and
WHEREAS, the Funds have retained CHASE MANHATTAN BANK, N.A. to act as the
Funds' custodian with respect to the assets of each such Fund to be held outside
of the United States of America (except as otherwise set forth in this
Agreement) pursuant to a written custodian agreement (the "FOREIGN CUSTODIAN
AGREEMENT"),
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, each of the parties hereto agrees as follows:
SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT.
Each Fund hereby employs the Custodian as the custodian of certain of its
assets, including those securities it desires to be held within the United
States of America ("DOMESTIC SECURITIES") and those securities it desires to be
held outside the United States of America (the "UNITED STATES") which are (i)
not held on the Funds' behalf by CHASE MANHATTAN BANK, N.A. pursuant to the
Foreign Custodian Agreement and (ii) described with greater particularity in
Section 3 hereof (such securities shall be referred to herein as "FOREIGN
SECURITIES"). Each Fund agrees to deliver to the Custodian all domestic
securities, foreign securities and cash owned by it from time to time, and all
payments of income, payments of principal or capital distributions received by
it with respect to
<PAGE>
securities held by it hereunder, and the cash consideration received by it for
such new or treasury shares of capital stock of each Fund as may be issued or
sold from time to time ("SHARES"). The Custodian shall not be responsible for
any property of any Fund held or received by such Fund (i) not delivered to the
Custodian, or (ii) held in the custody of CHASE MANHATTAN BANK N.A.
The Custodian is authorized to employ one or more sub-custodians located
within the United States, provided that the Custodian shall have obtained the
written acknowledgment of the Fund with respect to such employment. The
Custodian is authorized to employ sub-custodians located outside the United
States as noted on Schedule A attached hereto (as such Schedule A may be amended
from time to time). The Custodian shall have no more or less responsibility or
liability to any Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian and
shall not release any sub-custodian from any responsibility or liability unless
so agreed in writing by the Custodian and the applicable Fund. With the
exception of State Street Bank and Trust Company (London branch), the Custodian
shall not be liable for losses arising from the bankruptcy, insolvency or
receivership of any sub-custodian located outside the United States.
SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUNDS HELD
BY THE CUSTODIAN IN THE UNITED STATES.
SECTION 2.1
HOLDING SECURITIES. The Custodian shall hold and physically segregate for the
account of each Fund all non-cash property to be held by it in the United
States, including all domestic securities owned by the Fund other than (a)
securities which are maintained pursuant to Section 2.9 in a clearing agency
which acts as a securities depository or in a book-entry system authorized by
the United States Department of the Treasury and certain federal agencies (each,
a "U.S. SECURITIES SYSTEM") and (b) commercial paper of an issuer for which the
Custodian acts as issuing and paying agent ("DIRECT PAPER") which is deposited
and/or maintained in the Direct Paper system of the Custodian (the "DIRECT PAPER
SYSTEM") pursuant to Section 2.10.
SECTION 2.2
DELIVERY OF INVESTMENTS. The Custodian shall release and deliver domestic
investments owned by a Fund held by the Custodian or in a U.S. Securities System
account of the Custodian or in the Custodian's Direct Paper System account
("DIRECT PAPER SYSTEM ACCOUNT") only upon receipt of Proper Instructions, which
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
may be continuing instructions when agreed to by the parties, and only in the
following cases:
1)Upon sale of such investments for the account of the Fund and
receipt of payment therefor;
2)Upon the receipt of payment in connection with any repurchase
agreement related to such investments entered into by the Fund;
3)
In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.9 hereof;
4)
To the depository agent in connection with tender or other similar
offers for portfolio investments of the Fund;
5)
To the issuer thereof or its agent when such investments are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6)
To the issuer thereof, or its agent, for transfer into the name of
the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.8 or into the name or nominee name of any
sub-custodian appointed pursuant to Section 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7)
Upon the sale of such investments for the account of the Fund, to
the broker or its clearing agent, against a receipt, for examination
in accordance with usual "street delivery" custom; provided that in
any such case the Custodian shall have no responsibility or
liability for any loss arising from the delivery of such investments
prior to receiving payment for such investments except as may arise
from the Custodian's own negligence or willful misconduct;
<PAGE>
8)For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the investments of the issuer of such investments, or pursuant to
provisions for conversion contained in such investments, or pursuant
to any deposit agreement; provided that, in any such case, the new
investments and cash, if any, are to be delivered to the Custodian;
9)In the case of warrants, rights or similar investments, the
surrender thereof in the exercise of such warrants, rights or
similar investments or the surrender of interim receipts or
temporary investments for definitive investments; provided that, in
any such case, the new investments and cash, if any, are to be
delivered to the Custodian or against a receipt;
10)
For delivery in connection with any loans of investments made on
behalf of the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Fund or its duly-appointed
agent (which may be in the form of cash or obligations issued by the
United States government, its agencies or instrumentalities, or such
other property as the Fund may agree), except that in connection
with any loans for which collateral is to be credited to the
Custodian's account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will not be held liable or
responsible for the delivery of investments owned by the Fund prior
to the receipt of such collateral in the absence of the Custodian's
negligence or willful misconduct;
11)
For delivery as security in connection with any borrowing by the
Fund requiring a pledge of assets by the Fund, but only against
receipt of amounts borrowed, except where additional collateral is
required to secure a borrowing already made, subject to Proper
Instructions, further securities may be released and delivered for
that purpose;
12)
For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and a
member of The National Association of Securities Dealers, Inc.
("NASD"),
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
relating to compliance with the rules of The Options Clearing
Corporation, the rules of any registered national securities
exchange or of any similar organization or organizations, or under
the Investment Company Act of 1940, as amended from time to time
(the "1940 ACT"), regarding escrow or other arrangements in
connection with transactions by the Fund;
13)
For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or
any Contract Market, or any similar organization or organizations,
or under the 1940 Act, regarding account deposits in connection with
transactions by the Fund;
14)
Upon receipt of instructions from the transfer agent for the Fund
(the "TRANSFER AGENT"), for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind, as
may be described from time to time in the Fund's currently effective
prospectus, statement of additional information or other offering
documents (all, as amended, supplemented or revised from time to
time, the "PROSPECTUS"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15)
For any other purpose, but only upon receipt of Proper Instructions
specifying (a) the investments to be delivered, (b) setting forth
the purpose for which such delivery is to be made, and (c) naming
the person or persons to whom delivery of such investments shall be
made.
SECTION 2.3
REGISTRATION OF INVESTMENTS. Domestic investments held by the Custodian (other
than bearer securities) shall be registered in the name of the Fund or in the
name of any nominee of the Fund or of any nominee of the Custodian which nominee
shall be assigned exclusively to the Fund, unless the Fund has authorized in
writing the appointment of a nominee to be used in common with other registered
investment companies having the same investment adviser as the Fund, or in the
name or nominee name of any agent appointed pursuant to Section 2.8 or in the
name or nominee name of any sub-custodian appointed pursuant to Section 1. All
securities accepted by the Custodian on behalf of the Fund under the terms of
<PAGE>
this Agreement shall be in good deliverable form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund of relevant corporate actions including,
without limitation, pendency of calls, maturities, tender or exchange offers.
SECTION 2.4
BANK ACCOUNTS. The Custodian shall open and maintain a separate bank account or
accounts in the United States in the name of the Fund, subject only to draft or
order by the Custodian acting pursuant to the terms of this Agreement, and shall
hold in such account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of the Fund, other than cash maintained
by the Fund in a bank account established and used in accordance with Rule 17f-3
under the 1940 Act. Monies held by the Custodian for the Fund may be deposited
by the Custodian to its credit as custodian in the banking department of the
Custodian or in such other banks or trust companies as it may in its discretion
deem necessary or desirable in the performance of its duties hereunder;
provided, however, that every such bank or trust company shall be qualified to
act as a custodian under the 1940 Act, and that each such bank or trust company
and the funds to be deposited with each such bank or trust company shall be
approved by vote of a majority of the board of directors or the board of
trustees of the applicable Fund (as appropriate and in each case, the "BOARD").
Such funds shall be deposited by the Custodian in its capacity as custodian and
shall be withdrawable by the Custodian only in that capacity.
SECTION 2.5
COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the Custodian
shall collect on a timely basis all income and other payments with respect to
United States registered investments held hereunder to which the Fund shall be
entitled either by law or pursuant to custom in the investments business, and
shall collect on a timely basis all income and other payments with respect to
United States bearer investments if, on the date of payment by the issuer, such
investments are held by the Custodian or its agent thereof and shall credit such
income, as collected, to the Fund's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for payment
all coupons and other income items requiring presentation as and when they
become due, collect interest when due on investments held hereunder, and receive
and collect all stock dividends, rights and other items of like nature as and
when they become due and payable. With respect to income due the Fund on United
States investments of the Fund loaned (pursuant to the provisions of Section 2.2
(10))
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
in accordance with a separate agreement between the Fund and the Custodian in
its capacity as lending agent, collection thereof shall be in accordance with
the terms of such agreement. Except as otherwise set forth in the immediately
preceding sentence, income due the Fund on United States investments of the Fund
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund; the Custodian will have no duty or responsibility in
connection therewith other than to provide the Fund with such information or
data as may be necessary to assist the Fund in arranging for the timely delivery
to the Custodian of the income to which the Fund is properly entitled.
SECTION 2.6
PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be
continuing instructions when agreed to by the parties, the Custodian shall, from
monies of the Fund held by the Custodian, pay out such monies in the following
cases only:
1)Upon the purchase of domestic investments, options, futures
contracts or options on futures contracts for the account of the
Fund but only (a) against the delivery of such investments, or
evidence of title to such options, futures contracts or options on
futures contracts, to the Custodian (or any bank, banking firm or
trust company doing business in the United States or abroad which is
qualified under the 1940 Act to act as a custodian and has been
designated by the Custodian as its agent for this purpose in
accordance with Section 2.8) registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a purchase
effected through a U.S. Securities System, in accordance with the
conditions set forth in Section 2.9 hereof; (c) in the case of a
purchase involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10 hereof; or (d) for transfer to
a time deposit account of the Fund in any bank, whether domestic or
foreign, such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant to
Proper Instructions;
2)
In connection with conversion, exchange or surrender of investments
owned by the Fund as set forth in Section 2.2 hereof;
<PAGE>
3)
For the redemption or repurchase of Shares as set forth in Section 4
hereof;
4)
For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account
of the Fund: interest, taxes, management fees, accounting fees,
transfer agent fees, legal fees, and operating expenses of the Fund
(whether or not such expenses are to be in whole or part capitalized
or treated as deferred expenses);
5) For the payment of any dividends declared by the Board;
6)For payment of the amount of dividends received in respect of
investments sold short;
7)
For repayment of a loan upon redelivery of pledged securities and
upon surrender of the note(s), if any, evidencing the loan; or
8)
In connection with any repurchase agreement entered into by the Fund
with respect to which the collateral is held by the Custodian, the
Custodian shall act as the Fund's "securities intermediary"( as that
term is defined in Part 5 of Article 8 of the Massachusetts Uniform
Commercial Code, as amended), and, as securities intermediary, the
Custodian shall take the following steps on behalf of the Fund: (a)
provide the Fund with notification of the receipt of the purchased
securities, and (b), by book-entry identify on the books of the
Custodian as belonging to the Fund uncertificated securities
registered in the name of the Fund and held in the Custodian's
account at the Federal Reserve Bank. In connection with any
repurchase agreement entered into by the Fund with respect to which
the collateral is not held by the Custodian, the Custodian shall (a)
provide the Fund with such notification as it may receive with
respect to such collateral, and (b), by book-entry or otherwise,
identify as belonging to the Fund securities as shown in the
Custodian's account on the books of the entity appointed by the Fund
to hold such collateral.
9)
For any other purpose, but only upon receipt of Proper Instructions
specifying (a) the amount of such payment,
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
(b) setting forth the purpose for which such payment is to be made,
and (c) naming the person or persons to whom such payment is to be
made.
SECTION 2.7
LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. In any
and every case where payment for purchase of domestic securities for the
account of the Fund is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from the
Fund to so pay in advance, the Custodian shall be absolutely liable to the Fund
for such securities to the same extent as if the securities had been received by
the Custodian.
SECTION 2.8
APPOINTMENT OF AGENTS. The Custodian may at any time or times in its discretion
appoint (and may at any time remove) any other bank or trust company, which is
itself qualified under the 1940 Act to act as a custodian, as its agent to carry
out such of the provisions of this Section 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any such agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
SECTION 2.9
DEPOSIT OF INVESTMENTS IN U.S. SECURITIES SYSTEMS. The Custodian may deposit
and/or maintain domestic investments owned by the Fund in a U.S. Securities
System in accordance with applicable Federal Reserve Board and United States
Securities and Exchange Commission ("SEC") rules and regulations, if any,
subject to the following provisions:
1)
The Custodian may keep domestic investments of the Fund in a U.S.
Securities System provided that such investments are represented in
an account of the Custodian in the U.S. Securities System
("ACCOUNT") which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise for
customers;
2)
The records of the Custodian with respect to domestic investments of
the Fund which are maintained in a U.S. Securities System shall
identify by book-entry those investments belonging to the Fund;
3)
The Custodian shall pay for domestic investments purchased for the
account of the Fund upon (i) receipt of advice from the U.S.
Securities System that such investments have been transferred to the
Account, and
<PAGE>
(ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Fund. The
Custodian shall transfer domestic investments sold for the account
of the Fund upon (i) receipt of advice from the U.S. Securities
System that payment for such investments has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the U.S. Securities System of
transfers of domestic investments for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Custodian and
be provided to the Fund at its request. Upon request, the Custodian
shall furnish the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or notice and
shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities System for
the account of the Fund;
4)
The Custodian shall provide the Fund with any report obtained by the
Custodian on the U.S. Securities System's accounting system,
internal accounting control and procedures for safeguarding domestic
investments deposited in the U.S. Securities System;
5)
The Custodian shall have received from the Fund the initial or
annual certificate, as the case may be, described in Section 10
hereof; and
6)
Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the U.S. Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any of
its agents or of any of its or their employees, or from failure of
the Custodian or any such agent to enforce effectively such rights
as it may have against the U.S. Securities System. At the election
of the Fund, the Fund shall be entitled to be subrogated to the
rights of the Custodian with respect to any claim against the U.S.
Securities System or any other person which the Custodian may have
as a consequence of any such loss, expense or damage if and to the
extent that
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<PAGE>
the Fund has not been made whole for any such loss, expense or
damage.
SECTION 2.10
FUND ASSETS HELD IN THE DIRECT PAPER SYSTEM. The Custodian may deposit and/or
maintain investments owned by the Fund in the Direct Paper System subject to the
following provisions:
1)
No transaction relating to investments in the Direct Paper System
will be effected in the absence of Proper Instructions;
2)
The Custodian may keep investments of the Fund in the Direct Paper
System only if such investments are represented in the Direct Paper
System Account, which account shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
3)
The records of the Custodian with respect to investments of the Fund
which are maintained in the Direct Paper System shall identify by
book-entry those investments belonging to the Fund;
4)
The Custodian shall pay for investments purchased for the account of
the Fund upon the making of an entry on the records of the Custodian
to reflect such payment and transfer of investments to the account
of the Fund. The Custodian shall transfer investments sold for the
account of the Fund upon the making of an entry on the records of
the Custodian to reflect such transfer and receipt of payment for
the account of the Fund;
5)
The Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund, in the form of a written advice
or notice, of Direct Paper on the next business day following such
transfer and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transaction in the Direct Paper System
for the account of the Fund; and
6)
The Custodian shall provide the Fund with any report on its system
of internal accounting control as the Fund may reasonably request
from time to time.
SECTION 2.11
SEGREGATED ACCOUNT. The Custodian shall, upon receipt of Proper Instructions,
establish and maintain a segregated
<PAGE>
account or accounts for and on behalf of the Fund, into which account or
accounts may be transferred cash and/or investments, including investments
maintained in an account by the Custodian pursuant to Section 2.10 hereof, (i)
in accordance with the provisions of any agreement among the Fund, the Custodian
and a broker-dealer registered under the Exchange Act and a member of the NASD
(or any futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or government investments in connection with options purchased, sold or written
by the Fund or commodity futures contracts or options thereon purchased or sold
by the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by 1940 Act Release No. 10666, or any other procedures
subsequently required under the 1940 Act relating to the maintenance of
segregated accounts by registered investment companies, and (iv) for other
purposes, but only, in the case of clause (iv) upon receipt of Proper
Instructions specifying (a) the investments to be delivered, (b) setting forth
the purpose for which such delivery is to be made, and (c) naming the person or
persons to whom delivery of such investments shall be made.
SECTION 2.12
OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute ownership
and other certificates and affidavits for all United States federal and state
tax purposes in connection with receipt of income or other payments with respect
to domestic investments of the Fund held by it hereunder and in connection with
transfers of such investments.
SECTION 2.13
PROXIES. The Custodian shall, with respect to the domestic investments held
hereunder, cause to be promptly executed by the registered holder of such
investments, if the investments are registered otherwise than in the name of the
Fund or a nominee of the Fund, all proxies without indication of the manner in
which such proxies are to be voted, and shall promptly deliver to the Fund such
proxies, all proxy soliciting materials received by the Custodian and all
notices received relating to such investments.
SECTION 2.14
COMMUNICATIONS RELATING TO FUND INVESTMENTS. Subject to the provisions of
Section 2.3, the Custodian shall transmit promptly to the Fund all written
information (including, without limitation, pendency of calls and maturities of
domestic investments and expirations of rights in connection therewith and
notices of
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<PAGE>
exercise of call and put options written by the Fund and the maturity of futures
contracts purchased or sold by the Fund) received by the Custodian in connection
with the domestic investments being held for the Fund pursuant to this
Agreement. With respect to tender or exchange offers, the Custodian shall
transmit to the Fund all written information received by the Custodian, any
agent appointed pursuant to Section 2.8 hereof, or any sub-custodian appointed
pursuant to Section 1 hereof, from issuers of the domestic investments whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Fund desires to take action with respect to
any tender offer, exchange offer or any other similar transaction, the Fund
shall notify the Custodian at least two (2) New York Stock Exchange business
days prior to the time such action must be taken under the terms of the tender,
exchange offer or other similar transaction, and it will be the responsibility
of the Custodian to timely transmit to the appropriate person(s) such notice.
Where the Fund provides the Custodian with less than two (2) New York Stock
Exchange business days notice of its desired action, the Custodian shall use its
best efforts to timely transmit the Fund's notice to the appropriate person. It
is expressly noted that the parties may agree to alternative procedures with
respect to such two (2) New York Stock Exchange business days notice period on a
selective and individual basis.
SECTION 2.15
REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. The Custodian shall provide
the Fund, at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding investments, futures contracts and
options on futures contracts, including domestic investments deposited and/or
maintained in a U.S. Securities System, relating to the services provided by the
Custodian under this Agreement. Such reports shall be of sufficient scope and
detail, as may reasonably be required by the Fund, to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and if there are no such inadequacies the reports shall so state.
SECTION 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO CERTAIN PROPERTY OF THE
FUNDS HELD OUTSIDE OF THE UNITED STATES
SECTION 3.1
DEFINITIONS. The following capitalized terms shall have the respective following
meanings:
"FOREIGN SECURITIES SYSTEM" means a clearing agency or a securities depository
listed on Schedule A hereto.
<PAGE>
"FOREIGN SUB-CUSTODIAN" means a foreign banking institution set forth on
Schedule A hereto.
SECTION 3.2
HOLDING SECURITIES. The Custodian shall identify on its books as belonging to
the Funds the foreign securities held by each Foreign Sub-Custodian or Foreign
Securities System. The Custodian may hold foreign securities for all of its
customers, including the Funds, with any Foreign Sub-Custodian in an account
that is identified as belonging to the Custodian for the benefit of its
customers, provided however, that (i) the records of the Custodian with respect
to foreign securities of the Funds which are maintained in such account shall
identify those securities as belonging to the Funds and (ii) the Custodian shall
require that securities so held by the Foreign Sub-Custodian be held separately
from any assets of such Foreign Sub-Custodian or of other customers of such
Foreign Sub-Custodian.
SECTION 3.3
FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a Foreign
Securities System in a designated country only through arrangements implemented
by the Foreign Sub-Custodian in such country pursuant to the terms of this
Agreement.
SECTION 3.4 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
3.4.1.
Delivery of Foreign Securities. The Custodian or a Foreign Sub-Custodian shall
- -------- -- ------- -----------
release and deliver foreign securities of the Funds held by such Foreign
Sub-Custodian, or in a Foreign Securities System account, only upon receipt of
Proper Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(i)
upon the sale of such foreign securities for the Funds in accordance
with reasonable market practice in the country where such foreign
securities are held or traded, including, without limitation: (A)
delivery against expectation of receiving later payment; or (B) in
the case of a sale effected through a Foreign Securities System in
accordance with the rules governing the operation of the Foreign
Securities System;
(ii)
in connection with any repurchase agreement related to foreign
securities;
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<PAGE>
(iii)
to the depository agent in connection with tender or other similar
offers for foreign securities of the Funds;
(iv)
to the issuer thereof or its agent when such foreign securities are
called, redeemed, retired or otherwise become payable;
(v)
to the issuer thereof, or its agent, for transfer into the name of
the Custodian (or the name of the respective Foreign Sub-Custodian
or of any nominee of the Custodian or such Foreign Sub-Custodian)
or for exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or number
of units;
(vi)
to brokers, clearing banks or other clearing agents for examination
or trade execution in accordance with market custom; provided that
in any such case the Foreign Sub-Custodian shall have no
responsibility or liability for any loss arising from the delivery
of such securities prior to receiving payment for such securities
except as may arise from the Foreign Sub-Custodian's own negligence
or willful misconduct;
(vii)for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement;
(viii)
in the case of warrants, rights or similar foreign securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or temporary
securities for definitive securities;
(ix)
or delivery as security in connection with any borrowing by the
Funds requiring a pledge of assets by the Funds;
(x)in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
<PAGE>
(xi) in connection with the lending of foreign securities; and
(xii)
for any other proper purpose, but only upon receipt of Proper
Instructions specifying the foreign securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper Fund purpose, and naming the
person or persons to whom delivery of such securities shall be made.
