PAGE 1 Registration Nos. 33-1041/811-4441
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Post-Effective Amendment No. 16 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 12 / X /
Fiscal Year Ended May 31, 1994
___________________
T. ROWE PRICE GNMA FUND
_________________________
(Exact Name of Registrant as Specified in Charter)
100 East Pratt Street, Baltimore, Maryland 21202
__________________________________________ _________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 410-547-2000
_____________
Henry H. Hopkins
100 East Pratt Street
Baltimore, Maryland 21202
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering October 1, 1994
____________
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/X/ on October 1, 1994 pursuant to paragraph (a) of Rule 485
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933+
______________________________________________________________________________
Pursuant to Section 24f-2 of the Investment Company Act of 1940, the
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 and intends to file a 24f-2 Notice by July 30, 1994.
+ Not applicable, as no securities are being registered by this Post-
Effective Amendment No. 16 to the Registration Statement.
PAGE 2
The Registration Statement of T. Rowe Price GNMA Fund on Form N-1A (File
Number 33-01041) is hereby amended under the Securities Act of 1933 to update
financial information and make changes in the Registrant's Prospectus,
Statement of Additional Information, and to satisfy the annual amendment
requirements of Rule 8(b)-16 under the Investment Company Act of 1940.
This Amendment consists of the following:
Cross Reference Sheet
Part A of Form N-1A, Revised Prospectus
Part B of Form N-1A, Statement of Additional Information
Part C of Form N-1A, Other Information
Accountants' Consent
PAGE 3
CROSS REFERENCE SHEET
N-1A Item No. Location
_____________ ________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Transaction and Fund
Expenses
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Transaction and Fund Expenses;
Fund and Market
Characteristics: What to
Expect; The Fund's Organization
and Management; Understanding
Performance Information;
Investment Policies and
Practices; Types of Fund
Management Practices
Item 5. Management of the Fund Transaction and Fund Expenses;
Fund and Market
Characteristics: What to
Expect; The Fund's Organization
and Management
Item 6. Capital Stock and Other Securities Useful Information on
Distributions and Taxes; The
Fund's Organization and
Management
Item 7. Purchase of Securities Being Pricing Shares and Receiving
Sale Proceeds; Transaction
Procedures and Special
Requirements; Meeting
Requirements for New Accounts;
Shareholder Services
Item 8. Redemption or Repurchase Pricing Shares and Receiving
Sale Proceeds; Transaction
Procedures and Special
Requirements; Exchanging and
Redeeming Shares; Shareholder
Services
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +
Item 13. Investment Objectives and Policies Investment Objectives and
Policies; Risk Factors;
Investment Program; Portfolio
Management Practices;
Investment Restrictions; Yield
Information; Investment
Performance
Item 14. Management of the Registrant Management of Fund
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent Accountants;
Legal Counsel
Item 17. Brokerage Allocation Portfolio Transactions; Code of
Ethics
PAGE 4
Item 18. Capital Stock and Other Securities Dividends and Distributions;
Capital Stock
Item 19. Purchase, Redemption and Pricing Redemptions in Kind;
of Securities Being Offered Pricing of Securities; Net
Asset Value Per Share; Federal
and State Registration of
Shares; Ratings of Corporate
Debt Securities; Ratings of
Commercial Paper
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for fund
Item 22. Calculation of Yield Quotations of +
Money Market Funds
Item 23. Financial Statements Incorporated by Reference from
Annual Report
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement
___________________________________
+ Not applicable or negative answer
PAGE 5
Prospectus for the T. Rowe Price GNMA Fund, dated October 1, 1994, should be
inserted here.
PAGE 1
GNMA Fund T. Rowe Price
Facts at a Glance GNMA Fund
Prospectus
Investment Goal October 1, 1994
Highest level of current income
consistent with maximum credit Contents
protection and moderate price ______________________
fluctuation. As with any mutual 1 About the Fund
fund, there is no guarantee the fund ______________________
will achieve its objective. Transaction and Fund
Expenses
Strategy ______________________
Invests exclusively in securities Financial Highlights
that are backed by the full faith ______________________
and credit of the U.S. Government, Fund and Market
primarily GNMA mortgage-backed Characteristics
securities. ______________________
2 About Your Account
Risk/Reward Potential ______________________
Higher income than Treasury Pricing Shares;
securities of comparable maturity; Receiving Sale
typically lower returns than Proceeds
comparable Treasuries when interest ______________________
rates fall and higher returns when Distributions and Taxes
rates are stable or rising. ______________________
Transaction Procedures
Investor Profile and Special Requirements
Generally conservative investors who ______________________
seek high income together with the 3 More About the Fund
highest credit quality and can ______________________
accept fluctuation in share price as Organization and
interest rates rise and fall. Management
Appropriate for regular and tax- ______________________
deferred accounts, such as IRAs. Understanding
Performance
Fees and Charges ______________________
100% no load. No fees or charges to Investment Policies and
buy shares or to reinvest dividends; Practices
no 12b-1 marketing fees; free ______________________
telephone exchange. 4 Investing With T. Rowe
Price
Investment Manager ______________________
Founded in 1937 by the late Thomas Meeting Requirements for
Rowe Price, Jr., T. Rowe Price New Accounts
Associates, Inc. ("T. Rowe Price") ______________________
and its affiliates currently manage Opening a New Account
______________________
PAGE 2
over $54 billion for approximately Purchasing Additional
three million individual and Shares
institutional investors. ______________________
Exchanging and Redeeming
THESE SECURITIES HAVE NOT BEEN ______________________
APPROVED OR DISAPPROVED Shareholder Services
BY THE SECURITIES AND EXCHANGE ______________________
COMMISSION, OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE This prospectus contains
SECURITIES AND EXCHANGE information you should
COMMISSION, OR ANY STATE SECURITIES know before investing.
COMMISSION, PASSED Please keep it for
UPON THE ACCURACY OR ADEQUACY OF future reference. A
THIS PROSPECTUS. ANY Statement of Additional
REPRESENTATION TO THE CONTRARY IS A Information about the
CRIMINAL OFFENSE. fund, dated October 1,
1994, has been filed
with the Securities and
Exchange Commission and
is incorporated by
reference in this
prospectus. To obtain a
free copy, call
1-800-638-5660.
PAGE 3
1 About the GNMA Fund
Transaction and Fund Expenses
These tables should help you understand the
kinds of expenses you will bear directly or
indirectly as a fund shareholder.
_________________________
Like all T. Rowe Price
Funds, the fund is 100%
no load. In Table 1 below, "Shareholder Transaction
Costs" shows that you pay no sales charges.
All the money you invest in the fund goes
to work for you, subject to the fees
explained below. "Annual Fund Expenses"
provides an estimate of how much it will
cost to operate the fund for a year, based
on 1995 fiscal year expenses. 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 dividends and other
distributions are made. In other words, you
will not see these expenses on your account
statement.
________________________
For the three-month
fiscal year ended May 31,
1994 and the fiscal year
ended February 28, 1994,
fees paid by the fund
included the following:
$126,000 and $532,000
respectively, to T. Rowe
Price Services, Inc. for
transfer and dividend
disbursing functions and
shareholder services;
$185,000 and $282,000
respectively, to T. Rowe
Price Retirement Plan
Services, Inc. for
recordkeeping services ___________________________________________
for certain retirement Shareholder Transaction Expenses
plans; and $34,000 and ___________________________________________
$120,000 respectively, to Sales charge "load" on
PAGE 4
T. Rowe Price for Fund purchases None
accounting services. ___________________________________________
Sales charge "load" on
reinvested dividends None
___________________________________________
Redemption fees None
___________________________________________
Exchange fees None
___________________________________________
Percentage of Fiscal
Annual Fund 1995 Average Net
Expenses Assets
___________________________________________
Management fee 0.49%
___________________________________________
Total other (Shareholder
servicing, custodial,
auditing, etc.) 0.27%
___________________________________________
Marketing fees (12b-1) None
___________________________________________
Total fund expenses 0.76%
___________________________________________
Note: The fund charges a $5 fee for wire
redemptions under $5,000, subject to change
without notice.
___________________________________________
Table 1
The main types of expenses, which all
mutual funds may charge against fund
assets, are:
o A management fee: the percent of fund
assets paid to the fund's investment
manager. The fund's fee is comprised of
a group fee, discussed later, and an
individual fund fee of 0.15%.
o "Other" administrative expenses:
primarily the servicing of shareholder
accounts, such as providing statements,
reports, disbursing dividends, as well as
custodial services.
PAGE 5
o Marketing or distribution fees: an annual
charge ("12b-1") to existing shareholders
to defray the cost of selling shares to
new shareholders. T. Rowe Price funds do
not levy 12b-1 fees.
For further details on fund expenses,
please see "The Fund's Organization and
Management."
o Hypothetical example: Assume you invest
$1,000, the fund returns 5% annually,
expense ratios remain as listed above,
and you close your account at the end of
________________________ the time periods shown. Your expenses
The table at right is would be:
just an example; actual
expenses can be higher or
lower than those shown.
1 year 3 years 5 years 10 years
___________________________________________
$8 $24 $42 $94
___________________________________________
Table 2
Financial Highlights
The following table provides information
about the fund's financial history. It 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 the fund's annual
report and are incorporated by reference
into the the Statement of Additional
Information. This document is available to
shareholders upon request. The financial
statements in the annual report have been
audited by Price Waterhouse, independent
accountants, whose unqualified report
covers the most recent five-year period.
Investment Activities Distributions
Net Real-
ized and
Net Unreal- Total
PAGE 6
Asset ized Gain from
Value, Net (Loss) Invest- Net Net
Begin- Invest- on ment Invest- Real- Total
Year Ended ning of ment Invest- Activi- ment lized Distri-
Period Income ments ties Income Gain butions
_________________________________________________________________
1986+ $10.00 $.26 $.12 $.38 $(.26) -- $(.26)
1987 10.12 .90 .15 1.05 (.90) -- (.90)
1988+++ 10.27 .92 (.70) .22 (.92)$(.02) (.94)
1989 9.55 .90 (.62) .28 (.90) -- (.90)
1990 8.93 .85 .23 1.08 (.85) -- (.85)
1991 9.16 .83 .31 1.14 (.83) -- (.83)
1992+++ 9.47 .80 .32 1.12 (.80) -- (.80)
1993 9.79 .75 .13 .88 (.75) -- (.75)
1994 9.92 .68 (.32) .36 (.68) -- (.68)
1994@ 9.60 .17 (.46) (.29) (.17) -- (.17)
End of Period
Ratio
of
Ratio Net
of Invest-
Net Total Expenses ment Port-
Asset Return to Income folio
Value, (Includes Net Average to Aver- Turn-
Year Ended End of Reinvested Assets ($ Net age Net over
Period Dividends) Thousands) Assets Assets Rate
_________________________________________________________________
1986+ $10.12 3.9% $123,562 1.00%++10.06% 51.2%
1987 10.27 10.8% 377,560 1.00%++ 8.82% 226.0%
1988+++ 9.55 2.5% 368,922 0.99% 9.56% 192.8%
1989 8.93 3.1% 351,756 0.94% 9.75% 134.5%
1990 9.16 12.4% 386,193 0.90% 9.19% 170.8%
1991 9.47 13.0% 468,969 0.85% 8.94% 91.8%
1992+++ 9.79 12.3% 715,249 0.86% 8.25% 66.0%
1993 9.92 9.4% 913,722 0.79% 7.65% 94.2%
1994 9.60 3.7% 883,391 0.77% 6.93% 92.5%
1994@ 9.14 (3.0)% 802,304 0.76%@ 7.24%@ 151.8%@
_________________________________________________________________
+For the period November 26, 1985 (commencement of operations)
to February 28, 1986.
++Excludes expenses in excess of the 1.00% expense limitation in
effect through February 28, 1987.
PAGE 7
+++Year ended February 29.
@For the three months ended May 31, 1994. Fiscal year-end
changed from February 28 to May 31. All ratios are annualized.
FUND AND MARKET CHARACTERISTICS: What to Expect
This section takes a closer look at the
fund's investment program as well as some
fundamentals of the market for mortgage-
backed securities and Treasury notes and
bonds.
________________________
The fund should reflect
your individual
investment goals but
should not be relied upon
for short-term financial
needs nor represent your
complete investment
program. What is the fund's objective?
The GNMA Fund's objective is to provide a
high level of current income consistent
with maximum credit protection and moderate
price fluctuation by investing exclusively
in securities backed by the full faith and
credit of the U.S. Government and
instruments involving these securities.
What types of securities can the fund
purchase?
The fund will seek to fulfill its objective
by investing primarily in mortgage-backed
securities issued by the Government
National Mortgage Association (GNMA), an
agency of the Department of Housing and
Urban Development (HUD). These securities
represent pools of mortgage loans that are
either insured by the Federal Housing
Administration or guaranteed by the
Veterans Administration. GNMA, in turn,
guarantees the timely payment of interest
and principal on its securities, a
guarantee backed by the U.S. Treasury. The
GNMA guarantee does not apply in any way to
the price of GNMA securities or the fund,
both of which will fluctuate with market
PAGE 8
conditions.
The fund can also purchase bills, notes
and bonds issued by the U. S. Treasury as
well as related futures, other agency
securities backed by the full faith and
credit of the U. S. Government, and
securities involving GNMAs, such as
collateralized mortgage obligations (CMOs)
and stripped certificates (securities that
receive only the interest or principal
portion of the underlying mortgage
payments).
______________________
For further details on
the fund's investment
program, please see the
section entitled
"Investment Policies and
Practices." Can the fund invest in derivative
securities?
Yes. Several of the securities mentioned
above -- futures contracts, CMOs, and
stripped certificates -- are types of
derivatives. In the broadest sense, a
derivative is any security whose value is
derived from underlying securities or a
market benchmark. The amount of risk
represented by derivatives varies widely
from one to another. The fund can invest
in derivatives, including the more volatile
types such as futures and stripped
securities, in an effort to hedge against
interest rate risk or enhance returns.
(For additional information on derivatives
and their potential use by the fund, please
see the section beginning on page__.
____________________
Some characteristics of
mortgage-backed
securities.
What are mortgage-backed securities?
Mortgage lenders pool individual home
mortgages with similar characteristics to
back a certificate or bond, which is then
sold to investors. Interest and principal
PAGE 9
payments generated by the underlying
mortgages are passed through to the
investors.
Do mortgage-backed securities differ from
other high-quality bonds?
Yes, in one major respect. Most bonds repay
principal (face value) when their maturity
date is reached, but mortgage-backed
securities repay principal on an ongoing
basis as homeowners make scheduled and
unscheduled principal payments on their
mortgages. Moreover, homeowners have the
option of repaying the entire loan balance
before the stated maturity date, perhaps to
refinance or buy a new home. As a result,
the actual or "effective" maturity of a
mortgage-backed security is virtually
always shorter than its stated maturity.
For example, a new GNMA certificate
backed by 30-year, fixed-rate mortgages is
generally expected to have a far shorter
life than 30 years, probably 12 or less,
and to have volatility characteristics
similar to a 10-year Treasury note. The
average life of an entire mortgage pool
that backs a particular security can be
estimated with some accuracy but not with
certainty.
Why are yields on GNMAs higher than yields
on Treasuries of similar maturity?
Their structure is much more complex, which
may entail more recordkeeping, and their
effective maturity is uncertain.
How does prepayment uncertainty affect
investors?
When interest rates fall, the pace of
mortgage refinancings picks up. Refinanced
mortgages are paid off at face value (par),
causing a loss for any investor who may
have purchased the security at a price
above par. This risk reduces the appeal of
these securities for investors in a falling
PAGE 10
rate environment, thus limiting their
potential price appreciation and possibly
having a negative effect on the fund's
share price. However, when rates rise,
mortgage-backed securities have
historically experienced smaller price
declines than otherwise similar bonds.
_________________________
For a better
understanding of the GNMA
Fund, you may find it
helpful to review these
fundamentals of fixed-
income investing. Is the fund's yield fixed or will it vary?
It will vary. The yield is calculated
every day by dividing the fund's net income
per share, expressed at annual rates, by
the share price. Since both income and
share price will fluctuate, the fund's
yield will also vary.
Is a bond fund's "yield" the same as its
"total return"?
No. Your total return is a combination of
the income paid and the change in share
price for a given time period. Income is
always a positive contributor to total
return and can enhance a rise in share
price or serve as an offset to a drop in
share price.
What is "credit quality" and how does it
affect yield?
Credit quality refers to a bond issuer's
expected ability to make all required
interest and principal payments in a timely
manner. Because highly rated bond issuers
represent less risk, they can borrow at
lower interest rates than less creditworthy
issuers. Therefore, a fund investing in
high-quality securities should have a lower
yield than an otherwise comparable fund
investing in lower credit-quality
securities.
What is meant by a bond or bond fund's
PAGE 11
"maturity"?
Every bond has a stated maturity date when
the issuer must repay the bond's entire
principal value to the investor. Some
bonds, including mortgage-backed
securities, have an "effective maturity"
that is shorter than the stated date. The
effective maturity of mortgage-backed bonds
is determined by the rate at which
homeowners pay down the principal on the
underlying mortgages.
A bond mutual fund has no maturity in the
strict sense of the word, but does have a
dollar-weighted average maturity or average
effective maturity. This number is an
average of the stated or effective
maturities of the underlying bonds, with
each maturity "weighted" by the percentage
of fund assets it represents.
What is a bond or bond fund's "duration"?
Duration is a better measure than maturity
of a bond's price sensitivity to interest
rate changes because it takes into account
the time value of cash flows generated over
the bond's life. Future payments are
discounted to reflect their present value
and then are multiplied by the number of
years they will be received to produce a
value that is expressed in years, i.e., the
duration. Effective duration, a more
refined measure than average maturity,
takes into account call features and
sinking fund payments which may shorten a
bond's life.
Since duration can also be computed for
bond funds, you can estimate the effect of
interest rates on a bond fund's share
price. Simply multiply a fund's duration
by an expected percentage change in
interest rates. For example, a bond or bond
fund with a duration of five years would
rise or fall roughly 5% in price if rates
fell or rose by one percentage point.
PAGE 12
How is a bond's price affected by changes
in interest rates?
When interest rates rise, a bond's price
usually falls, and vice versa. If mortgage
prepayments should accelerate in a falling
interest rate environment, GNMA securities
may appreciate less than shown in the
example below. The amount of appreciation
would depend on the characteristics of the
____________________ mortgages, such as their coupon or
In general, the longer a maturity.
bond's maturity, the
greater the price
increase or decrease in
response to a given
change in interest rates,
as shown in the table at
right.
How Interest Rates Affect Bond Prices
Change in $1,000
Bond/ Principal Value if
Maturity Coupon Interest Rates:
Increase Decrease
_________ _________
1% 2% 1% 2%
___________________________________________
1 year 5.08% $990 $981 $1,010 $1,020
___________________________________________
5 years 6.80 959 920 1,043 1,088
___________________________________________
10 years 7.19 933 871 1,074 1,155
___________________________________________
20 years 7.46 892 802 1,132 1,294
___________________________________________
Table 4 Coupons reflect yields on Treasury
securities as of May 31, 1994. This is an
illustration and does not represent
expected yields or share-price changes of
any T. Rowe Price fund.
What are the main risks of investing in
PAGE 13
this fund?
0 Interest rate or market risk -- the
decline in bond prices that accompanies a
rise in the overall level of interest
rates.
0 Prepayment risk -- the chance that, when
interest rates are falling, homeowners will
accelerate principal payments on the
mortgages that underlie the GNMA
securities. Prepayments cause a loss to
investors, such as this fund, on mortgages
that were originally purchased at a premium
(price above par).
0 Credit risk -- by investing only in
securities backed by the full faith and
of the U.S. Government, credit risk
should not be a concern for this fund.
How do T. Rowe Price fund managers try to
reduce risk?
T. Rowe Price actively manages the fund to
minimize risk while seeking a high current
income. Risk management tools include:
0 Diversification of mortgage assets by
coupon and type to minimize prepayment
risk; and
0 Shifts in portfolio composition, such as
changing the mix of GNMAs versus Treasury
securities, to reduce interest rate or
prepayment risk and also to take advantage
of yield or appreciation opportunities.
For example, in a falling rate environment,
prepayment risk may be reduced by
emphasizing new GNMAs and Treasury lower-
coupon securities.
0 Adjustments in the fund's duration to try
to reduce the negative impact of rising
rates or take advantage of the favorable
effects of falling rates.
How can I decide whether the GNMA Fund is
appropriate for me?
Review your own financial objectives,
investment time horizon, and risk
tolerance, and the fund's major
characteristics listed below. The fund may
be appropriate for a variety of objectives.
PAGE 14
For instance, steadily reinvesting the
fund's income is a conservative strategy
_____________________ for building capital over time. The fund
Prices of the fund's may also be appropriate if you seek the
shares will fluctuate. highest level of current income consistent
When you sell your with highest credit quality and can accept
shares, their price may fluctuations in share price.
be higher or lower than
when you purchased them.
Is there other information I need to review
before making a decision?
Be sure to review "Investment Policies and
Practices" in Section 3, which reviews the
following topics: Types of Portfolio
Securities (bonds, mortgage-backed
securities and other securities backed by
the full faith and credit of the U.S.
Government); Types of fund Management
Practices (cash position, borrowing money
and transferring assets, futures and
options, lending of portfolio securities,
when issued securities and forward
commitment contracts and portfolio
transaction).
2 About Your Account
Pricing Shares and Receiving Sale Proceeds
Here are some procedures you should know
when investing in a fund.
________________________
The various ways you can
buy, sell, and exchange
shares are explained at
the end of this
prospectus and on the New
Account Form. How and when shares are priced
Bond and Money Funds. The share price (also
called "net asset value" or NAV per share)
for each fund is calculated at 4 p.m. ET
PAGE 15
each day the New York Stock Exchange is
open for business. To calculate the NAV, a
fund's assets are priced and totaled,
liabilities are subtracted, and the
balance, called net assets, is divided by
the number of shares outstanding.
Money fund NAVs, which are managed to
remain at $1.00, are calculated at noon ET
each day as well as 4 p.m. Amortized cost
or amortized market value is used to value
money fund securities that mature in 60
days or less.
________________________
When filling out the New
Account Form, you may
wish to give yourself the
widest range of options
for receiving proceeds
from a sale. How your purchase, sale, or exchange price
is determined
If we receive your request in correct form
before 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 are
priced 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.
_________________________
If for some reason we
cannot accept your
request to sell shares,
we will contact you. 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 the
next business day. Proceeds can be sent to
PAGE 16
you by mail, or to your bank account by ACH
transfer or bank wire. Proceeds sent by
bank wire should be credited to your
account the next business day, and proceeds
sent by ACH transfer should be credited the
second day after the sale. ACH (Automated
Clearing House) is an automated method of
initiating payments from and receiving
payments in your financial institution
account. ACH is a payment system supported
by over 20,000 credit unions, banks and
savings banks which electronically exchange
the transactions through the Federal
Reserve Banks.
Exception:
o Under certain circumstances and when
deemed to be in the fund's best
interests, your proceeds may not be sent
for up to five business days after
receiving your sale or exchange request.
If you were exchanging into another bond
or money fund, your new investment would
not begin to earn dividends until the
sixth business day.
Useful Information on Distributions and
Taxes
________________________
The fund distributes all
net investment income and
realized capital gains to
shareholders. 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 interest and capital gain
distributions on a rising number of shares.
Dividends not reinvested are paid by check
or transmitted to your bank account via
PAGE 17
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 then current
NAV and to reinvest all subsequent
distributions in shares of the fund.
Income dividends
o Bond funds declare income dividends daily
at 4 p.m. ET to shareholders of record
and for whom payment has been received on
the previous business day.
o Money funds declare income dividends
daily at noon ET to shareholders of
record and for whom payment has been
received at that time.
o Bond and money funds pay dividends on the
last business day of each month.
o Bond and money 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
o A capital gain or loss is the difference
between the purchase and sale price of a
security.
o If the fund has net capital gains for the
year (after subtracting any capital
losses), they are usually declared and
PAGE 18
paid in December to shareholders of record
on a specified date that month. If a second
distribution is necessary, it is usually
declared and paid during the first quarter
of the following year.
