____________, 2000
T. Rowe Price Summit Limited-Term Fund
(a series of T. Rowe Price Summit Funds, Inc.)
100 East Pratt Street
Baltimore, Maryland 21202
T. Rowe Price Short-Term Bond Fund, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Dear Sirs:
We are acting as counsel to T. Rowe Price Summit Limited-Term Bond Fund
("Limited-Term Fund"), a series of the T. Rowe Price Summit Funds, Inc. and T.
Rowe Price Short-Term Bond Fund, Inc. ("Short-Term Bond Fund") in connection
with the proposed transfer of assets (the "Reorganization") of Limited-Term Fund
to Short-Term Bond Fund in exchange for shares of Short-Term Bond Fund (the
"Shares") pursuant to an Agreement and Plan of Reorganization dated September
[], 2000 (the "Agreement").
In connection with rendering the opinions expressed herein, we have
examined Short-Term Bond Fund's Registration Statement on Form N-14 (the
"Registration Statement") relating to the Shares of Short-Term Bond Fund to be
offered in exchange for the assets of Limited-Term Fund, and containing the
preliminary prospectus and proxy statement relating to the transaction
(collectively, the "Prospectus"), to be filed with the Securities and Exchange
Commission (the "Commission") pursuant to the provisions of the Securities Act
of 1933, as amended (the "Securities Act"), and the Investment Company Act of
1940, as amended, and the rules and regulations of the Commission thereunder. In
addition, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of such other documents, records and other
instruments as we have deemed necessary or appropriate for the purpose of
rendering this opinion, including the form of the Agreement included as Exhibit
A to the Prospectus.
In our examination of the foregoing documents we have assumed the
genuineness of all signatures, the authority of each signatory, the due
execution and delivery of all documents by all parties, the authenticity of all
agreements, documents, certificates and instruments submitted to us as
originals, the conformity of the Agreement to be executed and delivered by the
parties with the form of the Agreement contained in the Prospectus,
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and the conformity with originals of all agreements, documents, certificates and
instruments submitted to us as copies.
In rendering the opinions expressed herein, we have assumed that the
transactions contemplated by the Agreement will be consummated in accordance
therewith and as described in the Prospectus. As to other questions of fact
material to this opinion, we have assumed, with your approval and without
independent investigation or verification, that the following facts will be
accurate and complete as of the consummation of the Reorganization (the "Closing
Date").
1. The fair market value of the Shares to be received by each Limited-Term
Fund shareholder will be equal to the fair market value of the Limited-Term Fund
shares surrendered in exchange therefor upon the liquidation of Limited-Term
Fund.
2. Limited-Term Fund will not have redeemed its shares, and will not have
made distributions with respect to its shares other than those which are
consistent with past custom and practice, prior or incident to and as part of
the Reorganization. For purposes of this assumption, shares of Limited-Term
Fund required to be redeemed by Limited-Term Fund prior to the Reorganization
and not as part of the Reorganization but in the ordinary course of its business
as an open-end investment company pursuant to Section 22(e) of the Investment
Company Act of 1940, as amended (the "ICA"), shall not be taken into account. No
shareholders of Limited-Term Fund will exercise dissenters rights with respect
to the Reorganization.
3. Pursuant to the Agreement, Limited-Term Fund will distribute in
liquidation of Limited-Term Fund, the Shares of Short-Term Bond Fund received by
Limited-Term Fund in the Reorganization.
4. Short-Term Bond Fund will not assume any liabilities of Limited-Term
Fund in the Reorganization, nor will any assets transferred pursuant to the
Reorganization be subject to any liabilities, and Short-Term Bond Fund will pay
no consideration other than the Shares in connection with the Reorganization.
5. All expenses incurred by Limited-Term Fund with respect to the
Reorganization will be borne by Limited-Term Fund or its investment adviser.
Each shareholder of Limited-Term Fund will pay its respective share of the
expenses, if any, incurred in connection with the Reorganization. Short-Term
Bond Fund or its investment adviser will pay the expenses, if any, incurred by
it in connection with the Reorganization.
6. No intercorporate indebtedness will exist between Short-Term Bond Fund
and Limited-Term Fund that was issued, acquired, or will be settled at a
discount.
7. Limited-Term Fund will not own, directly or indirectly, nor will it
have owned during the five years preceding the Closing Date, directly or
indirectly, any stock of Short-Term Bond Fund.
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8. The assets of Limited-Term Fund transferred to Short-Term Bond Fund
will include all assets owned by Limited-Term Fund at fair market value on the
Closing Date net of reserves and excludable assets as provided in Agreement.
10. In accordance with the terms of the Agreement, Limited-Term Fund will
transfer all of its business and will transfer assets to Short-Term Bond Fund
representing at least 90% of the fair market value of the net assets, and at
least 70% of the fair market value of the gross assets, held by Limited-Term
Fund immediately prior to the Reorganization. For purposes of this assumption,
amounts paid by Limited-Term Fund to shareholders who receive cash or other
property, amounts paid to dissenters, amounts used by Limited-Term Fund to pay
its reorganization expenses or other liabilities, and all redemptions and
distributions (other than regular, normal redemptions and dividends) made by
Limited-Term Fund immediately preceding the Reorganization will be included as
assets of Limited-Term Fund held immediately prior to the Reorganization.
11. Limited-Term Fund will not be under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
12. No cash will be paid to the shareholders of Limited-Term Fund in lieu
of fractional shares.