3.4.2.
Payment of Fund Monies. Upon receipt of Proper Instructions, which may be
- ------- -- ---- -------
continuing instructions when deemed appropriate by the parties, the Custodian
shall pay out, or direct the respective Foreign Sub-Custodian or the respective
Foreign Securities System to pay out, monies of a Fund in the following cases
only:
(i)upon the purchase of foreign securities for the Fund, unless
otherwise directed by Proper Instructions, by (A) delivering money
to the seller thereof or to a dealer therefor (or an agent for such
seller or dealer) against expectation of receiving later delivery of
such foreign securities; or (B) in the case of a purchase effected
through a Foreign Securities System, in accordance with the rules
governing the operation of such Foreign Securities System;
(ii)
in connection with the conversion, exchange or surrender of foreign
securities of the Fund;
(iii)
for the payment of any expense or liability of the Fund, including
but not limited to the following payments: interest, taxes,
investment advisory fees, transfer agency fees, fees under this
Agreement, legal fees, accounting fees, and other operating
expenses;
(iv)
for the purchase or sale of foreign exchange or foreign exchange
contracts for the Fund, including transactions executed with or
through the Custodian or its Foreign Sub-Custodians;
(v)in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
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<PAGE>
(vii)
in connection with the borrowing or lending of foreign securities;
and
(viii)
for any other proper Fund purpose, but only upon receipt of Proper
Instructions specifying the amount of such payment, setting forth
the purpose for which such payment is to be made, declaring such
purpose to be a proper Fund purpose, and naming the person or
persons to whom such payment is to be made.
3.4.3.
Market Conditions. Notwithstanding any provision of this Agreement to the
- ------ -----------
contrary, settlement and payment for foreign securities received for the account
of the Funds and delivery of foreign securities maintained for the account of
the Funds may be effected in accordance with the customary established
securities trading or processing practices and procedures in the country or
market in which the transaction occurs, including, without limitation,
delivering foreign securities to the purchaser thereof or to a dealer therefor
(or an agent for such purchaser or dealer) with the expectation of receiving
later payment for such foreign securities from such purchaser or dealer.
SECTION 3.5
REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained in the
custody of a Foreign Custodian (other than bearer securities) shall be
registered in the name of the applicable Fund or in the name of the Custodian or
in the name of any Foreign Sub-Custodian or in the name of any nominee of the
foregoing, and the Fund agrees to hold any such nominee harmless from any
liability as a holder of record of such foreign securities. The Custodian or a
Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a
Fund under the terms of this Agreement unless the form of such securities and
the manner in which they are delivered are in accordance with reasonable market
practice.
SECTION 3.6
BANK ACCOUNTS. A bank account or bank accounts opened and maintained outside
the United States on behalf of a Fund with a Foreign Sub-Custodian shall be
subject only to draft or order by the Custodian or such Foreign Sub-Custodian,
acting pursuant to the terms of this Agreement to hold cash received by or from
or for the account of the Fund.
SECTION 3.7
COLLECTION OF INCOME. The Custodian shall use reasonable commercial efforts to
collect all income and other payments with respect to the foreign securities
held hereunder to which the Funds shall be entitled and shall credit such
income, as
<PAGE>
collected, to the applicable Fund. In the event that extraordinary measures are
required to collect such income, the Fund and the Custodian shall consult as to
such measures and as to the compensation and expenses of the Custodian relating
to such measures.
SECTION 3.8
PROXIES. With respect to the foreign securities held under this Section 3, the
Custodian will use reasonable commercial efforts to facilitate the exercise of
voting and other shareholder proxy rights, subject always to the laws,
regulations and practical constraints that may exist in the country where such
securities are issued. The Fund acknowledges that local conditions, including
lack of regulation, onerous procedural obligations, lack of notice and other
factors may have the effect of severely limiting the ability of the Fund to
exercise shareholder rights.
SECTION 3.9
COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall transmit
promptly to the Fund written information (including, without limitation,
pendency of calls and maturities of foreign securities and expirations of rights
in connection therewith) received by the Custodian in connection with the
foreign securities being held for the account of the Fund. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the Fund
written information so received by the Custodian in connection with the foreign
securities whose tender or exchange is sought or from the party (or its agents)
making the tender or exchange offer.
SECTION 3.10
LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS. Each
agreement pursuant to which the Custodian employs as a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible, to
indemnify, and hold harmless, the Custodian from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with the
Foreign Sub-Custodian's performance of such obligations. At the Fund's
election, the Funds shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that the Funds have not been made whole for any such loss, damage,
cost, expense, liability or claim.
SECTION 3.11
TAX LAW. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as custodian
of the Funds by
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<PAGE>
the tax law of the United States or of any state or political subdivision
thereof. It shall be the responsibility of the Fund to notify the Custodian of
the obligations imposed on the Fund or the Custodian as custodian of the Funds
by the tax law of countries set forth on Schedule A hereto, including
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any claim for exemption or
refund under the tax law of countries for which the Fund has provided such
information.
SECTION 4. PAYMENTS FOR REPURCHASES OR REDEMPTIONS AND SALES OF SHARES.
From such funds as may be available for the purpose, the Custodian shall,
upon receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares which have delivered to the Transfer Agent a
request for redemption or repurchase of their Shares. In connection with the
redemption or repurchase of Shares, the Custodian is authorized upon receipt of,
and in accordance with, instructions from the Transfer Agent to wire funds to or
through a commercial bank designated by the redeeming shareholders. In
connection with the redemption or repurchase of Shares, the Custodian shall
honor checks drawn on the Custodian by a holder of Shares, which checks have
been furnished by the Fund to the holder of Shares, when presented to the
Custodian in accordance with such written procedures and controls as may be
mutually agreed upon from time to time between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent and deposit to the account of the Fund such payments as are
received by the distributor or the Transfer Agent, as the case may be, for
Shares issued or sold from time to time. The Custodian will notify the Fund and
the Transfer Agent of any payments for Shares received by it from time to time.
SECTION 5. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board to keep the books of account of the
Fund and/or compute the net asset value per Share of the outstanding Shares or,
if directed in writing
<PAGE>
to do so by the Fund, shall itself keep such books of account and/ or compute
such net asset value per Share. If so directed, the Custodian shall also (i)
calculate daily the net income of the Fund as described in the Prospectus and
shall advise the Fund and the Transfer Agent daily of the total amounts of such
net income, and/ or (ii) advise the Transfer Agent periodically of the division
of such net income among its various components. The calculations of the net
asset value per share and the daily income of the Fund shall be made at the time
or times described from time to time in the Prospectus.
SECTION 6. PROPER INSTRUCTIONS.
"Proper Instructions," as such term is used throughout this Agreement,
means either (i) a writing, including a facsimile transmission, signed by one or
more persons as set forth on, and in accordance with, an "Authorized Persons
List," as such term is defined herein (each such instruction a "Written Proper
Instruction"), (ii) a "Client Originated Electronic Financial Instruction," as
such term is defined in the Data Access Services Addendum hereto, given in
accordance with the terms of such Addendum, or (iii) instructions received by
the Custodian from a third party in accordance with any three-party agreement
which requires a segregated asset account in accordance with Section 2.11.
Each Written Proper Instruction shall set forth a brief description of the
type of transaction involved (choosing from among the types of transactions set
forth on the Authorized Persons List), including a specific statement of the
purpose for which such action is requested, and any modification to a Written
Proper Instruction must itself be a Written Proper Instruction and subject to
all the provisions herein relating to Written Proper Instructions. The Fund
will provide the Custodian with an "Authorized Persons List," which list shall
set forth (a) the names of the individuals (each an "Authorized Person") who are
authorized by the Board to give Written Proper Instructions with respect to the
transactions described therein, and (b) the number of Authorized Persons whose
signature or approval, as the case may be, is necessary for the Custodian to be
able to act in accordance with such Written Proper Instructions with respect to
a particular type of transaction. The Custodian may accept oral instructions or
instructions delivered via electronic mail as Proper Instructions if the
Custodian reasonably believes such instructions to have been given by an
Authorized Person or Persons (as appropriate to the type of transaction);
provided, however, that in no event will instructions delivered orally or via
electronic mail be considered Proper
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<PAGE>
Instructions with respect to transactions involving the movement of cash,
securities or other assets of a Fund. The Custodian shall be entitled to rely
upon instructions given in accordance with an Authorized Persons List until it
actually receives written notice from the Board of the applicable Fund to the
contrary.
SECTION 7. EVIDENCE OF AUTHORITY.
Subject to Section 9 hereof, the Custodian shall be protected in acting
upon any instructions, notice, request, consent, certificate or other instrument
or paper reasonably and in good faith believed by it to be genuine and to have
been properly executed by or on behalf of the Fund. The Custodian may receive
and accept a copy of a vote of the Board, certified by the secretary or an
assistant secretary of the applicable Fund, as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board described in such vote, and such
vote may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
SECTION 8. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY.
The Custodian may in its discretion and without express authority from the
Fund:
1)
make payments to itself or others for minor expenses of handling
investments or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to
the Fund;
2) surrender investments in temporary form for investments in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other
dealings with the investments and property of the Fund except as
otherwise directed by the Board.
SECTION 9. RESPONSIBILITY OF CUSTODIAN.
<PAGE>
The Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. Notwithstanding anything to the
contrary herein, the Custodian shall be held to the exercise of reasonable care
in carrying out the provisions of this Agreement, and it shall be kept
indemnified by and shall be without liability to the Fund for any action taken
or omitted by it in good faith without negligence. In order for the
indemnification provision contained in this Section to apply, it is understood
that if in any case the Fund may be asked by the Custodian to indemnify or hold
the Custodian harmless, the Fund shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Custodian will use reasonable care to identify, and notify
the Fund promptly concerning, any situation which presents or appears likely to
present the probability of such a claim for indemnification. The Fund shall
have the option to defend the Custodian against any claim which may be the
subject of a claim for indemnification hereunder, and in the event that the Fund
so elects, it will notify the Custodian thereof and, thereupon, (i) the Fund
shall take over complete defense of the claim and (ii) the Custodian shall
initiate no further legal or other expenses with respect to such claim. The
Custodian shall in no case confess any claim or make any compromise with respect
to any claim for which it will seek indemnity from the Fund except with the
Fund's prior written consent. Nothing herein shall be construed to limit any
right or cause of action on the part of the Custodian under this Agreement which
is independent of any right or cause of action on the part of the Fund. The
Custodian shall be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Fund or other such counsel as agreed to by the parties)
on all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice. The Custodian shall be entitled to rely
upon, and shall have no duty of inquiry with respect to, the accuracy of any
representation or warranty given to it by the Fund or any duly-authorized
employee or agent thereof, and shall be without liability for any action
reasonably taken or omitted by it in reliance thereon. Regardless of whether
assets held pursuant to this Agreement are maintained in the custody of a
foreign banking institution, a foreign securities depository, or a branch or
affiliate of a U.S. bank, the Custodian shall not be liable for any loss,
damage, cost, expense, liability
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<PAGE>
The Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. Notwithstanding anything to the
contrary herein, the Custodian shall be held to the exercise of reasonable care
in carrying out the provisions of this Agreement, and it shall be kept
indemnified by and shall be without liability to the Fund for any action taken
or omitted by it in good faith without negligence. In order for the
indemnification provision contained in this Section to apply, it is understood
that if in any case the Fund may be asked by the Custodian to indemnify or hold
the Custodian harmless, the Fund shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Custodian will use reasonable care to identify, and notify
the Fund promptly concerning, any situation which presents or appears likely to
present the probability of such a claim for indemnification. The Fund shall
have the option to defend the Custodian against any claim which may be the
subject of a claim for indemnification hereunder, and in the event that the Fund
so elects, it will notify the Custodian thereof and, thereupon, (i) the Fund
shall take over complete defense of the claim and (ii) the Custodian shall
initiate no further legal or other expenses with respect to such claim. The
Custodian shall in no case confess any claim or make any compromise with respect
to any claim for which it will seek indemnity from the Fund except with the
Fund's prior written consent. Nothing herein shall be construed to limit any
right or cause of action on the part of the Custodian under this Agreement which
is independent of any right or cause of action on the part of the Fund. The
Custodian shall be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Fund or other such counsel as agreed to by the parties)
on all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice. The Custodian shall be entitled to rely
upon, and shall have no duty of inquiry with respect to, the accuracy of any
representation or warranty given to it by the Fund or any duly-authorized
employee or agent thereof, and shall be without liability for any action
reasonably taken or omitted by it in reliance thereon. Regardless of whether
assets held pursuant to this Agreement are maintained in the custody of a
foreign banking institution, a foreign securities depository, or a branch or
affiliate of a U.S. bank, the Custodian shall not be liable for any loss,
damage, cost, expense, liability
<PAGE>
If the Fund requires the Custodian to take any action with respect to
investments, which action involves the payment of money or which action may, in
the reasonable opinion of the Custodian, result in the Custodian or its nominee
assigned to the Fund being liable for the payment of money or incurring
liability of some other form, the Fund, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the Custodian in an
amount and form satisfactory to it.
If the Custodian, or any of its affiliates, subsidiaries or agents,
advances cash or investments to the Fund for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement), or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor, and should the Fund fail to repay the Custodian promptly the
Custodian shall be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement, provided that the
Custodian gives the Fund reasonable notice to repay such cash or securities
advanced, and provided further that such notice requirement shall not preclude
the Custodian's right to assert and execute on such lien.
Except as may arise from the Custodian's own negligence or willful
misconduct, or the negligence or willful misconduct of a subcustodian or agent
appointed by the Custodian, the Fund agrees to indemnify and hold the Custodian
harmless from and against any and all costs, expenses, losses, damages, charges,
reasonable counsel fees, payments and liabilities which may be asserted against
the Custodian (i) acting in accordance with any Proper Instruction, or (ii) for
any acts or omissions of CHASE MANHATTAN BANK N.A.
Notwithstanding any provision herein to the contrary, to the extent the
Custodian is found to be liable hereunder for any loss, liability, claim,
expense or damage, the Custodian shall be liable only for such loss, liability,
claim, expense or damage which was reasonably foreseeable.
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<PAGE>
SECTION 10. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT.
This Agreement shall become effective as of the date of its execution,
shall continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties hereto,
and may be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing in the
case of a termination by the Fund, and not sooner than one hundred eighty (180)
days after the date of such delivery or mailing in the case of termination by
the Custodian; provided, however that the Custodian shall not act under Section
2.9 hereof in the absence of receipt of an initial certificate of a Fund's
secretary, or an assistant secretary thereof, that the Board has approved the
initial use of a particular U.S. Securities System, as required by the 1940 Act
or any applicable Rule thereunder, and that the Custodian shall not act under
Section 2.10 hereof in the absence of receipt of an initial certificate of a
Fund's secretary, or an assistant secretary thereof, that the Board has approved
the initial use of the Direct Paper System; provided further, however, that the
Fund shall not amend or terminate this Agreement in contravention of any
applicable federal or state regulations, or any provision of the Fund's articles
of incorporation, agreement of trust, by-laws and/or registration statement (as
applicable, the "GOVERNING DOCUMENTS"); and further provided that the Fund may
at any time by action of its Board (i) substitute another bank or trust company
for the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by the United States Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Agreement, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its reasonable costs, expenses and disbursements,
provided that the Custodian shall not incur any costs, expenses or disbursements
specifically in connection with such termination unless it has received prior
approval from the Fund, such approval not to be unreasonably withheld.
<PAGE>
SECTION 11. SUCCESSOR CUSTODIAN.
If a successor custodian shall be appointed by the Board, the Custodian
shall, upon termination, deliver to such successor custodian at the offices of
the Custodian, duly endorsed and in the form for transfer, all investments and
other properties then held by it hereunder, and shall transfer to an account of
the successor custodian all of the Fund's investments held in a Securities
System. If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a copy of a vote of the Board, certified by the
secretary or an assistant secretary of the applicable Fund, deliver at the
offices of the Custodian and transfer such investments, funds and other
properties in accordance with such vote. In the event that no written order
designating a successor custodian or certified copy of a vote of the Board shall
have been delivered to the Custodian on or before the date when such termination
shall become effective, then the Custodian shall have the right to deliver to a
bank or trust company, which is a "bank" as defined in the 1940 Act, doing
business in Boston, Massachusetts, or New York, New York, of its own selection
and having an aggregate capital, surplus, and undivided profits, as shown by its
last published report, of not less than $100,000,000, all property held by the
Custodian under this Agreement and to transfer to an account of such successor
custodian all of the Fund's investments held in any Securities System;
thereafter, such bank or trust company shall be the successor of the Custodian
under this Agreement.
In the event that any property held pursuant to this Agreement remains in
the possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board to appoint a successor custodian, the Custodian shall be entitled to
fair compensation for its services during such period as the Custodian retains
possession of such property, and the provisions of this Agreement relating to
the duties and obligations of the Custodian shall remain in full force and
effect.
SECTION 12. GENERAL.
SECTION 12.1
COMPENSATION OF CUSTODIAN. The Custodian shall be entitled to compensation for
its services and reimbursement of its expenses as Custodian as agreed upon from
time to time between the Fund and the Custodian.
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<PAGE>
SECTION 12.2
MASSACHUSETTS LAW TO APPLY. This Agreement shall be construed and the
provisions thereof interpreted under and in accordance with laws of The
Commonwealth of Massachusetts.
SECTION 12.3
RECORDS. The Custodian shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund under the 1940 Act, with particular attention to Section
31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the SEC. The Custodian shall, at
the Fund's request, supply the Fund with a tabulation of investments owned by
the Fund and held by the Custodian hereunder, and shall, when requested to do so
by an officer of the Fund, and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
SECTION 12.4
OPINION OF FUND'S INDEPENDENT ACCOUNTANT. The Custodian shall take all
reasonable action as the Fund may from time to time request to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, the preparation of the Fund's Form N-SAR, the preparation of any
other annual reports to the SEC with respect to the Fund, and with respect to
any other requirements of the SEC.
SECTION 12.5
INTERPRETIVE AND ADDITIONAL PROVISIONS. In connection with the operation of
this Agreement, the Custodian and the Fund may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Agreement as
may in their joint opinion be consistent with the general tenor of this
Agreement. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Governing Documents. No interpretive
or additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Agreement.
SECTION 12.6
BOND. The Custodian shall at all times maintain a bond in such form and amount
as is acceptable to the Fund, which shall be issued by a reputable fidelity
insurance company authorized to do business in the place where such bond is
issued, against larceny and embezzlement, covering each officer and employee of
<PAGE>
the Custodian who may, singly or jointly with others, have access to securities
or funds of the Fund, either directly or through authority to receive and carry
out any certificate instruction, order request, note or other instrument
required or permitted by this Agreement. The Custodian agrees that it shall not
cancel, terminate or modify such bond insofar as it adversely affects the Fund
except after written notice given to the Fund not less than 10 days prior to the
effective date of such cancellation, termination or modification. The Custodian
shall, upon request, furnish to the Fund a copy of each such bond and each
amendment thereto.
SECTION 12.7
CONFIDENTIALITY. The Custodian agrees to treat all records and other
information relative to the Fund and its prior, present or future shareholders
as confidential, and the Custodian, on behalf of itself and its employees,
agrees to keep confidential all such information except, after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where the Custodian may be exposed
to civil or criminal contempt proceedings for failure to comply when requested
to divulge such information by duly constituted authorities, or when so
requested by the Fund.
SECTION 12.8
EXEMPTION FROM LIEN. Except as set forth in Section 9 hereof, the securities
and other assets held by the Custodian hereunder shall not be subject to lien or
charge of any kind in favor of the Custodian or any person claiming through the
Custodian. Nothing herein shall be deemed to deprive the Custodian of its right
to invoke any and all remedies available at law or equity to collect amounts due
it under this Agreement.
SECTION 12.9
ASSIGNMENT. This Agreement may not be assigned by either party without the
written consent of the other, except that either party may assign its rights and
obligations hereunder to a party controlling, controlled by, or under common
control with such party.
SECTION 12.10 PRIOR AGREEMENTS. Without derogating the rights established
thereunder prior to the date of this Agreement, this Agreement supersedes and
terminates, as of the date hereof, all prior agreements between the Fund and the
Custodian relating to the custody of Fund assets.
SECTION 12.11 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all such
counterparts taken together shall constitute but one and the same Agreement.
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<PAGE>
SECTION 12.12 NOTICES. Any notice, instruction or other instrument
required to be given hereunder may be delivered in person to the offices of the
parties as set forth herein during normal business hours or delivered prepaid
registered mail or by telex, cable or telecopy to the parties at the following
addresses or such other addresses as may be notified by any party from time to
time.
To any Fund: c/o T. ROWE PRICE ASSOCIATES, INC.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Carmen Deyesu
Telephone: 410-345-6658
Telecopy: 410-685-8827/8830
To the Custodian: STATE STREET BANK AND TRUST COMPANY
1776 Heritage Drive
North Quincy, Massachusetts 02171, U.S.A.
Attention: Carol C. Ayotte
Telephone: 617-985-6894
Telecopy: 617-537-6321
Such notice, instruction or other instrument shall be deemed to have been
served in the case of a registered letter at the expiration of five business
days after posting, in the case of cable twenty-four hours after dispatch and,
in the case of telex, immediately on dispatch and if delivered outside normal
business hours it shall be deemed to have been received at the next time after
delivery when normal business hours commence and in the case of cable, telex or
telecopy on the business day after the receipt thereof. Evidence that the
notice was properly addressed, stamped and put into the post shall be conclusive
evidence of posting.
SECTION 12.13 ENTIRE AGREEMENT. This Agreement (including all schedules,
appendices, exhibits and attachments hereto) constitutes the entire Agreement
between the parties with respect to the subject matter hereof.