________________________
The fund sends timely
information for your tax
filing needs. Tax information
You need to be aware of the possible tax
consequences when:
o you sell fund shares, including an
exchange from one fund to another, or
o 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, the fund will send you and the
IRS Form 1099-B, indicating the date and
amount of each sale you made in the fund
during the prior year. We will also tell
you the average cost of the shares you sold
during the year. Average cost 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 (except for
systematic purchases and redemptions) you
make and a year-end statement detailing all
your transactions in each fund account
during the year.
_________________________
Distributions are taxable
PAGE 19
whether reinvested in Taxes on fund distributions. The following
additional shares or summary does not apply to retirement
received in cash. accounts, such as IRAs, which are
tax-deferred until you withdraw money from
them.
In January, the fund will send you and the
IRS Form 1099-DIV indicating the tax status
of any dividend and capital gain
distribution made to you. All distributions
made by the fund are taxable to you for the
year in which they were paid. The only
exception is that distributions declared
during the last three months of the year
and paid in January are taxed as though
they were paid by December 31. The fund
will send you any additional information
you need to determine your taxes on fund
distributions, such as the portion of your
dividend, if any, that may be exempt from
state income taxes.
Short-term capital gains are taxable as
ordinary income and long-term gains are
taxable at the applicable long-term gain
rate. The gain is long or short term
depending on how long the fund held the
securities, not how long you held shares in
the fund. If you realize a loss on the
sale or exchange of fund shares held six
months or less, your short-term loss
recognized is reclassified to long-term to
the extent of any capital gain distribution
received.
If distributions arising from transactions
in foreign currencies or securities reduce
a fund's net income, a portion of its
dividends may be classified as a return of
capital. Tax treatment of distributions is
explained in the year-end tax information
we send.
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
PAGE 20
person to receive the upcoming
distribution--you will receive, in the form
of a taxable distribution, a portion of the
money you just invested. Therefore, you may
wish to find out a fund's record date(s)
before investing. Of course, a fund's share
price may reflect undistributed capital
gains or unrealized appreciation, if any.
Transaction Procedures and Special
Requirements
Purchase Conditions
________________________
Following these
procedures helps assure
timely and accurate
transactions. Nonpayment. If your payment is not received
or you pay with a check or ACH transfer
that does not clear, your purchase will be
cancelled. 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
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
PAGE 21
period, we receive a check drawn against
your bond or money market account, it will
be returned marked "uncollected." (The 10-
day hold does not apply to purchases paid
for by: bank wire; cashier's, certified, or
treasurer's checks; or automatic purchases
through your paycheck.)
Telephone transactions. Telephone exchange
and redemption are established
automatically when you sign the New Account
Form unless you check the box which states
that you do not want these services. The
fund uses reasonable procedures (including
shareholder identity verification) to
confirm that instructions given by
telephone are genuine. If these procedures
are not followed, it is the opinion of
certain regulatory agencies that the fund
may be liable for any losses that may
result from acting on the instructions
given. All conversations are recorded, and
a confirmation is sent within five business
days after the telephone transaction.
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 the fund's net assets, the
fund has the right to delay sending your
proceeds for up to five business days after
receiving your request, or to pay the
difference between the redemption amount
and the lesser of the two previously
mentioned figures with securities from the
fund.
Excessive Trading
________________________
T. Rowe Price may bar
excessive traders from
purchasing shares. Frequent trades involving either
substantial fund assets, or a substantial
PAGE 22
portion of your account or accounts
controlled by you, can disrupt management
of the fund and raise its expenses. We
define "excessive trading" as exceeding one
purchase and sale involving the same fund
within any 120-day period.
For example, you are in fund A. You can
move substantial assets from 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 the number of trades
described above, you may be barred
indefinitely from further purchases of T.
Rowe Price funds.
Three types of transactions are exempt from
excessive trading guidelines: 1) trades
solely between money market funds; 2)
redemptions that are not part of exchanges;
and 3) systematic purchases or redemptions
(see "Shareholder Services").
Keeping Your Account Open
Due to the relatively high cost 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, the fund has the
right to close your account after giving
you 60 days in which to increase your
balance.
________________________
A signature guarantee is
designed to protect you
and the fund from fraud
by verifying your
signature. Signature Guarantees
You may need to have your signature
guaranteed in certain situations, such as:
o Written requests 1) to redeem over
$50,000, or 2) to wire redemption
proceeds.
PAGE 23
o Remitting redemption proceeds to any
person, address, or bank account not on
record.
o Transferring redemption proceeds to a T.
Rowe Price fund account with a different
registration from yours.
o 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.
3 More About the Fund
The Fund's Organization and Management
________________________
Shareholders benefit from
T. Rowe Price's 57 years
of investment management
experience. How is the fund organized?
The fund was organized 1985 as a
Massachusetts business trust and is a
"diversified, open-end investment company,"
or mutual fund. Mutual funds pool money
received from shareholders and invest it to
try to achieve specified objectives.
What is meant by "shares"?
As with all mutual funds, investors receive
"shares" when they put money in the fund.
These shares are part of the fund's
authorized capital stock, but share
certificates are not issued.
Each share and fractional share entitles
the shareholder to:
o receive a proportional interest in the
fund's income and capital gain
distributions;
PAGE 24
o cast one vote per share on certain fund
matters, including the election of fund
directors/trustees, changes in
fundamental policies, or approval of
changes in the fund's management
contract.
Does the fund have annual shareholder
meetings?
The fund is not required to hold annual
meetings and does not intend to do so
except when certain matters, such as a
change in the fund's fundamental policies,
are to 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(s)/trustee(s). 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 a voting
card for you to mail back.
_________________________
All decisions regarding
the purchase and sale of
fund investments are made
by T. Rowe Price--
specifically by the
fund's portfolio
managers.
Who runs the fund?
General oversight. The fund is governed by
a Board of Directors or Trustees that meets
regularly to review the fund's investments,
performance, expenses, and other business
affairs. The Board elects the fund's
officers.
Portfolio Management. The fund has an
Investment Advisory Committee composed of
the following members: Peter Van Dyke,
Chairman, Paul W. Boltz, Heather R. Landon,
James M. McDonald, Edmund M. Notzon, Robert
M. Rubino and Charles P. Smith. The
PAGE 25
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. Van Dyke has been Chairman of the
fund's Committee since 1988. He has been
managing investments since joining T. Rowe
Price in 1985.
Marketing. T. Rowe Price Investment
Services, Inc., a wholly-owned subsidiary
of T. Rowe Price, distributes (sells)
shares of this and all other T. Rowe Price
funds.
Shareholder Services. T. Rowe Price
Services, Inc., another wholly-owned
subsidiary, 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.
How are fund expenses determined?
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.
The Management Fee. This fee has two parts-
-an "individual fund fee" (discussed on
page 2) which reflects the fund's
particular investment management costs, and
a "group fee." The group fee, which is
designed to reflect the benefits of the
shared resources of the T. Rowe Price
PAGE 26
investment management complex, is
calculated monthly based on the net
combined assets of all T. Rowe Price funds
(except Equity Index and both Spectrum
Funds and any institutional 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.
0.480% First $1 billion
0.450% Next $1 billion
0.420% Next $1 billion
0.390% Next $1 billion
0.370% Next $1 billion
0.360% Next $2 billion
0.350% Next $2 billion
0.340% Next $5 billion
0.330% Next $10 billion
0.320% Next $10 billion
0.310% Thereafter
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
Price funds as described above. Based on
combined Price funds' assets of
approximately $35.5 billion at June 30,
1994, the Group Fee was 0.34%.
Understanding Performance Information
This section should help you understand the
terms used to describe the fund's
performance. You will come across them in
shareholder reports you receive from us
four times a year, in our newsletter,
"Insights" reports, in T. Rowe Prices
advertisements, and in the media.
________________________
Total return is the most
widely used performance
measure. Detailed
performance information
is included in the fund's
PAGE 27
annual report and Total Return
quarterly shareholder This tells you how much an investment in
reports. the 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. Including reinvested
distributions means that total return
numbers include the effect of compounding,
i.e., you receive income and capital gain
distributions on a rising number of shares.
Advertisements for the fund may include
cumulative or compound 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 rate of return on an
investment for a specified period. A
cumulative return does not indicate how
much the value of the investment may have
fluctuated between the beginning and the
end of the period specified.
Average Annual Total Return
This is always hypothetical. Working
backward from the actual cumulative return,
it tells you what constant year-by-year
return would have produced the actual,
cumulative return. By smoothing out all the
variations in annual performance, it gives
you an idea of the investment's annual
contribution to your portfolio provided you
held it for the entire period in question.
________________________
You will see frequent
references to the fund's
yield in our reports,
advertisements, in media
stories, and so on.
Yield
PAGE 28
The current or "dividend yield" of the 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 average
price during the given 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 advertised or "SEC yield" is found by
determining the net income per share (as
defined by the SEC) earned by the fund
during a 30-day base period and dividing
this amount by the per-share price on the
last day of the base period. The "SEC
yield" may differ from the dividend yield.
Investment Policies and Practices
________________________
Fund managers have
considerable leeway in
choosing investment
strategies and selecting
investments they believe
will help the fund
achieve its objectives. 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."
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.
PAGE 29
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. A later change in
circumstances will not require the sale of
an investment if it was proper at the time
it was made.
The fund's holdings of certain kinds of
investments cannot exceed maximum
percentages of total assets, which are set
forth in the prospectus. For instance,
this fund is not permitted to invest more
than 10% of total assets in certain
stripped mortgage securities, known as IO's
and PO's. While these restrictions provide
a useful level of detail about the fund's
investment program, investors should not
view them as an accurate gauge of the
potential risk of such investments. For
example, in a given period, a 5% investment
in IO's and PO's could have significantly
more than a 5% impact on the fund's share
price. The net effect of a particular
investment depends on its volatility and
the size of its overall return in relation
to the performance of all the fund's other
investments.
Changes in the fund's holdings, the
fund's performance, and the contribution of
various investments are discussed in the
shareholder reports we send each quarter.
Types of Portfolio Securities
In seeking to meet its investment
objective, the fund may invest in any type
of security whose yield, credit quality and
maturity characteristics are consistent
with the fund's investment program. The
fund may also invest in a variety of
derivative instruments. These and some of
the other investment techniques the fund
may use are described in the following
pages. The fund is allowed to buy
PAGE 30
securities on a when-issued basis.
Bonds. A bond is an interest-bearing
security--an IOU--issued by companies or
governmental units. The issuer has a
contractual obligation to pay interest at a
stated rate on specific dates and to repay
principal (the bond's face value) on a
specified date.
A bond's annual interest income, set by its
coupon rate, is usually fixed for the life
of the bond. Its yield (income as a percent
of current price) will fluctuate to reflect
changes in interest rate levels. A bond's
price usually rises when interest rates
fall, and vice versa, so its yield stays
current.
Certain bonds have interest rates that are
adjusted periodically which tend to
minimize fluctuations of their principal
value. The maturity of those securities may
be shortened under certain specified
conditions.
Some specific types of bonds the fund may
hold from time to time:
Mortgage-backed Securities. The fund
invests primarily in a variety of
mortgage-backed securities. Mortgage
lenders pool individual home mortgages with
similar characteristics to back a
certificate or bond, which is sold to
investors such as the fund. Interest and
principal payments generated by the
underlying mortgages are passed through to
the investors. The "big three" issuers are
Government National Mortgage Association
(GNMA), the Federal National Mortgage
Association (Fannie Mae), and the Federal
Home Loan Mortgage Corporation (Freddie
Mac). GNMA certificates are backed by the
full faith and credit of the U.S.
PAGE 31
Government, while others, such as Fannie
Mae and Freddie Mac certificates, are only
supported by the ability to borrow from the
U.S. Treasury or supported only by the
credit of the agency. Private mortgage
bankers and other institutions also issue
mortgage-backed securities. The fund,
however, only purchases mortgage-backed
securities which are backed by the full
faith and credit of the U.S. government.
Mortgage securities are subject to
scheduled and unscheduled principal
payments as homeowners pay down or prepay
their mortgages. As these payments are
received, they must be reinvested when
interest rates may be higher or lower than
on the original mortgage security.
Therefore, mortgage securities are not an
effective means of locking in long-term
interest rates. In addition, when interest
rates fall, the pace of mortgage
prepayments picks up. These refinanced
mortgages are paid off at face value (par),
causing a loss for any investor who may
have purchased the security at a price
above par. In such an environment, this
risk limits the potential price
appreciation of these securities and can
negatively affect the fund's net asset
value. When rates rise, however,
mortgage-backed securities have
historically experienced smaller price
declines than comparable quality bonds.
The specific types of mortgage-backed
securities in which the fund may invest
include:
GNMA Certificates. The fund will invest
at least 65% of its total assets in GNMA
certificates of the "modified pass-through"
type, meaning the scheduled monthly
interest and principal payments relating to
mortgages in the pool will be "passed
through" to investors. The fund will
reinvest all payments and unscheduled
PAGE 32
prepayments of principal in additional GNMA
certificates or other U.S. government-
guaranteed securities. Interest will be
distributed to shareholders in the form of
monthly dividends.
GNMA certificates evidence interests
in a pool of underlying mortgages with a
maximum life of 15 or 30 years. However,
due to both scheduled and unscheduled
principal payments, GNMA certificates have
a shorter average life and, therefore, less
principal volatility than a comparable 30-
year bond. Since prepayment rates vary
widely, it is not possible to accurately
predict the average life of a particular
GNMA pool. However, it is standard
industry practice to treat new issues of
GNMA certificates as 30-year mortgage-
backed securities having an average life of
no greater than 12 years. Because the
expected average life is a better indicator
of the maturity characteristics of GNMA
certificates, principal volatility and
yield may be more comparable to 10-year
Treasury bonds.
oGNMA Project Pass-through Securities. The
fund may purchase these securities which
are issued by GNMA for multi-family
projects, i.e., low to moderate income
housing, nursing homes, apartment
rehabitation, housing for the elderly or
handicapped and the like. Unlike GNMA
"modified pass through certificates," these
bonds provide call protection for a term
stated in the issue. The project loans can
be made to either private enterprise or
non-profit groups. There are penalties
assessed for prepayments during the call
protected period creating a disincentive
for early prepayment. These bonds
incorporate the same standardized
procedures as single-family pass-through
certificates and full and timely
reimbursement of principal and interest is
guaranteed by GNMA.
PAGE 33
oCollateralized Mortgage Obligations
CMOs). CMOs are debt securities that are
fully collateralized by a portfolio of
mortgages or mortgage-backed securities.
All interest and principal payments from
the underlying mortgages are passed through
to the CMOs in such a way as to create more
definite maturities than is the case with
the underlying mortgages. CMOs may pay
fixed or variable rates of interest, and
certain CMOs have priority over others with
respect to the receipt of prepayments.
oStripped Mortgage Securities. Stripped
mortgage securities are a type of CMO and
are created by separating the interest and
principal payments generated by a pool of
mortgage-backed securities to create two
classes of securities. Generally, one
class receives only interest payments
(IOs) and one principal payments (POs).
Unlike GNMA securities and POs, the value
of IOs tends to move in the same direction
as interest as interest rates. The fund
could use I0s as a hedge against falling
prepaying rates (interest rates are rising)
and/or a bear market environment. POs can
be used as a hedge against rising
prepayments rates (interest rates are
falling) and/or a bull market environment.
IOs and POs are acutely sensitive to
interest rate changes and to the rate of
principal prepayments. A rapid or
unexpected increase in prepayments can
severely depress the price of IOs, while a
rapid or unexpected decrease in prepayments
could have the same effect on POs. These
securities are very volatile in price and
may have lower liquidity than most other
mortgage-backed securities. Certain CMOs
may also exhibit these qualities,
especially those which pay variable rates
of interest which adjust inversely with and
more rapidly than short-term interest
rates. There is no guarantee the fund's
investment in CMOs, IOs or POs will be
successful, and the fund's total return
PAGE 34
could be adversely affected as a result.
Operating policy: The fund may invest up
to 10% of its total assets in stripped
mortgage securities.
Other Securities Backed by the Full Faith
and Credit of the U.S. Government.
The fund may purchase securities of U.S.
government agencies and instrumentalities
which are backed by the full faith and
credit of the U.S. Government such as
securities of the Federal Housing
Administration, the Department of Housing
and Urban Development, the Export-Import
Bank, the Farmers Home Administration, the
General Services Administration, the
Maritime Administration, and the Small
Business Administration. The fund will not
invest in the securities of any U.S.
government agencies which do not carry the
full faith and credit of the U.S.
Government, such as the Fannie Mae (FNMA)
or the Freddie Mac (FHLMC) securities. The
fund may also purchase securities issued or
guaranteed by the U.S. Government, such as
U.S. Treasury bills, notes and bonds.
________________________
Portfolio managers
diversify fund assets to
lower risk.
Types of Fund Management Practices
___________________
Cash reserves provide
flexibility and serve as
a short-term defense
during periods of unusual
market volatility. Cash Position. The fund will hold a certain
portion of its assets in money market
securities, including repurchase
agreements, maturing in one year or less.
For temporary, defensive purposes, the fund
may invest without limitation in such
PAGE 35
securities. This reserve position provides
flexibility in meeting redemptions,
expenses, and the timing of new
investments, and serves as a short-term
defense during periods of unusual market
volatility.
Borrowing Money and Transferring Assets.
The fund can borrow money from banks as a
temporary measure for emergency purposes,
to facilitate redemption requests, or for
other purposes consistent with the fund's
investment objectives and program. Such
borrowings may be collateralized with fund
assets, subject to restrictions.
Fundamental policy: Borrowings may not
exceed 33 1/3% of total fund assets.
Operating policies: 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.
___________________
Futures are used to
manage risk; options give
the investor the option
to buy or sell an asset
at a predetermined price
in the future.
Futures and Options. Futures are often
used to manage risk, because they enable
the investor to buy or sell an asset in the
future at an agreed upon price. Options
give the investor the right, but not the
obligation, to buy or sell an asset at a
predetermined price in the future. The
fund may buy and sell futures contracts
(and options on such contracts) to manage
PAGE 36
its exposure to changes in interest rates
and bond prices; as an efficient means of
adjusting its overall exposure to certain
markets; and also to adjust the portfolio's
duration. The fund may purchase, sell, or
write call and put options on securities
and financial indices.
Futures contracts and options may not
always be successful hedges; their prices
can be highly volatile; using them could
lower the fund's total return; and the
potential loss from the use of futures can
exceed the fund's initial investment in
such contracts.
Operating policies: Futures: Initial
margin deposits and premiums on options
used for non-hedging purposes will not
equal more than 5% of the fund's net asset
value. Options on securities: The total
market value of securities against which
the fund has written call or put options
may not exceed 25% of its total assets.
The fund will not commit more than 5% of
its total assets to premiums when
purchasing call or put options.
Lending of Portfolio Securities. Like other
mutual funds, the 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 the
fund's total assets.
When-Issued Securities and Forward
Commitment Contracts. The fund may purchase
securities on a when-issued or delayed
delivery basis or may purchase or sell
securities on a forward commitment basis.
PAGE 37
The price of these securities is fixed at
the time of the commitment to buy, but
delivery and payment can take place a month
or more later. During the interim period,
the market value of the securities can
fluctuate, and no interest accrues to the
purchaser. At the time of delivery, the
value of the securities may be more or less
than the purchase or sale price. Depending
on the fund's other investments, purchase
of these securities could increase the
level of fluctuations in the fund's net
asset value.
Portfolio Transactions. Due to the nature
of the Fund's investment program, the
portfolio turnover rate may exceed 100%.
A high turnover rate may increase
transaction costs and result in additional
gains. The fund's annualized portfolio
turnover rate for the three month fiscal
year ended May 31, 1994 was 151.8%. For the
previous three fiscal years ended February
28, 1994, February 28, 1993, and February
29, 1992, the fund's portfolio turnover
rates were 92.5%, 94.2%, 66.0%,
respectively. In executing transactions,
the fund's Board has authorized T. Rowe
Price to use certain brokers who are
indirectly related to T. Rowe Price.
4 Investing with T. Rowe Price
Meeting Requirements for New Accounts
Tax Identification Number
________________________
Always verify your
transactions by carefully
reviewing the
confirmation we send you.
Please report any
discrepancies to
Shareholder Services. We must have your correct social security
or corporate tax identification number and
a signed New Account Form or W-9 Form.
PAGE 38
Otherwise, federal law requires the fund to
withhold a percentage (currently 31%) of
your dividends, capital gain distributions,
and redemptions, and may subject you to an
IRS fine. You will also be prohibited from
opening another account by exchange. If
this information is not received within 60
days after your account is established,
your account may be redeemed, priced at the
NAV on the date of redemption.
Unless you request otherwise, one
shareholder report will be mailed to
multiple account owners with the same tax
identification number and same zip code and
to shareholders who have requested that
their account be combined with someone
else's for financial reporting.
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.)
________________________
Regular Mail
T. Rowe Price
Account Services
P.O. Box 17300
Baltimore, MD
21298-9353
Mailgram, Express,
Registered, or Certified
Mail
T. Rowe Price
Account Services
10090 Red Run Blvd.
By Mail
Owings Mills, MD 21117 Please make your check payable to T. Rowe
PAGE 39
Price Funds (otherwise it may be returned)
and send it together with the New Account
Form to the address at left.
By Wire
o Call Investor Services for an account
number and use the wire address below.
o Complete a New Account Form and mail it
to one of the appropriate addresses
listed at left. Note: Retirement plans
cannot be opened by wire.
o Give the following wire address to your
bank: Morgan Guaranty Trust Co. of New
York, ABA# 021000238, T. Rowe Price [fund
name], AC-00153938. Provide fund name,
account name(s), and account number.
By Exchange
Call Shareholder 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. (See explanation
of "Excessive Trading " under "Transaction
Procedures.")
________________________
Drop-off locations
101 East Lombard St.
Baltimore, MD
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD
Farragut Square
900 17th St., N.W.
Washington, D.C.
ARCO Tower
31st Floor
515 S. Flower St.
Los Angeles, CA In Person
Drop off your New Account Form at any of
PAGE 40
the locations listed at left and obtain a
receipt.
Note: The fund and its agents reserve the
right to waive or lower investment
minimums; to accept initial purchases by
telephone or mailgram; cancel or rescind
any purchase or exchange 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 (for example, if an
account has been restricted due to
excessive trading or fraud); to otherwise
modify the conditions of purchase or any
services at any time; or to act on
instructions believed to be genuine.
Purchasing Additional Shares: $100 minimum
purchase; $50 for retirement plans and
Automatic Asset Builder; $5,000 minimum for
telephone purchases
By ACH Transfer
Use Tele*Access (registered trademark),
PC*Access (registered trademark) or call
Investor Services if you have established
electronic transfers using the ACH network.
By Wire
Call Shareholder Services or use the wire
address in "Opening a New Account."
________________________
Regular Mail
T. Rowe Price Funds
Account Services
P.O. Box 89000
Baltimore, MD
21289-1500 By Mail
o Provide your account number and the fund
name on your check.
o Mail the check to the address shown at
left either with a reinvestment slip or a
note indicating the fund and account
number in which you wish to purchase
PAGE 41
shares.
By Automatic Asset Builder
Fill out the Automatic Asset Builder
section on the New Account or Shareholder
Services form ($50 minimum).
By Phone
Call Shareholder Services to lock in that
day's closing price; payment is due within
five days ($5,000 minimum).
Exchanging and Redeeming Shares
By Phone
Call Shareholder Services. If you find our
phones busy during unusually volatile
markets, please consider placing your order
by Tele*Access or PC*Access (if you have
previously authorized telephone services),
or by express mail or mailgram. For
exchange policies, please see "Transaction
Procedures and Special Requirements -
Excessive Trading."
Redemption proceeds can be mailed to your
account address, sent by ACH transfer, or
wired to your bank. For charges, see
"Electronic Transfers - By Wire" on page
23.
By Mail
________________________
Mailgram, Express,
Registered, or
Certified Mail
(See page 20.) Provide account name(s) and numbers, fund
name(s), and exchange or redemption amount.
For exchanges, mail to the appropriate
address below or at left, indicate the fund
you are exchanging from and the fund(s) 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
PAGE 42
Guarantees").