13. For federal income tax purposes, Limited-Term Fund will qualify as a
regulated investment company (as defined in Code Section 851) and will have so
qualified since its formation. The provisions of Code Sections 851 through 855
will apply to Limited-Term Fund and will continue to apply through the Closing
Date.
14. As of the Closing Date, Limited-Term Fund will have declared to its
shareholders of record a dividend or dividends payable prior to closing, which
together with all previous such dividends will have the effect of distributing
all of Limited-Term Fund's investment company taxable income plus the excess of
its interest income, if any, excludable from gross income under Code Section
103(a) over its deductions disallowed under Sections 265 and 171(a)(2) for the
taxable year of Limited-Term Fund ending on the Closing Date and all its net
capital gain realized in such taxable year.
15. Neither Short-Term Bond Fund nor any person related thereto within the
meaning of Treasury Regulation Section 1.368-1(e) will have any plan or
intention to reacquire any of the Shares of Short-Term Bond Fund issued in the
Reorganization. For purposes of this assumption, Shares of Short-Term Bond Fund
required to be redeemed by Short-Term Bond Fund not as part of the
Reorganization but in the ordinary course of its business as an open-end
investment company pursuant to Section 22(e) of the ICA shall not be taken into
account.
16. Short-Term Bond Fund will have no plan or intention to sell or
otherwise dispose of any of the assets of the Limited-Term
<PAGE>
Fund acquired in the Reorganization, except for dispositions made in the
ordinary course of business.
17. Following the Reorganization, Short-Term Bond Fund will continue
Limited-Term Fund's historic business or use a significant portion of
Limited-Term Fund's historic business assets in its business.
18. Short-Term Bond Fund will not own, directly or indirectly, nor will it
have owned during the five years preceding the Closing Date, directly or
indirectly, any stock of Limited-Term Fund.
19. Short-Term Bond Fund will not be under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Code Section 368(a)(3)(A).
20. For federal income tax purposes, Short-Term Bond Fund will qualify as a
regulated investment company (as defined in Code Section 851) and will have so
qualified since its formation. The provisions of Code Sections 851 through 855
will apply to Short-Term Bond Fund prior to the Reorganization and will continue
to apply after the Closing Date.
21. We note that our opinion is expressly limited to the federal laws of
the United States.
Based on the foregoing and subject to the assumptions and limitations
set forth above, and such examination of law as we have deemed necessary, we are
of the opinion that:
1. The Reorganization will constitute a reorganization within the meaning
of Section 368(a)(1)(C) of the Code;
2. Limited-Term Fund and Short-Term Bond Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
3. Pursuant to Sections 361(a), 361(c)(i), and 357(a) of the Code, no gain
or loss will be recognized by Limited-Term Fund upon the transfer of its assets
to Short-Term Bond Fund in exchange solely for shares of Short-Term Bond Fund as
a result of the Reorganization or upon the distribution (whether actual or
constructive) of the Shares of Short-Term Bond Fund in complete liquidation of
Limited-Term Fund;
4. Pursuant to Section 1032(a) of the Code, no gain or loss will be
recognized by Short-Term Bond Fund upon its acquisition of Limited-Term Fund's
assets solely in exchange for Shares of Short-Term Bond Fund;
5. Pursuant to Section 362(b) of the Code, the basis of the assets of
Limited-Term Fund acquired by Short-Term Bond Fund will be the same as the basis
of such assets when held by Limited-Term Fund immediately prior to the
Reorganization;
6. Pursuant to Section 1223(2) of the Code, the holding period of the
assets of Limited-Term Fund acquired by Short-Term Bond Fund will include the
period during which such assets were held by Limited-Term Fund;
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7. Pursuant to Section 354(a)(1) of the Code, no gain or loss will be
recognized by a shareholder of Limited-Term Fund upon the exchange of his or her
shares solely for Shares of Short-Term Bond Fund, including fractional shares,
in liquidation of Limited-Term Fund;
8. Pursuant to Section 358(a)(1) of the Code, the basis of the Shares of
Short-Term Bond Fund received by former Limited-Term Fund shareholders will be
the same as the basis of Limited-Term Fund shares surrendered in exchange
therefor; and
9. Pursuant to Section 1223(1) of the Code, the holding period for Shares
of Short-Term Bond Fund received by each shareholder of Limited-Term Fund in
exchange for his or her shares of Limited-Term Fund will include the period
during which such shareholder held shares of Limited-Term Fund (provided
Limited-Term Fund shares were held as capital assets on the date of the
exchange).
10. The taxable year of Limited-Term Fund will end on the effective date of
the Reorganization; and, pursuant to Section 381(a) of the Code and the
regulations thereunder, International Bond Fund will succeed to and take into
account certain tax attributes of Global Bond Fund, such as earnings and
profits.
The opinions expressed herein are based upon currently applicable
statutes and regulations and existing interpretations. We can provide no
assurance that such statutes or regulations, or existing judicial or
administrative interpretations thereof, will not be amended, revoked or modified
(possibly prior to the Closing Date) in a manner which would affect our
conclusions. Finally, we note that this opinion is solely for the benefit of the
addressees hereof in connection with the transaction described herein and,
except as otherwise provided herein, should not be referred to, used, relied
upon or quoted (with or without specific reference to our firm) in any
documents, reports, financial statements or otherwise, without our prior written
consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and to any reference to our
firm in the Registration Statement or in the Prospectus constituting part
thereof. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/Swidler Berlin Shereff Friedman, LLP
Swidler Berlin Shereff Friedman, LLP