SECTION 12.14 HEADINGS NOT CONTROLLING. Headings used in this Agreement
are for reference purposes only and shall not be deemed a part of this
Agreement.
SECTION 12.15 SURVIVAL. All provisions regarding indemnification,
confidentiality, warranty, liability and limits thereon shall survive following
the expiration or termination of this Agreement.
<PAGE>
SECTION 12.16 SEVERABILITY. In the event any provision of this Agreement
is held illegal, void or unenforceable, the balance shall remain in effect.
SECTION 12.17 THE PARTIES. All references herein to the "Fund" are to each
of the funds listed on Appendix A hereto individually, as if this Agreement were
between such individual Fund and the Custodian. In the case of a series fund or
trust, all references to the "Fund" are to the individual series or portfolio of
such fund or trust, or to such fund or trust on behalf of the individual series
or portfolio, as appropriate. Any reference in this Agreement to "the parties"
shall mean the Custodian and such other individual Fund as to which the matter
pertains. Each Fund hereby represents and warranties that (i) it has the
requisite power and authority under applicable laws and its Governing Documents
to enter into and perform this Agreement, (ii) all requisite proceedings have
been taken to authorize it to enter into and perform this Agreement, and (iii)
its entrance into this Agreement shall not cause a material breach or be in
material conflict with any other agreement or obligation of the Fund or any law
or regulation applicable to it.
SECTION 12.18 DIRECTORS AND TRUSTEES. It is understood and is expressly
stipulated that neither the holders of Shares nor any member of the Board be
personally liable hereunder. Whenever reference is made herein to an action
required to be taken by the Board, such action may also be taken by the Board's
executive committee.
SECTION 12.19 MASSACHUSETTS BUSINESS TRUST. With respect to any Fund which
is a party to this Agreement and which is organized as a Massachusetts business
trust, the term "Fund" means and refers to the trustees from time to time
serving under the applicable trust agreement of such trust, as the same may be
amended from time to time (the "DECLARATION OF TRUST"). It is expressly agreed
that the obligations of any such Fund hereunder shall not be binding upon any of
the trustees, shareholders, nominees, officers, agents or employees of the Fund
personally, but bind only the trust property of the Fund as set forth in the
applicable Declaration of Trust. In the case of each Fund which is a
Massachusetts business trust (in each case, a "TRUST"), the execution and
delivery of this Agreement on behalf of the Trust has been authorized by the
trustees, and signed by an authorized officer, of the Trust, in each case acting
in such capacity and not individually, and neither such authorization by the
trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them
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<PAGE>
individually, but shall bind only the trust property of the Trust as provided in
its Declaration of Trust.
SECTION 12.20 REPRODUCTION OF DOCUMENTS. This Agreement and all schedules,
exhibits, attachments and amendments hereto may be reproduced by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process. The parties hereto all/each agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
SECTION 12.21 SHAREHOLDER COMMUNICATIONS ELECTION. SEC Rule 14b-2 requires
banks which hold securities for the account of customers to respond to requests
by issuers of securities for the names, addresses and holdings of beneficial
owners of securities of that issuer held by the bank unless the beneficial owner
has expressly objected to disclosure of this information. In order to comply
with the rule, the Custodian needs the Fund to indicate whether it authorizes
the Custodian to provide the Fund's name, address, and share position to
requesting companies whose securities the Fund owns. If the Fund tells the
Custodian "no", the Custodian will not provide this information to requesting
companies. If the Fund tells the Custodian "yes" or does not check either "yes"
or "no" below, the Custodian is required by the rule to treat the Fund as
consenting to disclosure of this information for all securities owned by the
Fund or any funds or accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company from using the Fund's name
and address for any purpose other than corporate communications. Please
indicate below whether the Fund consents or objects by checking one of the
alternatives below.
YES [ ]
The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [X]
The Custodian is not authorized to release the Fund's name,
address, and share positions.
<PAGE>
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT
Addendum to the Custodian Agreement (as defined below) between each fund
listed on Appendix A to the Custodian Agreement, as such Appendix A is amended
from time to time (each such fund listed on Appendix A shall be individually
referred to herein as the "FUND"), and State Street Bank and Trust Company
("STATE STREET").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain assets of
the Fund pursuant to a certain Custodian Agreement (the "CUSTODIAN AGREEMENT")
dated as of January 28, 1998, and amended thereafter from time to time;
WHEREAS, State Street has developed and utilizes proprietary accounting and
other systems, including State Street's proprietary Multicurrency HORIZON/R/
Accounting System, in its role as custodian of the Fund, and maintains certain
Fund-related data ("FUND DATA") in databases under the control and ownership of
State Street (the "DATA ACCESS SERVICES"); and
WHEREAS, State Street makes available to the Fund (and certain of the
Fund's agents as set forth herein) certain Data Access Services solely for the
benefit of the Fund, and intends to provide additional services, consistent with
the terms and conditions of this Addendum.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the parties
agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a.
System. Subject to the terms and conditions of this Addendum and solely for the
- ------
purpose of providing access to Fund Data as set forth herein, State Street
hereby agrees to provide the Fund, or certain third parties approved by State
Street that serve as the Fund's investment advisors, investment managers or fund
accountants (the "FUND ACCOUNTANTS") or as the Fund's independent auditors (the
"AUDITOR"), with access to State Street's Multicurrency HORIZON/R/ Accounting
System and the other information systems described in Attachment A
(collectively, the "SYSTEM") on a remote basis solely on the computer hardware,
system software and telecommunication links described in Attachment B (the
"DESIGNATED
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<PAGE>
CONFIGURATION") or on any designated substitute or back-up equipment
configuration consented to in writing by State Street, such consent not to be
unreasonably withheld.
b.
Data Access Services. State Street agrees to make available to the Fund the
- ---- ------ --------
Data Access Services subject to the terms and conditions of this Addendum and
such data access operating standards and procedures as may be issued by State
Street from time to time. The Fund shall be able to access the System to (i)
originate electronic instructions to State Street in order to (a) effect the
transfer or movement of cash or securities held under custody by State Street or
(b) transmit accounting or other information (the transactions described in
(i)(a) and (i)(b) above are referred to herein as "CLIENT ORIGINATED ELECTRONIC
FINANCIAL INSTRUCTIONS"), and (ii) access data for the purpose of reporting and
analysis, which shall all be deemed to be Data Access Services for purposes of
this Addendum.
c.
Additional Services. State Street may from time to time agree to make available
- ---------- --------
to the Fund additional Systems that are not described in the attachments to this
Addendum. In the absence of any other written agreement concerning such
additional systems, the term "SYSTEM" shall include, and this Addendum shall
govern, the Fund's access to and use of any additional System made available by
State Street and/or accessed by the Fund.
2. NO USE OF THIRD PARTY SYSTEMS-LEVEL SOFTWARE
State Street and the Fund acknowledge that in connection with the Data
Access Services provided under this Addendum, the Fund will have access, through
the Data Access Services, to Fund Data and to functions of State Street's
proprietary systems; provided, however that in no event will the Fund have
direct access to any third party systems-level software that retrieves data for,
stores data from, or otherwise supports the System.
3. LIMITATION ON SCOPE OF USE
a.
Designated Equipment; Designated Locations. The System and the Data Access
- ---------- ---------- ---------- ---------
Services shall be used and accessed solely on and through the Designated
Configuration at the offices of the Fund or the Fund Accountants in Baltimore,
Maryland or Owings Mills, Maryland ("DESIGNATED LOCATIONS").
b.
Designated Configuration; Trained Personnel. State Street and the Fund shall
- ---------- -------------- ------- ---------
be responsible for supplying, installing
<PAGE>
and maintaining the Designated Configuration at the Designated Locations. State
Street and the Fund agree that each will engage or retain the services of
trained personnel to enable both parties to perform their respective obligations
under this Addendum. State Street agrees to use commercially reasonable efforts
to maintain the System so that it remains serviceable, provided, however, that
State Street does not guarantee or assure uninterrupted remote access use of the
System.
c.
Scope of Use. The Fund will use the System and the Data Access Services only
- ----- -- ---
for the processing of securities transactions, the keeping of books of account
for the Fund and accessing data for purposes of reporting and analysis. The
Fund shall not, and shall cause its employees and agents not to (i) permit any
unauthorized third party to use the System or the Data Access Services, (ii)
sell, rent, license or otherwise use the System or the Data Access Services in
the operation of a service bureau or for any purpose other than as expressly
authorized under this Addendum, (iii) use the System or the Data Access Services
for any fund, trust or other investment vehicle), other than as set forth
herein, without the prior written consent of State Street, (iv) allow access to
the System or the Data Access Services through terminals or any other computer
or telecommunications facilities located outside the Designated Locations, (v)
allow or cause any information (other than portfolio holdings, valuations of
portfolio holdings, and other information reasonably necessary for the
management or distribution of the assets of the Fund) transmitted from State
Street's databases, including data from third party sources, available through
use of the System or the Data Access Services to be redistributed or
retransmitted to another computer, terminal or other device for other than use
for or on behalf of the Fund or (vi) modify the System in any way, including
without limitation developing any software for or attaching any devices or
computer programs to any equipment, system, software or database which forms a
part of or is resident on the Designated Configuration.
d.
Other Locations. Except in the event of an emergency or of a planned System
- ----- ---------
shutdown, the Fund's access to services performed by the System or to Data
Access Services at the Designated Locations may be transferred to a different
location only upon the prior written consent of State Street. In the event of
an emergency or System shutdown, the Fund may use any back-up site included in
the Designated Configuration or any other back-up site agreed to by State
Street, which agreement will not be unreasonably withheld. The Fund may secure
from State Street the right to access the System or the Data Access Services
through computer and telecommunications
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<PAGE>
facilities or devices complying with the Designated Configuration at additional
locations only upon the prior written consent of State Street and on terms to be
mutually agreed upon by the parties.
e.
Title. Title and all ownership and proprietary rights to the System, including
- -----
any enhancements or modifications thereto, whether or not made by State Street,
are and shall remain with State Street.
f.
No Modification. Without the prior written consent of State Street, the Fund
- -- ------------
shall not modify, enhance or otherwise create derivative works based upon the
System, nor shall the Fund reverse engineer, decompile or otherwise attempt to
secure the source code for all or any part of the System.
g.
Security Procedures. The Fund shall comply with data access operating standards
- -------- ----------
and procedures and with user identification or other password control
requirements and other security procedures as may be issued from time to time by
State Street for use of the System on a remote basis and to access the Data
Access Services. The Fund shall have access only to the Fund Data and
authorized transactions agreed upon from time to time by State Street and, upon
notice from State Street, the Fund shall discontinue remote use of the System
and access to Data Access Services for any security reasons cited by State
Street; provided, that, in such event, State Street shall, for a period not less
than 180 days (or such other shorter period specified by the Fund) after such
discontinuance, assume responsibility to provide accounting services under the
terms of the Custodian Agreement.
h.
Inspections. State Street shall have the right to inspect the use of the System
- -----------
and the Data Access Services by the Fund, the Fund Accountants and the Auditor
to ensure compliance with this Addendum. The on-site inspections shall be upon
prior written notice to Fund, the Fund Accountants and the Auditor and at
reasonably convenient times and frequencies so as not to result in an
unreasonable disruption of the Fund's or the Fund Accountants' or the Auditor
respective businesses.
4. PROPRIETARY INFORMATION
a.
Proprietary Information. The Fund acknowledges and State Street represents that
- ----------- -----------
the System and the databases, computer programs, screen formats, report formats,
interactive design techniques, documentation and other information made
available to the Fund by State Street as part of the Data Access Services and
<PAGE>
through the use of the System constitute copyrighted, trade secret, or other
proprietary information of substantial value to State Street. Any and all such
information provided by State Street to the Fund shall be deemed proprietary and
confidential information of State Street (hereinafter "PROPRIETARY
INFORMATION"). The Fund agrees that it will hold such Proprietary Information
in the strictest confidence and secure and protect it in a manner consistent
with its own procedures for the protection of its own confidential information
and to take appropriate action by instruction or agreement with its employees or
agents who are permitted access to the Proprietary Information to satisfy its
obligations hereunder. The Fund further acknowledges that State Street shall
not be required to provide the Fund Accountants or the Auditor with access to
the System unless it has first received from the Fund Accountants and the
Auditor an undertaking with respect to State Street's Proprietary Information in
the form of Attachment C and/or Attachment C-1 to this Addendum. The Fund shall
use all commercially reasonable efforts to assist State Street in identifying
and preventing any unauthorized use, copying or disclosure of the Proprietary
Information or any portions thereof or any of the logic, formats or designs
contained therein.
b.
Cooperation. Without limitation of the foregoing, the Fund shall advise State
- -----------
Street immediately in the event the Fund learns or has reason to believe that
any person to whom the Fund has given access to the Proprietary Information, or
any portion thereof, has violated or intends to violate the terms of this
Addendum, and the Fund will, at its reasonable expense, cooperate with State
Street in seeking injunctive or other equitable relief in the name of the Fund
or State Street against any such person.
c.
Injunctive Relief. The Fund acknowledges that the disclosure of any Proprietary
- ---------- ------
Information, or of any information which at law or equity ought to remain
confidential, will immediately give rise to continuing irreparable injury to
State Street inadequately compensable in damages at law. In addition, State
Street shall be entitled to obtain immediate injunctive relief against the
breach or threatened breach of any of the foregoing undertakings, in addition to
any other legal remedies which may be available.
d.
Survival. The provisions of this Section 4 shall survive the termination of
- --------
this Addendum.
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
5. LIMITATION ON LIABILITY
a.
Standard of Care and Limitation on Amount and Time for Bringing Action. State
- -------- -- ---- --- ---------- -- ------ --- ---- --- -------- ------
Street shall be held to a standard of reasonable care with respect to all of its
duties and obligations under this Addendum. The Fund agrees that any liability
of State Street to the Fund or any third party arising with respect to the
System or State Street's provision of Data Access Services under this Data
Access Services Addendum shall be limited to the amount paid by the Fund for the
preceding 24 months for such services. The foregoing limitation shall relate
solely to State Street's provision of the Data Access Services pursuant to this
Addendum and is not intended to limit State Street's responsibility to perform
in accordance with the Custodian Agreement, including its duty to act in
accordance with Proper Instructions. In no event shall State Street be liable
to the Fund or any other party pursuant to this Addendum for any special,
indirect, punitive or consequential damages even if advised of the possibility
of such damages. No action, regardless of form, arising out of the terms of
this Addendum may be brought by the Fund more than two years after the Fund has
knowledge that the cause of action has arisen.
b.
Limited Warranties. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING,
- ------- ----------
WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ARE MADE BY STATE STREET.
c.
Third-Party Data. Organizations from which State Street may obtain certain data
- ----------- ----
included in the System or the Data Access Services are solely responsible for
the contents of such data, and State Street shall have no liability for claims
arising out of the contents of such third-party data, including, but not limited
to, the accuracy thereof.
d.
Regulatory Requirements. As between State Street and the Fund, the Fund shall
- ---------- ------------
be solely responsible for the accuracy of any accounting statements or reports
produced using the Data Access Services and the System and the conformity
thereof with any requirements of law.
e.
Force Majeure. Neither party shall be liable for any costs or damages due to
- ----- -------
delay or nonperformance under this Data Access Services Addendum arising out of
any cause or event beyond such party's control, including, without limitation,
cessation of services hereunder or any damages resulting therefrom to the other
party as a result of work stoppage, power or other mechanical
<PAGE>
failure, computer virus, natural disaster, governmental action, or communication
disruption.
6. INDEMNIFICATION
The Fund agrees to indemnify and hold State Street harmless from any loss,
damage or expense including reasonable attorney's fees, (a "loss") suffered by
State Street arising from (i) the negligence or willful misconduct in the use by
the Fund of the Data Access Services or the System, including any loss incurred
by State Street resulting from a security breach at the Designated Locations or
committed by the Fund's employees or agents or the Fund Accountants or the and
Auditor, and (ii) any loss resulting from incorrect Client Originated Electronic
Financial Instructions. State Street shall be entitled to rely on the validity
and authenticity of Client Originated Electronic Financial Instructions without
undertaking any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by State Street from time to
time.
7. FEES
Fees and charges for the use of the System and the Data Access Services and
related payment terms shall be as set forth in the custody fee schedule in
effect from time to time between the parties (the "FEE SCHEDULE"). Any tariffs,
duties or taxes imposed or levied by any government or governmental agency by
reason of the transactions contemplated by this Addendum, including, without
limitation, federal, state and local taxes, use, value added and personal
property taxes (other than income, franchise or similar taxes which may be
imposed or assessed against State Street) shall be borne by the Fund. Any
claimed exemption from such tariffs, duties or taxes shall be supported by
proper documentary evidence delivered to State Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a.
Training. State Street agrees to provide training, at a designated State Street
- --------
training facility or at the Designated Locations, to the Fund's personnel in
connection with the use of the System on the Designated Configuration. The Fund
agrees that it will set aside, during regular business hours or at other times
agreed upon by both parties, sufficient time to enable all operators of the
System and the Data Access Services, designated by the Fund, to receive the
training offered by State Street pursuant to this Addendum.
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
b.
Installation and Conversion. State Street and the Fund shall be responsible for
- ------------ --- ----------
the technical installation and conversion ("INSTALLATION AND CONVERSION") of the
Designated Configuration. The Fund shall have the following responsibilities in
connection with Installation and Conversion of the System:
(i)
The Fund shall be solely responsible for the timely acquisition and
maintenance of the hardware and software that attach to the Designated
Configuration in order to use the Data Access Services at the
Designated Locations, and
(ii)
State Street and the Fund each agree that they will assign qualified
personnel to actively participate during the Installation and
Conversion phase of the System implementation to enable both parties
to perform their respective obligations under this Addendum.
9. SUPPORT
During the term of this Addendum, State Street agrees to provide the
support services set out in Attachment D to this Addendum.
10. TERM
a.
Term. This Addendum shall become effective on the date of its execution by
- ----
State Street and shall remain in full force and effect until terminated as
herein provided.
b.
Termination. Either party may terminate this Addendum (i) for any reason by
- -----------
giving the other party at least one-hundred and eighty (180) days' prior written
notice in the case of notice of termination by State Street to the Fund or
thirty (30) days' notice in the case of notice from the Fund to State Street of
termination; or (ii) immediately for failure of the other party to comply with
any material term and condition of the Addendum by giving the other party
written notice of termination. In the event the Fund shall cease doing
business, shall become subject to proceedings under the bankruptcy laws (other
than a petition for reorganization or similar proceeding) or shall be
adjudicated bankrupt, this Addendum and the rights granted hereunder shall, at
the option of State Street, immediately terminate with notice to the Fund. This
Addendum shall in any event terminate as to any Fund within ninety (90) days
after the termination of the Custodian Agreement.
<PAGE>
c.
Termination of the Right to Use. Upon termination of this Addendum for any
- ----------- -- --- ----- -- ---
reason, any right to use the System and access to the Data Access Services shall
terminate and the Fund shall immediately cease use of the System and the Data
Access Services. Immediately upon termination of this Addendum for any reason,
the Fund shall return to State Street all copies of documentation and other
Proprietary Information in its possession; provided, however, that in the event
that either party terminates this Addendum or the Custodian Agreement for any
reason other than the Fund's breach, State Street shall provide the Data Access
Services for a period of time and at a price to be agreed upon in writing by the
parties.
11. MISCELLANEOUS
a.Year 2000. State Street will take all steps necessary to ensure that its
---- ----
products (and those of its third-party suppliers) reflect the available state of
the art technology to offer products that are Year 2000 compliant, including,
but not limited to, century recognition of dates, calculations that correctly
compute same century and multi-century formulas and date values, and interface
values that reflect the date issues arising between now and the next one-hundred
years. If any changes are required, State Street will make the changes to its
products at no cost to the Fund and in a commercially reasonable time frame and
will require third-party suppliers to do likewise.
b.
Assignment; Successors. This Addendum and the rights and obligations of the
- ----------- ----------
Fund and State Street hereunder shall not be assigned by either party without
the prior written consent of the other party, except that State Street may
assign this Addendum to a successor of all or a substantial portion of its
business, or to a party controlling, controlled by, or under common control with
State Street.
c.
Survival. All provisions regarding indemnification, warranty, liability and
- --------
limits thereon, and confidentiality and/or protection of proprietary rights and
trade secrets shall survive the termination of this Addendum.
d.
Entire Agreement. This Addendum and the attachments hereto constitute the
- ------ ---------
entire understanding of the parties hereto with respect to the Data Access
Services and the use of the System and supersedes any and all prior or
contemporaneous representations or agreements, whether oral or written, between
the parties as such may relate to the Data Access Services or the System, and
cannot
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
be modified or altered except in a writing duly executed by the parties. This
Addendum is not intended to supersede or modify the duties and liabilities of
the parties hereto under the Custodian Agreement or any other agreement between
the parties hereto except to the extent that any such agreement specifically
refers to the Data Access Services or the System. No single waiver or any right
hereunder shall be deemed to be a continuing waiver.
e. Severability.
------------
If any provision or provisions of this Addendum shall be held to be invalid,
unlawful, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired.
f.
Governing Law. This Addendum shall be interpreted and construed in accordance
- --------- ---
with the internal laws of The Commonwealth of Massachusetts without regard to
the conflict of laws provisions thereof.
<PAGE>
ATTACHMENT A
MULTICURRENCY HORIZON/R/ ACCOUNTING SYSTEM
SYSTEM PRODUCT DESCRIPTION
I. The Multicurrency HORIZON/R/ Accounting System is designed to provide lot
level portfolio and general ledger accounting for SEC and ERISA type
requirements and includes the following services: 1) recording of general ledger
entries; 2) calculation of daily income and expense; 3) reconciliation of daily
activity with the trial balance, and 4) appropriate automated feeding mechanisms
to (i) domestic and international settlement systems, (ii) daily, weekly and
monthly evaluation services, (iii) portfolio performance and analytic services,
(iv) customer's internal computing systems and (v) various State Street provided
information services products.