Regular Mail
For Non-Retirement For Employer-
and IRA accounts: Sponsored Retirement
accounts:
T. Rowe Price Account T. Rowe Price Trust
Services Company
P.O. Box 89000 P.O. Box 89000
Baltimore, MD Baltimore, MD
21289-0220 21289-0300
Note: Redemptions from retirement accounts,
including IRAs, must be in writing. Please
call Shareholder Services to obtain an IRA
Distribution Request Form. For
employer-sponsored retirement accounts,
call Investor Services or your plan
administrator for instructions.
Shareholder Services
Many services are available to you as a T.
Rowe Price shareholder; some you receive
automatically and others you must authorize
on the New Account Form. By signing up for
services on the New Account Form rather
than later, you avoid having to complete a
separate form and obtain a signature
guarantee. This section reviews some of the
principal services currently offered. Our
Services Guide contains detailed
descriptions of these and other services.
If you are a new T. Rowe Price investor,
you will receive a Services Guide with our
Welcome Kit.
Retirement Plans
We offer a wide range of plans for
individuals and institutions, including
large and small businesses: 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, please call our Trust
Company at 1-800-492-7670.
PAGE 43
Exchange Service
_________________________
Investor Services
1-800-638-5660
1-410-547-2308 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 funds are
registered.) Some of the T. Rowe Price
funds may impose a redemption fee of .50%
to 2%, payable to such funds, on shares
held for less than one year, or in some
funds, six months.
Note: Shares purchased by telephone may not
be exchanged to another fund until payment
is received.
Automated Services
Tele*Access. 24-hour service via toll-free
number provides information such as yields,
prices, dividends, account balances, and
your latest transaction, as well as the
ability to request prospectuses and account
forms and initiate purchase, redemption and
exchange orders in your accounts (see
"Electronic Transfers" below).
PC*Access. 24-hour service via dial-up
modem provides the same information as
Tele*Access, but on a personal computer.
Please call Investor Services for an
information guide.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling
one of our service representatives or by
visiting one of our four investor center
locations.
Electronic Transfers
PAGE 44
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, PC*Access or call
Shareholder Services.
By Wire. Electronic transfers can also be
conducted via bank wire. There is currently
a $5 fee for wire redemptions under $5,000,
and your bank may charge for wire transfers
regardless of size.
Checkwriting
You may write an unlimited number of free
checks on bond and money 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:
o Automatic Asset Builder. You instruct us
to move $50 or more once a month or less
often 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.
o Automatic Exchange. Enables you to set up
systematic investments from one fund
account into another, such as from a
money fund into a stock fund.
Discount Brokerage
You can trade stocks, bonds, options,
precious metals and other securities at a
substantial savings over regular commission
rates. Call Investor Services for
information.
Note: If you buy or sell T. Rowe Price
PAGE 45
funds through anyone other than T. Rowe
Price, such as broker-dealers or banks, you
may be charged transaction or service fees
by those institutions. No such fees are
charged by T. Rowe Price Investment
Services or the fund for transactions
conducted directly with the fund.
PAGE 46
To Open an Account
Investor Services Prospectus
1-800-638-5660
1-410-547-2308 T. Rowe Price
GNMA Fund
For Existing Accounts
Shareholder Services
1-800-225-5132 To help you ______________
1-410-625-6500 T. Rowe Price A fund for
achieve your GNMA Fund
October 1, 1994 investors
For Yields & Prices financial goals,
Tele*Access(registered seeking both
trademark) T. Rowe Price
1-800-638-2587 high income
1-410-625-7676 offers a wide
24 hours, 7 days and the
range of stock,
highest credit
Investor Centers bond, and money
quality.
101 East Lombard St. market
Baltimore, MD
investments, as
T. Rowe Price
Financial Center well as
10090 Red Run Blvd.
Owings Mills, MD convenient
Farragut Square services and
900 17th Street, N.W.
Washington, D.C. timely,
informative
ARCO Tower T. Rowe Price
31st Floor reports. Invest With
515 South Flower St. Confidence
Los Angeles, CA (registered
trademark)
PAGE 6
The Statement of Additional Information for the T. Rowe Price GNMA Fund, dated
October 1, 1994, should be inserted here.
PAGE 1
STATEMENT OF ADDITIONAL INFORMATION
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT 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 PRIME RESERVE FUND, INC.
T. ROWE PRICE SHORT-TERM BOND 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
(collectively the "Funds" and individually the "Fund")
This Statement of Additional Information is not a
prospectus but should be read in conjunction with the appropriate
Fund's prospectus dated October 1, 1994, which may be obtained
from T. Rowe Price Investment Services, Inc., 100 East Pratt
Street, Baltimore, Maryland 21202.
If you would like a prospectus 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.
The date of this Statement of Additional Information is
October 1, 1994.
PAGE 2
TABLE OF CONTENTS
Page Page
Asset-Backed Securities. . . Lending of Portfolio
Capital Stock. . . . . . . . Securities . . . . . . . .
Code of Ethics . . . . . . . Management of Fund. . . . .
Custodian. . . . . . . . . . Mortgage-Related
Description of the Fund. . . Securities . . . . . . . .
Distributor for Fund . . . . Net Asset Value Per Share .
Dividends and Distributions. Options . . . . . . . . . .
Federal and State Organization of the Fund. .
Registration of Shares. . . Portfolio Transactions. . .
Foreign Currency Pricing of Securities . . .
Transactions. . . . . . . . Principal Holders of
Foreign Futures and Options. Securities . . . . . . . .
Futures Contracts. . . . . . Ratings of Commercial
Hybrid Instruments . . . . . Paper. . . . . . . . . . .
Independent Accountants. . . Ratings of Corporate. . . .
Illiquid or Restricted Debt Securities. . . . . .
Securities. . . . . . . . . Repurchase Agreements . . .
Investment Management Risk Factors. . . . . . . .
Services. . . . . . . . . . Tax Status. . . . . . . . .
Investment Objectives Taxation of Foreign
and Polices . . . . . . . . Shareholders . . . . . . .
Investment Performance . . . Warrants. . . . . . . . . .
Investment Program . . . . . When-Issued Securities and
Investment Restrictions. . . Forward Commitment
Legal Counsel. . . . . . . . Contracts. . . . . . . . .
Yield Information . . . . .
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
PAGE 3
shares represented at a meeting of shareholders at which the
holders of 50% or more of the shares are represented.
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
All Funds
Debt Obligations
Yields on short, intermediate, and long-term 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 Prime Reserve and U.S. Treasury
Money Funds, the procedures set forth in Rule 2a-7, under the
Investment Company Act of 1940, 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
PAGE 4
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,
determines whether the unrated security is of a qualify
comparable to that which the Fund is allowed to purchase.
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.
All Funds (except Prime Reserve 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.
Prime Reserve and U.S. Treasury Money Funds
There can be no assurance that the Funds will achieve their
investment objectives or be able to maintain their 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 Prime Reserve and U.S. Treasury Money Funds)
Mortgage 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 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
PAGE 5
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.
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
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.
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 investing in foreign
securities while others relate more to the countries in which the
Funds will invest. Many of the risks are more pronounced for
investments in developing or emerging countries, such as many of
the countries of Southeast Asia, Latin America, Eastern Europe
and the Middle East. Although there is no universally accepted
definition, a developing country is generally considered to be a
country which is in the initial stages of its industrialization
cycle with a per capita gross national product of less than
$8,000.
PAGE 6
Political and Economic Factors. Individual foreign
economies of certain countries may differ favorably or
unfavorably from the United States' economy in such respects as
growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments
position. The internal politics of certain foreign countries are
not as stable as in the United States. For example, in 1991, the
existing government in Thailand was overthrown in a military
coup. In 1992, there were two military coup attempts in
Venezuela and in 1992 the President of Brazil was impeached. In
addition, significant external political risks currently affect
some foreign countries. Both Taiwan and China still claim
sovereignty of one another and there is a demilitarized border
between North and South Korea.
Governments in certain foreign countries continue to
participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these
governments could have a significant effect on market prices of
securities and payment of dividends. The economies of many
foreign countries are heavily dependent upon international trade
and are accordingly affected by protective trade barriers and
economic conditions of their trading partners. The enactment by
these trading partners of protectionist trade legislation could
have a significant adverse effect upon the securities markets of
such countries.
Currency Fluctuations. The Funds will invest in securities
denominated in various currencies. Accordingly, a change in the
value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Funds'
assets denominated in that currency. Such changes will also
affect the Funds' income. Generally, when a given currency
appreciates against the dollar (the dollar weakens) the value of
the Fund's securities denominated in that currency will rise.
When a given currency depreciates against the dollar (the dollar
strengthens) the value of the Funds' securities denominated in
that currency would be expected to decline.
Investment and Repatriation of Restrictions. Foreign
investment in the securities markets of certain foreign countries
is restricted or controlled in varying degrees. These
restrictions may limit at times and preclude investment in
certain of such countries and may increase the cost and expenses
of the Funds. Investments by foreign investors are subject to a
variety of restrictions in many developing countries. These
PAGE 7
restrictions may take the form of prior governmental approval,
limits on the amount or type of securities held by foreigners,
and limits on the types of companies in which foreigners may
invest. Additional or different restrictions may be imposed at
any time by these or other countries in which the Funds invest.
In addition, the repatriation of both investment income and
capital from several foreign countries is restricted and
controlled under certain regulations, including in some cases the
need for certain government consents. For example, capital
invested in Chile normally cannot be repatriated for one year.
Market Characteristics. Foreign stock and bond markets are
generally not as developed or efficient as, and may be more
volatile than, those in the United States. While growing in
volume, they usually have substantially less volume than U.S.
markets and the Funds' portfolio securities may be less liquid
and subject to more rapid and erratic price movements than
securities of comparable U.S. companies. Equity securities may
trade at price/earnings multiples higher than comparable United
States securities and such levels may not be sustainable. Fixed
commissions on foreign stock exchanges are generally higher than
negotiated commissions on United States exchanges, although the
Funds will endeavor to achieve the most favorable net results on
their portfolio transactions. There is generally less government
supervision and regulation of foreign stock exchanges, brokers
and listed companies than in the United States. Moreover,
settlement practices for transactions in foreign markets may
differ from those in United States markets. Such differences may
include delays beyond periods customary in the United States and
practices, such as delivery of securities prior to receipt of
payment, which increase the likelihood of a "failed settlement."
Failed settlements can result in losses to a Fund.
Investment Funds. The Funds may invest in investment funds
which have been authorized by the governments of certain
countries specifically to permit foreign investment in securities
of companies listed and traded on the stock exchanges in these
respective countries. The Funds' investment in these funds is
subject to the provisions of the 1940 Act. If the Funds invest
in such investment funds, the Funds' shareholders will bear not
only their proportionate share of the expenses of the Funds
(including operating expenses and the fees of the investment
manager), but also will bear indirectly similar expenses of the
underlying investment funds. In addition, the securities of
these investment funds may trade at a premium over their net
asset value.
PAGE 8
Information and Supervision. There is generally less
publicly available information about foreign companies comparable
to reports and ratings that are published about companies in the
United States. Foreign companies are also generally not subject
to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those
applicable to United States companies. It also may be more
difficult to keep currently informed of corporate actions which
affect the prices of portfolio securities.
Taxes. The dividends and interest payable on certain of the
Funds' foreign portfolio securities may be subject to foreign
withholding taxes, thus reducing the net amount of income
available for distribution to the Funds' shareholders.
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. In many of the countries
of Eastern Europe and Russia, there is no stock exchange or
formal market for securities. Such countries may also have
government exchange controls, currencies with no recognizable
market value relative to the established currencies of western
market economies, little or no experience in trading in
securities, no financial reporting standards, a lack of a banking
and securities infrastructure to handle such trading, and a legal
tradition which does not recognize rights in private property.
In addition, these countries may have national policies which
restrict investments in companies deemed sensitive to the
country's national interest. Further, the governments in such
countries may require governmental or quasi-governmental
authorities to act as custodian of a Fund's assets invested in
such countries and these authorities may not qualify as a foreign
custodian under the Investment Company Act of 1940 and exemptive
PAGE 9
relief from such Act may be required. All of these
considerations are among the factors which could cause
significant risks and uncertainties to investment in Eastern
Europe and Russia. Each Fund will only invest in a company
located in, or a government of, Eastern Europe and Russia, if it
believes the potential return justifies the risk. To the extent
any securities issued by companies in Eastern Europe and Russia
are considered illiquid, each Fund will be required to include
such securities within its 15% restriction on investing in
illiquid securities.
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
PAGE 10
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.
Congressional Action. New and proposed laws may have an
impact on the market for lower rated debt securities. For
example, as a result of the Financial Institution's Reform,
Recovery, and Enforcement Act of 1989, savings and loan
associations were required to dispose of their high yield bonds
no later than July 1, 1994. Qualified affiliates of savings and
loan associations, however, may purchase and retain these
securities, and savings and loan associations may divest these
securities by sale to their qualified affiliates. T. Rowe Price
is unable at this time to predict what effect, if any, the
legislation may have on the market for lower rated debt
securities.
Taxation. Special tax considerations are associated with
investing in lower rated debt securities structured as zero
PAGE 11
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.
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.
INVESTMENT PROGRAM
Types of Securities
Set forth below is additional information about certain of
the investments described in the 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; and the remainder are supported only by the credit of
the instrumentality, which may or may not include the right of
the issuer to borrow from the Treasury.
PAGE 12
The GNMA, U.S. Treasury Money, Intermediate, and Long-Term
Funds may only invest in these securities if they are supported
by the full faith and credit of the U.S. government.
All Funds, except GNMA, 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).
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 Prime Reserve 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.
PAGE 13
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
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.
PAGE 14
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 (the "FHLMC Act").
Freddie Mac Certificates represent a pro-rata interest in a group
of mortgage loans (a "Freddie Mac Certificate group") 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 is 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. The Federal Agricultural Mortgage
Corporation ("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
PAGE 15
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's Certificates are not supported by
the full faith and credit of the U.S. Government; rather, Farmer
Mac may borrow up 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 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.
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).
PAGE 16
Monthly distributions of interest, as contrasted to semi-
annual 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.
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
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
PAGE 17
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.
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 a 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.
CMO structures may also include floating rate CMOs, planned
amortization classes, accrual bonds and CMO residuals. These
structures affect the amount and timing of principal and interest
received by each tranche from the underlying collateral. Under
certain of these structures, given classes of CMOs have priority
over others with respect to the receipt of prepayments on the
PAGE 18
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. 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.
Stripped Mortgage-Backed Securities. Stripped Mortgage-
Backed securities 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 Internal Revenue
Code of 1986, as amended (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. 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 recoup fully 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
PAGE 19
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 Securities and Exchange Commission 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 and PO backed by fixed rate mortgages 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. The Fund will treat non-government-issued IOs and POs
not backed by fixed or adjustable rate mortgages as illiquid
unless and until the Securities and Exchange Commission modifies
its position.
Adjustable Rate Mortgages. Adjustable rate mortgage (ARM)
securities are collateralized by adjustable rate, rather than
fixed rate, mortgages.
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 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. The ARM securities in which the Fund
expects to invest will generally adjust their interest rates at
PAGE 20
regular intervals of one year or less. 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. 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 Cost of
Funds Index and may cause the Cost of Funds Index 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 Cost of Funds Index will necessarily move
in the same direction or at the same rate as prevailing interest
rates. Furthermore, any movement in the Cost of Funds Index 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 Cost of Funds Index. To the
extent that the Cost of Funds Index may reflect interest changes
PAGE 21
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 Cost of Funds Index 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 Cost of Funds Index than mortgage
loans which adjust in accordance with other indices.
LIBOR, the London interbank offered rate, 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 on page __. Several characteristics of ARMs
may make them more susceptible to prepayments than other
Mortgage-Backed Securities. An adjustable rate mortgage has
greater incentives to refinance with a 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,
PAGE 22
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, 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.
PAGE 23
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 or pay-through
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 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
PAGE 24
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 internal credit
enhancement 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").
PAGE 25
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 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
PAGE 26
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 accounts 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
Fund reserves the right to invest in these securities.
High Yield Fund
Collateralized Bond or Loan Obligations
CBOs are bonds collateralized by corporate bonds and CLOs
are bonds collateralized by bank loans. CBOs and CLOs are
structured into tranches, and payments are allocated such that
PAGE 27
each tranche has a predictable cash flow stream and average life.
CBOs are fairly recent entrants to the fixed income market. Most
issues 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 (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.
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 call 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.
Pursuant to an SEC no-action letter, and because the Fund is
allowed to purchase debt and debt securities, including debt
PAGE 28
securities at private placement, the Fund will treat loan
participations as securities and not subject to its fundamental
investment restriction prohibiting the Fund from making loans.
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 Internal Revenue 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.
PAGE 29
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:
o 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.
o 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
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.
o 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 sellers
credit.
PAGE 30
o 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.
o 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.
o 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 Internal Revenue
Code. The Fund may have up to 10% of its gross income
(including capital gains) derived from non-qualifying
sources.
High Yield and Personal Strategy Funds
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. PIK's, 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
PAGE 31
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 are pure
speculation in that they 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 equity
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.
Adjustable Rate, High Yield, New Income, Personal Strategy, and
Short-Term Bond Funds
Hybrid Instruments
Hybrid Instruments 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
PAGE 32
"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 transactions 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
PAGE 33
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 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 or 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
PAGE 34
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 net 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 Fund may purchase securities on a "when-issued" or
delayed delivery basis ("When-Issueds") and may purchase
securities on a forward commitment basis ("Forwards"). Any or
all of the Fund's investments in debt securities may be in the
form of When-Issueds and Forwards. The price of such securities,
which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment take
place at a later date. Normally, the settlement date occurs
within 90 days of the purchase for When-Issueds, but may be
substantially longer for Forwards. During the period between
purchase and settlement, no payment is made by the Fund to the
issuer and no interest accrues to the Fund. The purchase of
these securities will result in a loss if their value declines
prior to the settlement date. This could occur, for example, if
interest rates increase prior to settlement. The longer the
period between purchase and settlement, the greater the risks
are. At the time the Fund makes the commitment to purchase these
securities, it will record the transaction and reflect the value
of the security in determining its net asset value. The Fund
will cover these securities by maintaining cash and/or liquid,
high-grade debt securities with its custodian bank equal in value
to commitments for them during the time between the purchase and
the settlement. Therefore, the longer this period, the longer
the period during which alternative investment options are not
available to the Fund (to the extent of the securities used for
cover). Such securities either will mature or, if necessary, be
sold on or before the settlement date.
PAGE 35
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 pre-determined 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
its 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 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.
PAGE 36
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.
Adjustable Rate, High Yield, New Income, Personal Strategy, Prime
Reserve, and Short-Term Bond 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 Prime Reserve 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 Prime Reserve 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
PAGE 37
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 (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 Prime Reserve 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.
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 more than 25%, but
not more than 50%, of its assets, in any one such industry, if
the Fund has cash for such investment (i.e., 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
objective. 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 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
PAGE 38
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
Restriction (4) on page __.)
PORTFOLIO MANAGEMENT PRACTICES
Lending of Portfolio Securities
Securities loans are made to broker-dealers or institutional
investors or other persons, pursuant to agreements requiring that
the loans be continuously secured by collateral at least equal at
all times to the value of the securities lent marked to market on
a daily basis. The collateral received will consist of cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted under its investment program.
While the securities are being lent, the Fund will continue to
receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment
of the collateral or a fee from the borrower. The Fund has a
right to call each loan and obtain the securities on five
business days' notice or, in connection with securities trading
on foreign markets, within such longer period of time which
coincides with the normal settlement period for purchases and
sales of such securities in such foreign markets. The Fund will
not have the right to vote securities while they are being lent,
but it will call a loan in anticipation of any important vote.
The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to firms
deemed by 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.
PAGE 39
Other Lending/Borrowing
Subject to approval by the Securities and Exchange
Commission and certain state regulatory agencies, the Fund may
make loans to, or borrow funds from, other mutual funds sponsored
or advised by T. Rowe Price or Rowe Price-Fleming International,
Inc. (collectively, "Price Funds"). The Fund has no current
intention of engaging in these practices at this time.
Repurchase Agreements
The Fund may enter into a repurchase agreement through which
an investor (such as the Fund) purchases a security (known as the
"underlying security") from a well-established securities dealer
or a bank that is a member of the Federal Reserve System. Any
such dealer or bank will be on 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 and U.S. Treasury Money 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) Adjustable Rate, GNMA, High Yield, New Income,
Short-Term Bond, Personal Strategy, 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 at all times equal to or exceed the value of the
repurchase agreement, and (iii) payment for the underlying
security is made only upon physical delivery or evidence of book-
entry transfer to the account of the custodian or a bank acting
as agent. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Fund could experience both
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.
PAGE 40
Reverse Repurchase Agreements
Although the Fund has no current intention, in the
foreseeable future, 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," 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.
PAGE 41
Until the Fund replaces a borrowed security in connection
with a short sale, the Fund will: (a) maintain daily a segregated
account, containing cash or U.S. government securities, 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.
All Funds (except Prime Reserve and U.S. Treasury Money Funds)
Options
Writing Covered Call Options
The Fund may write (sell) American or European style
"covered" call options and purchase options to close out options
previously written by a Fund. In writing covered call options,
the Fund expects to generate additional premium income which
should serve to enhance the Fund's total return and reduce the
effect of any price decline of the security or currency involved
in the option. Covered call options will generally be written on
securities or currencies which, in 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" 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
PAGE 42
style). So long as the obligation of the writer of a call option
continues, he may be assigned an exercise notice by the broker-
dealer through whom such option was sold, requiring him to
deliver the underlying security or currency against payment of
the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the
writer effects a closing purchase transaction by repurchasing an
option identical to that previously sold. To secure his
obligation to deliver the underlying security or currency in the
case of a call option, a writer is required to deposit in escrow
the underlying security or currency or other assets in accordance
with the rules of a clearing corporation.
The Fund will write only covered call options. This means
that the Fund will own the security or currency subject to the
option or an option to purchase the same underlying security or
currency, having an exercise price equal to or less than the
exercise price of the "covered" option, or will establish and
maintain with its custodian for the term of the option, an
account consisting of cash, U.S. government securities or other
liquid high-grade debt obligations having a value equal to the
fluctuating market value of the optioned securities or
currencies.
Portfolio securities or currencies on which call options may
be written will be purchased solely on the basis of investment
considerations consistent with the Fund's investment objective.
The writing of covered call options is a conservative investment
technique believed to involve relatively little risk (in contrast
to the writing of naked or uncovered options, which the Fund will
not do), but capable of enhancing the Fund's total return. When
writing a covered call option, a Fund, in return for the premium,
gives up the opportunity for profit from a price increase in the
underlying security or currency above the exercise price, but
conversely retains the risk of loss should the price of the
security or currency decline. Unlike one who owns securities or
currencies not subject to an option, the Fund has no control over
when it may be required to sell the underlying securities or
currencies, since it may be assigned an exercise notice at any
time prior to the expiration of its obligation as a writer. If a
call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain
may be offset by a decline in the market value of the underlying
security or currency during the option period. If the call
option is exercised, the Fund will realize a gain or loss from
the sale of the underlying security or currency. The Fund does
not consider a security or currency covered by a call to be
PAGE 43
"pledged" as that term is used in the Fund's policy which limits
the pledging or mortgaging of its assets.
The premium received is the market value of an option. The
premium the Fund will receive from writing a call option will
reflect, among other things, the current market price of the
underlying security or currency, the relationship of the exercise
price to such market price, the historical price volatility of
the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made,
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 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
PAGE 44
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.
In order to comply with the requirements of several states,
the Fund will not write a covered call option if, as a result,
the aggregate market value of all portfolio securities or
currencies covering call or put options exceeds 25% of the market
value of the Fund's net assets. Should these state laws change
or should the Fund obtain a waiver of its application, the Fund
reserves the right to increase this percentage. In calculating
the 25% limit, the Fund will offset, against the value of assets
covering written calls and puts, the value of purchased calls and
puts on identical securities or currencies with identical
maturity dates.
Writing Covered Put Options
The Fund may write American or European style covered put
options and purchase options to close out options previously
written by the Fund. A put option gives the purchaser of the
option the right to sell, and the writer (seller) has the
obligation to buy, the underlying security or currency at the
exercise price during the option period (American style) or at
the expiration of the option (European style). So long as the
obligation of the writer continues, he may be assigned an
PAGE 45
exercise notice by the broker-dealer through whom such option was
sold, requiring him to make payment of the exercise price against
delivery of the underlying security or currency. The operation
of put options in other respects, including their related risks
and rewards, is substantially identical to that of call options.