II. GlobalQuest/R/ GlobalQuest/R/ is designed to provide customer access to
the following information maintained on The Multicurrency HORIZON/R/ Accounting
System: 1) cash transactions and balances; 2) purchases and sales; 3) income
receivables; 4) tax refund; 5) daily priced positions; 6) open trades; 7)
settlement status; 8) foreign exchange transactions; 9) trade history; and 10)
daily, weekly and monthly evaluation services.
III. HORIZON/R/ Gateway. HORIZON/R/ Gateway provides customers with the
ability to (i) generate reports using information maintained on the
Multicurrency HORIZON/R/ Accounting System which may be viewed or printed at the
customer's location; (ii) extract and download data from the Multicurrency
HORIZONR Accounting System; and (iii) access previous day and historical data.
The following information which may be accessed for these purposes: 1)
holdings; 2) holdings pricing; 3) transactions, 4) open trades; 5) income;
6) general ledger and 7) cash.
IV. State Street Interchange. State Street Interchange is an open
------------------------
information delivery architecture wherein proprietary communication products,
data formats and workstation tools are replaced by industry standards and is
designed to enable the connection of State Street's network to customer
networks, thereby facilitating the sharing of information.
ATTACHMENT C
UNDERTAKING
(FUND ACCOUNTANTS)
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
The undersigned understands that in the course of its employment as Fund
Accountant to each fund listed on Appendix A (as amended from time to time) to
that certain Custodian Agreement dated as of January 28, 1998 (the "FUND"), it
will have access to State Street Bank and Trust Company's Multicurrency HORIZON
Accounting System and other information systems (collectively, the "SYSTEM").
The undersigned acknowledges that the System and the databases, computer
programs, screen formats, report formats, interactive design techniques,
documentation, and other information made available to the Undersigned by State
Street Bank and Trust Company ("STATE STREET") as part of the Data Access
Services provided to the Fund and through the use of the System constitute
copyrighted, trade secret, or other proprietary information of substantial value
to State Street. Any and all such information provided by State Street to the
Undersigned shall be deemed proprietary and confidential information of State
Street (hereinafter "PROPRIETARY INFORMATION"). The undersigned agrees that it
will hold such Proprietary Information in confidence and secure and protect it
in a manner consistent with its own procedures for the protection of its own
confidential information and to take appropriate action by instruction or
agreement with its employees who are permitted access to the Proprietary
Information to satisfy its obligations hereunder.
The undersigned will not attempt to intercept data, gain access to data in
transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System and
access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
<PAGE>
[The Fund Accountants]
By: ______________________________
Title: ______________________________
Date: ______________________________
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
ATTACHMENT C-1
UNDERTAKING
(AUDITOR)
The undersigned understands that in the course of its employment as Auditor
to each fund listed on Appendix A (as amended from time to time) to that certain
Custodian Agreement dated as of January 28, 1998 (the "FUND") it will have
access to State Street Bank and Trust Company's Multicurrency HORIZON Accounting
System and other information systems (collectively, the "SYSTEM").
The undersigned acknowledges that the System and the databases, computer
programs, screen formats, report formats, interactive design techniques,
documentation, and other information made available to the Undersigned by State
Street Bank and Trust Company ("STATE STREET") as part of the Data Access
Services provided to the Fund and through the use of the System constitute
copyrighted, trade secret, or other proprietary information of substantial value
to State Street. Any and all such information provided by State Street to the
Undersigned shall be deemed proprietary and confidential information of State
Street (hereinafter "PROPRIETARY INFORMATION"). The undersigned agrees that it
will hold such Proprietary Information in confidence and secure and protect it
in a manner consistent with its own procedures for the protection of its own
confidential information and to take appropriate action by instruction or
agreement with its employees who are permitted access to the Proprietary
Information to satisfy its obligations hereunder.
The undersigned will not attempt to intercept data, gain access to data in
transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System and
access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
<PAGE>
[The Auditor]
By: ______________________________
Title: ______________________________
Date: ______________________________
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
ATTACHMENT D
SUPPORT
During the term of this Addendum, State Street agrees to provide the
following on-going support services:
a.
Telephone Support. The Fund Designated Persons may contact State Street's
HORIZON/R/ Help Desk and Fund Assistance Center between the hours of 8 a.m. and
6 p.m. (Eastern time) on all business days for the purpose of obtaining answers
to questions about the use of the System, or to report apparent problems with
the System. From time to time, the Fund shall provide to State Street a list of
persons who shall be permitted to contact State Street for assistance (such
persons being referred to as the "FUND DESIGNATED PERSONS").
b.
Technical Support. State Street will provide technical support to assist the
- --------- -------
Fund in using the System and the Data Access Services. The total amount of
technical support provided by State Street shall not exceed 10 resource days per
year. State Street shall provide such additional technical support as is
expressly set forth in the fee schedule in effect from time to time between the
parties (the "FEE SCHEDULE"). Technical support, including during installation
and testing, is subject to the fees and other terms set forth in the Fee
Schedule.
c. Maintenance Support. State Street shall use commercially reasonable
-------------------
efforts to correct system functions that do not work according to the System
Product Description as set forth on Attachment A in priority order in the next
scheduled delivery release or otherwise as soon as is practicable.
d.
System Enhancements. State Street will provide to the Fund any enhancements to
- ------ ------------
the System developed by State Street and made a part of the System; provided
that State Street offer the Fund reasonable training on the enhancement.
Charges for system enhancements shall be as provided in the Fee Schedule.
State Street retains the right to charge for related systems or products that
may be developed and separately made available for use other than through the
System.
e.
Custom Modifications. In the event the Fund desires custom modifications in
- ------ -------------
connection with its use of the System, the Fund shall make a written request to
State Street providing specifications for the desired modification. Any custom
<PAGE>
modifications may be undertaken by State Street in its sole discretion in
accordance with the Fee Schedule.
f.
Limitation on Support. State Street shall have no obligation to support the
- ---------- -- -------
Fund's use of the System: (1) for use on any computer equipment or
telecommunication facilities which does not conform to the Designated
Configuration or (ii) in the event the Fund has modified the System in breach of
this Addendum.
In WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and on its behalf by its duly authorized representative as
of the date and year first written above.
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 INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE 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
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE MID-CAP GROWTH 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. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
<PAGE>
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
T. ROWE PRICE SMALL CAP STOCK FUND, INC.
T. Rowe Price Small Cap Stock Fund
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE TAX EFFICIENT BALANCED FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Government Reserve Investment Fund
Reserve Investment Fund
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<PAGE>
SIGNATURE ATTESTED TO: EXECUTED ON BEHALF OF EACH FUND:
/s/Suzanne E. Fraunhoffer /s/Carmen Deyesu
By: _____________________ By:____________________
Name: Suzanne E. Fraunhoffer Name: Carmen Deyesu
Title: Legal Assistant Title: Treasurer for
each of the foregoing
SIGNATURE ATTESTED TO:
STATE STREET BANK AND TRUST COMPANY
/s/Glenn Ciotti /s/Ronald E. Logue
By: _____________________ By:____________________
Name: Glenn Ciotti Name: Ronald E. Logue
Title: VP & Assoc. Counsel Title: Executive Vice
President
<PAGE>
SCHEDULE A
COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
United Kingdom State Street Bank None;
and Trust Company The Bank of England,
The Central Gilts Office (CGO);
The Central Moneymarkets Office (CMO)
Euroclear (The Euroclear System)/ State Street London Limited
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
APPENDIX A
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 INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE 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
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
<PAGE>
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE MID-CAP GROWTH 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. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
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<PAGE>
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
T. ROWE PRICE SMALL CAP STOCK FUND, INC.
T. Rowe Price Small Cap Stock Fund
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE TAX EFFICIENT BALANCED FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Government Reserve Investment Fund
Reserve Investment Fund
<PAGE>
AMENDMENT NO. 1
TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
The Custodian Contract of January 28, 1998, between State Street Bank and Trust
Company and each of the Parties listed on Appendix A thereto is hereby further
amended, as of November 4, 1998, by adding thereto T. Rowe Price International
Funds, Inc., on behalf of T. Rowe Price International Growth & Income Fund.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE GNMA FUND
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Growth & Income Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
<PAGE>
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
/s/Henry H. Hopkins
By: _____________________________________
Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Stephen F. Brown
By: _____________________________________
Stephen F. Brown, Vice President
<PAGE>
AMENDMENT NO. 2
TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
The Custodian Contract of January 28, 1998, as amended November 4, 1998 between
State Street Bank and Trust Company and each of the Parties listed on Appendix A
thereto is hereby further amended, as of April 21, 1999, by adding thereto T.
Rowe Price Tax-Efficient Funds, Inc., on behalf of T. Rowe Price Tax-Efficient
Balanced Fund and T. Rowe Price Tax-Efficient Growth Fund.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Growth & Income Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
<PAGE>
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
L:\Trpprod\Edg\Agmts.edg\98Custod.fm
<PAGE>
T. ROWE PRICE TAX-EFFICIENT FUNDS, INC.
T. Rowe Price Tax-Efficient Balanced Fund
T. Rowe Price Tax-Efficient Growth Fund
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
/s/ Henry H. Hopkins
By: _____________________________________
Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/ Ronald E. Logue
By: _____________________________________
Ronald E. Logue, Vice Chairman
The Transfer Agency and Service Agreement between T. Rowe Price Services,
Inc. and T. Rowe Price Funds, dated January 1, 1999, as amended.
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
T. ROWE PRICE SERVICES, INC.
and
THE T. ROWE PRICE FUNDS
<PAGE>
TABLE OF CONTENTS
PAGE
----
Article A Terms of Appointment 2
Article B Duties of Price Services 3
1. Receipt of Orders/Payments 3
2. Redemptions 5
3. Transfers 6
4. Confirmations 7
5. Returned Checks and ACH Debits 7
6. Redemption of Shares under Ten Day Hold 7
7. Dividends, Distributions and Other Corporate Actions 9
8. Unclaimed Payments and Certificates 10
9. Books and Records 10
10. Authorized Issued and Outstanding Shares 12
11. Tax Information 13
12. Information to be Furnished to the Fund 13
13. Correspondence 13
14. Lost or Stolen Securities 14
15. Telephone Services 14
16. Collection of Shareholder Fees 14
17. Form N-SAR 14
18. Cooperation With Accountants 15
19. Blue Sky 15
20. Banking Services for the PLUS Classes 15
21. Other Services 17
Article C Fees and Out-of-Pocket Expenses 17
1. Fees and Out-of-Pocket Expenses - All Funds 17
2. Fees and Out-of-Pocket Expenses - PLUS Classes of Shares 19
Article DRepresentations and Warranties of the Price Services 19
Article E Representations and Warranties of the Fund 20
Article F Standard of Care/Indemnification 20
Article G Dual Interests 23
Article H Documentation 23
Article I References to Price Services 24
Article JCompliance with Governmental Rules and Regulations 25
Article K Ownership of Software and Related Material 25
Article L Quality Service Standards 25
Article M As of Transactions 25
<PAGE>
Article N Term and Termination of Agreement 28
Article O Notice 29
Article P Assignment 29
Article Q Amendment/Interpretive Provisions 29
Article R Further Assurances 29
Article S Maryland Law to Apply 29
Article T Merger of Agreement 30
Article U Counterparts 30
Article V The Parties 30
Article WDirectors, Trustees, Shareholders and Massachusetts Business Trust 30
Article X Captions 31
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the first day of January, 1999, by and between T. ROWE
PRICE SERVICES, INC., a Maryland corporation having its principal office and
place of business at 100 East Pratt Street, Baltimore, Maryland 21202 ("PRICE
SERVICES"), and EACH FUND WHICH IS LISTED ON APPENDIX A (as such Appendix may be
amended from time to time) and which evidences its agreement to be bound hereby
by executing a copy of this Agreement (each such Fund individually hereinafter
referred to as "THE FUND", whose definition may be found in Article V);
WHEREAS, the Fund desires to appoint Price Services as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities,
and Price Services desires to accept such appointment;
WHEREAS, Price Services represents that it is registered with the
Securities and Exchange Commission as a Transfer Agent under Section 17A of the
Securities Exchange Act of 1934 ("'34 ACT") and will notify each Fund promptly
if such registration is revoked or if any proceeding is commenced before the
Securities and Exchange Commission which may lead to such revocation;
WHEREAS, Price Services has the capability of providing shareholder
services on behalf of the Funds for the accounts of shareholders in the Funds,
including banks and brokers on behalf of underlying clients;
WHEREAS, Price Services has the capability of providing special banking
services, including debit card and unlimited check writing services ("BANKING
SERVICES") for the T. Rowe Price Prime Reserve Fund - PLUS Class of Shares and
T. Rowe Price Tax-Exempt Money Fund - PLUS Class of Shares ("PLUS CLASSES");
<PAGE>
WHEREAS, certain of the Funds are named investment options under various
tax-sheltered retirement plans including, but not limited to, individual
retirement accounts, Sep-IRA's, SIMPLE plans, deferred compensation plans,
403(b) plans, and profit sharing, thrift, and money purchase pension plans for
self-employed individuals and professional partnerships and corporations,
(collectively referred to as "RETIREMENT PLANS");
WHEREAS, Price Services also has the capability of providing special
services, on behalf of the Funds, for the accounts of shareholders participating
in these Retirement Plans ("RETIREMENT ACCOUNTS").
WHEREAS, Price Services may subcontract or jointly contract with other
parties, on behalf of the Funds to perform certain of the functions and services
described herein including services to Retirement Plans and Retirement Accounts;
WHEREAS, Price Services may also enter into, on behalf of the Funds,
certain banking relationships to perform various banking services including, but
not limited to, check deposits, check disbursements, automated clearing house
transactions ("ACH") and wire transfers.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
A. TERMS OF APPOINTMENT
--------------------
Subject to the terms and conditions set forth in this Agreement, the Fund
hereby employs and appoints Price Services to act, and Price Services agrees to
act, as the Fund's transfer agent, dividend disbursing agent and agent in
connection with: (1) the Fund's authorized and issued shares of its common stock
or shares of beneficial interest (all such stock and shares to be referred to as
"SHARES"); (2) any dividend reinvestment or other services provided to the
shareholders of the Fund
<PAGE>
("SHAREHOLDERS"), including, without limitation, any periodic investment plan or
periodic withdrawal program; and (3) certain Retirement Plan and Retirement
Accounts as agreed upon by the parties.
The parties to the Agreement hereby acknowledge that from time to time,
Price Services and T. Rowe Price Trust Company may enter into contracts ("OTHER
CONTRACTS") with employee benefit plans and/or their sponsors for the provision
of certain plan participant services to Retirement Plans and Retirement
Accounts. Compensation paid to Price Services pursuant to this Agreement is
with respect to the services described herein and not with respect to services
provided under Other Contracts.
B. DUTIES OF PRICE SERVICES
------------------------
Price Services agrees that it will perform the following services:
1. RECEIPT OF ORDERS/PAYMENTS
------- -- ---------------
Receive for acceptance, orders/payments for the purchase of Shares and
promptly deliver payment and appropriate documentation thereof to the authorized
custodian of the Fund (the "CUSTODIAN"). Upon receipt of any check or other
instrument drawn or endorsed to it as agent for, or identified as being for the
account of, the Fund, Price Services will process the order as follows:
.
Examine the check to determine if the check conforms to the Funds' acceptance
procedures (including certain third-party check procedures). If the check
conforms, Price Services will endorse the check and include the date of receipt,
will process the same for payment, and deposit the net amount to the parties
agreed upon designated bank account prior to such deposit in the Custodial
account, and will notify the Fund and the Custodian, respectively, of such
deposits (such notification to be given on a daily basis of the total amount
deposited to said accounts during the prior business day);
<PAGE>
.
Subject to guidelines mutually agreed upon by the Funds and Price Services,
excess balances, if any, resulting from deposit in these designated bank
accounts will be invested and the income therefrom will be used to offset fees
which would otherwise be charged to the Funds under this Agreement;
.
Ensure that any documentation received from Shareholder is in "good order" and
all appropriate documentation is received to establish an account.
.
Open a new account, if necessary, and credit the account of the investor with
the number of Shares to be purchased according to the price of the Fund's Shares
in effect for purchases made on that date, subject to any instructions which the
Fund may have given to Price Services with respect to acceptance of orders for
Shares;
.
Maintain a record of all unpaid purchases and report such information to the
Fund daily;
.
Process periodic payment orders, as authorized by investors, in accordance with
the payment procedures mutually agreed upon by both parties;
.
Receive monies from Retirement Plans and determine the proper allocation of such
monies to the Retirement Accounts based upon instructions received from
Retirement Plan participants or Retirement Plan administrators
("ADMINISTRATORS");
. Process orders received from recordkeepers and banks and brokers for
omnibus accounts in accordance with internal policies and procedures established
in executed agency agreements and other agreements negotiated with banks and
brokers; and
. Process telephone orders for purchases of Fund shares from the
Shareholder's bank account (via wire or ACH) to the Fund in accordance with
procedures mutually agreed upon by both parties.
Upon receipt of funds through the Federal Reserve Wire System that are
designated
<PAGE>
for purchases in Funds which declare dividends at 12:00 p.m. (or such time as
set forth in the Fund's current prospectus), Price Services shall promptly
notify the Fund and the Custodian of such deposit.
2. REDEMPTIONS
-----------
Receive for acceptance redemption requests, including telephone redemptions
and requests received from Administrators for distributions to participants or
their designated beneficiaries or for payment of fees due the Administrator or
such other person, including Price Services, and deliver the appropriate
documentation thereof to the Custodian. Price Services shall receive and stamp
with the date of receipt, all requests for redemptions of Shares (including all
certificates delivered to it for redemption) and shall process said redemption
requests as follows, subject to the provisions of Section 6 hereof:
.
Examine the redemption request and, for written redemptions, the supporting
documentation, to determine that the request is in good order and all
requirements have been met;
.
Notify the Fund on the next business day of the total number of Shares presented
and covered by all such requests;
.For those Funds that impose redemption fees, calculate the fee owed on the
redemption in accordance with the guidelines established between the Fund and
Price Services;
.
As set forth in the prospectus of the Fund, and in any event, on or prior to the
seventh (7th) calendar day succeeding any such request for redemption, Price
Services shall, from funds available in the accounts maintained by Price
Services as agent for the Funds, pay the applicable redemption price in
accordance with the current prospectus of the Fund, to the investor,
participant, beneficiary, Administrator or such other person, as the case may
be;
.
Instruct custodian to wire redemption proceeds to a designated bank account of
Price Services. Subject to guidelines mutually agreed upon by the Funds and
Price Services, excess
<PAGE>
balances, if any, resulting from deposit in these bank
accounts will be invested and the income therefrom will be used to offset fees
which would otherwise be charged to the Funds under this Agreement;
.
If any request for redemption does not comply with the Fund's requirements,
Price Services shall promptly notify the investor of such fact, together with
the reason therefore, and shall effect such redemption at the price in effect at
the time of receipt of all appropriate documents;
.
Make such withholdings as may be required under applicable Federal tax laws;
.
In the event redemption proceeds for the payment of fees are to be wired through
the Federal Reserve Wire System or via ACH, Price Services shall cause such
proceeds to be wired in Federal funds or via ACH to the bank account designated
by Shareholder; and
.
Process periodic redemption orders as authorized by the investor in accordance
with the periodic withdrawal procedures for Systematic Withdrawal Plan ("SWP")
and systematic ACH redemptions mutually agreed upon by both parties.
Procedures and requirements for effecting and accepting redemption orders
from investors by telephone, Tele*Access, computer, or written instructions
shall be established by mutual agreement between Price Services and the Fund
consistent with the Fund's current prospectus.
3. TRANSFERS
---------
Effect transfers of Shares by the registered owners thereof upon receipt of
appropriate instructions and documentation and examine such instructions for
conformance with appropriate procedures and requirements. In this regard, Price
Services, upon receipt of a proper request for transfer, including any transfer
involving the surrender of certificates of Shares, is authorized to transfer, on
the records of the Fund, Shares of the Fund, including cancellation of
surrendered
<PAGE>
certificates, if any, to credit a like amount of Shares to the transferee.
4. CONFIRMATIONS
-------------
Mail all confirmations and statements as well as other enclosures requested
by the Fund to the shareholder, and in the case of Retirement Accounts, to the
Administrators, as may be required by the Funds or by applicable Federal or
state law.
5. RETURNED CHECKS AND ACH DEBITS
-------- ------ --- --- ------
In order to minimize the risk of loss to the Fund by reason of any check
being returned unpaid, Price Services will promptly identify and follow-up on
any check or ACH debit returned unpaid. For items returned, Price Services may
telephone the investor and/or redeposit the check or debit for collection or
cancel the purchase, as deemed appropriate. Price Services and the Funds will
establish procedures for the collection of money owed the Fund from investors
who have caused losses due to these returned items.
6. REDEMPTION OF SHARES UNDER A HOLD
---------- -- ------ ----- - ----
.
UNCOLLECTED FUNDS. Shares purchased by personal, corporate, or governmental
check, or by ACH will be considered uncollected until the tenth calendar date
(the seventh business date for PLUS Classes) (following the trade date of the
trade ("UNCOLLECTED FUNDS");
.
GOOD FUNDS. Shares purchased by treasurer's, cashier, certified, or official
check, or by wire transfer will be considered collected immediately ("GOOD
FUNDS"). Absent information to the contrary (i.e., notification from the payee
institution), Uncollected Funds will be considered Good Funds on the tenth
calendar day (the seventh business day for the PLUS Classes) following trade
date.
. REDEMPTION OF UNCOLLECTED FUNDS
.
Shareholders making telephone requests for redemption of shares purchased with
<PAGE>
Uncollected Funds will be given two options:
1.
The Shareholder will be permitted to exchange to a money market fund to preserve
principal until the payment is deemed Good Funds;
2.
The redemption can be processed utilizing the same procedures for written
redemptions described below.
.
If a written redemption request is made for shares where any portion of the
payment for said shares is in Uncollected Funds, and the request is in good
order, Price Services will promptly obtain the information relative to the
payment necessary to determine when the payment becomes Good Funds. The
redemption will be processed in accordance with normal procedures, and the
proceeds will be held until confirmation that the payment is Good Funds. On the
seventh (7th) calendar day after trade date, and each day thereafter until
either confirmation is received or the tenth (10th) calendar day (the seventh
business day for the PLUS Classes), Price Services will call the paying
institution to request confirmation that the check or ACH in question has been
paid. On the tenth calendar day (the seventh business day for the PLUS Classes)
after trade date, the redemption proceeds will be released, regardless of
whether confirmation has been received.
. CHECKWRITING REDEMPTIONS.
.
Daily, all checkwriting redemptions $10,000 and over reported as Uncollected
Funds or insufficient funds will be reviewed. An attempt will be made to contact
the shareholder to make good the funds (through wire, exchange, transfer).
Generally by 12:00 p.m. the same day, if the matter
has not been resolved, the redemption request will be rejected and the check
returned to the Shareholder.
<PAGE>
.All checkwriting redemptions under $10,000 reported as Uncollected or
insufficient funds will be rejected and the check returned to the Shareholder.
The Funds and Services may agree to contact shareholders presenting checks under
$10,000 reported as insufficient to obtain alternative instructions for payment.
.
CONFIRMATIONS OF AVAILABLE FUNDS. The Fund expects that situations may develop
whereby it would be beneficial to determine if a person who has placed an order
for Shares has sufficient funds in his or her checking account to cover the
payment for the Shares purchased. When this situation occurs, Price Services may
call the bank in question and request that it confirm that sufficient funds to
cover the purchase are currently credited to the account in question. Price
Services will maintain written documentation or a recording of each telephone
call which is made under the procedures outlined above. None of the above
procedures shall preclude Price Services from inquiring as to the status of any
check received by it in payment for the Fund's Shares as Price Services may deem
appropriate or necessary to protect both the Fund and Price Services. If a
conflict arises between Section 2 and this Section 6, Section 6 will govern.
7. DIVIDENDS, DISTRIBUTIONS AND OTHER CORPORATE ACTIONS
---------- ------------- --- ----- --------- -------
.
The Fund will promptly inform Price Services of the declaration of any dividend,
distribution, stock split or any other distributions of a similar kind on
account of its Capital Stock.
.
Price Services shall act as Dividend Disbursing Agent for the Fund, and as such,
shall prepare and make income and capital gain payments to investors. As
Dividend Disbursing Agent, Price Services will on or before the payment date of
any such dividend or distribution, notify the Custodian of the estimated amount
required to pay any portion of said dividend or distribution which is payable in
cash, and the Fund agrees that on or about the payment date of such
distribution,
<PAGE>
it shall instruct the Custodian to make available to Price Services sufficient
funds for the cash amount to be paid out. If an investor is entitled to receive
additional Shares by virtue of any such distribution or dividend, appropriate
credits will be made to his or her account.
8. UNCLAIMED PAYMENTS AND CERTIFICATES
--------- -------- --- ------------
In accordance with procedures agreed upon by both parties, report abandoned
property to appropriate state and governmental authorities of the Fund. Price
Services shall, 90 days prior to the annual reporting of abandoned property to
each of the states, make reasonable attempts to locate Shareholders for which
(a) checks, tax forms, statements or confirms have been returned; (b) for which
accounts have aged outstanding checks; or (c) accounts with share balances that
have been coded with stop mail and meet the dormancy period guidelines specified
in the individual states. Price Services shall make reasonable attempts to
contact shareholders for those accounts which have significant aged outstanding
checks and those checks meet a specified dollar threshold. Price Services shall
also comply with applicable securities regulation with respect to searching for
lost shareholders.
9. BOOKS AND RECORDS
----- --- -------
Maintain records showing for each Shareholder's account, Retirement Plan or
Retirement Account, as the case may be, the following:
. Names, address and tax identification number;
. Number of Shares held;
.
Certain historical information regarding the account of each Shareholder,
including dividends and distributions distributed in cash or invested in Shares;
<PAGE>
.
Pertinent information regarding the establishment and maintenance of Retirement
Plans and Retirement Accounts necessary to properly administer each account;
.
Information with respect to the source of dividends and distributions allocated
among income (taxable and nontaxable income), realized short-term gains and
realized long-term gains;
.
Any stop or restraining order placed against a Shareholder's account;
.
Information with respect to withholdings on domestic and foreign accounts;
.
Any instructions from a Shareholder including, all forms furnished by the Fund
and executed by a Shareholder with respect to (i) dividend or distribution
elections, and (ii) elections with respect to payment options in connection with
the redemption of Shares;
.
Any correspondence relating to the current maintenance of a Shareholder's
account;
.
Certificate numbers and denominations for any Shareholder holding certificates;
.
Any information required in order for Price Services to perform the calculations
contemplated under this Agreement.
Price Services shall maintain files and furnish statistical and other
information as required under this Agreement and as may be agreed upon from time
to time by both parties or required by applicable law. However, Price Services
reserves the right to delete, change or add any information to the files
maintained; provided such deletions, changes or additions do not contravene the
terms of this Agreement or applicable law and do not materially reduce the level
of services described in this Agreement. Price Services shall also use its best
efforts to obtain additional statistical and other information as each Fund may
reasonably request for additional fees as may be agreed to by both
<PAGE>
parties.
Any such records maintained pursuant to Rule 31a-1 under the Investment
Company Act of 1940 ("THE ACT") will be preserved for the periods and maintained
in a manner prescribed in Rule 31a-2 thereunder. Disposition of such records
after such prescribed periods shall be as mutually agreed upon by the Fund and
Price Services. The retention of such records, which may be inspected by the
Fund at reasonable times, shall be at the expense of the Fund. All records
maintained by Price Services in connection with the performance of its duties
under this Agreement will remain the property of the Fund and, in the event of
termination of this Agreement, will be delivered to the Fund as of the date of
termination or at such other time as may be mutually agreed upon.
All books, records, information and data pertaining to the business of the
other party which are exchanged or received pursuant to the negotiation or the
carrying out of this Agreement shall remain confidential, and shall not be
voluntarily disclosed to any other person, except after prior notification to
and approval by the other party hereto, which approval shall not be unreasonably
withheld and may not be withheld where Price Services or the Fund may be exposed
to civil or criminal contempt proceedings for failure to comply; when requested
to divulge such information by duly constituted governmental authorities; or
after so requested by the other party hereto.
10. AUTHORIZED ISSUED AND OUTSTANDING SHARES
---------- ------ --- ----------- ------
Record the issuance of Shares of the Fund and maintain, pursuant to Rule
17Ad-10(e) of the '34 Act, a record of the total number of Shares of the Fund
which are authorized, issued and outstanding, based upon data provided to it by
the Fund. Price Services shall also provide the Fund on a regular basis the
total number of Shares which are authorized and issued and outstanding. Price
<PAGE>
Services shall have no obligation, when recording the issuance of Shares, to
monitor the issuance of such Shares or to take cognizance of any laws relating
to the issuance or sale of such Shares.
11. TAX INFORMATION
--- -----------
Prepare and file with the Internal Revenue Service and with other
appropriate state agencies and, if required, mail to investors, those returns
for reporting dividends and distributions paid as required to be so filed and
mailed, and shall withhold such sums required to be withheld under applicable
Federal income tax laws, rules, and regulations. Additionally, Price Services
will file and, as applicable, mail to investors, any appropriate information
returns required to be filed in connection with Retirement Plan processing, such
as 1099R, 5498, as well as any other appropriate forms that the Fund or Price
Services may deem necessary. The Fund and Price Services shall agree to
procedures to be followed with respect to Price Services' responsibilities in
connection with compliance with back-up withholding and other tax laws.
12. INFORMATION TO BE FURNISHED TO THE FUND
----------- -- -- --------- -- --- ----
Furnish to the Fund such information as may be agreed upon between the Fund
and Price Services including any information that the Fund and Price Services
agree is necessary to the daily operations of the business.
13. CORRESPONDENCE
--------------
Promptly and fully answer correspondence from shareholders and
Administrators relating to Shareholder Accounts, Retirement Accounts, transfer
agent procedures, and such other correspondence as may from time to time be
mutually agreed upon with the Funds. Unless otherwise instructed, copies of all
correspondence will be retained by Price Services in accordance with applicable
law and procedures.
<PAGE>
14. LOST OR STOLEN SECURITIES
---- -- ------ ----------
Pursuant to Rule 17f-1 of the '34 Act, report to the Securities Information
Center and/or the FBI or other appropriate person on Form X-17-F-1A all lost,
stolen, missing or counterfeit securities. Provide any other services relating
to lost, stolen or missing securities as may be mutually agreed upon by both
parties.
15. TELEPHONE SERVICES
--------- --------
Maintain a Telephone Servicing Staff of representatives ("REPRESENTATIVES")
sufficient to timely respond to all telephonic inquiries reasonably foreseeable.
The Representatives will also effect telephone purchases, redemptions,
exchanges, and other transactions mutually agreed upon by both parties, for
those Shareholders who have authorized telephone services. The Representatives
shall require each Shareholder effecting a telephone transaction to properly
identify himself/herself before the transaction is effected, in accordance with
procedures agreed upon between by both parties. Procedures for processing
telephone transactions will be mutually agreed upon by both parties. Price
Services will also be responsible for providing Tele*Access, On-Line Access and
such other Services as may be offered by the Funds from time to time. Price
Services will maintain a special Shareholder Servicing staff to service certain
Shareholders with substantial relationships with the Funds.
16. COLLECTION OF SHAREHOLDER FEES
---------- -- ----------- ----
Calculate and notify shareholders of any fees owed the Fund, its affiliates or
its agents. Such fees include the small account fee IRA custodial fee and wire
fee.
17. FORM N-SAR
---- -----
Maintain such records, if any, as shall enable the Fund to fulfill the
requirements of Form N-SAR.
<PAGE>
18. COOPERATION WITH ACCOUNTANTS
----------- ---- -----------
Cooperate with each Fund's independent public accountants and take all
reasonable action in the performance of its obligations under the Agreement to
assure that the necessary information is made available to such accountants for
the expression of their opinion without any qualification as to the scope of
their examination, including, but not limited to, their opinion included in each
such Fund's annual report on Form N-SAR and annual amendment to Form N-1A.
19. BLUE SKY
---- ---
Provide to the Fund or its agent, on a daily, weekly, monthly and quarterly
basis, and for each state in which the Fund's Shares are sold, sales reports and
other materials for blue sky compliance purposes as shall be agreed upon by the
parties.
20. BANKING SERVICES FOR THE PLUS CLASSES
------- -------- --- --- ---- -------
.
DETERMINE SHAREHOLDER ELIGIBILITY FOR BANKING SERVICES. Pursuant to mutually
agreed upon procedures, Price Services shall determine shareholder eligibility
for Banking Services offered by the PLUS Classes. Such procedures include, but
are not limited to, for existing shareholders, review of account history
(identification of any previously returned investment checks or ACH
transactions, redemptions of uncollected funds, etc.) and for new investors,
review of credit bureau and suspicious activity fraud reports.
.CARD ISSUANCE. Once a shareholder is approved for Banking Services, Price
Services shall transmit new card orders to the debit card processing bank which
will produce and mail new cards and PIN numbers to PLUS Classes' shareholders.
For existing shareholders, Price Services shall also cause the bank to reissue
cards prior to expiration date.
.
TRANSMISSION OF DATA TO AND FROM BANK. On a daily basis, Price Services shall
receive
<PAGE>
information from the debit card processing bank. In this regard, Price Services
shall, after card transaction information is received from the debit card
processing bank, process all debit card transaction detail against each
shareholder's PLUS Class collected account balance. On each business day, Price
Services shall cause information regarding the available limit of each PLUS
Class shareholder account to be transmitted to the debit card processing bank by
a time designated by the bank.
.
REDEMPTION ORDERS RECEIVED FOR PLUS CLASS ACCOUNTS. Representatives shall follow
mutually agreed upon procedures to ensure that the shareholder's PLUS Class
collected account balance is reviewed and decremented with authorized debit card
transactions before processing any mutual fund redemption or exchange
transactions.
.
DISPUTED DEBIT CARD TRANSACTIONS/FRAUD. Price Services shall receive information
from PLUS Class shareholders regarding disputed debit card transactions and
forward this information to the bank who will investigate the reported disputed
transaction. Price Services will follow procedures developed between it and the
bank for resolving such disputes and for provisionally crediting the
shareholder's account. Price Services shall also assist in the monitoring of
shareholder activity for fraud.
21. OTHER SERVICES
----- --------
Provide such other services as may be mutually agreed upon between Price
Services and the Fund.
C. FEES AND OUT-OF-POCKET EXPENSES
-------------------------------
1. FEES AND OUT-OF-POCKET EXPENSES - ALL FUNDS.
--------------------------------------------
Each Fund shall pay to Price Services and/or its agents for its Transfer
Agent Services
<PAGE>
hereunder, fees computed as set forth in Schedule A attached. Except as provided
below, Price Services will be responsible for all expenses relating to the
providing of Services. Each Fund, however, will reimburse Price Services for the
following out-of-pocket expenses and charges incurred in providing Services:
.
POSTAGE. The cost of postage and freight for mailing materials to Shareholders
and Retirement Plan participants, or their agents, including overnight delivery,
UPS and other express mail services and special courier services required to
transport mail between Price Services locations and mail processing vendors.
.
PROXIES. The cost to mail proxy cards and other material supplied to it by the
Fund and costs related to the receipt, examination and tabulation of returned
proxies and the certification of the vote to the Fund.
. COMMUNICATIONS
.
PRINT. The printed forms used internally and externally for documentation and
processing Shareholder and Retirement Plan participant, or their agent's
inquiries and requests; paper and envelope supplies for letters, notices, and
other written communications sent to Shareholders and Retirement Plan
participants, or their agents.
.
PRINT & MAIL HOUSE. The cost of internal and third party printing and mail
house services, including printing of statements and reports.
.
VOICE AND DATA. The cost of equipment (including associated maintenance),
supplies and services used for communicating with and servicing Shareholders of
the Fund and Retirement Plan participants, or their agents, and other Fund
offices or other agents of either the Fund or Price Services. These charges
shall include:
<PAGE>
.
telephone toll charges (both incoming and outgoing, local, long distance and
mailgrams); and
.
data and telephone expenses to communicate with shareholders and transfer
shareholders between T. Rowe Price facilities.
.
Production support, service enhancements and custom reporting for the
shareholder mainframe recordkeeping system.
.
RECORD RETENTION. The cost of maintenance and supplies used to maintain,
microfilm, copy, record, index, display, retrieve, and store, in microfiche or
microfilm form, documents and records.
.
DISASTER RECOVERY. The cost of services, equipment, facilities and other charges
necessary to provide disaster recovery for any and all services listed in this
Agreement.
Out-of-pocket costs will be billed at cost to the Funds. Allocation of
monthly costs among the Funds will generally be made based upon the number of
Shareholder and Retirement Accounts serviced by Price Services each month. Some
invoices for these costs will contain costs for both the Funds and other funds
serviced by Price Services. These costs will be allocated based on a reasonable
allocation methodology. Where possible, such as in the case of inbound and
outbound WATS charges, allocation will be made on the actual distribution or
usage.
2. FEES AND OUT-OF-POCKET EXPENSES - PLUS CLASSES OF SHARES
--------------------------------------------------------
Notwithstanding anything to the contrary in Section 21, the fees and
out-of-pocket expenses set forth in Section C(1) above with respect to the PLUS
Classes shall be charged as follows:
. All out-of-pocket expenses described in Section C(1) above shall be charged
to the Class in the same manner as if the Class was its own Price Fund. In
addition, each PLUS Class shall pay the following out-of-pocket expenses charged
by the debit card processing bank:
<PAGE>
. Plastic stock and labels for the debit cards;
. User tapes and automated voice response unit used to assist shareholders
whose cards have been lost or stolen;
. Ad hoc reports prepared by the bank; and
. Checkbooks.
D. REPRESENTATIONS AND WARRANTIES OF PRICE SERVICES
------------------------------------------------
Price Services represents and warrants to the Fund that:
1. It is a corporation duly organized and existing and in good standing under
the laws of Maryland;
2. It is duly qualified to carry on its business in Maryland, California and
Florida;
3. It is empowered under applicable laws and by its charter and by-laws to
enter into and perform this Agreement;
4. All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement;
5. It is registered with the Securities and Exchange Commission as a Transfer
Agent pursuant to Section 17A of the '34 Act; and
6. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
E. REPRESENTATIONS AND WARRANTIES OF THE FUND
------------------------------------------
The Fund represents and warrants to Price Services that:
1. It is a corporation or business trust duly organized and existing and in
good standing under the laws of Maryland or Massachusetts, as the case may be;
2. It is empowered under applicable laws and by its Articles of Incorporation
or Declaration
<PAGE>
of Trust, as the case may be, and By-Laws to enter into and perform this
Agreement;
3. All proceedings required by said Articles of Incorporation or Declaration
of Trust, as the case may be, and By-Laws have been taken to authorize it to
enter into and perform this Agreement;
4. It is an investment company registered under the Act; and
5. A registration statement under the Securities Act of 1933 ("THE '33 ACT")
is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Fund being offered for sale.
F. STANDARD OF CARE/INDEMNIFICATION
--------------------------------
Notwithstanding anything to the contrary in this Agreement:
1. Price Services shall not be liable to any Fund for any act or failure to
act by it or its agents or subcontractors on behalf of the Fund in carrying or
attempting to carry out the terms and provisions of this Agreement provided
Price Services has acted in good faith and without negligence or willful
misconduct and selected and monitored the performance of its agents and
subcontractors with reasonable care.
2. The Fund shall indemnify and hold Price Services harmless from and against
all losses, costs, damages, claims, actions and expenses, including reasonable
expenses for legal counsel, incurred by Price Services resulting from: (i) any
action or omission by Price Services or its agents or subcontractors in the
performance of their duties hereunder; (ii) Price Services acting upon
instructions believed by it to have been executed by a duly authorized officer
of the Fund; or (iii) Price Services acting upon information provided by the
Fund in form and under policies agreed to by Price Services and the Fund. Price
Services shall not be entitled to such indemnification in respect of actions or
omissions constituting negligence or willful misconduct of Price Services or
where
<PAGE>
Price Services has not exercised reasonable care in selecting or monitoring the
performance of its agents or subcontractors.
3. Except as provided in Article M of this Agreement, Price Services shall
indemnify and hold harmless the Fund from all losses, costs, damages, claims,
actions and expenses, including reasonable expenses for legal counsel, incurred
by the Fund resulting from the negligence or willful misconduct of Price
Services or which result from Price Services' failure to exercise reasonable
care in selecting or monitoring the performance of its agents or subcontractors.
The Fund shall not be entitled to such indemnification in respect of actions or
omissions constituting negligence or willful misconduct of such Fund or its
agents or subcontractors; unless such negligence or misconduct is attributable
to Price Services.
4. In determining Price Services' liability, an isolated error or omission
will normally not be deemed to constitute negligence when it is determined that:
. Price Services had in place "appropriate procedures;"
.the employee(s) responsible for the error or omission had been reasonably
trained and were being appropriately monitored; and
.
the error or omission did not result from wanton or reckless conduct on the part
of the employee(s).
It is understood that Price Services is not obligated to have in place separate
procedures to prevent each and every conceivable type of error or omission. The
term "appropriate procedures" shall mean procedures reasonably designed to
prevent and detect errors and omissions. In determining the reasonableness of
such procedures, weight will be given to such factors as are appropriate,
including the prior occurrence of any similar errors or omissions when such
procedures were in
<PAGE>
place and transfer agent industry standards in place at the time of the
occurrence.
5. In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes or other causes
reasonably beyond its control, such party shall not be liable to the other party
for any loss, cost, damage, claim, action or expense resulting from such failure
to perform or otherwise from such causes.
6. In order that the indemnification provisions contained in this Article E
shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim, or to defend against
said claim in its own name or in the name of the other party. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
7. Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement.
G. DUAL INTERESTS
--------------
It is understood that some person or persons may be directors, officers, or
shareholders of both the Funds and Price Services (including Price Services's
affiliates), and that the existence of any such dual interest shall not affect
the validity of this Agreement or of any transactions hereunder except as
otherwise provided by a specific provision of applicable law.
H. DOCUMENTATION
-------------
<PAGE>
.As requested by Price Services, the Fund shall promptly furnish to Price
Services the following:
.A certified copy of the resolution of the Directors/Trustees of the Fund
authorizing the appointment of Price Services and the execution and delivery of
this Agreement;
.
A copy of the Articles of Incorporation or Declaration of Trust, as the case may
be, and By-Laws of the Fund and all amendments thereto;
.As applicable, specimens of all forms of outstanding and new stock/share
certificates in the forms approved by the Board of Directors/Trustees of the
Fund with a certificate of the Secretary of the Fund as to such approval;
.
All account application forms and other documents relating to Shareholders'
accounts;
.
An opinion of counsel for the Fund with respect to the validity of the stock,
the number of Shares authorized, the status of redeemed Shares, and the number
of Shares with respect to which a Registration Statement has been filed and is
in effect; and
. A copy of the Fund's current prospectus.
The delivery of any such document for the purpose of any other agreement to
which the Fund and Price Services are or were parties shall be deemed to be
delivery for the purposes of this Agreement.
.
As requested by Price Services, the Fund will also furnish from time to time the
following documents:
.
Each resolution of the Board of Directors/Trustees of the Fund authorizing the
original issue of its Shares;
.
Each Registration Statement filed with the Securities and Exchange Commission
and
<PAGE>
amendments and orders thereto in effect with respect to the sale of Shares with
respect to the Fund;
.A certified copy of each amendment to the Articles of Incorporation or
Declaration of Trust, and the By-Laws of the Fund;
.