The Fund would write put options only on a covered basis,
which means that the Fund would maintain in a segregated account
cash, U.S. government securities or other liquid high-grade debt
obligations in an amount not less than the exercise price or the
Fund will own an option to sell the underlying security or
currency subject to the option having an exercise price equal to
or greater than the exercise price of the "covered" option at all
times while the put option is outstanding. (The rules of a
clearing corporation currently require that such assets be
deposited in escrow to secure payment of the exercise price.)
The Fund would generally write covered put options in
circumstances where 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 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.
In order to comply with the requirements of several states,
the Fund will not write a covered put option if, as a result, the
aggregate market value of all portfolio securities or currencies
covering put or call options exceeds 25% of the market value of
the Fund's net assets. Should these state laws change or should
the Fund obtain a waiver of its application, the Fund reserves
the right to increase this percentage. In calculating the 25%
limit, the Fund will offset, against the value of assets covering
written puts and calls, the value of purchased puts and calls on
identical securities or currencies with identical maturity dates.
PAGE 46
Purchasing Put Options
The Fund may purchase American or European style put
options. As the holder of a put option, the Fund has the right
to sell the underlying security or currency at the exercise price
at any time during the option period (American style) or at the
expiration of the option (European style). The Fund may enter
into closing sale transactions with respect to such options,
exercise them or permit them to expire. The Fund may purchase
put options for defensive purposes in order to protect against an
anticipated decline in the value of its securities or currencies.
An example of such use of put options is provided below.
The Fund may purchase a put option on an underlying security
or currency (a "protective put") owned by the Fund as a defensive
technique in order to protect against an anticipated decline in
the value of the security or currency. Such hedge protection is
provided only during the life of the put option when the Fund, as
the holder of the put option, is able to sell the underlying
security or currency at the put exercise price regardless of any
decline in the underlying security's market price or currency's
exchange value. For example, a put option may be purchased in
order to protect unrealized appreciation of a security or
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.
PAGE 47
To the extent required by the laws of certain states, the
Fund may not be permitted to commit more than 5% of its assets to
premiums when purchasing put and call options. Should these
state laws change or should the Fund obtain a waiver of its
application, the Fund may commit more than 5% of its assets to
premiums when purchasing call and put options. The premium paid
by the Fund when purchasing a put option will be recorded as an
asset of the Fund. This asset will be adjusted daily to the
option's current market value, which will be the latest sale
price at the time at which the net asset value per share of the
Fund is computed (close of New York Stock Exchange), or, in the
absence of such sale, the latest bid price. This asset will be
terminated upon expiration of the option, the selling (writing)
of an identical option in a closing transaction, or the delivery
of the underlying security or currency upon the exercise of the
option.
Purchasing Call Options
The Fund may purchase American or European style call
options. As the holder of a call option, the Fund has the right
to purchase the underlying security or currency at the exercise
price at any time during the option period (American style) or at
the expiration of the option (European style). The Fund may
enter into closing sale transactions with respect to such
options, exercise them or permit them to expire. The Fund may
purchase call options for the purpose of increasing its current
return or avoiding tax consequences which could reduce its
current return. The Fund may also purchase call options in order
to acquire the underlying securities or currencies. Examples of
such uses of call options are provided below.
Call options may be purchased by the Fund for the purpose of
acquiring the underlying securities or currencies for its
portfolio. Utilized in this fashion, the purchase of call
options enables the Fund to acquire the securities or currencies
at the exercise price of the call option plus the premium paid.
At times the net cost of acquiring securities or currencies in
this manner may be less than the cost of acquiring the securities
or currencies directly. This technique may also be useful to the
Fund in purchasing a large block of securities or currencies that
would be more difficult to acquire by direct market purchases.
So long as it holds such a call option rather than the underlying
security or currency itself, the Fund is partially protected from
any unexpected decline in the market price of the underlying
security or currency and in such event could allow the call
PAGE 48
option to expire, incurring a loss only to the extent of the
premium paid for the option.
To the extent required by the laws of certain states, the
Fund may not be permitted to commit more than 5% of its assets to
premiums when purchasing call and put options. Should these
state laws change or should the Fund obtain a waiver of its
application, the Fund may commit more than 5% of its assets to
premiums when purchasing call and put options. The Fund may also
purchase call options on underlying securities or currencies it
owns in order to protect unrealized gains on call options
previously written by it. A call option would be purchased for
this purpose where tax considerations make it inadvisable to
realize such gains through a closing purchase transaction. Call
options may also be purchased at times to avoid realizing losses.
Dealer (Over-the-Counter) Options
The Fund may engage in transactions involving dealer
options. Certain risks are specific to dealer options. While
the Fund would look to a clearing corporation to exercise
exchange-traded options, if the Fund were to purchase a dealer
option, it would rely on the dealer from whom it purchased the
option to perform if the option were exercised. Failure by the
dealer to do so would result in the loss of the premium paid by
the Fund as well as loss of the expected benefit of the
transaction.
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
PAGE 49
inability to enter into a closing transaction may result in
material losses to the Fund. For example, since the Fund must
maintain a secured position with respect to any call option on a
security it writes, the Fund may not sell the assets which it has
segregated to secure the position while it is obligated under the
option. This requirement may impair a Fund's ability to sell
portfolio securities or currencies at a time when such sale might
be advantageous.
The Staff of the SEC has taken the position that purchased
dealer options and the assets used to secure the written dealer
options are illiquid securities. The Fund may treat the cover
used for written OTC options as liquid if the dealer agrees that
the Fund may repurchase the OTC option it has written for a
maximum price to be calculated by a predetermined formula. In
such cases, the OTC option would be considered illiquid only to
the extent the maximum repurchase price under the formula exceeds
the intrinsic value of the option. Accordingly, the Fund will
treat dealer options as subject to the Fund's limitation on
illiquid securities. If the SEC changes its position on the
liquidity of dealer options, the Fund will change its treatment
of such instrument accordingly.
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 option 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
PAGE 50
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 Prime Reserve and U.S. Treasury Money Funds)
Futures Contracts
Transactions in Futures
The Fund 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. Futures are traded in
London, at the London International Financial Futures Exchange,
in Paris, at the MATIF, and in Tokyo, at the Tokyo Stock
Exchange. Although techniques other than the sale and purchase
of futures contracts could be used for the above-referenced
PAGE 51
purposes, futures contracts offer an effective and relatively low
cost means of implementing the Fund's objectives in these areas.
Regulatory Limitations
The Fund will engage in futures contracts and options
thereon only for bona fide hedging, yield enhancement, and risk
management purposes, in each case in accordance with rules and
regulations of the CFTC and applicable state law.
The Fund may not purchase or sell futures contracts or
related options if, with respect to positions which do not
qualify as bona fide hedging under applicable CFTC rules, the sum
of the amounts of initial margin deposits and premiums paid on
those positions would exceed 5% of the net asset value of the
Fund after taking into account unrealized profits and unrealized
losses on any such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. For purposes of this policy
options on futures contracts and foreign currency options traded
on a commodities exchange will be considered "related options".
This policy may be modified by the Board of Directors/Trustees
without a shareholder vote and does not limit the percentage of
the Fund's assets at risk to 5%.
In accordance with the rules of the State of California, the
Fund may have to apply the above 5% test without excluding the
value of initial margin and premiums paid for bona fide hedging
positions.
The Fund's use of futures contracts will not result in
leverage. Therefore, to the extent necessary, in instances
involving the purchase of futures contracts or the writing of
call or put options thereon by the Fund, an amount of cash, U.S.
government securities or other liquid, high-grade debt
obligations, equal to the market value of the futures contracts
and options thereon (less any related margin deposits), will be
identified in an account with the Fund's custodian to cover 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.
PAGE 52
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, U.S. government securities, suitable money market
instruments, or liquid, high-grade debt securities, known as
"initial margin." The margin required for a particular futures
contract is set by the exchange on which the contract is traded,
and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are
customarily purchased and sold on margins that may range upward
from less than 5% of the value of the contract being traded.
If the price of an open futures contract changes (by
increase in the case of a sale or by decrease in the case of a
purchase) so that the loss on the futures contract reaches a
point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin.
However, if the value of a position increases because of
favorable price changes in the futures contract so that the
margin deposit exceeds the required margin, the broker will pay
the excess to the Fund.
These subsequent payments, called "variation margin," to and
from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short
positions in the futures contract more or less valuable, a
PAGE 53
process known as "marking to the market." The Fund expects to
earn interest income on its margin deposits.
Although certain futures contracts, by their terms, require
actual future delivery of and payment for the underlying
instruments, in practice most futures contracts are usually
closed out before the delivery date. Closing out an open futures
contract purchase or sale is effected by entering into an
offsetting futures contract sale or purchase, respectively, for
the same aggregate amount of the identical securities and the
same delivery date. If the offsetting purchase price is less
than the original sale price, the Fund realizes a gain; if it is
more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The
transaction costs must also be included in these calculations.
There can be no assurance, however, that the Fund will be able to
enter into an offsetting transaction with respect to a particular
futures contract at a particular time. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the futures
contract.
As an example of an offsetting transaction in which the
underlying instrument is not delivered, the contractual
obligations arising from the sale of one contract of September
Treasury Bills on an exchange may be fulfilled at any time before
delivery of the contract is required (i.e., on a specified date
in September, the "delivery month") by the purchase of one
contract of September Treasury Bills on the same exchange. In
such instance, the difference between the price at which the
futures contract was sold and the price paid for the offsetting
purchase, after allowance for transaction costs, represents the
profit or loss to the Fund.
A futures contract on the Standard & Poor's 500 Stock Index,
composed of 500 selected common stocks, most of which are listed
on the New York Stock Exchange, provides an example of how
futures contracts operate. 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 500 units. Thus, if the
value of the S&P 500 Index were $150, one contract would be worth
$75,000 (500 units x $150). The contract specifies that no
delivery of the actual stocks making up the index will take
PAGE 54
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 the example contract above and the S&P
500 Index is at $154 on the termination date, the Fund will gain
$2,000 (500 units x gain of $4). If, however, the S&P 500 Index
is at $148 on that future date, the Fund will lose $1,000 (500
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.
Because of the low margin deposits required, futures trading
involves an extremely high degree of leverage. As a result, a
relatively small price movement in a futures contract may result
in immediate and substantial loss, as well as gain, to the
investor. For example, if at the time of purchase, 10% of the
value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract
would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150%
of the original margin deposit, if the contract were closed out.
Thus, a purchase or sale of a futures contract may result in
PAGE 55
losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in
the underlying financial instrument and sold it after the
decline. Furthermore, in the case of a futures contract
purchase, in order to be certain that the Fund has sufficient
assets to satisfy its obligations under a futures contract, the
Fund earmarks to the futures contract money market instruments
equal in value to the current value of the underlying instrument
less the margin deposit.
Liquidity. The Fund may elect to close some or all of its
futures positions at any time prior to their expiration. The
Fund would do so to reduce exposure represented by long futures
positions or short futures positions. The Fund may close its
positions by taking opposite positions which would operate to
terminate the Fund's position in the futures contracts. Final
determinations of variation margin would then be made, additional
cash would be required to be paid by or released to the Fund, and
the Fund would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded.
Although the Fund intends to purchase or sell futures contracts
only on exchanges or boards of trade where there appears to be an
active market, there is no assurance that a liquid market on an
exchange or board of trade will exist for any particular contract
at any particular time. In such event, it might not be possible
to close a futures contract, and in the event of adverse price
movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event futures
contracts have been used to hedge the underlying instruments, the
Fund would continue to hold the underlying instruments subject to
the hedge until the futures contracts could be terminated. In
such circumstances, an increase in the price of underlying
instruments, if any, might partially or completely offset losses
on the futures contract. However, as described below, there is
no guarantee that the price of the underlying instruments will,
in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures
contract.
Hedging Risk. A decision of whether, when, and how to hedge
involves skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of unexpected market
behavior, market or interest rate trends. There are several
PAGE 56
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
PAGE 57
distort the normal relationship between the underlying
instruments and futures markets. Second, the margin requirements
in the futures market are less onerous than margin requirements
in the securities markets, and as a result the futures market
might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market
might also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and also
because of the imperfect correlation between price movements in
the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by 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 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 contract, at exercise, exceeds (in the case
of a call) or is less than (in the case of a put) the exercise
price of the option on the futures contract. Purchasers of
options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
As an alternative to writing or purchasing call and put
options on interest rate futures, the Fund may write or purchase
call and put options on financial indices. Such options would be
used in a manner similar to the use of options on futures
contracts. From time to time, a single order to purchase or sell
futures contracts (or options thereon) may be made on behalf of
the Fund and other T. Rowe Price Funds. Such aggregated orders
would be allocated among the Funds and the other T. Rowe Price
Funds in a fair and non-discriminatory manner.
PAGE 58
Special Risks of Transactions in Options on Futures Contracts
The risks described under "Special Risks of Transactions on
Futures Contracts" are substantially the same as the risks of
using options on futures. In addition, where the Fund seeks to
close out an option position by writing or buying an offsetting
option covering the same index, underlying instrument or contract
and having the same exercise price and expiration date, its
ability to establish and close out positions on such options will
be subject to the maintenance of a liquid secondary market.
Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options, or underlying instruments; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that
exchange (or in the class or series of options) would cease to
exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times,
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
PAGE 59
subject to the rules of a foreign board of trade. Neither the
National Futures Association nor any domestic exchange regulates
activities of any foreign boards of trade, including the
execution, delivery and clearing of transactions, or has the
power to compel enforcement of the rules of a foreign board of
trade or any applicable foreign law. This is true even if the
exchange is formally linked to a domestic market so that a
position taken on the market may be liquidated by a transaction
on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or
foreign options transaction occurs. For these reasons, when the
Fund trades foreign futures or foreign options contracts, it may
not be afforded certain of the protective measures provided by
the Commodity Exchange Act, the CFTC's regulations and the rules
of the National Futures Association and any domestic exchange,
including the right to use reparations proceedings before the
Commission and arbitration proceedings provided by the National
Futures Association or any domestic futures exchange. In
particular, funds received from the Fund for foreign futures or
foreign options transactions may not be provided the same
protections as funds received in respect of transactions on
United States futures exchanges. In addition, the price of any
foreign futures or foreign options contract and, therefore, the
potential profit and loss thereon may be affected by any variance
in the foreign exchange rate between the time the Fund's order is
placed and the time it is liquidated, offset or exercised.
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.
PAGE 60
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.
In order to comply with the laws of certain states, a Fund
will not invest more than 5% of its total assets in premiums on
put options. Should these state laws change or should a Fund
obtain a waiver of their applications, the Fund may invest up to
15% of its total assets in premiums on put options.
In order to comply with the laws of certain states, a Fund
will not invest more than 5% of its total assets in premiums on
call options. Should these state laws change or should a Fund
obtain a waiver of their applications, the Fund may invest up to
15% of its total assets in premiums on call options.
In order to comply with the laws of certain states, a Fund
will not purchase puts, calls, straddles, spreads and any
combination thereof if by reason thereof the value of its
aggregate investment in such classes of securities will exceed 5%
of its total assets. Should these state laws change or should a
Fund obtain a waiver of their application, the Fund may invest a
higher percentage of its total assets in puts, calls, straddles,
or spreads.
The total amount of a Fund's total assets invested in
futures and options under any combination of the limitations
described above will not exceed 15% of the Fund's total assets.
High Yield, New Income, 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
PAGE 61
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 short-term hedging strategy is highly
uncertain. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the
longer term investment decisions made with regard to overall
diversification strategies. However, 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.
PAGE 62
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 and currency available for cover of the forward
contract(s). In determining the amount to be delivered under a
contract, the Fund may net offsetting positions.
At the maturity of a forward contract, the Fund may sell the
portfolio security and make delivery of the foreign currency, or
it may retain the security and either extend the maturity of the
forward contract (by "rolling" that contract forward) or may
initiate a new forward contract.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as
described below) to the extent that there has been movement in
forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices
decline during the period between the Fund's entering into a
forward contract for the sale of a foreign currency and the date
it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices
increase, the Fund will suffer a loss to the extent of the price
of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange
contracts will generally be limited to the transactions described
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
PAGE 63
that this method of hedging against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange at a
future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any
potential gain which might result from an increase in the value
of that currency.
Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. It will do so
from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
Federal Tax Treatment of Options, Futures Contracts and Forward
Foreign Exchange Contracts
The Fund may enter into certain option, futures, and forward
foreign exchange contracts, including options and futures on
currencies, which will be treated as Section 1256 contracts or
straddles.
Transactions which are considered Section 1256 contracts
will be considered to have been closed at the end of the Fund's
fiscal year and any gains or losses will be recognized for tax
purposes at that time. Such gains or losses from the normal
closing or settlement of such transactions will be characterized
as 60% long-term capital gain or loss and 40% short-term capital
gain or loss regardless of the holding period of the instrument.
The Fund will be required to distribute net gains on such
transactions to shareholders even though it may not have closed
the transaction and received cash to pay such distributions.
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
PAGE 64
will be deemed not to begin until the straddle is terminated.
For securities offsetting a purchased put, this adjustment of the
holding period may increase the gain from sales of securities
held less than three months. The holding period of the security
offsetting an "in-the-money qualified covered call" option on an
equity security will not include the period of time the option is
outstanding.
Losses on written covered calls and purchased puts on
securities, excluding certain "qualified covered call" options on
equity securities, may be long-term capital loss, if the security
covering the option was held for more than twelve months prior to
the writing of the option.
In order for the Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
currencies. Pending tax regulations could limit the extent that
net gain realized from option, futures or foreign forward
exchange contracts on currencies is qualifying income for
purposes of the 90% requirement. In addition, gains realized on
the sale or other disposition of securities, including option,
futures or foreign forward exchange contracts on securities or
securities indexes and, in some cases, currencies, held for less
than three months, must be limited to less than 30% of the Fund's
annual gross income. In order to avoid realizing excessive gains
on securities or currencies held less than three months, the Fund
may be required to defer the closing out of option, futures or
foreign forward exchange contracts) beyond the time when it would
otherwise be advantageous to do so. It is anticipated that
unrealized gains on Section 1256 option, futures and foreign
forward exchange contracts, which have been open for less than
three months as of the end of the Fund's fiscal year and which
are recognized for tax purposes, will not be considered gains on
securities or currencies held less than three months for purposes
of the 30% test.
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
PAGE 65
than 50% of the 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.
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 and Treasury Money Funds) may enter
into futures contracts and options thereon;
(3) (a) Industry Concentration (All Funds, except High
Yield, New Income, Prime Reserve 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
PAGE 66
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;
(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 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 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'
PAGE 67
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 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);
PAGE 68
(8) Senior Securities. Issue senior securities except
in compliance with the Investment Company Act of
1940; or
(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 Securities Act of 1933 in
connection with the purchase and sale of its
portfolio securities in the ordinary course of
pursuing its investment program.
NOTES
The following Notes should be read in connection
with the above-described fundamental policies.
The Notes are not fundamental policies.
With respect to investment restrictions (1) and
(4) the Fund will not borrow from or lend to any
other T. Rowe Price Fund unless each Fund applies
for and receives an exemptive order from the SEC
or the SEC issues rules permitting such
transactions. The Fund has no current intention
of engaging in any such activity and there is no
assurance the SEC would grant any order requested
by the Fund or promulgate any rules allowing the
transactions.
With respect to investment restriction (1), the
Prime Reserve 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 instruments to be commodities.
For purposes of investment restriction (3), U.S.,
state or local governments, or related agencies or
instrumentalities, are not considered an industry.
Industries are determined by reference to the
classifications of industries set forth in the
Fund's Semi-annual and Annual Reports.
For purposes of investment restriction (4), the
Fund will consider the acquisition of a debt
PAGE 69
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. The Fund will not purchase additional
securities when money borrowed exceeds 5% of its
total assets.
(2) Control of Portfolio Companies. Invest in
companies for the purpose of exercising management
or control;
(3) (a) Equity Securities (All Funds, except High
Yield, New Income, and Personal Strategy Funds).
Purchase any common stocks or other equity
securities, or securities convertible into equity
securities except as set forth in its 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 its total assets in equity
securities;
(d) Equity Securities (Personal Strategy Funds).
Purchase any common stocks or other equity
securities, except as set forth in its prospectus
and operating policy on investment companies;
(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 positions would exceed
5% of the Fund's net asset value.
PAGE 70
(5) (a) Illiquid Securities (All Funds, except
Personal Strategy Funds). Purchase illiquid
securities if, as a result, more than 15% (10% for
the Prime Reserve and U.S. Treasury Money Funds)
of its net assets would be invested in such
securities;
(b) Illiquid Securities (Personal Strategy Funds).
Purchase illiquid securities and securities of
unseasoned issuers if, as a result, more than 15%
of a Fund's net assets would be invested in such
securities, provided that the Fund will not invest
more than 5% of its total assets in restricted
securities and not more than 5% in securities of
unseasoned issuers. Securities eligible for
resale under Rule 144A of the Securities Act of
1933 are not included in the 5% limitation but are
subject to the 15% limitation;
(6) Investment Companies. Purchase securities of
open-end or closed-end investment companies except
in compliance with the Investment Company Act of
1940 and applicable state law, and in the case of
the Prime Reserve and U.S. Treasury Money Funds,
only securities of other money market funds.
Duplicate fees may result from such purchases;
(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 or enter into leases with
PAGE 71
respect to, oil, gas, or other mineral exploration
or development 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) Ownership of Portfolio Securities by Officers and
Directors. Purchase or retain the securities of
any issuer if, to the knowledge of the Fund's
management, those officers and directors of the
Fund, and of its investment manager, who each own
beneficially more than .5% of the outstanding
securities of such issuer, together own
beneficially more than 5% of such securities.
(12) (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;
(13) Unseasoned Issuers. Purchase a security (other
than obligations issued or guaranteed by the U.S.,
any foreign, state or local government, their
agencies or instrumentalities) if, as a result,
more than 5% of the value of the Fund's total
assets would be invested in the securities issuers
which at the time of purchase had been in
operation for less than three years (for this
purpose, the period of operation of any issuer
shall include the period of operation of any
predecessor or unconditional guarantor of such
issuer). This restriction does not apply to
securities of pooled investment vehicles or
mortgage or asset-backed securities; or
(14) Warrants. Invest in warrants if, as a result
thereof, more than 2% of the value of the total
assets of the Fund would be invested in warrants
which are not listed on the New York Stock
Exchange, the American Stock Exchange, or a
recognized foreign exchange, or more than 5% of
PAGE 72
the value of the total assets of the Fund would be
invested in warrants whether or not so listed.
For purposes of these percentage limitations, the
warrants will be valued at the lower of cost or
market and warrants acquired by the Fund in units
or attached to securities may be deemed to be
without value.