Certified copies of each vote of the Board of Directors/Trustees authorizing
officers to give instructions to the Transfer Agent;
.
Such other documents or opinions which Price Services, in its discretion, may
reasonably deem necessary or appropriate in the proper performance of its
duties; and
. Copies of new prospectuses issued.
Price Services hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
I. REFERENCES TO PRICE SERVICES
----------------------------
Each Fund agrees not to circulate any printed matter which contains any
reference to Price Services without the prior approval of Price Services,
excepting solely such printed matter that merely identifies Price Services as
agent of the Fund. The Fund will submit printed matter requiring approval to
Price Services in draft form, allowing sufficient time for review by Price
Services and its legal counsel prior to any deadline for printing.
<PAGE>
J. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS
--------------------------------------------------
Except as otherwise provided in the Agreement and except for the accuracy
of information furnished to the Fund by Price Services, each Fund assumes full
responsibility for the preparation, contents and distribution of its
prospectuses and compliance with all applicable requirements of the Act, the '34
Act, the '33 Act, and any other laws, rules and regulations of governmental
authorities having jurisdiction over the Fund. Price Services shall be
responsible for complying with all laws, rules and regulations of governmental
authorities having jurisdiction over transfer agents and their activities.
K. OWNERSHIP OF SOFTWARE AND RELATED MATERIAL
------------------------------------------
All computer programs, magnetic tapes, written procedures and similar items
purchased and/or developed and used by Price Services in performance of the
Agreement shall be the property of Price Services and will not become the
property of the Fund.
L. QUALITY SERVICE STANDARDS
-------------------------
Price Services and the Fund may from time to time agree to certain quality
service standards, as well as incentives and penalties with respect to Price
Services' hereunder.
M. AS OF TRANSACTIONS
------------------
For purposes of this Article M, the term "TRANSACTION" shall mean any
single or "related transaction" (as defined below) involving the purchase or
redemption of Shares (including exchanges) that is processed at a time other
than the time of the computation of the Fund's net asset value per Share next
computed after receipt of any such transaction order by Price Services due to an
act or omission of Price Services. "AS OF PROCESSING" refers to the processing
of these Transactions. If more than one Transaction ("RELATED TRANSACTION") in
the Fund is caused by or
<PAGE>
occurs as a result of the same act or omission, such transactions shall be
aggregated with other transactions in the Fund and be considered as one
Transaction.
. REPORTING
Price Services shall:
1.
Utilize a system to identify all Transactions, and shall compute the net effect
of such Transactions upon the Fund on a daily, monthly and rolling 365 day
basis. The monthly and rolling 365 day periods are hereafter referred to as
"CUMULATIVE".
2.
Supply to the Fund, from time to time as mutually agreed upon, a report
summarizing the Transactions and the daily and Cumulative net effects of such
Transactions both in terms of aggregate dilution and loss ("DILUTION") or gain
and negative dilution ("GAIN") experienced by the Fund, and the impact such Gain
or Dilution has had upon the Fund's net asset value per Share.
3.
With respect to any Transaction which causes Dilution to the Fund of $100,000 or
more, immediately provide the Fund: (i) a report identifying the Transaction and
the Dilution resulting therefrom, (ii) the reason such Transaction was processed
as described above, and (iii) the action that Price Services has or intends to
take to prevent the reoccurrence of such as of processing ("REPORT").
. LIABILITY
1.
It will be the normal practice of the Funds not to hold Price Services liable
with respect to any Transaction which causes Dilution to any single Fund of less
than $25,000. Price Services will, however, closely monitor for each Fund the
daily and Cumulative Gain/Dilution which is caused by Transactions of less than
$25,000. When the Cumulative Dilution to any Fund
<PAGE>
exceeds 3/10 of 1% per share, Price Services, in consultation with counsel to
the Fund, will make appropriate inquiry to determine whether it should take any
remedial action. Price Services will report to the Board of Directors/Trustees
of the Fund ("Board") any action it has taken.
2.
Where a Transaction causes Dilution to a Fund greater than $25,000 ("SIGNIFICANT
TRANSACTION"), but less than $100,000, Price Services will review with Counsel
to the Fund the circumstances surrounding the underlying Transaction to
determine whether the Transaction was caused by or occurred as a result of a
negligent act or omission by Price Services. If it is determined that the
Dilution is the result of a negligent action or omission by Price Services,
Price Services and outside counsel for the Fund will negotiate settlement. All
such Significant Transactions will be reported to the Audit Committee at its
annual meeting (unless the settlement fully compensates the Fund for any
Dilution). Any Significant Transaction, however, causing Dilution in excess of
the lesser of $100,000 or a penny per share will be promptly reported to the
--------
Board and resolved at the next scheduled Board Meeting. Settlement for
Significant Transactions causing Dilution of $100,000 or more will not be
entered into until approved by the Board. The factors to consider in making any
determination regarding the settlement of a Significant Transaction would
include but not be limited to:
.
Procedures and controls adopted by Price Services to prevent As Of Processing;
.
Whether such procedures and controls were being followed at the time of the
Significant Transaction;
.
The absolute and relative volume of all transactions processed by Price Services
on the day of the Significant Transaction;
.
The number of Transactions processed by Price Services during prior relevant
<PAGE>
periods, and the net Dilution/Gain as a result of all such Transactions to the
Fund and to all other Price Funds;
.
The prior response of Price Services to recommendations made by the Funds
regarding improvement to Price Services' As Of Processing procedures.
3. In determining Price Services' liability with respect to a Significant
Transaction, an isolated error or omission will normally not be deemed to
constitute negligence
when it is determined that:
. Price Services had in place "appropriate procedures".
.
the employee(s) responsible for the error or omission had been reasonably
trained and were being appropriately monitored; and
.
the error or omission did not result from wanton or reckless conduct on the part
of the employee(s).
It is understood that Price Services is not obligated to have in place separate
procedures to prevent each and every conceivable type of error or omission. The
term "appropriate procedures" shall mean procedures reasonably designed to
prevent and detect errors and omissions. In determining the reasonableness of
such procedures, weight will be given to such factors as are appropriate,
including the prior occurrence of any similar errors or omissions when such
procedures were in place and transfer agent industry standards in place at the
time of the occurrence.
N. TERM AND TERMINATION OF AGREEMENT
---------------------------------
. This Agreement shall run for a period of one (1) year from the date first
written above and will be renewed from year to year thereafter unless terminated
by either party as provided hereunder.
. This Agreement may be terminated by the Fund upon one hundred twenty (120)
days' written
<PAGE>
notice to Price Services; and by Price Services, upon three hundred sixty-five
(365) days' writing notice to the Fund.
. Upon termination hereof, the Fund shall pay to Price Services such
compensation as may be due as of the date of such termination, and shall
likewise reimburse for out-of-pocket expenses related to its services hereunder.
O. NOTICE
------
Any notice as required by this Agreement shall be sufficiently given (i)
when sent to an authorized person of the other party at the address of such
party set forth above or at such other address as such party may from time to
time specify in writing to the other party; or (ii) as otherwise agreed upon by
appropriate officers of the parties hereto.
P. ASSIGNMENT
----------
Neither this Agreement nor any rights or obligations hereunder may be
assigned either voluntarily or involuntarily, by operation of law or otherwise,
by either party without the prior written consent of the other party, provided
this shall not preclude Price Services from employing such agents and
subcontractors as it deems appropriate to carry out its obligations set forth
hereunder.
Q. AMENDMENT/INTERPRETIVE PROVISIONS
---------------------------------
The parties by mutual written agreement may amend this Agreement at any
time. In addition, in connection with the operation of this Agreement, Price
Services and the Fund may agree from time to time on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. Any
such interpretive or additional provisions are to be signed by all parties and
annexed hereto,
<PAGE>
but no such provision shall contravene any applicable Federal or state law or
regulation and no such interpretive or additional provision shall be deemed to
be an amendment of this Agreement.
R. FURTHER ASSURANCES
------------------
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
S. MARYLAND LAW TO APPLY
---------------------
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of Maryland.
T. MERGER OF AGREEMENT
-------------------
This Agreement, including the attached Appendices and Schedules supersedes
any prior agreement with respect to the subject hereof, whether oral or written.
U. COUNTERPARTS
------------
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instruments.
V. THE PARTIES
-----------
All references herein to "the Fund" are to each of the Funds listed on
Appendix A individually, as if this Agreement were between such individual Fund
and Price Services. In the case of a series Fund or trust, all references to
"the Fund" are to the individual series or portfolio of such Fund or trust, or
to such Fund or trust on behalf of the individual series or portfolio, as
appropriate. The "Fund" also includes any T. Rowe Price Funds which may be
established after the execution of this Agreement. Any reference in this
Agreement to "the parties" shall mean Price Services and such other individual
Fund as to which the matter pertains.
<PAGE>
W. DIRECTORS, TRUSTEES AND SHAREHOLDERS AND MASSACHUSETTS BUSINESS TRUST
---------------------------------------------------------------------
It is understood and is expressly stipulated that neither the holders of
Shares in the Fund nor any Directors or Trustees of the Fund shall be personally
liable hereunder.
With respect to any Fund which is a party to this Agreement and which is
organized as a Massachusetts business trust, the term "Fund" means and refers to
the trustees from time to time serving under the applicable trust agreement
(Declaration of Trust) of such Trust as the same may be amended from time to
time. It is expressly agreed that the obligations of any such Trust hereunder
shall not be binding upon any of the trustees, shareholders, nominees, officers,
agents or employees of the Trust, personally, but bind only the trust property
of the Trust, as provided in the Declaration of Trust of the Trust. The
execution and delivery of this Agreement has been authorized by the trustees and
signed by an authorized officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them, but shall bind only the trust
property of the Trust as provided in its Declaration of Trust.
X. CAPTIONS
--------
The captions in the Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers.
T. ROWE PRICE SERVICES, INC. T. ROWE PRICE FUNDS
/s/Wayne D. O'Melia /s/Carmen F. Deyesu
BY: __________________________ BY: ___________________________
-------------------------- ---------------------------
DATED: 3/24/99 DATED: 3/26/99
<PAGE>
APPENDIX A
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND
T. ROWE PRICE CALIFORNIA TAX-FREE
INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
<PAGE>
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Growth & Income Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
<PAGE>
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. Rowe Price Prime Reserve Fund-PLUS Class
T. ROWE PRICE REAL ESTATE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
<PAGE>
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. Rowe Price Tax-Exempt Money Fund - PLUS Class
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of the:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. on behalf of the:
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
<PAGE>
AMENDMENT NO. 1
TRANSFER AGENCY AND SERVICE AGREEMENT
BETWEEN
T. ROWE PRICE SERVICES, INC.
AND
THE T. ROWE PRICE FUNDS
The Transfer Agency and Service Agreement of January 1, 1999, between T. Rowe
Price Services, Inc., and each of the Parties listed on Appendix A thereto is
hereby amended, as of April 21, 1999, by adding thereto T. Rowe Price
Tax-Efficient Funds, Inc., on behalf of T. Rowe Price Tax-Efficient Balanced
Fund and T. Rowe Price Tax-Efficient Growth Fund.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
<PAGE>
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Growth & Income Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. Rowe Price Prime Reserve Fund--PLUS Class
T. ROWE PRICE REAL ESTATE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
<PAGE>
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EFFICIENT FUNDS, INC.
T. Rowe Price Tax-Efficient Balanced Fund
T. Rowe Price Tax-Efficient Growth Fund
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. Rowe Price Tax-Exempt Money Fund--PLUS Class
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
<PAGE>
T. ROWE PRICE VALUE FUND, INC.
Attest:
/s/Patricia S. Lippert /s/ Carmen F. Deyesu
______________________ ______________________________
Patricia S. Lippert By: Carmen F. Deyesu
Secretary Treasurer
Attest: T. ROWE PRICE SERVICES, INC.
/s/Barbara A. Van Horn /s/ Henry H. Hopkins
______________________ ______________________________
Barbara A. Van Horn By: Henry H. Hopkins
Assistant Secretary Vice President
The Agreement between T. Rowe Price Associates, Inc. and T. Rowe Price
Funds for Fund Accounting Services, dated January 1, 1999, as amended.
<PAGE>
AGREEMENT
BETWEEN
T. ROWE PRICE ASSOCIATES, INC.
AND
THE T. ROWE PRICE FUNDS
FOR
FUND ACCOUNTING SERVICES
<PAGE>
TABLE OF CONTENTS
Page
Article A Terms of Appointment/Duties of Price Associates 1
Article B Fees and Out-of-Pocket Expenses 3
Article CRepresentations and Warranties of Price Associates 3
Article D Representations and Warranties of the Fund 4
Article E Ownership of Software and Related Material 4
Article F Quality Service Standards 4
Article G Standard of Care/Indemnification 4
Article H Dual Interests 7
Article I Documentation 7
Article J Recordkeeping/Confidentiality 7
Article KCompliance with Governmental Rules and Regulations 8
Article L Terms and Termination of Agreement 8
Article M Notice 8
Article N Assignment 9
Article O Amendment/Interpretive Provisions 9
Article P Further Assurances 9
Article Q Maryland Law to Apply 9
Article R Merger of Agreement 10
Article S Counterparts 10
Article T The Parties 10
<PAGE>
Article UDirectors, Trustee and Shareholders and Massachusetts Business Trust 10
Article V Captions 11
<PAGE>
AGREEMENT made as of the first day of January, 1999, by and between T. ROWE
PRICE ASSOCIATES, INC., a Maryland corporation having its principal office and
place of business at 100 East Pratt Street, Baltimore, Maryland 21202 ("PRICE
ASSOCIATES"), and each Fund which is listed on Appendix A (as such Appendix may
be amended from time to time) and which evidences its agreement to be bound
hereby by executing a copy of this Agreement (each such Fund individually
hereinafter referred to as "THE FUND", whose definition may be found in Article
T);
WHEREAS, Price Associates has the capability of providing the Funds with certain
accounting services ("ACCOUNTING SERVICES");
WHEREAS, the Fund desires to appoint Price Associates to provide these
Accounting Services and Price Associates desires to accept such appointment;
WHEREAS, the Board of Directors of the Fund has authorized the Fund to utilize
various pricing services for the purpose of providing to Price Associates
securities prices for the calculation of the Fund's net asset value.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
A. TERMS OF APPOINTMENT/DUTIES OF PRICE ASSOCIATES
-----------------------------------------------
Subject to the terms and conditions set forth in this Agreement, the Fund hereby
employs and appoints Price Associates to provide, and Price Associates agrees to
provide, the following Accounting Services:
1. Maintain for each Fund a daily trial balance, a general ledger, subsidiary
records and capital stock accounts;
2. Maintain for each Fund an investment ledger, including amortized bond and
foreign dollar denominated costs where applicable;
3. Maintain for each Fund all records relating to the Fund's income and
expenses;
<PAGE>
4. Provide for the daily valuation of each Fund's portfolio securities and the
computation of each Fund's daily net asset value per share ("NAV"). Such daily
valuations shall be made in accordance with the valuation policies established
by each of the Fund's Board of Directors including, but not limited to, the
utilization of such pricing valuation sources and/or pricing services as
determined by the Boards.
Price Associates shall have no liability for any losses or damages incurred by
the Fund as a result of erroneous portfolio security evaluations provided by
such designated sources and/or pricing services; provided that, Price Associates
reasonably believes the prices are accurate, has adhered to its normal
verification control procedures, and has otherwise met the standard of care as
set forth in Article G of this Agreement;
5. Provide daily cash flow and transaction status information to each Fund's
adviser;
6. Authorize the payment of Fund expenses, either through instruction of
custodial bank or utilization of custodian's automated transfer system;
7. Prepare for each Fund such financial information that is reasonably
necessary for shareholder reports, reports to the Board of Directors and to the
officers of the Fund, reports to the Securities and Exchange Commission, the
Internal Revenue Service and other Federal and state regulatory agencies;
8. Provide each Fund with such advice that may be reasonably necessary to
properly account for all financial transactions and to maintain the Fund's
accounting procedures and records so as to insure compliance with generally
accepted accounting and tax practices and rules;
9. Maintain for each Fund all records that may be reasonably required in
connection with the audit performed by each Fund's independent accountant, the
Securities and Exchange Commission, the Internal Revenue Service or such other
Federal or state regulatory agencies; and
<PAGE>
10. Cooperate with each Fund's independent public accountants and take all
reasonable action in the performance of its obligations under the Agreement to
assure that the necessary information is made available to such accountants for
the expression of their opinion without any qualification as to the scope of
their examination including, but not limited to, their opinion included in each
such Fund's annual report on Form N-SAR and annual amendment to Form N-1A.
B. FEES AND OUT-OF-POCKET EXPENSES
-------------------------------
Each Fund shall pay to Price Associates for its Accounting Services hereunder,
fees as set forth in the Schedule attached hereto. In addition, each Fund will
reimburse Price Associates for out-of-pocket expenses such as postage, printed
forms, voice and data transmissions, record retention, disaster recovery, third
party vendors, equipment leases and other similar items as may be agreed upon
between Price Associates and the Fund. Some invoices will contain costs for both
the Funds and other funds serviced by Price Associates. In these cases, a
reasonable allocation methodology will be used to allocate these costs to the
Funds.
C. REPRESENTATIONS AND WARRANTEES OF PRICE ASSOCIATES
--------------------------------------------------
Price Associates represents and warrants to the Fund that:
1. It is a corporation duly organized and existing in good standing under the
laws of Maryland.
2. It is duly qualified to carry on its business in Maryland.
3. It is empowered under applicable laws and by its charter and By-Laws to
enter into and perform this Agreement.
4. All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
5. It has, and will continue to have, access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
<PAGE>
D. REPRESENTATIONS AND WARRANTIES OF THE FUND
------------------------------------------
The Fund represents and warrants to Price Associates that:
1. It is a corporation or business trust, as the case may be, duly organized
and existing and in good standing under the laws of Maryland or Massachusetts,
as the case may be.
2. It is empowered under applicable laws and by its Articles of Incorporation
or Declaration of Trust, as the case may be, and By-Laws have been taken to
authorize it to enter into and perform this Agreement.
3. All proceedings required by said Articles of Incorporation or Declaration
of Trust, as the case may be, and By-Laws have been taken to authorize it to
enter into and perform this Agreement.
E. OWNERSHIP OF SOFTWARE AND RELATED MATERIAL
------------------------------------------
All computer programs, magnetic tapes, written procedures, and similar items
purchased and/or developed and used by Price Associates in performance of this
Agreement shall be the property of Price Associates and will not become the
property of the Funds.
F. QUALITY SERVICE STANDARDS
-------------------------
Price Associates and the Fund may, from time to time, agree to certain quality
service standards, with respect to Price Associates' services hereunder.
G. STANDARD OF CARE/INDEMNIFICATION
--------------------------------
Notwithstanding anything to the contrary in this Agreement:
1. Where a pricing error results in loss or dilution to a Fund of less than
$10,000, the determination of liability for the error will be made by Price
Associates. Where a pricing error results in loss or dilution to a Fund of
$10,000 or more but less than $100,000, liability for the error will be resolved
through negotiations between Fund Counsel and Price Associates. Where a pricing
error results in loss or dilution to a Fund of the lesser of 1/2 of 1% of NAV or
$100,000 or more, the error will be promptly reported to the Board of Directors
of the Fund (unless the Fund is fully
<PAGE>
compensated for the loss or dilution), provided that final settlement with
respect to such errors will not be made until approved by the Board of Directors
of the Fund. A summary of all pricing errors and their effect on the Funds will
be reported to the Funds? Audit Committee on an annual basis. In determining the
liability of Price Associates for a pricing error, an error or omission will not
be deemed to constitute negligence when it is determined that:
o Price Associates had in place "appropriate procedures and an adequate
system of internal controls;"
o the employee responsible for the error or omission had been reasonably
trained and was being appropriately monitored; and
o the error or omission did not result from wanton or reckless conduct on the
part of the employee.
It is understood that Price Associates is not obligated to have in place
separate procedures to prevent each and every conceivable type of error or
omission. The term "appropriate procedures and adequate system of internal
controls" shall mean procedures and controls reasonably designed to prevent and
detect errors and omissions. In determining the reasonableness of such
procedures and controls, weight will be given to such factors as are
appropriate, including the prior occurrence of any similar errors or omissions,
when such procedures and controls were in place and fund accounting industry
standards in place at the time of the error.
2. The Fund shall indemnify and hold Price Associates harmless from and
against all losses, costs, damages, claims, actions, and expenses, including
reasonable expenses for legal counsel, incurred by Price Associates resulting
from: (i) any action or omission by Price Associates or its agents or
subcontractors in the performance of their duties hereunder; (ii) Price
Associates acting upon instructions believed by it to have been executed by a
duly authorized officer of the Fund; or (iii) Price Associates acting upon
information provided by the Fund in form and under policies
<PAGE>
agreed to by Price Associates and the Fund. Price Associates shall not be
entitled to such indemnification in respect of actions or omissions constituting
negligence or willful misconduct of Price Associates or where Price Associates
has not exercised reasonable care in selecting or monitoring the performance of
its agents or subcontractors.
3. Price Associates shall indemnify and hold harmless the Fund from all
losses, costs, damages, claims, actions and expenses, including reasonable
expenses for legal counsel, incurred by the Fund resulting from the negligence
or willful misconduct of Price Associates or which result from Price Associates'
failure to exercise reasonable care in selecting or monitoring the performance
of its agents or subcontractors. The Fund shall not be entitled to such
indemnification with respect to actions or omissions constituting negligence or
willful misconduct of such Fund or its agents or subcontractors; unless such
negligence or misconduct is attributable to Price Associates.
4. In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes or other causes
reasonably beyond its control, such party shall not be liable to the other party
for any loss, cost, damage, claim, action or expense resulting from such failure
to perform or otherwise from such causes.