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 FUND
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 Investment
Company Act of 1940 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
ROBERT P. BLACK, Retired; formerly President, Federal Reserve
Bank of Richmond; Address: 10 Dahlgren Road, Richmond, Virginia
23233
PAGE 73
CALVIN W. BURNETT, PH.D., President, Coppin State College;
Director, Maryland Chamber of Commerce and Provident Bank of
Maryland; 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, Director, President and Chief Operating
Officer, The Rouse Company, real estate developers, Columbia,
Maryland; Advisory Director, Kleinwort, Benson (North America)
Corporation, a registered broker-dealer; Address: 10275 Little
Patuxent Parkway, Columbia, Maryland 21044
F. PIERCE LINAWEAVER, President, F. Pierce Linaweaver &
Associates, Inc.; formerly (1987-1991) Executive Vice President,
EA Engineering, Science, and Technology, Inc., and (1987-1990)
President, EA Engineering, Inc., Baltimore, Maryland; Address:
The Legg Mason Tower, 111 South Calvert Street, Suite 2700,
Baltimore, Maryland 21202
JOHN G. SCHREIBER, President, Schreiber Investments, Inc., a real
estate investment company; Director, AMCI Residential Properties
Trust; Partner, Blackstone Real Estate Partners, L.P.; Director
and formerly (1/80-12/90) Executive Vice President, JMB Realty
Corporation, a national real estate investment manager and
developer; Address: 1115 East Illinois Road, Lake Forest,
Illinois 60045
ANNE MARIE WHITTEMORE, Partner, law firm of McGuire, Woods,
Battle & Boothe, Richmond, Virginia; formerly, Chairman (1991-
1993) and Director (1989-1993), Federal Reserve Bank of Richmond;
Director, Owens & Minor, Inc., USF&G Corporation, Old Dominion
University, and James River Corporation; Member, Richmond Bar
Association and American Bar Association; Address: One James
Center, 901 East Cary Street, Richmond, Virginia 23219-4030
Personal Strategy Funds
LEO C. BAILEY, Retired; Address: 3396 South Placita Fabula, Green
Valley, Arizona 85614
DONALD W. DICK, JR., Principal, Overseas Partners, Inc., a
financial investment firm; Director, Waverly Press, Inc.,
Baltimore, Maryland; Address: 375 Park Avenue, Suite 2201, New
York, New York 10152
DAVID K. FAGIN, Chairman, Chief Executive Officer and Director,
Golden Star Resources, Ltd.; formerly (1986-7/91) President,
Chief Operating Officer and Director, Homestake Mining Company;
Address: One Norwest Center, 1700 Lincoln Street, Suite 1950,
Denver, Colorado 80203
ADDISON LANIER, Financial management; President and Director,
Thomas Emery's Sons, Inc., and Emery Group, Inc.; Director,
PAGE 74
Scinet Development and Holdings, Inc.; Address: 441 Vine Street,
#2310, Cincinnati, Ohio 45202-2913
JOHN K. MAJOR, Chairman of the Board and President, KCMA
Incorporated, Tulsa, Oklahoma; Address: 126 E. 26 Place, Tulsa,
Oklahoma 74114-2422
HANNE M. MERRIMAN, Retail business consultant; formerly,
President and Chief Operating Officer, Nan Duskin, Inc., a
women's specialty store, Director and Chairman Federal Reserve
Bank of Richmond, and President and Chief Executive Officer,
Honeybee, Inc., a division of Spiegel, Inc; Director, Ann Taylor
Stores Corporation, Central Illinois Public Service Company,
CIPSCO Incorporated, The Rouse Company, State Farm Mutual
Automobile Insurance Company and USAir Group, Inc., Member,
National Women's Forum; Trustee, American-Scandinavian
Foundation; Address: One James Center, 901 East Cary Street,
Richmond, Virginia 23219-4030
HUBERT D. VOS, President, Stonington Capital Corporation, a
private investment company; Address: 1231 State Street, Suite
210, Santa Barbara, CA 93190-0409
PAUL M. WYTHES, 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
Officers
HENRY H. HOPKINS, Vice President--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; Vice President, Rowe Price-Fleming International,
Inc. and T. Rowe Price Retirement Plan Services, Inc.
LENORA V. HORNUNG, Secretary--Vice President, T. Rowe Price
CARMEN F. DEYESU, Treasurer--Vice President, T. Rowe Price, T.
Rowe Price Services, Inc., and T. Rowe Price Trust Company
DAVID S. MIDDLETON, Controller--Vice President, T. Rowe Price, T.
Rowe Price Services, Inc., and T. Rowe Price Trust Company
ROGER L. FIERY, III, Assistant Vice President--Vice President,
Rowe Price-Fleming International, Inc.
EDWARD T. SCHNEIDER, Assistant Vice President--Assistant Vice
President, T. Rowe Price and T. Rowe Price Services, Inc.
INGRID I. VORDEMBERGE, Assistant Vice President--Employee, T.
Rowe Price
PAGE 75
Adjustable Rate Fund
*GEORGE J. COLLINS, Chairman of the Board--President, Managing
Director, and Chief Executive Officer, T. Rowe Price; Director,
Rowe Price-Fleming International, Inc., T. Rowe Price Trust
Company and T. Rowe Price Retirement Plan Services, Inc.,
Chartered Investment Counselor
*PETER VAN DYKE, President and Director--Managing Director, T.
Rowe Price; Vice President of Rowe Price-Fleming International,
Inc. and T. Rowe Price Trust Company
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc., and T. Rowe Price Retirement Plan Services, Inc.; President
and Director, T. Rowe Price Investment Services, Inc; President
and Trust Officer, T. Rowe Price Trust Company; Director, Rowe
Price-Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
HEATHER R. LANDON, Executive Vice President--Vice President, T.
Rowe Price and T. Rowe Price Trust Company
VEENA A. KUTLER, Vice President--Vice President, T. Rowe Price
and Rowe Price-Fleming International, Inc.
JAMES M. MCDONALD, Vice President--Vice President, T. Rowe Price
EDMUND M. NOTZON, Vice President--Vice President, T. Rowe Price
and T. Rowe Price Trust Company; formerly, (1972-1989) charter
member of the U.S. Senior Executive Services and Director,
Analysis and Evaluation Division in the Office of Water
Regulations and Standards of the U.S. Environmental Protection
Agency
CHARLES P. SMITH, Vice President--Managing Director, T. Rowe
Price; Vice President, Rowe Price-Fleming International, Inc.
GWENDOLYN G. WAGNER, Vice President--Assistant Vice President, T.
Rowe Price
DONNA M. ENNIS-DAVIS, Assistant Vice President--Employee, T. Rowe
Price
GNMA Fund
*GEORGE J. COLLINS, Chairman of the Board--President, Managing
Director and Chief Executive Officer, T. Rowe Price; Director,
Rowe Price-Fleming International, Inc., T. Rowe Price Trust
Company and T. Rowe Price Retirement Plan Services, Inc.;
Chartered Investment Counselor
*JAMES S. RIEPE, Vice President and Trustee--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc. and T. Rowe Price Retirement Plan Services, Inc.; President
and Director, T. Rowe Price Investment Services, Inc.; President
and Trust Officer, T. Rowe Price Trust Company; Director, Rowe
Price-Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
PAGE 76
PETER VAN DYKE, President--Managing Director, T. Rowe Price; Vice
President, Rowe Price-Fleming International, Inc. and T. Rowe
Price Trust Company
ROBERT P. CAMPBELL, Vice President--Vice President, T. Rowe Price
and Rowe Price-Fleming International, Inc.; formerly (4/80-5/90)
Vice President and Director, Private Finance, New York Life
Insurance Company, New York, New York
VEENA A. KUTLER, Vice President--Vice President, T. Rowe Price
and Rowe Price-Fleming International, Inc.
HEATHER R. LANDON, Vice President--Vice President, T. Rowe Price
and T. Rowe Price Trust Company
JAMES M. McDONALD, Vice President--Vice President, T. Rowe Price
EDMUND M. NOTZON, Vice President--Vice President, T. Rowe Price
and T. Rowe Price Trust Company; formerly (1972-1989) charter
member of the U.S. Senior Executive Service and Director,
Analysis and Evaluation Division in the Office of Water
Regulations and Standards of the U.S. Environmental Protection
Agency
CHARLES P. SMITH, Vice President--Managing Director, T. Rowe
Price; Vice President, Rowe Price-Fleming International, Inc.
High Yield Fund
*GEORGE J. COLLINS, Chairman of the Board--President, Managing
Director, and Chief Executive Officer, T. Rowe Price; Director,
Rowe Price-Fleming International, Inc., T. Rowe Price Trust
Company and T. Rowe Price Retirement Plan Services, Inc.,
Chartered Investment Counselor
*RICHARD S. SWINGLE, President and Director--Managing Director,
T. Rowe Price
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc. and T. Rowe Price Retirement Plan Services, Inc.; President
and Director, T. Rowe Price Investment Services, Inc; President
and Trust Officer, T. Rowe Price Trust Company; Director, Rowe
Price-Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
CATHERINE B. BRAY, Vice President--Vice President, T. Rowe Price
ANDREW M. BROOKS, Vice President--Vice President, T. Rowe Price
MICHAEL J. CONELIUS, Vice President--Assistant Vice President, T.
Rowe Price
HUBERT M. STILES, JR., Vice President--Vice President, T. Rowe
Price
JAY W. VAN ERT, Vice President--Vice President, T. Rowe Price
MARK J. VASELKIV, Vice President--Vice President, T. Rowe Price
THEA N. WILLIAMS, Vice President--Vice President, T. Rowe Price
JAMES M. McDONALD, Assistant Vice President--Vice President, T.
Rowe Price
PAGE 77
New Income Fund
*GEORGE J. COLLINS, Chairman of the Board--President, Managing
Director, and Chief Executive Officer, T. Rowe Price; Director,
Rowe Price-Fleming International, Inc., T. Rowe Price Trust
Company and T. Rowe Price Retirement Plan Services, Inc.,
Chartered Investment Counselor
*CARTER O. HOFFMAN, Vice President and Director--Managing
Director, T. Rowe Price; Chartered Investment Counselor
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc. and T. Rowe Price Retirement Plan Services, Inc.; President
and Director, T. Rowe Price Investment Services, Inc; President
and Trust Officer, T. Rowe Price Trust Company; Director, Rowe
Price-Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
*CHARLES P. SMITH, President and Director--Managing Director, T.
Rowe Price; Vice President, Rowe Price-Fleming International,
Inc.
SHAWN P. BURKE, Vice President--Vice President, T. Rowe Price;
formerly (1985-1990) Assistant Vice President/Corporate Finance,
Standard & Poor's Corporation; (1990-1993) Vice President/Senior
Credit Officer, Merrill Lynch & Co., New York, New York
ROBERT P. CAMPBELL, Vice President--Vice President, T. Rowe Price
and Rowe Price Fleming International, Inc.; formerly (4/80-5/90)
Vice President and Director, Private Finance, New York Life
Insurance Company, New York, New York
HEATHER R. LANDON, Vice President--Vice President, T. Rowe Price
and T. Rowe Price Trust Company
JAMES M. McDONALD, Vice President--Vice President, T. Rowe Price
EDMUND M. NOTZON, Vice President--Vice President, T. Rowe Price
and T. Rowe Price Trust Company; formerly (1972-1989) charter
member of the U.S. Senior Executive Service and Director,
Analysis and Evaluation Division in the Office of Water
Regulations and Standards of the U.S. Environmental Protection
Agency
JOAN R. POTEE, Vice President--Vice President, T. Rowe Price
ROBERT M. RUBINO, Vice President--Vice President, T. Rowe Price
THOMAS E. TEWKSBURY, Vice President--Vice President, T. Rowe
Price; formerly (1/89-12/93) senior bond trader, Scudder, Stevens
& Clark, Boston, Massachusetts
PETER VAN DYKE, Vice President--Managing Director, T. Rowe Price;
Vice President, Rowe Price-Fleming International, Inc. and T.
Rowe Price Trust Company
PAGE 78
Prime Reserve Fund
*GEORGE J. COLLINS, Vice President and Director--President,
Managing Director, and Chief Executive Officer, T. Rowe Price;
Director, Rowe Price-Fleming International, Inc., T. Rowe Price
Trust Company and T. Rowe Price Retirement Plan Services, Inc.,
Chartered Investment Counselor
*CARTER O. HOFFMAN, Chairman of the Board--Managing Director, T.
Rowe Price; Chartered Investment Counselor
EDWARD A. WIESE, President--Vice President, T. Rowe Price, Rowe
Price-Fleming International, Inc. and T. Rowe Price Trust Company
ROBERT P. CAMPBELL, Executive Vice President--Vice President, T.
Rowe Price and Rowe Price-Fleming International Inc.; formerly
(4/80-5/90) Vice President and Director, Private Finance, New
York Life Insurance Company, New York, New York
JAMES M. MCDONALD, Executive Vice President--Vice President, T.
Rowe Price
PATRICE L. BERCHTENBREITER, Vice President--Vice President, T.
Rowe Price
PAUL W. BOLTZ, Vice President--Vice President and Financial
Economist of T. Rowe Price
MICHAEL J. CONELIUS, Vice President--Assistant Vice President, T.
Rowe Price
JOAN R. POTEE, Vice President--Vice President, T. Rowe Price
JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc. and T. Rowe Price Retirement Plan Services, Inc.; President
and Director, T. Rowe Price Investment Services, Inc; President
and Trust Officer, T. Rowe Price Trust Company; Director, Rowe
Price-Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
ROBERT M. RUBINO, Vice President--Vice President, T. Rowe Price
Short-Term Bond Fund
*GEORGE J. COLLINS, Chairman of the Board--President, Managing
Director, and Chief Executive Officer, T. Rowe Price; Director,
Rowe Price-Fleming International, Inc., T. Rowe Price Trust
Company and T. Rowe Price Retirement Plan Services, Inc.,
Chartered Investment Counselor
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc. and T. Rowe Price Retirement Plan Services, Inc.; President
and Director, T. Rowe Price Investment Services, Inc; President
and Trust Officer, T. Rowe Price Trust Company; Director, Rowe
Price-Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
VEENA A. KUTLER, President--Vice President, T. Rowe Price and
Rowe Price-Fleming International, Inc.
PAGE 79
ROBERT P. CAMPBELL, Vice President--Vice President, T. Rowe Price
and Rowe Price-Fleming International, Inc.; formerly (4/80-5/90)
Vice President and Director, Private Finance, New York Life
Insurance Company, New York, New York
CHRISTY M. DIPIETRO, Vice President--Vice President, T. Rowe
Price and T. Rowe Price Trust Company
JAMES M. MCDONALD, Vice President--Vice President, T. Rowe Price
ROBERT M. RUBINO, Vice President--Vice President, T. Rowe Price
CHARLES P. SMITH, Vice President--Managing Director, T. Rowe
Price; Vice President, Rowe Price-Fleming International, Inc.
EDWARD A. WIESE, Vice President--Vice President, T. Rowe Price,
Rowe Price-Fleming International, Inc. and T. Rowe Price Trust
Company
U.S. Treasury Intermediate, Long-Term and Money Funds
*GEORGE J. COLLINS, President and Director--President, Managing
Director, and Chief Executive Officer, T. Rowe Price; Director,
Rowe Price-Fleming International, Inc., T. Rowe Price Trust
Company and T. Rowe Price Retirement Plan Services, Inc.,
Chartered Investment Counselor
*JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc. and T. Rowe Price Retirement Plan Services, Inc.; President
and Director, T. Rowe Price Investment Services, Inc; President
and Trust Officer, T. Rowe Price Trust Company, Director, Rowe
Price-Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
*CHARLES P. SMITH, Executive Vice President and Director--
Managing Director, T. Rowe Price; Vice President, Rowe Price-
Fleming International, Inc.
*PETER VAN DYKE, Executive Vice President and Director--Managing
Director, T. Rowe Price; Vice President, Rowe Price-Fleming
International, Inc. and T. Rowe Price Trust Company
EDWARD A. WIESE, Executive Vice President--Vice President, T.
Rowe Price, Rowe Price-Fleming International, Inc. and T. Rowe
Price Trust Company
PAUL W. BOLTZ, Vice President--Vice President and Financial
Economist of T. Rowe Price
ROBERT P. CAMPBELL, Vice President--Vice President, T. Rowe Price
and Rowe Price-Fleming International Inc.; formerly (4/80-5/90)
Vice President and Director, Private Finance, New York Life
Insurance Company, New York, New York
VEENA A. KUTLER, Vice President--Vice President, T. Rowe Price
and Rowe Price-Fleming International, Inc.
HEATHER R. LANDON, Vice President--Vice President, T. Rowe Price
and T. Rowe Price Trust Company
JAMES M. McDONALD, Vice President--Vice President, T. Rowe Price
PAGE 80
JOAN R. POTEE, Vice President--Vice President, T. Rowe Price
THOMAS E. TEWKSBURY, Vice President--Vice President, T. Rowe
Price; formerly (1/89-12/93) senior bond trader, Scudder, Stevens
& Clark, Boston, Massachusetts
Personal Strategy Fund
M. DAVID TESTA, Chairman of the Board--Managing Director, T. Rowe
Price; Chairman of the Board, Rowe Price-Fleming International,
Inc.; Director and Vice President, T. Rowe Price Trust Company;
Chartered Financial Analyst
PETER VAN DYKE, President--Managing Director, T. Rowe Price; Vice
President of Rowe Price-Fleming International, Inc., T. Rowe
Price Trust Company and T. Rowe Price Retirement Plan Services,
Inc., Chartered Investment Counselor
STEPHEN W. BOESEL, Executive Vice President--Vice President, T.
Rowe Price
JOHN D. GILLESPIE, Executive Vice President--Vice President, T.
Rowe Price
EDMUND M. NOTZON, Executive Vice President--Vice President, T.
Rowe Price and T. Rowe Price Trust Company; formerly (1972-1989)
charter member of the U.S. Senior Executive Service and Director,
Analysis and Evaluation Division in the Office of Water
Regulations and Standards of the U.S. Environmental Protection
Agency
JOHN H. LAPORTE, Vice President--Managing Director, T. Rowe
Price; Chartered Financial Analyst
JAMES S. RIEPE, Vice President and Director--Managing Director,
T. Rowe Price; Chairman of the Board, T. Rowe Price Services,
Inc. and T. Rowe Price Retirement Plan Services, Inc.; President
and Director, T. Rowe Price Investment Services, Inc; President
and Trust Officer, T. Rowe Price Trust Company, Director, Rowe
Price-Fleming International, Inc. and Rhone-Poulenc Rorer, Inc.
WILLIAM T. REYNOLDS, Vice President--Managing Director, T. Rowe
Price
BRIAN C. ROGERS, Vice President--Managing Director, T. Rowe Price
Each 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 Fund in the intervals between meetings of
the Board, except the powers prohibited by statute from being
delegated.
PAGE 81
PRINCIPAL HOLDERS OF SECURITIES
As of the date of the prospectus, the officers and directors
of the Fund, as a group, owned less than 1% of the outstanding
shares of the Fund.
As of May 31, 1994, Yachtcrew & Co., FBO Spectrum Income
Account, State Street Bank and Trust Co., 1776 Heritage Drive-4W,
North Quincy, MA 02171-2010 beneficially owned more than 5% of
the outstanding shares of the GNMA, High Yield, New Income and
Short-Term Bond Funds; FTC & Co., #002, P. O. Box 5508, Attn:
Datalynx, Denver, CO 80217-5508 and T. Rowe Price Trust Company,
Assoc. in Surgery PAPP (UMSA), Attn: Installation Team for
Conversion Plan #800302, P. O. Box 17215, Baltimore, MD 21203-
7999 beneficially owned more than 5% of the outstanding shares of
the U.S. Treasury Intermediate Fund; and T. Rowe Price Trust Co.
Inc., Attn: Installation Team for Conversion Assets, New England
Electric Plan, 25 Research Drive, Westborough, MA 01582
beneficially owned more than 5% of the outstanding shares of the
U.S. Treasury Money Fund.
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 and state
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, and committee members of the Fund without
cost to the Fund.
PAGE 82
The Management Agreement also provides that T. Rowe Price,
its directors, officers, employees, and certain other persons
performing specific functions for the Fund will only be liable to
the Fund for losses resulting from willful misfeasance, bad
faith, gross negligence, or reckless disregard of duty.
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 below.
The monthly Group Fee ("Monthly Group Fee") is the sum of
the daily Group Fee accruals ("Daily Group Fee Accruals") for
each month. The Daily Group Fee Accrual for any particular day
is computed by multiplying the Price Funds' group fee accrual as
determined below ("Daily Price Funds' Group Fee Accrual") by the
ratio of the Fund's net assets for that day to the sum of the
aggregate net assets of the Price Funds for that day. The Daily
Price Funds' Group Fee Accrual for any particular day is
calculated by multiplying the fraction of one (1) over the number
of calendar days in the year by the annualized Daily Price Funds'
Group Fee Accrual for that day as determined in accordance with
the following schedule:
Price Funds'
Annual Group Base Fee
Rate for Each Level of Assets
0.480% First $1 billion
0.450% Next $1 billion
0.420% Next $1 billion
0.390% Next $1 billion
0.370% Next $1 billion
0.360% Next $2 billion
0.350% Next $2 billion
0.340% Next $5 billion
0.330% Next $10 billion
0.320% Next $10 billion
0.310% Thereafter
For the purpose of calculating the Group Fee, the Price
Funds include all the mutual funds distributed by T. Rowe Price
Investment Services, Inc., (excluding T. Rowe Price Spectrum
PAGE 83
Fund, Inc. and any institutional or private label mutual funds).
For the purpose of calculating the Daily Price Funds' Group Fee
Accrual for any particular day, the net assets of each Price Fund
are determined in accordance with the Fund's 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 for each
Fund are listed in the chart below:
Individual Fund Fees
Adjustable Rate Fund 0.10%
GNMA Fund 0.15%
High Yield Fund 0.30%
New Income Fund 0.30%
Prime Reserve Fund 0.05%
Short-Term Bond 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%
Personal Strategy Growth Fund 0.30%
Personal Strategy Balanced Fund 0.25%
Personal Strategy Income Fund 0.15%
The following chart sets forth the total management fees, if
any, paid to T. Rowe Price by each Fund, for the three-month
fiscal year ended May 31, 1994 and for the fiscal years ended
February 28, 1994, February 28, 1993 and February 29, 1992:
PAGE 84
Fund 1994* 1994 1993 1992
Adjustable Rate $ 100,000 $ 526,000$ 627,000 **
GNMA 1,034,000 4,626,000 4,102,000 $ 3,069,000
High Yield 2,197,000 10,554,000 8,014,000 5,701,000
New Income 1,748,000 7,750,000 7,113,000 6,348,000
Prime Reserve 3,601,000 13,617,000 15,620,000 18,486,000
Short-Term Bond 708,000 2,873,000 2,136,000 1,398,000
U.S. Treasury 173,000 755,000 571,000 309,000
Intermediate
U.S. Treasury 26,000 180,000 125,000 4,000
Long-Term
U.S. Treasury 569,000 2,084,000 165,000 2,140,000
Money
*For the three-month fiscal year ended May 31, 1994.
** 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. However, in
compliance with certain state regulations, T. Rowe Price will
reimburse the Fund for certain expenses which in any year exceed
the limits prescribed by any state in which the Fund's shares are
qualified for sale. Presently, the most restrictive expense
ratio limitation imposed by any state is 2.5% of the first $30
million of the Fund's average daily net assets, 2% of the next
$70 million of the Fund's assets, and 1.5% of net assets in
excess of $100 million. Reimbursement by the Fund to T. Rowe
Price of any expenses paid or assumed under a state expense
limitation may not be made more than two years after the end of
the fiscal year in which the expenses were paid or assumed.
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.
PAGE 85
Expense
Limitation Ratio Reimbursement
Fund Period Limitation Date
Adjustable Rate+ January 1, 1994- 0.70% May 31, 1998
May 31, 1996
U.S. Treasury March 1, 1993- 0.80% February 28, 1997
Intermediate++ February 28, 1995
U.S. Treasury March 1, 1993- 0.80% February 28, 1997
Long-Term++ February 28, 1995
Personal StrategyJuly 1, 1994- 0.95% May 31, 1998
Income Fund May 31, 1996
Personal Strategy July 1, 1994- 1.05% May 31, 1998
Balanced Fund May 31, 1996
Personal Strategy July 1, 1994- 1.10% May 31, 1998
Growth Fund May 31, 1996
+ The Adjustable Rate Fund previously operated under a 0.40%
limitation that expired December 31, 1993. The reimbursement
period for this limitation extends through June 30, 1995.
++ The Intermediate and Long-Term Funds' operated under a 0.80%
limitation that expired February 29, 1993. The reimbursement
period for this limitation extends through February 28, 1995.
Each of the above-referenced Fund's Management Agreement also
provides that one or more additional expense limitation periods
(of the same or different time periods) may be implemented after
the expiration of the current 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.
Pursuant to the Adjustable Rate Fund's current expense
limitation, $130,000 and $938,000 of management fees were not
accrued by the Fund for the three-month fiscal year ended May 31,
1994 and for the fiscal year ended February 28, 1994,
respectively.
Pursuant to the Intermediate Fund's current expense
limitation, $77,000 of unaccrued 1993 fees for the Fund,
representing the entire unaccrued balance, were reimbursed to T.
Rowe Price during the fiscal year ended February 28, 1994.
Pursuant to the Long-Term Fund's current expense
limitation, $28,000 and $61,000 of management fees were not
PAGE 86
accrued by the Fund for the three-month fiscal year ended May 31,
1994 and for the fiscal year ended February 28, 1994,
respectively. Additionally, $303,000 of unaccrued fees from the
prior period for the Fund was subject to reimbursement through
February 28, 1995.
GNMA, High Yield, New Income, Prime Reserve and Short-Term Bond
Funds
T. Rowe Price Spectrum Fund, Inc.
The Fund is a party to a Special Servicing Agreement
("Agreement") between and among T. Rowe Price Spectrum Fund, Inc.
("Spectrum Fund"), T. Rowe Price, T. Rowe Price Services, Inc.
and various other T. Rowe Price funds which, along with the 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.
All Funds
DISTRIBUTOR FOR FUND
T. Rowe Price Investment Services, Inc. ("Investment
Services"), a Maryland corporation formed in 1980 as a wholly-
owned subsidiary of T. Rowe Price, serves as the 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.
PAGE 87
Investment Services is located at the same address as the
Fund and T. Rowe Price -- 100 East Pratt Street, Baltimore,
Maryland 21202.
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: registering and qualifying its shares under the
various state "blue sky" laws; preparing, setting in type,
printing, and mailing its prospectuses and reports to
shareholders; and issuing its shares, including expenses of
confirming purchase orders.
The Underwriting Agreement provides that Investment Services
will pay all fees and expenses in connection with: printing and
distributing prospectuses and reports for use in offering and
selling Fund shares; preparing, setting in type, printing, and
mailing all sales literature and advertising; Investment
Services' federal and state registrations as a broker-dealer; and
offering and selling Fund shares, except for those fees and
expenses specifically assumed by 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 all states in which the
shares are qualified and in which Investment Services is
qualified as a broker-dealer. Under the Underwriting Agreement,
Investment Services accepts orders for Fund shares at net asset
value. No sales charges are paid by investors or the Fund.
CUSTODIAN
State Street Bank and Trust Company is the custodian for the
Fund's domestic 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. The Fund (other than the GNMA, Prime Reserve and
U.S. Treasury Intermediate, Long-Term and Money 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 by the Fund's Board of
PAGE 88
Directors/Trustees in accordance with regulations under the
Investment Company Act of 1940. The Bank's main office is at 225
Franklin Street, Boston, Massachusetts 02110. The address for
The Chase Manhattan Bank, N.A., London is Woolgate House, Coleman
Street, London, EC2P 2HD, England.
CODE OF ETHICS
The Funds' investment adviser (T. Rowe Price) has a written
Code of Ethics which requires all employees to obtain prior
clearance before engaging in any personal securities
transactions. In addition, all employees must report their
personal securities transactions within ten 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; a change has occurred in T. Rowe Price's
rating of the security within five days; or the security is
subject to internal trading restrictions. 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.
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.
PAGE 89
How Brokers and Dealers are Selected
Equity Securities
In purchasing and selling the Fund's portfolio securities, it
is T. Rowe Price's policy to obtain quality execution at the most
favorable prices through responsible brokers and dealers and, in
the case of agency transactions, 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, 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.
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.
PAGE 90
How Evaluations are Made of the Overall Reasonableness of
Brokerage Commissions Paid
On a continuing basis, T. Rowe Price seeks to determine what
levels of commission rates are reasonable in the marketplace for
transactions executed on behalf of the Fund. In evaluating the
reasonableness of commission rates, T. Rowe Price considers: (a)
historical commission rates, both before and since rates have
been fully negotiable; (b) rates which other institutional
investors are paying, based on available public information; (c)
rates quoted by brokers and dealers; (d) the size of a particular
transaction, in terms of the number of shares, dollar amount, and
number of clients involved; (e) the complexity of a particular
transaction in terms of both execution and settlement; (f) the
level and type of business done with a particular firm over a
period of time; and (g) the extent to which the broker or dealer
has capital at risk in the transaction.
Description of Research Services Received from Brokers and
Dealers
T. Rowe Price receives a wide range of research services from
brokers and dealers. These services include information on the
economy, industries, groups of securities, individual companies,
statistical information, accounting and tax law interpretations,
political developments, legal developments affecting portfolio
securities, technical market action, pricing and appraisal
services, credit analysis, risk measurement analysis, performance
analysis and analysis of corporate responsibility issues. These
services provide both domestic and international perspective.
Research services are received primarily in the form of written
reports, computer generated services, telephone contacts and
personal meetings with security analysts. In addition, such
services may be provided in the form of meetings arranged with
corporate and industry spokespersons, economists, academicians
and government representatives. In some cases, research services
are generated by third parties but are provided to T. Rowe Price
by or through broker-dealers.
Research services received from brokers and dealers are
supplemental to T. Rowe Price's own research effort and, when
utilized, are subject to internal analysis before being
incorporated by T. Rowe Price into its investment process. As a
practical matter, it would not be possible for T. Rowe Price's
Equity Research Division to generate all of the information
presently provided by brokers and dealers. T. Rowe Price pays
PAGE 91
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.
PAGE 92
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.
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.
PAGE 93
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.
To the extent possible, T. Rowe Price intends to recapture
solicitation fees paid in connection with tender offers through
T. Rowe Price Investment Services, Inc., the Fund's distributor.
At the present time, T. Rowe Price does not recapture commissions
or underwriting discounts or selling group concessions in
connection with taxable securities acquired in underwritten
offerings. T. Rowe Price does, however, attempt to negotiate
elimination of all or a portion of the selling-group concession
or underwriting discount when purchasing tax-exempt municipal
securities on behalf of its clients in underwritten offerings.
Adjustable Rate, High Yield, New Income, Personal Strategy, and
Short-Term Bond Funds
Transactions with Related Brokers and Dealers
As provided in the Investment Management Agreement between
the Fund and T. Rowe Price, T. Rowe Price is responsible not only
PAGE 94
for making decisions with respect to the purchase and sale of the
Fund's portfolio securities, but also for implementing these
decisions, including the negotiation of commissions and the
allocation of portfolio brokerage and principal business. It is
expected that T. Rowe Price may place orders for the Fund's
portfolio transactions with broker-dealers through the same
trading desk T. Rowe Price uses for portfolio transactions in
domestic securities. The trading desk accesses brokers and
dealers in various markets in which the Fund's foreign securities
are located. These brokers and dealers may include certain
affiliates of Robert Fleming Holdings Limited ("Robert Fleming
Holdings") and Jardine Fleming Group Limited ("JFG"), persons
indirectly related to T. Rowe Price. Robert Fleming Holdings,
through Copthall Overseas Limited, a wholly-owned subsidiary,
owns 25% of the common stock of Rowe Price-Fleming International,
Inc. ("RPFI"), an investment adviser registered under the
Investment Advisers Act of 1940. Fifty percent of the common
stock of RPFI is owned by TRP Finance, Inc., a wholly-owned
subsidiary of T. Rowe Price, and the remaining 25% is owned by
Jardine Fleming Holdings Limited, a subsidiary of JFG. JFG is
50% owned by Robert Fleming Holdings and 50% owned by Jardine
Matheson Holdings Limited. Orders for the Fund's portfolio
transactions placed with affiliates of Robert Fleming Holdings
and JFG will result in commissions being received by such
affiliates.
The Board of Directors/Trustees of the Fund has authorized T.
Rowe Price to utilize certain affiliates of Robert Fleming and
JFG in the capacity of broker in connection with the execution of
the Fund's portfolio transactions. These affiliates include, but
are not limited to, Jardine Fleming Securities Limited ("JFS"), a
wholly-owned subsidiary of JFG, Robert Fleming & Co. Limited
("RF&Co."), Jardine Fleming Australia Securities Limited, and
Robert Fleming, Inc. (a New York brokerage firm). Other
affiliates of Robert Fleming Holding and JFG also may be used.
Although it does not believe that the Fund's use of these brokers
would be subject to Section 17(e) of the Investment Company Act
of 1940, the Board of Directors/Trustees of the Fund has agreed
that the procedures set forth in Rule 17e-1 under that Act will
be followed when using such brokers.
Other
The Funds engaged in portfolio transactions involving
broker-dealers in the following amounts for the three-month
fiscal year ended May 31, 1994:
PAGE 95
Fund 1994
_____ ____
Adjustable Rate $ 63,449,000
GNMA 620,027,000
High Yield 4,476,795,000
New Income 1,649,029,000
Prime Reserve 5,945,733,000
Short-Term Bond 1,149,888,000
U.S. Treasury Intermediate 35,433,000
U.S. Treasury Long-Term 85,972,000
U.S. Treasury Money 10,087,000
For the fiscal years ended February 28, 1994, February 28,
1993 and February 29, 1992, the Funds engaged in portfolio
transactions involving broker-dealers in the following
amounts:
Fund 1994 1993 1992
______ ____ ____ ____
Adjustable Rate$ 793,565,000 $ 1,876,498,000 $ 427,475,000
GNMA 2,306,951,000 1,528,454,000 1,438,762,000
High Yield 18,554,222,000 16,168,606,000 6,702,967,000
New Income 20,265,475,000 15,193,999,000 6,648,064,000
Prime Reserve 29,024,172,000 36,478,989,000 29,975,769,000
Short-Term Bond 4,266,837,000 5,805,958,000 5,534,535,000
U.S. Treasury 81,970,000 91,923,000 218,317,000
Intermediate
U.S. Treasury 142,513,000 192,941,000 192,774,000
Long-Term
U.S. Treasury 3,449,951,000 2,804,196,000 23,290,378,000
Money
The entire amount for each of these years represented
principal transactions as to which the Adjustable Rate, GNMA,
Prime Reserve, U.S. Treasury Intermediate, Long-Term and Money
Funds have no knowledge of the profits or losses realized by the
respective broker-dealers for the three-month fiscal year ended
May 31, 1994 and for the fiscal years ended February 28, 1994,
February 28, 1993 and February 29, 1992.
With respect to the High Yield Fund, for the three-month
fiscal year ended May 31, 1994, $4,398,879,000 consisted of
principal transactions as to which the Fund has no knowledge of
the profits or losses realized by the respective broker-dealers;
and $77,916,000 involved trades with brokers acting as agents or
PAGE 96
underwriters, in which such broker received total commissions,
including discounts received in connection with underwritings of
$1,385,000.
With respect to the High Yield, New Income and Short-Term
Bond 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 February 28, 1994, February 28, 1993 and
February 29, 1992:
Fund 1994 1993 1992
______ ____ ____ ____
High Yield $17,956,306,000 $15,737,460,000 $6,682,140,000
New Income 20,206,382,000 15,189,019,000 6,518,595,000
Short-Term Bond 0 0 5,034,535,000
The following amounts involved trades with brokers acting as
agents or underwriters for the fiscal years ended February 28,
1994, February 28, 1993, and February 29, 1992:
Fund 1994 1993 1992
______ ____ ____ ____
High Yield $597,916,000 $431,147,000 $ 20,827,000
New Income 59,093,000 4,980,000 129,469,000
Short-Term Bond 0 0 5,000,000
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 February 28, 1994,
February 28, 1993 and February 29, 1992:
Fund 1994 1993 1992
______ ____ ____ ____
High Yield $16,730,000 $3,661,000 $1,201,000
New Income 169,000 20,000 402,000
Short-Term Bond 0 0 15,000
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 three-month
fiscal year ended May 31, 1994 and for the fiscal years ended
PAGE 97
February 28, 1994, February 28, 1993 and February 29, 1992, are
shown below:
Fund 1994* 1994 1993 1992
______ ____ ____ ____ ____
Adjustable Rate 100% 100% 94% 100%
GNMA 98% 91% 91% 99%
High Yield 48% 70% 70% 59%
New Income 68% 61% 61% 87%
Prime Reserve 78% 87% 81% 76%
Short-Term Bond 83% 61% 84% 79%
U.S. Treasury 87% 85% 98% 100%
Intermediate
U.S. Treasury Long-Term 100% 98% 99% 100%
U.S. Treasury Money 32% 66% 75% 60%
*For the three-month fiscal year ended May 31, 1994.
The portfolio turnover rates for the following Funds for
the three-month fiscal year ended May 31, 1994 and for the fiscal
years ended February 28, 1994, February 28, 1993 and February 29,
1992 are as follows:
Fund 1994* 1994 1993 1992
______ _____ ____ ____ ____
Adjustable Rate 27.6% 70.4% 110.8% 98.4%
GNMA 151.8% 92.5% 94.2% 66.0%
High Yield 62.5% 107.0% 104.4% 58.9%
New Income 91.5% 58.3% 85.8% 49.7%
Short-Term Bond 222.8% 90.8% 68.4% 380.7%
U.S. Treasury 45.5% 20.2% 22.8% 91.4%
Intermediate
U.S. Treasury Long-Term 246.9% 59.4% 165.4% 162.4%
*For the three-month fiscal year ended May 31, 1994.
Prime Reserve Fund
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.
PAGE 98
Money Fund
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
Adjustable Rate, GNMA, High Yield, New Income, Short-Term Bond,
U.S. Treasury Intermediate and Long-Term Funds
Fixed income 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.
There are a number of pricing services available, and the
Board of Directors, on the basis of ongoing evaluation of these
services, may use or may discontinue the use of any pricing
service in whole or in part.
High Yield, New Income, and Personal Strategy Funds
Equity securities listed or regularly traded on a securities
exchange (including NASDAQ) are valued at the last quoted sales
price on the day the valuations are made. A security which 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. Other equity securities and those listed
securities that are not traded on a particular day 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.
Debt securities are generally traded in the over-the-counter
market and are valued at a price deemed best to reflect fair
PAGE 99
value as quoted by dealers who make markets in these securities
or by an independent pricing service. Short-term debt securities
are valued at their cost in local currency which, when combined
with accrued interest, approximates fair value.
Prime Reserve and U.S. Treasury Money Funds
Securities with more than 60 days remaining to maturity are
stated at fair value which is determined by using a matrix system
that establishes a value for each security based on money market
yields. Securities originally purchased with remaining
maturities of 60 days or less are valued at amortized cost. In
addition, securities purchased with maturities in excess of 60
days, but which currently have maturities of 60 days or less, are
valued at their amortized cost for the 60 days prior to maturity-
- -such amortization being based on the fair value of the
securities on the 61st day prior to maturity.
All Funds
For the purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at the mean of
the bid and offer prices of such currencies against U.S. dollars
quoted by any major bank.
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 officers of the Funds, as authorized by
the Board of Directors.
Prime Reserve and U.S. Treasury Money Funds
Maintenance of Net Asset Value Per Share
It is the policy of the Fund to attempt to maintain a net
asset value of $1.00 per share by rounding to the nearest one
cent. This method of valuation is commonly referred to as "penny
rounding" and is permitted by Rule 2a-7 under the Investment
Company Act of 1940. Under Rule 2a-7:
(a) the Board of Directors of the Fund must undertake to
assure, to the extent reasonably practical taking into
account current market conditions affecting the Fund's
investment objectives, that the Fund's net asset value will
not deviate from $1.00 per share;
PAGE 100
Prime Reserve Fund
(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
(or in the case of U.S. government securities greater than
762 days), and (iii) maintain a dollar-weighted average
portfolio maturity of 90 days or less;
Money Fund
(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 762 days,
and (iii) maintain a dollar-weighted average portfolio
maturity of 90 days or less;
Prime Reserve and U.S. Treasury Money Funds
(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 price per share under the penny rounding
method; and (ii) the Fund will continue to use the penny
rounding 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
PAGE 101
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.
Prime Reserve Fund
Prime Money Market Securities Defined. Prime money market
securities are those which are described as First Tier Securities
under Rule 2a-7 of the Investment Company Act of 1940. 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 Directors.
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
the Fund's 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, Washington's Birthday, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
PAGE 102
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 Securities and Exchange
Commission (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 about 10 days although the
exact timing is subject to change.
TAX STATUS
The Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986,
as amended ("Code").
A portion of the dividends paid by the Fund may be eligible
for the dividends-received deduction for corporate shareholders.
For tax purposes, it does not make any difference whether
dividends and capital gain distributions are paid in cash or in
additional shares. The Fund must declare dividends equal to at
least 98% of ordinary income (as of December 31) and capital
gains (as of October 31) in order to avoid a federal excise tax
and distribute 100% of ordinary income and capital gains as of
its tax year-end to avoid 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
PAGE 103
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. On May 31, 1994, the books of each Fund
(other than the Personal Strategy Fund) indicated that each
Fund's aggregate net assets included undistributed net income,
net realized capital gains, and unrealized appreciation which are
listed below.
Net Realized Unrealized
Undistributed Capital Appreciation/
Fund Net IncomeGains/(Losses) (Depreciation)
Adjustable Rate $(1,938,550) $(953,447) $(3,465,529)
GNMA 8,763 (15,464,402) (26,398,092)
High Yield 3,988,627 (5,944,499) (119,580,285)
New Income 21,962 1,014,811 (65,070,648)
Prime Reserve 2,105,954 1,900 203,760
Short-Term Bond 121,010 (4,542,864) (15,924,117)
U.S. Treasury Intermediate(108,298) 55,985 (6,124,061)
U.S. Treasury Long-Term (38,345) (577,048) (2,954,108)
U.S. Treasury Money 81,339 2,371 174,801
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.
PAGE 104
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
dividend paid by the Fund will be increased; if the result is a
loss, the income dividend paid by the Fund will be decreased.
Adjustments to reflect these gains and losses will be made at the
end of the Fund's taxable year.
YIELD INFORMATION
From time to time, the Fund may advertise a yield figure
calculated in the following manner:
Adjustable Rate and GNMA Funds
In conformity with regulations of the Securities and
Exchange Commission, an income factor is calculated for each
security in the portfolio based upon the security's 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 Adjustable Rate and GNMA Funds calculated
under the above-described method for the month ended May 31, 1994
were 4.10% and 5.40%, respectively.
High Yield, New Income, Short-Term Bond, U.S. Treasury
Intermediate and U.S. Treasury 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 Securities and Exchange Commission. The
PAGE 105
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 High Yield, New Income, Short-Term Bond,
Intermediate and Long-Term Funds calculated under the above-
described method for the month ended May 31, 1994, were 8.87%,
6.12%, 5.55%, 5.75% and 6.47%, respectively.
Prime Reserve 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, 1994 for the Prime
Reserve and U.S. Treasury Money Funds were 3.33% and 3.18%,
respectively, and the Funds' compound yield for the same period
were 3.38% and 3.23%, 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 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
PAGE 106
account measured by the then current net asset value, including
all shares acquired through reinvestment of income and capital
gains dividends. The results shown are historical and should not
be considered indicative of the future performance of 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.
Cumulative Performance Percentage Change
1 Yr. 5 Yrs. 10 Yrs. Since
Ended Ended Ended Inception-
5/31/94 5/31/94 5/31/94 5/32/94
Adjustable Rate U.S. Government Fund
T. Rowe Price Adjustable Rate
U.S. Government Fund, Inc. 1.32% 8.23%
(9/30/91)
Lipper Average of Adjustable
Rate Mortgage Funds 1.37 9.00
Merrill Lynch 1-3 Year
Govt. Index 2.06 15.35
Salomon Brothers 1-Year
Treasury Index 2.67 11.98
Salomon Brothers 2-Year
Treasury Index 2.02 15.54
GNMA Fund
T. Rowe Price GNMA Fund -0.74% 49.74% 90.76%
(11/26/85)
Salomon Brothers 30-Year
GNMA Index 0.04 56.54 118.60
Lehman Brothers GNMA Bond Index -0.34 55.23 120.89
Lipper GNMA Funds Average-0.02 48.17 93.96
High Yield Fund
High Yield Fund 2.34% 46.71% 158.53%
(12/31/84)
Merrill Lynch High Yield Index 6.39 75.35 214.84
Merrill Lynch Medium Quality Long
Corporate Index 1.72 64.77 207.17
Lipper's Average of High Current
Yield Funds 6.70 61.77 163.20
PAGE 107
New Income Fund
New Income Fund 1.40% 50.29% 153.33% 497.09%
(8/31/73)
Salomon Bros. Broad Investment
Grade Index 0.91 55.84 205.02 N/A
Salomon Bros. High Grade Corporate
Bond Index 0.04 61.05 273.45 567.37
Lehman Bros. Govt./Corp.
Bond Index 1.01 55.52 198.97 547.98
Lipper Corporate Bond Fund's
-A Rated Average 0.34 51.10 188.96 495.23
Short-Term Bond Fund
T. Rowe Price Short-Term
Bond Fund 1.36% 40.71% 118.73% 119.04%
(3/2/84)
T. Rowe Price Prime
Reserve Fund 2.73% 28.24% 84.99% 316.49%
Donoghue Average of all Taxable
Money Funds 2.85 28.42 83.43 87.74
Lehman Bros. 1-3 Year Govt./Corp.
Bond Index 2.10 43.95 137.59 137.46
Lipper Short Investment Grade
Debt Funds Average 1.87 43.06 150.53 133.60
(2/29/84)
U.S. Treasury Intermediate Fund
Intermediate Fund 0.70% 44.62%
(9/29/89)
Salomon 1-7 year
Treasury Index 1.49 44.94
U.S. Treasury Long-Term Fund
Long-Term Fund -0.09 45.43
(9/29/89)
Salomon Treasury Index 1.12 48.24
PAGE 108
Average Annual Compound Rates of Return
1 Yr. 5 Yrs. 10 Yrs. Since
Ended Ended Ended Inception-
5/31/94 5/31/94 5/31/94 5/31/94
Adjustable Rate U.S. Government Fund
T. Rowe Price Adjustable Rate
U.S. Government Fund, Inc. 1.32% 3.01%
(9/30/91)
Lipper Average of Adjustable
Rate Mortgage Funds 1.37
Merrill Lynch 1-3 Year
Govt. Index 2.06 5.50
Salomon Brothers 1-Year
Treasury Index 2.67 4.33
Salomon Brothers 2-Year
Treasury Index 2.02 5.57
GNMA Fund
T. Rowe Price GNMA Fund -0.74% 8.41% 7.88%
(11/26/85)
Salomon Brothers 30-Year
GNMA Index 0.04 9.38 9.63
Lehman Brothers GNMA Bond
Index -0.34 9.19 9.52
Lipper GNMA Funds Average-0.62 8.17 8.09
High Yield Fund
High Yield Fund 2.34 7.97 10.62
(12/31/84)
Merrill Lynch High Yield Index 6.39 11.98 12.96
Merrill Lynch Medium Quality Long
Corporate Index 1.72 10.50 12.66
Lipper's Average of High Current
Yield Funds 6.70 10.02 10.73
PAGE 109
New Income Fund
New Income Fund 1.40% 8.49% 9.74 8.99%
(8/31/73)
Salomon Bros. Broad Investment
Grade Index 0.91 9.28 11.80 N/A
Salomon Bros. High Grade
Corporate Bond Index 0.04 10.00 14.08 9.58
Lehman Bros. Govt./Corp.
Bond Index 1.01 9.24 11.57 9.45
Lipper Corporate Bond Fund's
-A Rated Average 0.34 8.60 11.17 8.95
Short-Term Bond Fund
T. Rowe Price Short-Term
Bond Fund 1.36 7.07 8.12 7.95
(3/2/84)
T. Rowe Price Prime
Reserve Fund 2.73 5.10 6.34 8.09
Donoghue Average of all
Taxable Money Funds 2.85 5.13 6.25 6.34
Lehman Bros. 1-3 Year
Govt./Corp. Bond Index 2.10 7.55 9.03 8.80
Lipper Short Investment Grade
Debt Funds Average 1.87 7.42 8.70 8.63
(2/29/84)
U.S. Treasury Intermediate Fund
Intermediate Fund 0.70 8.22
(9/29/89)
Salomon 1-7 Year Treasury
Index 1.49 8.28
U.S. Treasury Long-Term Fund
Long-Term Fund -0.09 8.35
(9/29/89)
Salomon Treasury Index 1.12 8.80
Outside Sources of Information
From time to time, in reports and promotional literature, one
or more of the T. Rowe Price funds, including this Fund, may
compare its performance to Overnight Government Repurchase
PAGE 110
Agreements, Treasury bills, notes, and bonds, certificates of
deposit, and six-month money market certificates. Performance
may also be compared to (1) indices of broad groups of managed or
unmanaged securities considered to be representative of or
similar to Fund portfolio holdings; (2) other mutual funds; or
(3) other measures of performance set forth in publications such
as:
Advertising News Service, Inc., "Bank Rate Monitor+ - The
Weekly Financial Rate Reporter" is a weekly publication which
lists the yields on various money market instruments offered to
the public by 100 leading banks and thrift institutions in the
U.S., including loan rates offered by these banks. Bank
certificates of deposit differ from mutual funds in several
ways: the interest rate established by the sponsoring bank is
fixed for the term of a CD; there are penalties for early
withdrawal from CDs; and the principal on a CD is insured.