5. In order that the indemnification provisions contained in this Article G
shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim, or to defend against
said claim in its own name or in the name of the other party. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
<PAGE>
6. Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement.
H. DUAL INTERESTS
--------------
It is understood that some person or persons may be directors, officers, or
shareholders of both the Fund and Price Associates (including Price Associates'
affiliates), and that the existence of any such dual interest shall not affect
the validity of this Agreement or of any transactions hereunder except as
otherwise provided by a specific provision of applicable law.
I. DOCUMENTATION
-------------
As requested by Price Associates, the Fund shall promptly furnish to Price
Associates such documents as it may reasonably request and as are necessary for
Price Associates to carry out its responsibilities hereunder.
J. RECORDKEEPING/CONFIDENTIALITY
-----------------------------
1. Price Associates shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable, provided
that Price Associates shall keep all records in such form and in such manner as
required by applicable law, including the Investment Company Act of 1940 ("THE
ACT") and the Securities Exchange Act of 1934 ("THE '34 ACT").
2. Price Associates and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except: (a) after prior notification to and approval in writing by the other
party hereto, which approval shall not be unreasonably withheld and may not be
withheld where Price Associates or Fund may be exposed to civil or criminal
contempt proceedings for failure to comply; (b) when requested to divulge such
information by duly constituted governmental authorities; or (c) after so
requested by the other party hereto.
<PAGE>
K. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS
--------------------------------------------------
Except as otherwise provided in the Agreement and except for the accuracy of
information furnished to the Funds by Price Associates, each Fund assumes full
responsibility for the preparation, contents and distribution of its
prospectuses, and for complying with all applicable requirements of the Act, the
'34 Act, the Securities Act of 1933 (the "33 ACT"), and any laws, rules and
regulations of governmental authorities having jurisdiction over the Funds.
L. TERM AND TERMINATION OF AGREEMENT
---------------------------------
1. This Agreement shall run for a period of one (1) year from the date first
written above and will be renewed from year to year thereafter unless terminated
by either party as provided hereunder.
2. This Agreement may be terminated by the Fund upon sixty (60) days' written
notice to Price Associates; and by Price Associates, upon three hundred
sixty-five (365) days' writing notice to the Fund.
3. Upon termination hereof, the Fund shall pay to Price Associates such
compensation as may be due as of the date of such termination, and shall
likewise reimburse for out-of-pocket expenses related to its services hereunder.
M. NOTICE
------
Any notice as required by this Agreement shall be sufficiently given (i) when
sent to an authorized person of the other party at the address of such party set
forth above or at such other address as such party may from time to time specify
in writing to the other party; or (ii) as otherwise agreed upon by appropriate
officers of the parties hereto.
N. ASSIGNMENT
----------
Neither this Agreement nor any rights or obligations hereunder may be assigned
either voluntarily or involuntarily, by operation of law or otherwise, by either
party without the prior written consent
<PAGE>
of the other party, provided this shall not preclude Price Associates from
employing such agents and subcontractors as it deems appropriate to carry out
its obligations set forth hereunder.
O. AMENDMENT/INTERPRETIVE PROVISIONS
---------------------------------
The parties by mutual written agreement may amend this Agreement at any time. In
addition, in connection with the operation of this Agreement, Price Associates
and the Fund may agree from time to time on such provisions interpretive of or
in addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions are to be signed by all parties and annexed hereto, but no
such provision shall contravene any applicable Federal or state law or
regulation and no such interpretive or additional provision shall be deemed to
be an amendment of this Agreement.
P. FURTHER ASSURANCES
------------------
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
Q. MARYLAND LAW TO APPLY
---------------------
This Agreement shall be construed and the provisions thereof interpreted under
and in accordance with the laws of Maryland.
R. MERGER OF AGREEMENT
-------------------
This Agreement, including the attached Appendix and Schedule supersedes any
prior agreement with respect to the subject hereof, whether oral or written.
S. COUNTERPARTS
------------
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instruments.
<PAGE>
T. THE PARTIES
-----------
All references herein to "the Fund" are to each of the Funds listed on Appendix
A individually, as if this Agreement were between such individual Fund and Price
Associates. In the case of a series Fund or trust, all references to "the Fund"
are to the individual series or portfolio of such Fund or trust, or to such Fund
or trust on behalf of the individual series or portfolio, as appropriate. The
"Fund" also includes any T. Rowe Price Funds which may be established after the
execution of this Agreement. Any reference in this Agreement to "the parties"
shall mean Price Associates and such other individual Fund as to which the
matter pertains.
U. DIRECTORS, TRUSTEES AND SHAREHOLDERS AND MASSACHUSETTS BUSINESS TRUST
---------------------------------------------------------------------
It is understood and is expressly stipulated that neither the holders of shares
in the Fund nor any Directors or Trustees of the Fund shall be personally liable
hereunder.
With respect to any Fund which is a party to this Agreement and which is
organized as a Massachusetts business trust, the term "Fund" means and refers to
the trustees from time to time serving under the applicable trust agreement
(Declaration of Trust) of such Trust as the same may be amended from time to
time. It is expressly agreed that the obligations of any such Trust hereunder
shall not be binding upon any of the trustees, shareholders, nominees, officers,
agents or employees of the Trust, personally, but bind only the trust property
of the Trust, as provided in the Declaration of Trust of the Trust. The
execution and delivery of this Agreement has been authorized by the trustees and
signed by an authorized officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them, but shall bind only the trust
property of the Trust as provided in its Declaration of Trust.
<PAGE>
V. CAPTIONS
--------
The captions in the Agreement are included for convenience of reference only and
in no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf under their seals by and through their duly
authorized officers.
T. ROWE PRICE ASSOCIATES, INC. T. ROWE PRICE FUNDS
/s/Alvin Younger, Jr. /s/Carmen F. Deyesu
BY: ____________________________
BY:
-------------------------------------------------------------
DATED: 3/25/99 DATED: 3/26/99
------- -------
<PAGE>
APPENDIX A
----------
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND
T. ROWE PRICE CALIFORNIA TAX-FREE
INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
<PAGE>
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Growth & Income Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. Rowe Price Prime Reserve Fund-PLUS Class
T. ROWE PRICE REAL ESTATE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.
<PAGE>
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. Rowe Price Tax-Exempt Money Fund - PLUS Class
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of the:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. on behalf of the:
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
<PAGE>
AMENDMENT NO. 1
AGREEMENT
BETWEEN
T. ROWE PRICE ASSOCIATES, INC.
AND
THE T. ROWE PRICE FUNDS
FOR
FUND ACCOUNTING SERVICES
The Agreement for Fund Accounting Services of January 1, 1999, between T. Rowe
Price Associates, Inc. and each of the Parties listed on Appendix A thereto is
hereby amended, as of April 21, 1999, by adding thereto T. Rowe Price
Tax-Efficient Funds, Inc., on behalf of T. Rowe Price Tax-Efficient Balanced
Fund and T. Rowe Price Tax-Efficient Growth Fund.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
<PAGE>
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Growth & Income Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
<PAGE>
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
T. Rowe Price Prime Reserve Fund--PLUS Class
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
<PAGE>
T. ROWE PRICE TAX-EFFICIENT FUNDS, INC.
T. Rowe Price Tax-Efficient Balanced Fund
T. Rowe Price Tax-Efficient Growth Fund
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. Rowe Price Tax-Exempt Money Fund--PLUS Class
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
Attest:
/s/Patricia S. Lippert /s/ Carmen F. Deyesu
________________________ ______________________________
Patricia S. Lippert By: Carmen F. Deyesu
Secretary Treasurer
Attest: T. ROWE PRICE ASSOCIATES, INC.
/s/Barbara A. Van Horn /s/ Henry H. Hopkins
________________________ ______________________________
Barbara A. Van Horn By: Henry H. Hopkins
Assistant Secretary Managing Director
The Agreement between T. Rowe Price Retirement Plan Services, Inc. and
the Taxable Funds, dated January 1, 1999.
<PAGE>
AGREEMENT
BETWEEN
T. ROWE PRICE RETIREMENT PLAN SERVICES, INC.
AND
T. ROWE PRICE FUNDS
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
Article A Terms of Appointment 2
Article B Duties of RPS 2
1. Contributions - Retirement Plans and Retirement Accounts 2
2. Retirement Plans - Redemptions to Cover Distributions3
3. Other Provisions 4
4. Exchanges 5
5. Books and Records 5
6. Tax Information 6
7. Other Information to be Furnished to the Funds 6
8. Telephone 6
9. Correspondence 6
10. Prospectuses/Confirmation Statements 7
11. Proxies 7
12. Form N-SAR 7
13. Withholding 7
Article C Fee and Out-of-Pocket Expenses 7
1. Postage 8
2. Proxies 8
3. Communications 8
4. Record Retention 9
5. Disaster Recovery 9
Article D Representations and Warranties of RPS 9
Article E Representations and Warranties of the Fund 10
Article F Standard of Care/Indemnification 10
Article G Dual Interests 13
Article H Documentation 13
Article I Recordkeeping/Confidentiality 14
Article J Ownership of Software and Related Material 15
<PAGE>
Article K As of Transactions 15
1. Reporting 15
2. Liability 16
Article L Term and Termination of Agreement 18
Article M Notice 19
Article N Assignment 19
Article O Amendment/Interpretive Provisions 19
Article P Further Assurances 20
Article Q Maryland Law to Apply 20
Article R Merger of Agreement 20
Article S Counterparts 20
Article T The Parties 20
Article UDirectors, Trustees and Shareholders and Massachusetts Business Trust
21
Article V Captions 21
<PAGE>
AGREEMENT, made as of the first day of January, 1999, by and between T. ROWE
PRICE RETIREMENT PLAN SERVICES, INC., a Maryland corporation having its
principal office and place of business at 100 East Pratt Street, Baltimore,
Maryland 21202 ("RPS"), and EACH FUND WHICH IS LISTED ON APPENDIX A (as such
Appendix may be amended from time to time) and which evidences its agreement to
be bound hereby by executing a copy of this Agreement (each Fund hereinafter
referred to as "THE FUND") whose definition may be found in Article T;
WHEREAS, the Funds are named investment options under various tax-sheltered
plans, including, but not limited to, state and local government deferred
compensation plans, 403(b) plans, and profit sharing, thrift, 401(k) and money
purchase pension plans for self-employed individuals, professional partnerships
and corporations (collectively referred to as "RETIREMENT PLANS"); and the Fund
has determined that such investments of Retirement Plans in the Funds are in the
best long-term interest of the Funds;
WHEREAS, RPS has the capability of providing special services, on behalf of
the Fund, for the accounts of individuals ("PARTICIPANTS") participating in
these Retirement Plans ("RETIREMENT ACCOUNTS");
WHEREAS, RPS represents that it is registered with the Securities and
Exchange Commission as a Transfer Agent under Section 17A of the Securities
Exchange Act of 1934 (THE "'34 ACT");
WHEREAS, RPS may subcontract or jointly contract with other parties on behalf
of the Funds to perform certain of the functions described herein, RPS may also
enter into, on behalf of the Funds, certain banking relationships to perform
various banking services, including, but not limited to, check deposits,
disbursements, automatic clearing house transactions ("ACH") and wire transfers.
Subject to guidelines mutually agreed upon by the Funds and RPS, excess
balances, if
<PAGE>
any, resulting from these banking relationships will be invested and the income
therefrom will be used to offset fees which would otherwise be charged to the
Funds under this Agreement;
WHEREAS, the Fund desires to contract with RPS to provide the functions and
services described herein in connection with the Retirement Plans and Retirement
Accounts;
NOW THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
A. TERMS OF APPOINTMENT
--------------------
Subject to the terms and conditions set forth in this Agreement, the Fund hereby
employs and appoints RPS to perform the services and functions described herein
in connection with certain Retirement Plan and Retirement Accounts as agreed
upon by the parties.
B. DUTIES OF RPS
-------------
RPS agrees that it will perform the following services:
1. CONTRIBUTIONS - RETIREMENT PLANS AND RETIREMENT ACCOUNTS
--------------------------------------------------------
After RPS has received monies from Retirement Plans and has determined the
proper allocation of such monies to the Retirement Accounts of Participants
based upon instructions received from Participants, Retirement Plans or their
designees, or Retirement Plan Administrator(s) ("ADMINISTRATOR(S)"), RPS will,
as a responsibility under the Agreement:
a. In the case of a new Participant, establish and maintain a Retirement
Account for such Participant;
b. Compute the number of shares of each Fund to which the Participant is
entitled in accordance with the price per share of such Fund as calculated and
provided by the Fund for orders received at that time and date, and purchase the
appropriate shares in each such Retirement Account;
<PAGE>
c. Calculate the aggregate of all purchases in the Retirement Accounts and
transmit the net purchase order to T. Rowe Price Services, Inc. ("SERVICES") or
directly to the Fund, as the case may be, for purchase into an omnibus account
established in each Fund registered in RPS' or its affiliates' name as agent for
Retirement Plans or in the individual Retirement Plan's name ("OMNIBUS
ACCOUNT"); and
d. Transmit to Services, by wire, at a time mutually agreed upon by both
parties, the aggregate money allocated to coincide with the purchase order.
2. RETIREMENT PLANS - REDEMPTIONS TO COVER DISTRIBUTIONS.
-----------------------------------------------------
After RPS has received instructions from the Administrator regarding
distributions to be made to Participants or their designated beneficiaries from
Funds designated as investment options under the Retirement Plan, RPS will, as a
responsibility under the Agreement:
a. Compute the number of shares to be redeemed from each such Retirement
Account for such distributions in accordance with the price per share of such
Fund as calculated and provided by the Fund for orders received in good order at
that time and date.
b. After such computation, calculate the aggregate amount of all redemptions in
the Retirement Accounts.
c. Transmit any net redemption order to Services or directly to the Fund, as
the case may be, for the Omnibus Account of each Fund. Services will wire
proceeds to RPS to coincide with the redemption order for each Omnibus Account.
RPS will Distribute to Participants or their designated beneficiaries the amount
to be disbursed.
d. After RPS has received instructions from the Administrator regarding
disbursements to be made regarding the payment of fees due the Administrator, or
other persons including RPS, RPS will, as a responsibility under this Agreement:
<PAGE>
i. Compute the number of shares to be redeemed from each Retirement Account to
pay for such disbursements and the total number of all shares to be redeemed in
accordance with the price per share for orders received in good order at that
time and date, of such Fund as calculated and provided by the Fund;
ii. Inform Services, or the Funds directly, as the case may be, of the necessary
Shares to be redeemed from the Omnibus Account of the Funds to cover such
disbursements; and
iii. Mail or wire to the Administrator or such other person as designated by the
Administrator the amount to be disbursed.
3. OTHER PROVISIONS
----------------
a. If any instruction tendered by an Administrator to purchase or redeem shares
in a Retirement Account is not satisfactory to RPS, RPS shall promptly notify
the Administrator of such fact together with the reason therefore;
b. The authority of RPS to perform its responsibilities under Paragraph B(2)
with respect to each Fund shall be suspended upon RPS's receipt of notification
from such Fund of the suspension of the determination of the Fund's net asset
value per share and shall remain suspended until RPS receives proper
notification from the Fund; and
c. The Fund will promptly inform RPS of the declaration of any dividend or
distribution on account of the capital stock of any Fund so that RPS may
properly credit income and capital gain payments to each Retirement Account.
4. EXCHANGES
---------
Effect exchanges of shares of the Funds in the Retirement Accounts upon receipt
of appropriate instructions from the Administrator and/or Participant in
accordance with the price per share of the Funds as calculated and provided by
the Fund for orders received in good order at that time and
<PAGE>
date. Calculate and transmit a net purchase and redemption order to Services or
the Fund, as the case may be, for the Omnibus Account of each Fund. RPS will
transmit by wire the aggregate monies allocated to each Fund to Services to
coincide with any net purchase order or instruct Services to wire to it monies
from each Funds Omnibus Account to coincide with any net redemption order.
5. BOOKS AND RECORDS
-----------------
RPS shall maintain records showing for each Retirement Plan or Retirement
Account, the following:
a. Names, addresses and tax identification numbers, when provided;
b. Number of shares held of each Fund;
c. Historical information regarding the account of each Participant and/or
Retirement Plan, including dividends and capital gain distributions invested in
shares;
d. Any instructions from a Participant or Administrator, including all forms
executed by a Participant with respect to elections with respect to payment
options in connection with the redemption of shares or distribution elections,
if applicable; and
e. Any information required in order for RPS to perform the calculations
contemplated under this Agreement.
Any such records maintained pursuant to Rule 31a-1 under the Investment Company
Act of 1940 ("THE ACT") will be preserved for the periods prescribed in Rule
31a-2 thereunder. Disposition of such records after such prescribed periods
shall be as mutually agreed upon from time to time by RPS and the Funds. The
retention of such records, which may be inspected by the Fund at reasonable
times, shall be at the expense of the Funds. All records maintained by RPS in
connection with the performance of its duties under this Agreement will remain
the property of the Funds and, in the
<PAGE>
event of termination of this Agreement, will be delivered to the Fund as of the
date of termination of this agreement or at such other time as may be mutually
agreed upon.
6. TAX INFORMATION
---------------
RPS shall also prepare and file with appropriate federal agencies, such
information returns and reports as required by applicable Federal statutes
relating to redemptions effected in Retirement Accounts which constitute
reportable distributions. RPS will also prepare and submit to Participants, such
reports containing information as is required by applicable Federal law.
7. OTHER INFORMATION TO BE FURNISHED TO THE FUNDS
----------------------------------------------
RPS will furnish to the Fund, such information, including Participant lists and
statistical information as may be agreed upon from time to time between RPS and
the Fund. Permission of the Administrator may also be required.
8. TELEPHONE
---------
RPS will promptly respond to any telephone calls from Administrators and/or
Participants relating to the Retirement Accounts and/or questions pertaining to
the Funds.
9. CORRESPONDENCE
--------------
RPS will promptly and fully answer correspondence from Administrators and
Participants relating to Retirement Accounts and transfer agent procedures, and
such other correspondence as may from time to time be mutually agreed upon with
the Funds. Copies of all correspondence will be retained by RPS in accordance
with applicable law.
10. PROSPECTUSES/CONFIRMATION STATEMENTS
------------------------------------
RPS will be responsible for mailing all confirmations and statements relating to
transactions in the Funds, prospectuses, semi-annual and annual reports of the
Funds and other enclosures and mailings, as may be requested by the Funds or
required by applicable Federal law.
<PAGE>
11. PROXIES
-------
As requested by the Funds, RPS shall assist in the mailing of proxy cards and
other material required to be mailed by the Fund in connection with shareholder
meetings of the Fund and shall assist in the receipt, examination and tabulation
of returned proxies and the certification of the vote to the Fund.
12. FORM N-SAR
----------
RPS shall maintain such records, if any, as shall enable the Fund to fulfill the
requirements of Form N-SAR.
13. WITHHOLDING
-----------
The Fund and RPS shall agree to procedures to be followed with respect to RPS's
responsibilities in connection with compliance for federal withholding on
distributions to Participants from Retirement Accounts.
C. FEES AND OUT-OF-POCKET EXPENSES
-------------------------------
Each Fund shall pay to RPS for its services hereunder fees computed as set forth
in the Fee Schedule attached hereto. Except as provided below, RPS will be
responsible for all expenses relating to the providing of services. Each Fund,
however, will reimburse RPS for the following out-of-pocket expenses and charges
incurred in providing services:
1. Postage. The cost of postage and freight for mailing materials, including
--------
confirmations and statements as well as Fund prospectuses and Fund shareholder
reports, to Participants, or their agents, including overnight delivery, UPS and
other express mail services and special courier services required to transport
mail between RPS locations and mail processing vendors.
<PAGE>
2. Proxies. The cost to mail proxy cards and other material supplied to it by
-------
the Fund and costs related to the receipt, examination and tabulation of
returned proxies and the certification of the vote to the Fund.
3. Communications
--------------
a. Print. The printed forms used internally and externally for documentation
-----
and processing Participant, or their agent's, inquiries and requests; paper and
envelope supplies for letters, notices, and other written communications sent to
Administrators and Participants, or their agents.
b. Print & Mail House. The cost of internal and third party printing and mail
------------------
house services, including printing of statements and reports.
c. Voice and Data. The cost of equipment (including associated maintenance),
--------------
supplies and services used for communicating with the Participants or their
Administrator, the Fund's transfer agent, other Fund offices, and other agents
of either the Fund or RPS. These charges shall include:
o telephone toll charges (both incoming and outgoing, local, long distance and
mailgrams); and
o data and telephone lines and associated equipment such as modems,
multiplexers, and facsimile equipment.
4. Record Retention. The cost of maintenance and supplies used to maintain,
----------------
microfilm, copy, record, index, display, retrieve, and store, in microfiche or
microfilm form, documents and records.
5. Disaster Recovery. The cost of services, equipment, facilities and other
-----------------
charges necessary to provide disaster recovery for any and all services listed
in this Agreement.
D. REPRESENTATIONS AND WARRANTIES OF RPS
-------------------------------------
RPS represents and warrants to the Fund that:
<PAGE>
1. It is a corporation duly organized and existing and in good standing under
the laws of Maryland.
2. It is duly qualified to carry on its business in Maryland.
3. It is empowered under applicable laws and by its charter and by-laws to
enter into and perform this Agreement.
4. All requisite corporate proceedings have been taken to authorize it to enter
into and perform this Agreement.
5. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
6. It is registered with the Securities and Exchange Commission as a Transfer
Agent pursuant to Section 17A of the '34 Act.
E. REPRESENTATIONS AND WARRANTIES OF THE FUND
------------------------------------------
The Fund represents and warrants to RPS that:
1. It is a corporation or business trust duly organized and existing and in
good standing under the laws of Maryland, or Massachusetts, as the case may be.
2. It is empowered under applicable laws and by its Articles of Incorporation
or Declaration of Trust, as the case may be, and By-Laws to enter into and
perform this Agreement.