Donoghue Organization, Inc., "Donoghue's Money Fund Report" is
a weekly publication which tracks net assets, yield, maturity
and portfolio holdings on approximately 380 money market mutual
funds offered in the U.S. These funds are broken down into
various categories such as U.S. Treasury, Domestic Prime and
Euros, Domestic Prime and Euros and Yankees, and Aggressive.
First Boston High Yield Index. It shows statistics on the
Composite Index and analytical data on new issues in the
marketplace and low-grade issuers.
Lipper Analytical Services, Inc., "Lipper-Fixed Income Fund
Performance Analysis" is a monthly publication which tracks net
assets, total return, principal return and yield on
approximately 950 fixed income mutual funds offered in the
United States.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond
Indices" is a monthly publication which lists principal, coupon
and total return on over 100 different taxable bond indices
tracked by Merrill Lynch, together with the par weighted
characteristics of each Index. The index used as a benchmark
for the High Yield Fund is the High Yield Index. The two
indices used as benchmarks for the Short-Term Bond Fund are the
91-Day Treasury Bill Index and the 1-2.99 Year Treasury Note
Index.
PAGE 111
Morningstar, Inc., is a widely used independent research firm
which rates mutual funds by overall performance, investment
objectives and assets.
Salomon Brothers Inc., "Analytical Record of Yields and Yield
Spreads" is a publication which tracks historical yields and
yield spreads on short-term market rates, public obligations of
the U.S. Treasury and agencies of the U.S. government, public
corporate debt obligations, municipal debt obligations and
preferred stocks.
Salomon Brothers Inc., "Bond Market Round-up" is a weekly
publication which tracks the yields and yield spreads on a
large, but select, group of money market instruments, public
corporate debt obligations, and public obligations of the U.S.
Treasury and agencies of the U.S. Government.
Salomon Brothers Inc., "High Yield Composite Index" is an index
which provides performance and statistics for the high yield
market place.
Salomon Brothers Inc., "Market Performance" is a monthly
publication which tracks principal return, total return and
yield on the Salomon Brothers Broad investment - Grade Bond
Index and the components of the Index.
Shearson Lehman Brothers, Inc., "The Bond Market Report" is a
monthly publication which tracks principal, coupon and total
return on the Shearson Lehman Govt./Corp. Index and Shearson
Lehman Aggregate Bond Index, as well as all the components of
these Indices.
Telerate Systems, Inc., is a market data distribution network
which tracks a broad range of financial markets including, the
daily rates on money market instruments, public corporate debt
obligations and public obligations of the U.S. Treasury and
agencies of the U.S. Government.
Wall Street Journal, is a national daily financial news
publication which lists the yields and current market values on
money market instruments, public corporate debt obligations,
public obligations of the U.S. Treasury and agencies of the
U.S. government as well as common stocks, preferred stocks,
convertible preferred stocks, options and commodities; in
addition to indices prepared by the research departments of
such financial organizations as Shearson Lehman/American
Express Inc., and Merrill Lynch, Pierce, Fenner and Smith,
PAGE 112
Inc., including information provided by the Federal Reserve
Board.
Performance rankings and ratings reported periodically in
national financial publications such as MONEY, FORBES, BUSINESS
WEEK, BARRON'S, etc. will also be used.
All Funds, except Prime Reserve and Personal Strategy Funds
Benefits of Investing in High-Quality Bond Funds
o Higher Income
Bonds have generally provided a higher income than money
market securities because yield usually increased with longer
maturities. For instance, the yield on the 30-year Treasury
bond usually exceeds the yield on the 1-year Treasury bill or
5-year Treasury note. However, securities with longer
maturities fluctuate more in price than those with shorter
maturities. Therefore, the investor must weigh the
advantages of higher yields against the possibility of
greater fluctuation in the principal value of your
investment.
o Income Compounding
Investing in bond mutual funds allows investors to benefit
from easy and convenient compounding, because you can
automatically reinvest monthly dividends in additional fund
shares. Each month investors earn interest on a larger
number of shares. Also, reinvesting dividends removes the
temptation to spend the income.
o Broad Diversification
Each share of a mutual fund represents an interest in a large
pool of securities, so even a small investment is broadly
diversified by maturity. Since most bonds trade efficiently
only in very large blocks,mutual funds provide a degree of
diversification that may be difficult for individual
investors to achieve on their own.
o Lower Portfolio Volatility
Investing a portion of one's assets in longer term, high-
quality bonds can help smooth out the fluctuations in your
overall investment results, because bond prices do not
PAGE 113
necessarily move with stock prices. Also, bonds usually have
higher income yields than stocks, thus increasing the total
income component of your portfolio. This strategy should
also add stability to overall results, as income is always a
positive component of total return.
o Liquidity
A bond fund can supplement a money market fund or bank
account as a source of capital for unexpected contingencies.
T. Rowe Price fixed-income funds offer you easy access to
money through free checkwriting and convenient redemption or
exchange features. Of course, the value of a bond fund's
shares redeemed through checkwriting may be worth more or
less than their value at the time of their original purchase.
o Suitability
High-quality bond funds are most suitable for the following
objectives: obtaining a higher current income with minimal
credit risk; compounding of income over time; or diversifying
overall investments to reduce volatility.
All Funds
IRAs
An IRA is a long-term investment whose objective is to
accumulate personal savings for retirement. Due to the long-term
nature of the investment, even slight differences in performance
will result in significantly different assets at retirement.
Mutual funds, with their diversity of choice, can be used for IRA
investments. Generally, individuals may need to adjust their
underlying IRA investments as their time to retirement and
tolerance for risk changes.
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, such as investing money for retirement, saving for a down
payment on a home, or paying college costs. To explain how the
Fund could be used to assist investors in planning for these
goals and to illustrate basic principles of investing, various
worksheets and guides prepared by T. Rowe Price Associates, Inc.
and/or T. Rowe Price Investment Services, Inc. may be made
available. These currently include: the Asset Mix Worksheet
PAGE 114
which is designed to show shareholders how to reduce their
investment risk by developing a diversified investment plan; the
College Planning Guide which discusses various aspects of
financial planning to meet college expenses and assists parents
in projecting the costs of a college education for their
children; the Retirement Planning Kit (also available in a PC
version) includes a detailed workbook to determine how much money
you may need for retirement and suggests how you might invest to
achieve your objectives; and the Retirees Financial Guide which
includes a detailed workbook to determine how much money you can
afford to spend and still preserve your purchasing power and
suggests how you might invest to reach your goal. From time to
time, other worksheets and guides may be made available as well.
Of course, an investment in the Fund cannot guarantee that such
goals will be met. Personal Strategy Planner simplifies
investment decision making by helping investors define personal
financial goals, establish length of time the investor intends to
invest, determine risk "comfort zone" and select diversified
investment mix.
To assist investors in understanding the different returns
and risk characteristics of various investments, the
aforementioned guides will include presentation of historical
returns of various investments using published indices. An
example of this is shown below.
Historical Returns for Different Investments
Annualized returns for periods ended 12/31/93
50 years 20 years 10 years 5 years
Small-Company Stocks 15.3% 18.8% 10.0% 13.3%
Large-Company Stocks 12.3 12.8 14.9 14.5
Foreign Stocks N/A 14.4 17.9 2.3
Long-Term Corporate Bonds 5.6 10.2 14.0 13.0
Intermediate-Term U.S.
Gov't. Bonds 5.7 9.8 11.4 11.3
Treasury Bills 4.6 7.5 6.4 5.6
U.S. Inflation 4.3 5.9 3.7 3.9
PAGE 115
Sources: Ibbotson Associates, Morgan Stanley. Foreign stocks
reflect performance of The Morgan Stanley Capital International
EAFE Index, which includes some 1,000 companies representing the
stock markets of Europe, Australia, New Zealand, and the Far
East. This chart is for illustrative purposes only and should
not be considered as performance for, or the annualized return
of, any T. Rowe Price Fund. Past performance does not guarantee
future results.
Also included will be various portfolios demonstrating how
these historical indices would have performed in various
combinations over a specified time period in terms of return. An
example of this is shown below.
Performance of Retirement Portfolios*
Asset Mix Average Annualized Value
Returns 20 Years of
Ended 12/31/93 $10,000
Investment
After Period
___________________________________________ ____________
Nominal Real Best Worst
PortfolioGrowthIncome Safety Return Return** Year Year
I. Low
Risk 40% 40% 20% 11.3% 5.4% 24.9%-9.3%$ 79,775
II. Moderate
Risk 60% 30% 10% 12.1% 6.2% 29.1%-15.6%$ 90,248
III. High
Risk 80% 20% 0% 12.9% 7.0% 33.4%-21.9%$100,031
Source: T. Rowe Price Associates; data supplied by Lehman
Brothers, Wilshire Associates, and Ibbotson Associates.
* Based on actual performance for the 20 years ended 1993 of
stocks (85% Wilshire 5000 and 15% Europe, Australia, Far East
[EAFE] Index), bonds (Lehman Brothers Aggregate Bond Index
from 1976-93 and Lehman Brothers Government/Corporate Bond
Index from 1974-75), and 30-day Treasury bills from January
1974 through December 1993. Past performance does not
guarantee future results. Figures include changes in
PAGE 116
principal value and reinvested dividends and assume the same
asset mix is maintained each year. This exhibit is for
illustrative purposes only and is not representative of the
performance of any T. Rowe Price fund.
** Based on inflation rate of 5.9% for the 20-year period ended
12/31/93.
Insights
From time to time, Insights, a T. Rowe Price publication of
reports on specific investment topics and strategies, may be
included in the Fund's fulfillment kit. Such reports may include
information concerning: calculating taxable gains and losses on
mutual fund transactions, coping with stock market volatility,
benefiting from dollar cost averaging, understanding
international markets, investing in high-yield "junk" bonds,
growth stock investing, conservative stock investing, value
investing, investing in small companies, tax-free investing,
fixed income investing, investing in mortgage-backed securities,
as well as other topics and strategies.
Other Publications
From time to time, in newsletters and other publications
issued by T. Rowe Price Investment Services, Inc., reference may
be made to economic, financial and political developments in the
U.S. and abroad and their effect on securities prices. Such
discussions may take the form of commentary on these developments
by T. Rowe Price mutual fund portfolio managers and their views
and analysis on how such developments could affect investments in
mutual funds.
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
PAGE 117
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 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.
PAGE 118
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 Investment Company Act of 1940.
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
Securities and Exchange Commission under the Investment Company
Act of 1940 as a diversified, open-end investment company,
commonly known as a "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.
PAGE 119
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
Investment Company Act of 1940, 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.
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
PAGE 120
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 in such a way so as
to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of such Fund.
FEDERAL AND STATE REGISTRATION OF SHARES
The Fund's shares are registered for sale under the
Securities Act of 1933, and the Fund or its shares are registered
under the laws of all states which require registration, as well
as the District of Columbia and Puerto Rico.
LEGAL COUNSEL
Shereff, Friedman, Hoffman, & Goodman, whose address is 919
Third Avenue, New York, New York 10022, is legal counsel to the
Fund.
INDEPENDENT ACCOUNTANTS
GNMA, High Yield, New Income, Prime Reserve, Short-Term Bond and
Money Funds
Price Waterhouse, 7 St. Paul Street, Suite 1700, Baltimore,
Maryland 21202, are independent accountants to the Fund.
Adjustable Rate, Intermediate, Long-Term, and Personal Strategy
Funds
Coopers & Lybrand, 217 East Redwood Street, Baltimore,
Maryland 21202, are independent accountants to the Fund.
Financial Statements
The Statement of Assets and Liabilities of the Personal
Strategy Funds as of July 26, 1994, included in the Statement of
Additional Information has been so included in reliance on the
report of Coopers & Lybrand, given on the authority of said firm
as experts in auditing and accounting.
PAGE 121
The financial statements of the Fund for the year ended
May 31, 1994, and the report of independent accountants are
included in the Fund's Annual Report for the year ended May 31,
1994. A copy of the Annual Report accompanies this Statement of
Additional Information. The following financial statements and
the report of independent accountants appearing in the Annual
Report for the year ended May 31, 1994 are incorporated into this
Statement of Additional Information by reference:
HIGH NEW PRIME
GNMA YIELD INCOME RESERVE
____ ______ _______ _________
Report of Independent
Accountants 13 19 15 11
Statement of Net Assets,
May 31, 1994 7-8 6-13 6-10 5-8
Statement of Operations,
three months ended
May 31, 1994 and year
ended February 28, 1994 9 14 11 8
Statement of Changes in Net
Assets, three months
ended May 31, 1994 and
years ended February 28,
1994 and February 28, 1993 10 15 12 9
Notes to Financial Statements
May 31, 1994 10-12 16-17 12-14 9-10
Financial Highlights 12 18 14 11
PAGE 122
U.S.
SHORT- TREASURY
TERM BOND MONEY
_____________ ____________
Report of Independent
Accountants 17 22
Statement of Net Assets,
May 31, 1994 6-11 7
Statement of Operations,
three months ended May 31,
1994 and year ended
February 28, 1994 12 11
Statement of Changes in Net
Assets, three months ended
May 31, 1994 and years ended
February 28, 1994 and
February 28, 1993 13 14
Notes to Financial Statements
May 31, 1994 14-15 17-18
Financial Highlights 16 19
U.S. U.S.
ADJUSTABLE TREASURY TREASURY
RATE INTERMEDIATE LONG-TERM
_______________ __________ __________
Report of Independent
Accountants 13 23 23
Statement of Net Assets,
May 31, 1994 5-7 8-9 10
Statement of Operations,
three months ended May 31,
1994 and year ended
February 28, 1994 8 12 13
Statement of Changes in Net
Assets, three months ended
May 31, 1994 and years ended
February 28, 1994 and
February 28, 1993 9 15 16
Notes to Financial Statements
May 31, 1994 10-11 17-18 17-18
Financial Highlights 12 20 21
PAGE 123
RATINGS OF COMMERCIAL PAPER
Adjustable Rate, High Yield, Prime Reserve and Short-Term Bond
Funds
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 ratings 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.
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.
Prime Reserve Fund
Fitch Investors Service, 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.
PAGE 124
RATINGS OF CORPORATE DEBT SECURITIES
Adjustable Rate, High Yield, New Income, Personal Strategy, and
Short-Term Bond Funds
Moody's Investors Services, Inc. (Moody's)
Aaa-Bonds rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge."
Aa-Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds.
A-Bonds rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Baa-Bonds rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba-Bonds rated Ba are judged to have speculative elements:
their futures cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterize
bonds in this class.
B-Bonds rated B generally lack the characteristics of a
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa-Bonds rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with
respect to principal or interest.
Ca-Bonds rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked short-comings.
PAGE 125
Standard & Poor's Corporation (S&P)
AAA-This is the highest rating assigned by Standard & Poor's
to a debt obligation and indicates an extremely strong capacity
to pay principal and interest.
AA-Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong.
A-Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB-Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB, C, CCC, CC-Bonds rated BB, B, CCC, and CC are regarded on
balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. BB
indicates the lowest degree of speculation and CC the highest
degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
Fitch Investors Service, 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 a 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.
PAGE 126
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.
PAGE 127
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
JULY 25, 1994
Balanced Growth Income
Fund Fund Fund
Assets
Receivable for Fund shares sold $30,000 $30,000 $40,000
Deferred organizational expenses 42,507 42,507 42,507
_______ _______ _______
Total assets 72,507 72,507 82,507
Liabilities
Amount due Manager 39,407 39,407 39,407
Accrued expenses 3,100 3,100 3,100
_______ _______ _______
Total liabilities 42,507 42,507 42,507
_______ _______ _______
Net Assets - offering and redemption
price of $10.00 per share; 1,000,000,000
shares of $0.0001 par value capital
stock authorized, 3,000 shares
outstanding $30,000 $30,000
======= =======
Net Assets - offering and redemption
price of $10.00 per share; 1,000,000,000
shares of $0.0001 par value capital
stock authorized, 4,000 shares
outstanding $40,000
=======
NOTE TO STATEMENT OF ASSETS AND LIABILITIES
T. Rowe Price Personal Strategy Fund, Inc. (the "Corporation")
was organized on May 21, 1994, as a Maryland corporation and is
registered under the Investment Company Act of 1940. The
Corporation is a series fund, of which the T. Rowe Price Personal
Strategy Balanced Fund, T. Rowe Price Personal Strategy Growth
Fund and the T. Rowe Price Personal Strategy Income Fund (the
"Funds"), diversified, open-end management investment companies
are the only funds currently established. The Corporation has
had no operations other than those matters related to
organization and registration as an investment company, the
registration of shares for sale under the Securities Act of 1933,
and the sale of 3,000 shares of the T. Rowe Price Personal
PAGE 128
Strategy Balanced Fund at $10.00 per share, the sale of 3,000
shares of the T. Rowe Price Personal Strategy Growth Fund at
$10.00 per share, the sale of 4,000 shares of the T. Rowe Price
Personal Strategy Income Fund at $10.00 per share on July 25,
1994 to T. Rowe Price Associates, Inc. Each Fund's receivable
for fund shares sold was funded by T. Rowe Price Associates, Inc.
on July 26, 1994. The Funds have entered into an investment
management agreement with T. Rowe Price Associates, Inc. (the
Manager) which is described in the Statement of Additional
Information under the heading "Investment Management Services."
Organizational expenses of $42,507 for each fund have been
accrued at July 25, 1994, and will be amortized on a straight-
line basis over a period not to exceed sixty months. The Manager
has agreed to advance certain organizational expenses incurred by
the Funds and will be reimbursed for such expenses approximately
six months after the commencement of the Fund's operations.
The Manager has agreed that in the event any of its initial
shares are redeemed during the 60-month amortization period of
the deferred organizational expenses, proceeds from a redemption
of the shares representing the initial capital will be reduced by
a pro rata portion of any unamortized organizational expenses.
PAGE 129
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
T. Rowe Price Personal Strategy Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities of the T. Rowe Price Personal Strategy Funds, Inc.
(the "Funds"), comprised of the T. Rowe Price Personal Strategy
Balanced Fund, T. Rowe Price Personal Strategy Growth Fund, and
T. Rowe Price Personal Strategy Income Fund, as of July 25, 1994.
This financial statement is the responsibility of the Funds'
management. Our responsibility is to express an opinion of this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities
referred to above presents fairly, in all material respects, the
financial position of the T. Rowe Price Personal Strategy Funds,
Inc. as of July 25, 1994, in conformity with generally accepted
accounting principles.
/s/Coopers & Lybrand
COOPERS & LYBRAND
Baltimore, Maryland
July 26, 1994
PAGE 7
PART C
OTHER INFORMATION
_________________
Item 24. Financial Statements and Exhibits
(a) Financial Statements. Condensed Financial Information (Financial
Highlights table) is included in Part A of the Registration
Statement. Statement of Net Assets, Statement of Operations, and
Statement of Changes in Net Assets are included in the Annual
Report to Shareholders the pertinent portions of which are
incorporated by reference in Part B of the Registration Statement.
(b) Exhibits.
(1)(a) Master Trust Agreement of Registrant, dated October 11, 1985
(electronically filed with Amendment No. 11 dated April 25,
1994)
(1)(b) Amendment to Master Trust Agreement, dated June 12, 1989
(electronically filed with Amendment No. 11 dated April 25,
1994)
(2) By-Laws of Registrant, dated October 11, 1985
(electronically filed with Amendment No. 11 dated April 25,
1994)
(3) Inapplicable
(4) Article V - Shareholders Voting Powers and Meetings - of the
Registrant's Master Trust Agreement and Article 11 -
Shareholders - of the Registrant's By-Laws, incorporated by
reference from Amendment No. 11 electronically filed and
dated April 25, 1994
(5) Investment Management Agreement between Registrant and
T. Rowe Price Associates, Inc., dated July 1, 1987
(electronically filed with Amendment No. 11 dated April 25,
1994)
(6) Underwriting Agreement between Registrant and T. Rowe Price
Investment Services, Inc., dated November 22, 1985
(electronically filed with Amendment No. 11 dated April 25,
1994)
(7) Inapplicable
(8) Custodian Agreement between T. Rowe Price Funds and State
Street Bank and Trust Company, dated September 28, 1987, as
amended to June 24, 1988, October 19, 1988, February 22,
1989, July 19, 1989, September 15, 1989, December 15, 1989,
December 20, 1989, January 25, 1990, February 21, 1990, June
12, 1990, July 18, 1990, October 15, 1990, February 13,
1991, March 6, 1991, September 12, 1991, November 6, 1991,
April 23, 1992, September 2, 1992, November 3, 1992,
December 16, 1992, December 21, 1992, January 28, 1993,
April 22, 1993, September 16, 1993, November 3, 1993, March
1, 1994 April 21, 1994, and July 27, 1994
(9)(a) Transfer Agency and Service Agreement between T. Rowe Price
PAGE 8
Services, Inc. and T. Rowe Price Funds, dated January 1,
1994, as amended March 1, 1994 April 21, 1994 and July 27,
1994
(9)(b) Agreement between T. Rowe Price Associates, Inc. and T. Rowe
Price Funds for Fund Accounting Services, dated January 1,
1994, as amended March 1, 1994, April 21, 1994 and July 27,
1994
(9)(c) Agreement between T. Rowe Price Retirement Plan Services,
Inc. and the Taxable Funds, dated January 1, 1994, as
amended July 27, 1994,
(10) Inapplicable
(11) Consent of Independent Accountants
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16) Incorporated by reference from Post-Effective Amendment No.
42 and Amendment No. 19 of the T. Rowe Price New Income
Fund, Inc. (SEC. File Nos. 2-48848 and 811-2396 and CIK
80249) electronically filed and dated April 25, 1994./
Item 25. Persons Controlled by or Under Common Control.
None.
Item 26. Number of Holders of Securities
As of May 31, 1994, there were 62,000 shareholders in the Fund.
Item 27. Indemnification
The Registrant maintains comprehensive Errors and Omissions and Officers
and Directors insurance policies written by the Evanston Insurance Company,
The Chubb Group and ICI Mutual. These policies provide coverage for the named
insureds, which include T. Rowe Price Associates, Inc. ("Manager"), Rowe
Price-Fleming International, Inc. ("Price-Fleming"), T. Rowe Price Investment
Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price Trust Company, T.
Rowe Price Stable Asset Management, Inc., RPF International Bond Fund and
thirty-six other investment companies, namely, T. Rowe Price Growth Stock
Fund, Inc., T. Rowe Price New Horizons Fund, Inc., T. Rowe Price New Era Fund,
Inc., T. Rowe Price New Income Fund, Inc., T. Rowe Price Prime Reserve Fund,
Inc., T. Rowe Price Tax-Free Income Fund, Inc., T. Rowe Price International
Funds, Inc. T. Rowe Price Tax-Exempt Money Fund, Inc., T. Rowe Price Growth &
Income Fund, Inc., T. Rowe Price Tax-Free Short-Intermediate Fund, Inc., T.
Rowe Price Short-Term Bond Fund, Inc., T. Rowe Price High Yield Fund, Inc.,
T. Rowe Price Tax-Free High Yield Fund, Inc., T. Rowe Price New America Growth
Fund, T. Rowe Price Equity Income Fund, T. Rowe Price Capital Appreciation
Fund, T. Rowe Price State Tax-Free Income Trust, T. Rowe Price California Tax-
Free Income Trust, T. Rowe Price Science & Technology Fund, Inc., T. Rowe
Price Small-Cap Value Fund, Inc., Institutional International Funds, Inc., T.
Rowe Price U.S. Treasury Funds, Inc., T. Rowe Price Index Trust, Inc., T. Rowe
PAGE 9
Price Spectrum Fund, Inc., T. Rowe Price Balanced Fund, Inc., T. Rowe Price
Adjustable Rate U.S. Government Fund, Inc., T. Rowe Price Mid-Cap Growth Fund,
Inc., T. Rowe Price OTC Fund, Inc., T. Rowe Price Tax-Free Insured
Intermediate Bond Fund, Inc., T. Rowe Price Dividend Growth Fund, Inc., T.