3. All proceedings required by said Articles of Incorporation or Declaration of
Trust, as the case may be, and By-Laws have been taken to authorize it to enter
into and perform this Agreement.
4. It is an investment company registered under the Act.
5. A registration statement under the Securities Act of 1933 ("the '33 Act") is
currently effective and will remain effective, and appropriate state securities
law filing have been made and will continue to be made, with respect to all
shares of the Fund being offered for sale.
<PAGE>
F. STANDARD OF CARE/INDEMNIFICATION
--------------------------------
Notwithstanding anything to the contrary in this Agreement:
1. RPS shall not be liable to the Fund for any act or failure to act by it or
its agents or subcontractors on behalf of the Fund in carrying or attempting to
carry out the terms and provisions of this Agreement provided RPS has acted in
good faith and without negligence or willful misconduct and selected and
monitored the performance of its agents and subcontractors with reasonable care.
2. The Fund shall indemnify and hold RPS harmless from and against all losses,
costs, damages, claims, actions and expenses, including reasonable expenses for
legal counsel, incurred by RPS resulting from: (i) any action or omission by RPS
or its agents or subcontractors in the performance of their duties hereunder;
(ii) RPS acting upon instructions reasonably believed by it to have been
executed by a duly authorized officer of the Fund; or (iii) RPS acting upon
information provided by the Fund in form and under policies agreed to by RPS and
the Fund. RPS shall not be entitled to such indemnification in respect of
actions or omissions constituting negligence or willful misconduct of RPS or
where RPS has not exercised reasonable care in selecting or monitoring the
performance of its agents or subcontractors.
3. Except as provided in Article K of this Agreement, RPS shall indemnify and
hold harmless the Fund from all losses, costs, damages, claims, actions and
expenses, including reasonable expenses for legal counsel, incurred by the Fund
resulting from negligence or willful misconduct of RPS or which result from RPS'
failure to exercise reasonable care in selecting or monitoring the performance
of its agents or subcontractors. The Fund shall not be entitled to such
indemnification in respect of actions or omissions constituting negligence or
willful misconduct of such Fund or its agents or subcontractors; unless such
negligence or misconduct is attributable to RPS.
<PAGE>
4. In determining RPS' liability, an isolated error or omission will normally
not be deemed to constitute negligence when it is determined that:
o RPS had in place "appropriate procedures;"
o the employees responsible for the error or omission had been reasonably
trained and were being appropriately monitored; and
o the error or omission did not result from wanton or reckless conduct on the
part of the employees.
It is understood that RPS is not obligated to have in place separate procedures
to prevent each and every conceivable type of error or omission. The term
"appropriate procedures" shall mean procedures reasonably designed to prevent
and detect errors and omissions. In determining the reasonableness of such
procedures, weight will be given to such factors as are appropriate, including
the prior occurrence of any similar errors or omissions when such procedures
were in place and transfer agent industry standards in place at the time of the
occurrence.
5. In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes or other causes
reasonably beyond its control, such party shall not be liable to the other party
for any loss, cost, damage, claims, actions or expense resulting from such
failure to perform or otherwise from such causes.
6. In order that the indemnification provisions contained in this Article F
shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim, or to defend against
said claim in its own name or in the name of the
<PAGE>
other party. The party seeking indemnification shall in no case confess any
claim or make any compromise in any case in which the other party may be
required to indemnify it except with the other party's prior written consent.
7. Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement.
G. DUAL INTERESTS
--------------
It is understood that some person or persons may be directors, officers, or
shareholders of both RPS and the Fund and that the existence of any such dual
interest shall not affect the validity of this Agreement or of any transactions
hereunder except as otherwise provided by a specific provision of applicable
law.
H. DOCUMENTATION
-------------
1. As requested by RPS, the Fund shall promptly furnish to RPS the following:
a. copy of the resolution of the Directors/Trustees of the Fund authorizing the
appointment of RPS and the execution and delivery of this Agreement;
b. A copy of the Articles of Incorporation or Declaration of Trust, as the case
may be, and By-Laws of the Fund and all amendments thereto;
c. An opinion of counsel for the Fund with respect to the validity of the
stock, the number of Shares authorized, the status of redeemed Shares, and the
number of Shares with respect to which a Registration Statement has been filed
and is in effect; and
d. A copy of the Fund's current and new prospectuses and shareholder reports
issued by the Fund.
<PAGE>
The delivery of any such document to either party hereto for the purpose of any
other agreement to which the Fund and RPS are or were parties shall be deemed to
be delivery for the purposes of this Agreement.
2. As requested by RPS, the Fund will also furnish to RPS from time to time the
following documents:
a. Each resolution of the Board of Directors/Trustees of the Fund authorizing
the original issue of its shares;
b. Each Registration Statement filed with the Securities and Exchange
Commission and amendments and orders thereto in effect with respect to the sale
of shares with respect to the Fund;
c. A certified copy of each amendment to the Articles of Incorporation or
Declaration of Trust, and the By-Laws of the Fund;
d. Certified copies of each vote of the Board of Directors/Trustees authorizing
officers to give instructions to the Fund; and
e. Such other documents or opinions which RPS, in its discretion, may
reasonably deem necessary or appropriate in the proper performance of its duties
under this Agreement.
3. RPS hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of check forms and facsimile
signature imprinting devices, if any, and for the preparation or use, and for
keeping account of, such forms and devices.
I. RECORDKEEPING/CONFIDENTIALITY
-----------------------------
1. RPS shall keep records relating to the services to be performed hereunder,
in the form and manner as it may deem advisable, provided that RPS shall keep
all records in such form and in such manner as required by applicable law,
including the Act and the '34 Act.
<PAGE>
2. RPS and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person,
except: (a) after prior notification to and approval in writing by the other
party hereto, which approval shall not be unreasonably withheld and may not be
withheld where RPS or the Fund may be exposed to civil or criminal contempt
proceedings for failure to comply; (b) when requested to divulge such
information by duly constituted governmental authorities; (c) after so requested
by the other party hereto; or (d) by the Administrator. The permission of the
Administrator may be required before disclosure is made to the Funds.
J. OWNERSHIP OF SOFTWARE AND RELATED MATERIAL
------------------------------------------
All computer programs, magnetic tapes, written procedures and similar items
purchased and/or developed and used by RPS in performance of the Agreement shall
be the property of RPS and will not become the property of the Fund.
K. AS OF TRANSACTIONS
------------------
For purposes of this Article K, the term "TRANSACTION" shall mean any single or
"related transaction" (as defined below) involving the purchase or redemption of
shares (including exchanges) processed at a time other than the time of the
computation of the Fund's net asset value per share next computed after receipt
of any such transaction order by RPS due to an act or omission of RPS. "AS OF
PROCESSING" refers to the processing of these Transactions. If more than one
Transaction ("RELATED TRANSACTION") in the Fund is caused by or occurs as a
result of the same act or omission, such transactions shall be aggregated with
other transactions in the Fund and be considered as one Transaction.
<PAGE>
1. REPORTING
RPS shall:
a. Utilize a system to identify all Transactions, and shall compute the net
effect of such Transactions upon the Fund on a daily, monthly and rolling 365
day basis. The monthly and rolling 365 day periods are hereinafter referred to
as "CUMULATIVE."
b. Supply to the Fund, from time to time as mutually agreed upon, a report
summarizing the Transactions and the daily and Cumulative net effects of such
Transactions both in terms of aggregate dilution and loss ("DILUTION") or gain
and negative dilution ("GAIN") experienced by the Fund, and the impact such Gain
or Dilution has had upon the Fund's net asset value per share.
c. With respect to any Transaction which causes Dilution to the Fund of
$100,000 or more, immediately provide the Fund: (i) a report identifying the
Transaction and the Dilution resulting therefrom, (ii) the reason such
Transaction was processed as described above, and (iii) the action that RPS has
or intends to take to prevent the reoccurrence of such as of processing
("REPORT").
2. LIABILITY
a. It will be the normal practice of the Fund not to hold RPS liable with
respect to any Transaction which causes Dilution to any single Fund of less than
$25,000. RPS will, however, closely monitor for each Fund the daily and
Cumulative Gain/Dilution which is caused by Transactions of less than $25,000.
When the Cumulative Dilution to any Fund exceeds 3/10 of 1% per share, RPS, in
consultation with counsel to the Fund, will make appropriate inquiry to
determine whether it should take any remedial action. RPS will report to the
Board of Directors/Trustees of the Fund ("BOARD"), as appropriate, any action it
has taken.
b. Where a Transaction causes Dilution to a Fund greater than $25,000
("SIGNIFICANT TRANSACTION") but less than $100,000, RPS will review with Counsel
to the Fund the circumstances
<PAGE>
surrounding the underlying Significant Transaction to determine whether the
Significant Transaction was caused by or occurred as a result of a negligent act
or omission by RPS. If it is determined that the Dilution is the result of a
negligent action or omission by RPS, RPS and outside counsel for the Fund will
negotiate settlement. All such Significant Transactions will be reported to the
Audit Committee at its annual meeting (unless the settlement fully compensates
the Fund for any Dilution). Any Significant Transaction, however, causing
Dilution in excess of the lesser of $100,000 or a penny per share will be
promptly reported to the Board and resolved at the next scheduled Board Meeting.
- --------
Settlement for Significant Transactions causing Dilution of $100,000 or more
will not be entered into until approved by the Board. The factors to consider in
making any determination regarding the settlement of a Significant Transaction
would include but not be limited to:
i. Procedures and controls adopted by RPS to prevent As Of Processing;
ii. Whether such procedures and controls were being followed at the time of the
Significant Transaction;
iii. The absolute and relative volume of all transactions processed by RPS on
the day of the Significant Transaction;
iv. The number of Transactions processed by RPS during prior relevant periods,
and the net Dilution/Gain as a result of all such Significant Transactions to
the Fund and to all other Funds; and
v. The prior response of RPS to recommendations made by the Funds regarding
improvement to RPS's As Of Processing procedures.
c. In determining RPS' liability with respect to a Significant Transaction, an
isolated error or omission will normally not be deemed to constitute negligence
when it is determined that:
o RPS had in place "appropriate procedures".
<PAGE>
o the employees responsible for the error or omission had been reasonably
trained and were being appropriately monitored; and
o the error or omission did not result from wanton or reckless conduct on the
part of the employees.
It is understood that RPS is not obligated to have in place separate procedures
to prevent each and every conceivable type of error or omission. The term
"appropriate procedures" shall mean procedures reasonably designed to prevent
and detect errors and omissions. In determining the reasonableness of such
procedures, weight will be given to such factors as are appropriate, including
the prior occurrence of any similar errors or omissions when such procedures
were in place and transfer agent industry standards in place at the time of the
occurrence.
L. TERM AND TERMINATION OF AGREEMENT
---------------------------------
1. This Agreement shall run for a period of one (1) year from the date first
written above and will be renewed from year to year thereafter unless terminated
by either party as provided hereunder.
2. This Agreement may be terminated by the Funds upon one hundred twenty (120)
days' prior written notice to RPS; and by RPS, upon three hundred sixty-five
(365) days' prior written notice to the Fund.
3. Upon termination hereof, the Fund shall pay to RPS such compensation as may
be due as of the date of such termination, and shall likewise reimburse for
out-of-pocket expenses related to its services hereunder.
M. NOTICE
------
Any notice as required by this Agreement shall be sufficiently given (i) when
sent to an authorized person of the other party at the address of such party set
forth above or at such other address as such
<PAGE>
party may from time to time specify in writing to the other party; or (ii) as
otherwise agreed upon by appropriate officers of the parties hereto.
N. ASSIGNMENT
----------
Neither this Agreement nor any rights or obligations hereunder may be assigned
either voluntarily or involuntarily, by operation of law or otherwise, by either
party without the prior written consent of the other party.
O. AMENDMENT/INTERPRETIVE PROVISIONS
---------------------------------
The parties by mutual written agreement may amend this Agreement at any time. In
addition, in connection with the operation of this Agreement, RPS and the Fund
may agree from time to time on such provisions interpretive of or in addition to
the provisions of this Agreement as may in their joint opinion be consistent
with the general tenor of this Agreement. Any such interpretive or additional
provisions are to be signed by all parties and annexed hereto, but no such
provision shall contravene any applicable federal or state law or regulation and
no such interpretive or additional provision shall be deemed to be an amendment
of this Agreement.
P. FURTHER ASSURANCES
------------------
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
Q. MARYLAND LAW TO APPLY
---------------------
This Agreement shall be construed and the provisions thereof interpreted under
and in accordance with the laws of Maryland.
R. MERGER OF AGREEMENT
-------------------
This Agreement, including the attached Schedule supersede any prior agreement
with respect to the subject hereof, whether oral or written.
<PAGE>
S. COUNTERPARTS
------------
This Agreement may be executed by the parties hereto in any number of
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
T. THE PARTIES
-----------
All references herein to "the Fund" are to each of the Funds listed on Appendix
A individually, as if this Agreement were between such individual Fund and RPS.
In the case of a series Fund or trust, all references to "the Fund" are to the
individual series or portfolio of such Fund or trust, or to such Fund or trust
on behalf of the individual series or portfolio, as appropriate. Any reference
in this Agreement to "the parties" shall mean RPS and such other individual Fund
as to which the matter pertains. The "Fund" also includes any T. Rowe Price Fund
which may be established after the date of this Agreement.
Any reference in this Agreement to "the parties" shall mean the Funds and RPS.
U. DIRECTORS, TRUSTEES AND SHAREHOLDERS AND MASSACHUSETTS BUSINESS TRUST
---------------------------------------------------------------------
It is understood and is expressly stipulated that neither the holders of shares
in the Fund nor any Directors or Trustees of the Fund shall be personally liable
hereunder. With respect to any Fund which is a party to this Agreement and which
is organized as a Massachusetts business trust, the term "Fund" means and refers
to the trustees from time to time serving under the applicable trust agreement
(Declaration of Trust) of such Trust as the same may be amended from time to
time. It is expressly agreed that the obligations of any such Trust hereunder
shall not be binding upon any of the trustees, shareholders, nominees, officers,
agents or employees of the Trust, personally, but bind only the trust property
of the Trust, as provided in the Declaration of Trust of the Trust. The
execution and delivery of this Agreement has been authorized by the Trustees and
signed by an authorized officer of the Trust, acting as such, and neither such
authorization by such Trustees nor
<PAGE>
such execution and delivery by such officer shall be deemed to have been made by
any of them, but shall bind only the trust property of the Trust as provided in
its Declaration of Trust.
V. CAPTIONS
--------
The captions in the Agreement are included for convenience of reference only and
in no way
define or limit any of the provisions hereof or otherwise affect their
construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf under their seals by and through their duly
authorized officers.
T. ROWE PRICE RETIREMENT PLAN T. ROWE PRICE FUNDS
SERVICES, INC.
/s/Charles E. Vieth /s/Carmen F. Deyesu
BY: BY:
------------------------------------------------------
- ----------------------------------------------------------
Charles E. Vieth Carmen F. Deyesu
DATED: 3/25/99 DATED: 3/26/99
------- -------
<PAGE>
APPENDIX A
----------
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
<PAGE>
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Growth & Income Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
<PAGE>
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of the:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE VALUE FUND, INC.
September 22, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: T. Rowe Price Prime Reserve Fund, Inc. (the Registrant)
T. Rowe Price Prime Reserve Fund-PLUS Class
File Nos.: 002-54926/811-2603
Commissioners:
We are counsel to the above-referenced registrant which proposes to
file, pursuant to paragraph (b) of Rule 485 (the "Rule"), Post-Effective
Amendment No. 52 (the "Amendment") to its registration statement under the
Securities Act of 1933, as amended.
Pursuant to paragraph (b)(4) of the Rule, we represent that the
Amendment does not contain disclosures which would render it ineligible to
become effective pursuant to paragraph (b) of the Rule.
Very truly yours,
/s/Swidler Berlin Shereff Friedman, LLP
Swidler Berlin Shereff Friedman, LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 52 to the Registration Statement on Form N-1A (the "Registration
Statement") of our report dated June 17, 1999, relating to the financial
statements and financial highlights appearing in the May 31, 1999 Annual Report
to Shareholders of the T. Rowe Price Prime Reserve Fund, Inc., which is
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the heading "Independent Accountants" in the Statement of Additional
Information.
/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
September 22, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000316968
<NAME> T. ROWE PRICE PRIME RESERVE FUND, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<INVESTMENTS-AT-COST> 5,230,246
<INVESTMENTS-AT-VALUE> 5,230,246
<RECEIVABLES> 65,579
<ASSETS-OTHER> 85
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,295,966
<PAYABLE-FOR-SECURITIES> 58,526
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48,429
<TOTAL-LIABILITIES> 106,955
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,187,496
<SHARES-COMMON-STOCK> 5,188,993
<SHARES-COMMON-PRIOR> 4,889,867
<ACCUMULATED-NII-CURRENT> 735
<OVERDISTRIBUTION-NII> 735
<ACCUMULATED-NET-GAINS> 780
<OVERDISTRIBUTION-GAINS> 780
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,189,011
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 271,250
<OTHER-INCOME> 0
<EXPENSES-NET> 33,144
<NET-INVESTMENT-INCOME> 238,106
<REALIZED-GAINS-CURRENT> 694
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 238,801
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (238,801)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,382,930
<NUMBER-OF-SHARES-REDEEMED> (10,314,035)
<SHARES-REINVESTED> 230,231
<NET-CHANGE-IN-ASSETS> 299,742
<ACCUMULATED-NII-PRIOR> 814
<ACCUMULATED-GAINS-PRIOR> 814
<OVERDISTRIB-NII-PRIOR> 85
<OVERDIST-NET-GAINS-PRIOR> 85
<GROSS-ADVISORY-FEES> 18,794
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 33,161
<AVERAGE-NET-ASSETS> 5,057,103
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.047
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.047)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> 0.66
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
(on behalf of California Tax-Free Bond Fund
California Tax-Free Money Fund)
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
(on behalf of T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio)
T. ROWE PRICE GNMA FUND
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
(on behalf of Government Reserve Investment Fund
Reserve Investment Fund)
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
(on behalf of Florida Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
Maryland Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Short-Term Tax-Free Bond Fund
Virginia Tax-Free Bond Fund)
T. ROWE PRICE SUMMIT FUNDS, INC.
(on behalf of T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit GNMA Fund
T. Rowe Price Summit Limited-Term Bond Fund)
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
(on behalf of T. Rowe Price Summit Municipal Income Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Money Market Fund)
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
and
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
(on behalf of U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund)
POWER OF ATTORNEY
<PAGE>
RESOLVED, that the Corporations/Trusts (collectively the
"Corporations/Trusts" and individually the "Corporation/Trust") and each of its
directors/trustees do hereby constitute and authorize, William T. Reynolds, Joel
H. Goldberg, and Henry H. Hopkins, and each of them individually, their true and
lawful attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable the Corporation/Trust to comply with the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and any rules,
regulations, orders or other requirements of the United States Securities and
Exchange Commission thereunder, in connection with the registration under the
Securities Act of 1933, as amended, of shares of the Corporation/Trust, to be
offered by the Corporation/Trust, and the registration of the Corporation/Trust
under the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the name of
the Corporation/Trust on its behalf, and to sign the names of each of such
directors/trustees and officers on his behalf as such director/trustee or
officer to any amendment or supplement (including Post-Effective Amendments) to
the Registration Statement on Form N-1A of the Corporation/Trust filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
and the Registration Statement on Form N-1A of the Corporation/Trust under the
Investment Company Act of 1940, as amended, and to any instruments or documents
filed or to be filed as a part of or in connection with such Registration
Statement.
IN WITNESS WHEREOF, the above named Corporations/Trusts have caused these
presents to be signed and the same attested by its Secretary, each thereunto
duly authorized by its Board of Directors/Trustees, and each of the undersigned
has hereunto set his hand and seal as of the day set opposite his name.
ALL CORPORATIONS/TRUSTS
/s/Carmen F. Deyesu
____________________________ Treasurer (Principal Financial Officer)
April 21, 1999
Carmen F. Deyesu
/s/Calvin W. Burnett
____________________________ Director/Trustee April 21, 1999
Calvin W. Burnett
/s/Anthony W. Deering
____________________________ Director/Trustee April 21, 1999
Anthony W. Deering
/s/F. Pierce Linaweaver
____________________________ Director/Trustee April 21, 1999
F. Pierce Linaweaver
/s/John G. Schreiber
____________________________ Director/Trustee April 21, 1999
John G. Schreiber
(Signatures Continued)
<PAGE>
JAMES S. RIEPE, Director
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
JAMES S. RIEPE, Vice President and Director/Trustee
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. ROWE PRICE GNMA FUND
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
T. ROWE PRICE SUMMIT FUNDS, INC.
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
/s/James S. Riepe
____________________________ April 21, 1999
James S. Riepe
(Signatures Continued)
<PAGE>
M. DAVID TESTA, Director/Trustee
T. ROWE PRICE CALFORNIA TAX-FREE INCOME TRUST
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. ROWE PRICE GNMA FUND
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
T. ROWE PRICE SUMMIT FUNDS, INC.
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
/s/M. David Testa
____________________________ April 21, 1999
M. David Testa
(Signatures Continued)
<PAGE>
WILLIAM T. REYNOLDS, Chairman of the Board (Principal Executive Officer)
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
T. ROWE PRICE SUMMIT FUNDS, INC.
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
WILLIAM T. REYNOLDS, Director/Trustee
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE GNMA FUND
WILLIAM T. REYNOLDS, President and Director
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
/s/William T. Reynolds
____________________________ April 21, 1999
William T. Reynolds
(Signatures Continued)
<PAGE>
T. ROWE PRICE GNMA FUND
/s/Connice A. Bavely
____________________________ President April 21, 1999
Connice A. Bavely
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
/s/Charles B. Hill
____________________________ President April 21, 1999
Charles B. Hill
ATTEST:
/s/Patricia S. Lippert
____________________________
Patricia S. Lippert, Secretary