Rowe Price Blue Chip Growth Fund, Inc., T. Rowe Price Summit Funds, Inc., T.
Rowe Price Summit Municipal Funds, Inc., T. Rowe Price Equity Series, Inc.,
T. Rowe Price International Series, Inc. and T. Rowe Price Fixed Income
Series, Inc. The Registrant and the thirty-six investment companies listed
above, with the exception of T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc., T. Rowe price Fixed-Income Series Inc. and
Institutional International Funds, Inc., will be collectively referred to as
the Price Funds. The investment manager for the Price Funds, including T.
Rowe Price Equity Series, Inc., and T. Rowe Price Fixed-Income Series, Inc.
is the Manager. Price-Fleming is the investment manager to T. Rowe Price
International Funds, Inc., T. Rowe Price International Series, Inc. and
Institutional International Funds, Inc. and is 50% owned by TRP Finance, Inc.,
a wholly-owned subsidiary of the Manager, 25% owned by Copthall Overseas
Limited, a wholly-owned subsidiary of Robert Fleming Holdings Limited, and 25%
owned by Jardine Fleming Holdings Limited. In addition to the corporate
insureds, the policies also cover the officers, directors, and employees of
each of the named insureds. The premium is allocated among the named
corporate insureds in accordance with the provisions of Rule 17d-1(d)(7) under
the Investment Company Act of 1940.
Article VI, Section 6.4 of the Registrant's Master Trust Agreement
provides as follows:
Section 6.4. Indemnification of Trustees, Officers, etc. The Trust
shall indemnify (from the assets of the Sub-Trust or Sub-Trusts in
question) each of its Trustees and officers (including persons who serve
at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder,
creditor or otherwise [ hereinafter referred to as a "Covered Person" ])
against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by
any Covered Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person
may be or may have been involved as a party or otherwise or with which
such person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a Trustee or officer,
director or trustee, except with respect to any matter as to which it has
been determined that such Covered Person (i) did not act in good faith in
the reasonable belief that such Covered Person's action was in or not
opposed to the best interests of the Trust or (ii) had acted with wilful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office (either
and both of the conduct described in (i) and (ii) being referred to
hereafter as "Disabling Conduct"). A determination that the Covered
Person is entitled to indemnification may be made by (i) a final decision
on the merits by a court or other body before whom the proceeding was
brought that the person to be indemnified was not liable by reason of
Disabling Conduct, (ii) dismissal of a court action or an administrative
proceeding against a Covered Person for insufficiency of evidence of
Disabling Conduct, or (iii) a reasonable determination, based upon a
review of the facts, that the indemnitee was not liable by reason of
Disabling Conduct by (a) a vote of a majority of a quorum of Trustees who
are neither "interested persons" of the Trust as defined in section
2(a)(19) of the 1940 Act nor parties to the proceeding, or (b) an
PAGE 10
independent legal counsel in a written opinion. Expenses, including
accountants' and counsel fees so incurred by any such Covered Person (but
excluding amounts paid in satisfaction of judgments, in compromise or as fines
or penalties), may be paid from time to time by the Sub-Trust in question in
advance of the final disposition of any such action, suit or proceeding,
provided that the Covered Person shall have undertaken to repay the amounts so
paid to the Sub-Trust in question if it is ultimately determined that
indemnification of such expenses is not authorized under this Article VI and
(i) the Covered Person shall have provided security for such undertaking,
(ii) the Trust shall be insured against losses arising by reason of any lawful
advances, or (iii) a majority of a quorum of the disinterested Trustees who
are not a party to the proceeding, or an independent legal counsel in a
written opinion, shall have determined, based on a review of readily available
facts (as opposed to a full trial-type inquiry), that there is reason to
believe that the Covered Person ultimately will be found entitled to
indemnification.
Section 6.6 of the Registrant's Master Trust Agreement provides as follows:
Section 6.6 Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article VI shall not be exclusive of or
affect any other rights to which any such Covered Person may be entitled.
As used in this Article VI, "Covered Person" shall include such person's
heirs, executors and administrators, an "interested Covered Person" is one
against whom the action, suit or other proceeding in question or
anotheraction, suit or other proceeding on the same or similar grounds is
then or has been pending or threatened, and a "disinterested" person is a
person against whom none of such actions, suits or other proceedings or
another action, suit or other proceeding on the same or similar grounds is
then or has been pending or threatened. Nothing contained in this article
shall affect any rights to indemnification to which personnel of the
Trust, other than Trustees and officers, and other persons may be entitled
by contract or otherwise under law, nor the power of the Trust to purchase
and maintain liability insurance on behalf of any such person.
Article III, Section 3.2(l) of the Registrant's Master Trust Agreement
provides as follows:
Section 3.2(l) Insurance. To purchase and pay for entirely out of
Trust property such insurance as they may deem necessary or appropriate
for the conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust and payment of distributions and
principal on its portfolio investments, and insurance policies insuring
the Shareholders, Trustees, officers, employees, agents, consultants,
investment advisers, managers, administrators, distributors, principal
underwriters, or independent contractors, or any thereof (or any person
connected therewith), of the Trust individually against all claims and
liabilities of every nature arising by reason of holding, being or having
held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person in any such capacity,
including any action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to indemnify
such person against such liability.
Insofar as indemnification for liability 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
PAGE 11
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 28. 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, and was organized in 1979 to provide
investment counsel service with respect to foreign securities for
institutional investors in the United States. Price-Fleming, in addition to
managing private counsel client accounts, 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, is a Maryland corporation organized in 1980
for the purpose of acting as the principal underwriter and distributor for the
Price Funds. 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. In 1984, Investment Services expanded its activities
to include a discount brokerage service.
TRP Distribution, Inc., a wholly-owned subsidiary of Investment Services, is a
Maryland corporation organized in 1991. It was organized for and engages in
the sale of certain investment related products prepared by Investment
Services.
T. Rowe Price Associates Foundation, Inc., was organized in 1981 for the
purpose of making charitable contributions to religious, charitable,
scientific, literary and educational organizations. The Foundation (which is
not a subsidiary of the Manager) is funded solely by contributions from the
Manager and income from investments.
T. Rowe Price Services, Inc. ("Price Services"), a wholly-owned subsidiary of
the Manager, is a Maryland corporation organized 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 purpose trust company, organized
in 1983 for the purpose of providing fiduciary services. The Trust Company
serves as trustee/custodian for employee benefit plans, common trust funds and
a few trusts.
PAGE 12
T. Rowe Price Threshold Fund II, L.P., a Delaware limited partnership, was
organized in 1986 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, Limited Partnership, is a Delaware limited
partnership organized in 1985 for the purpose of investing in a diversified
group of small and medium-sized rapidly growing non-U.S. companies.
Price-Fleming is the general partner of this partnership, and certain clients
of Price-Fleming are its limited partners.
T. Rowe Price Real Estate Group, Inc. ("Real Estate Group"), is a Maryland
corporation and a wholly-owned subsidiary of the Manager established in 1986
to provide real estate services. Subsidiaries of Real Estate Group are: T.
Rowe Price Realty Income Fund I Management, Inc., a Maryland corporation
(General Partner of T. Rowe Price Realty Income Fund I, A No-Load Limited
Partnership), T. Rowe Price Realty Income Fund II Management, Inc., a Maryland
corporation (General Partner of T. Rowe Price Realty Income Fund II, America's
Sales-Commission-Free Real Estate Limited Partnership), T. Rowe Price Realty
Income Fund III Management, Inc., a Maryland corporation (General Partner of
T. Rowe Price Realty Income Fund III, America's Sales-Commission-Free Real
Estate Limited Partnership, a Delaware limited partnership), and T. Rowe Price
Realty Income Fund IV Management, Inc., a Maryland corporation (General
Partner of T. Rowe Price Realty Income Fund IV, America's
Sales-Commission-Free Real Estate Limited Partnership). Real Estate Group
serves as investment manager to T. Rowe Price Renaissance Fund, Ltd., A
Sales-Commission-Free Real Estate Investment, established in 1989 as a
Maryland corporation which qualifies as a REIT.
T. Rowe Price Stable Asset Management, Inc. ("Stable Asset Management") is a
Maryland corporation organized in 1988 as a wholly-owned subsidiary of the
Manager. Stable Asset Management, which is registered as an investment
adviser under the Investment Advisers Act of 1940, 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 or synthetic investment contracts, and
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 the General Partner of T. Rowe Price Recovery Fund, L.P., a
Delaware limited partnership which invests in financially distressed
companies.
T. Rowe Price (Canada), Inc. 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, and may apply
for registration as an investment manager under the Securities Act of Ontario
in order to be eligible to provide certain services to the RPF
International Bond Fund, a trust (whose shares are sold in Canada) which
Price-Fleming serves as investment adviser.
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.
Tower Venture, Inc., a wholly-owned subsidiary of the Manager, is a Maryland
corporation organized in 1989 for the purpose of serving as a general partner
of 100 East Pratt St., L.P., a Maryland limited partnership whose limited
PAGE 13
partners also include the Manager. The purpose of the partnership is to
further develop and improve the property at 100 East Pratt Street, the site of
the Manager's headquarters, through the construction of additional office,
retail and parking space.
TRP Suburban, Inc. is a Maryland corporation organized in 1990 as a
wholly-owned subsidiary of the Manager. TRP Suburban has entered into
agreements with McDonogh School and CMANE-McDonogh-Rowe Limited Partnership to
construct an office building in Owings Mills, Maryland, which houses the
Manager's transfer agent, plan administrative services, retirement plan
services and operations support functions.
TRP Finance, Inc. and TRP Finance MRT, Inc., wholly-owned subsidiaries of the
Manager, are Delaware corporations organized in 1990 to manage certain passive
corporate investments and other intangible assets. TRP Finance MRT, Inc. was
dissolved on October 4, 1993.
T. Rowe Price Strategic Partners Fund, L.P. is a Delaware limited partnership
organized in 1990 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 the Fund is T. Rowe Price Strategic
Partners, L.P., a Delaware limited partnership whose general partner is T.
Rowe Price Strategic Partners Associates, Inc., ("Strategic Associates"), a
Maryland corporation which is a wholly-owned subsidiary of the Manager.
Strategic Associates also serves as the general partner of T. Rowe Price
Strategic Partners II, L.P., a Delaware limited partnership established in
1992, which in turn serves as general partner of T. Rowe price Strategic
Partners Fund II, L.P., a Delaware limited partnership organized in 1992.
Listed below are the directors of the Manager who have other substantial
businesses, professions, vocations, or employment aside from that of Director
of the Manager:
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.
JOHN W. ROSENBLUM, Director of the Manager. Mr. Rosenblum is the Tayloe
Murphy Professor at the University of Virginia, and a director of: Chesapeake
Corporation, a manufacturer of paper products, Cadmus Communications Corp., a
provider of printing and communication services; Comdial Corporation, a
manufacturer of telephone systems for businesses; and Cone Mills Corporation,
a textiles producer. Mr. Rosenblum's address is: P.O. Box 6550,
Charlottesville, Virginia 22906.
ROBERT L. STRICKLAND, Director of the Manager. Mr. Strickland is Chairman of
Lowe's Companies, Inc., a retailer of specialty home supplies. Mr.
Strickland's address is 604 Two Piedmont Plaza Building, Winston-Salem, North
Carolina 27104.
PHILIP C. WALSH, Director of the Manager. Mr. Walsh is a Consultant to Cyprus
Amax Minerals Company, Englewood, Colorado, and a director of Piedmont Mining
Company, Inc., Charlotte, North Carolina. Mr. Walsh's address is: Blue Mill
Road, Morristown, New Jersey 07960.
With the exception of Messrs. Halbkat, Rosenblum, Strickland, and Walsh, all
of the directors of the Manager are employees of the Manager.
George J. Collins, who is Chief Executive Officer, President, and a Managing
Director of the Manager, is a Director of Price-Fleming.
PAGE 14
George A. Roche, who is Chief Financial Officer and a Managing Director of the
Manager, is a Vice President and a Director of Price-Fleming.
M. David Testa, who is a Managing Director of the Manager, is Chairman of the
Board of Price-Fleming.
Henry H. Hopkins, Charles P. Smith, and Peter Van Dyke, who are Managing
Directors of the Manager, are Vice Presidents of Price-Fleming.
PAGE 14
Robert P. Campbell, Roger L. Fiery, III, Robert C. Howe, Veena A. Kutler,
George A. Murnaghan, William F. Wendler, II, and Edward A. Wiese, who are Vice
Presidents of the Manager, are Vice Presidents of Price-Fleming.
Alvin M. Younger, Jr., who is a Managing Director and the Secretary and
Treasurer of the Manager, is Secretary and Treasurer of Price-Fleming.
Nolan L. North, who is a Vice President and Assistant Treasurer of the
Manager, is Assistant Treasurer of Price-Fleming.
Leah P. Holmes, who is an Assistant Vice President of the Manager, is a Vice
President of Price-Fleming.
Barbara A. Van Horn, who is Assistant Secretary of the Manager, is Assistant
Secretary of Price-Fleming.
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 29. Principal Underwriters.
(a) The principal underwriter for the Registrant is Investment
Services. Investment Services acts as the principal underwriter for the other
thirty-six Price Funds. Investment Services is a wholly-owned subsidiary of
the Manager is registered as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc. Investment Services has been formed for the limited purpose of
distributing the shares of the Price Funds and will not engage in the general
securities business. Since the Price Funds are sold on a no-load basis,
Investment Services will not receive any commission or other compensation for
acting as principal underwriter.
(b) The address of each of the directors and officers of Investment
Services listed below is 100 East Pratt Street, Baltimore, Maryland 21202.
Positions and
Name and Principal Positions and Offices Offices with
Business Address With Underwriter Registrant
__________________ _____________________ _____________
James Sellers Riepe President and Director Vice President and
Trustee
Henry Holt Hopkins Vice President and Vice President
Director
Mark E. Rayford Director None
Charles E. Vieth Vice President and None
Director
PAGE 15
Patricia M. Archer Vice President None
Edward C. Bernard Vice President None
Joseph C. Bonasorte Vice President None
Meredith C. Callanan Vice President None
Laura H. Chasney Vice President None
Victoria C. Collins Vice President None
Christopher W. Dyer Vice President None
Forrest R. Foss Vice President None
Patricia O'Neil Goodyear Vice President None
James W. Graves Vice President None
Andrea G. Griffin Vice President None
Thomas Grizzard Vice President None
David J. Healy Vice President None
Joseph P. Healy Vice President None
Walter J. Helmlinger Vice President None
Eric G. Knauss Vice President None
Douglas G. Kremer Vice President None
Sharon Renae Krieger Vice President None
Keith Wayne Lewis Vice President None
David L. Lyons Vice President None
Sarah McCafferty Vice President None
Maurice Albert Minerbi Vice President None
Nancy M. Morris Vice President None
George A. Murnaghan Vice President None
Steven Ellis Norwitz Vice President None
Kathleen M. O'Brien Vice President None
Pamela D. Preston Vice President None
Lucy Beth Robins Vice President None
John Richard Rockwell Vice President None
Monica R. Tucker Vice President None
William F. Wendler, II Vice President None
Terri L. Westren Vice President None
Jane F. White Vice President None
Thomas R. Woolley Vice President None
Alvin M. Younger, Jr. Secretary and Treasurer None
Mark S. Finn Controller None
Richard J. Barna Assistant Vice President None
Catherine L. Berkenkemper Assistant Vice President None
Ronae M. Brock Assistant Vice President None
Brenda E. Buhler Assistant Vice President None
Patricia Sue Butcher Assistant Vice President None
John A. Galateria Assistant Vice President None
Janelyn A. Healey Assistant Vice President None
Keith J. Langrehr Assistant Vice President None
C. Lillian Matthews Assistant Vice President None
Janice D. McCrory Assistant Vice President None
Sandra J. McHenry Assistant Vice President None
JeanneMarie B. Patella Assistant Vice President None
Kristin E. Seeberger Assistant Vice President None
Arthur J. Silber Assistant Vice President None
Nolan L. North Assistant Vice President None
Barbara A. VanHorn Assistant Secretary None
(c) Not applicable. Investment Services will not receive any
compensation with respect to its activities as underwriter for the Price Funds
since the Price Funds are sold on a no-load basis.
Item 30. Location of Accounts and Records.
All accounts, books, and other documents required to be maintained by T. Rowe
PAGE 16
Price GNMA Fund under Section 31(a) of the Investment Company Act of 1940 and
the rules thereunder will be maintained by T. Rowe Price GNMA Fund at its
offices at 100 East Pratt Street, Baltimore, Maryland 21202. Transfer,
dividend disbursing, and shareholder service activities are performed by T.
Rowe Price Services, Inc., at 100 East Pratt Street, Baltimore, Maryland
21202. Custodian activities for T. Rowe Price GNMA Fund are performed at
State Street Bank and Trust Company's Service Center (State Street South),
1776 Heritage Drive, Quincy, Massachusetts 02171.
Item 31. Management Services.
Registrant is not a party to any management-related service contract, other
than as set forth in the Prospectus.
Item 32. Undertakings.
(a) The Fund agrees to furnish, upon request and without charge, a copy
of its latest Annual Report to each person to whom a prospectus is
delivered.
PAGE 17
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baltimore, State of
Maryland, this 29th day of July, 1994.
T. ROWE PRICE GNMA FUND
/s/George J. Collins
By: George J. Collins
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/George J. Collins Chairman of the Board July 29, 1994
George J. Collins (Chief Executive Officer)
/s/Carmen F. Deyesu Treasurer July 29, 1994
Carmen F. Deyesu (Chief Financial Officer)
/s/Robert P. Black Trustee July 29, 1994
Robert P. Black
/s/Calvin W. Burnett Trustee July 29, 1994
Calvin W. Burnett
/s/Anthony W. Deering Trustee July 29, 1994
Anthony W. Deering
/s/F. Pierce Linaweaver Trustee July 29, 1994
F. Pierce Linaweaver
/s/James S. Riepe Vice President and Trustee July 29, 1994
James S. Riepe
/s/John G. Schreiber Trustee July 29, 1994
John G. Schreiber
/s/Anne Marie Whittemore Trustee July 29, 1994
Ann Marie Whittemore
The Custodian Agreement dated September 28, 1987, as amended, between State
Street Bank and Trust Company and T. Rowe Price Funds should be inserted here.
PAGE 1
CUSTODIAN CONTRACT
Between
STATE STREET BANK AND TRUST COMPANY
and
EACH OF THE PARTIES INDICATED
ON APPENDIX A
DATED: SEPTEMBER 28, 1987
FRF 07/87
PAGE 2
TABLE OF CONTENTS
1. Employment of Custodian and Property to be Held By It1
2. Duties of the Custodian with Respect to Property of the Fund
Held by the Custodian in the United States.. . . . 2
2.1 Holding Securities. . . . . . . . . . . . . . . 2
2.2 Delivery of Securities. . . . . . . . . . . . . 2
1) Sale . . . . . . . . . . . . . . . . . . . 2
2) Repurchase Agreement . . . . . . . . . . . 2
3) Securities System. . . . . . . . . . . . . 3
4) Tender Offer . . . . . . . . . . . . . . . 3
5) Redemption by Issuer . . . . . . . . . . . 3
6) Transfer to Issuer, Nominee, Exchange. . . 3
7) Sale to Broker . . . . . . . . . . . . . . 3
8) Exchange or Conversion . . . . . . . . . . 4
9) Warrants, Rights . . . . . . . . . . . . . 4
10) Loans of Securities. . . . . . . . . . . . 4
11) Borrowings . . . . . . . . . . . . . . . . 4
12) Options. . . . . . . . . . . . . . . . . . 5
13) Futures. . . . . . . . . . . . . . . . . . 5
14) In-Kind Distributions. . . . . . . . . . . 5
15) Miscellaneous. . . . . . . . . . . . . . . 5
16) Type of Payment. . . . . . . . . . . . . . 6
2.3 Registration of Securities. . . . . . . . . . . 6
2.4 Bank Accounts . . . . . . . . . . . . . . . . . 7
2.5 Sale of Shares and Availability of Federal Funds7
2.6 Collection of Income, Dividends . . . . . . . . 7
2.7 Payment of Fund Monies. . . . . . . . . . . . . 8
1) Purchases. . . . . . . . . . . . . . . . . 8
2) Exchanges. . . . . . . . . . . . . . . . . 9
3) Redemptions. . . . . . . . . . . . . . . . 9
4) Expense and Liability. . . . . . . . . . . 9
5) Dividends. . . . . . . . . . . . . . . . . 9
6) Short Sale Dividend. . . . . . . . . . . .10
7) Loan . . . . . . . . . . . . . . . . . . .10
8) Miscellaneous. . . . . . . . . . . . . . .10
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased. . . . . . . . . . . . .10
2.9 Appointment of Agents . . . . . . . . . . . . .10
2.10 Deposit of Securities in Securities System. . .10
1) Account of Custodian . . . . . . . . . . .11
2) Records. . . . . . . . . . . . . . . . . .11
3) Payment of Fund Monies, Delivery of
Securities . . . . . . . . . . . . . . .11
4) Reports. . . . . . . . . . . . . . . . . .12
5) Annual Certificate . . . . . . . . . . . .12
6) Indemnification. . . . . . . . . . . . . .12
2.11 Fund Assets Held in the Custodian's Direct Paper
System. . . . . . . . . . . . . . . . . . . .13
2.12 Segregated Account. . . . . . . . . . . . . . .14
PAGE 3
2.13 Ownership Certificates for Tax Purposes . . . .15
2.14 Proxies . . . . . . . . . . . . . . . . . . . .15
2.15 Communications Relating to Fund Portfolio
Securities. . . . . . . . . . . . . . . . . .15
2.16 Reports to Fund by Independent Public
Accountants . . . . . . . . . . . . . . . . .16
3. Duties of the Custodian with Respect to Property
of the Fund Held Outside of the United States. . .16
3.1 Appointment of Foreign Sub-Custodians . . . . .16
3.2 Assets to be Held . . . . . . . . . . . . . . .17
3.3 Foreign Securities Depositories . . . . . . . .17
3.4 Segregation of Securities . . . . . . . . . . .17
3.5 Access of Independent Accountants of the Fund .17
3.6 Reports by Custodian. . . . . . . . . . . . . .18
3.7 Transactions in Foreign Assets of the Fund. . .18
3.8 Responsibility of Custodian, Sub-Custodian and
Fund. . . . . . . . . . . . . . . . . . . . .18
3.9 Monitoring Responsibilities . . . . . . . . . .19
3.10 Branches of U.S. Banks. . . . . . . . . . . . .19
4. Payments for Repurchases or Redemptions and Sales of
Shares of the Fund . . . . . . . . . . . . . . . .19
5. Proper Instructions. . . . . . . . . . . . . . . . .20
6. Actions Permitted Without Express Authority. . . . .21
7. Evidence of Authority, Reliance on Documents . . . .21
8. Duties of Custodian with Respect to the Books of Account
and Calculations of Net Asset Value and Net Income22
9. Records, Inventory . . . . . . . . . . . . . . . . .22
10. Opinion of Fund's Independent Accountant . . . . . .23
11. Compensation of Custodian. . . . . . . . . . . . . .23
12. Responsibility of Custodian. . . . . . . . . . . . .23
13. Effective Period, Termination and Amendment. . . . .25
14. Successor Custodian. . . . . . . . . . . . . . . . .26
15. Interpretive and Additional Provisions . . . . . . .28
16. Notice . . . . . . . . . . . . . . . . . . . . . . .28
17. Bond . . . . . . . . . . . . . . . . . . . . . . . .28
18. Confidentiality. . . . . . . . . . . . . . . . . . .29
19. Exemption from Liens . . . . . . . . . . . . . . . .29
20. Massachusetts Law to Apply . . . . . . . . . . . . .29
21. Prior Contracts. . . . . . . . . . . . . . . . . . .29
22. The Parties. . . . . . . . . . . . . . . . . . . . .30
23. Governing Documents. . . . . . . . . . . . . . . . .30
24. Subcustodian Agreement . . . . . . . . . . . . . . .30
25. Directors and Trustees . . . . . . . . . . . . . . .30
26. Massachusetts Business Trust . . . . . . . . . . . .30
27. Successors of Parties. . . . . . . . . . . . . . . .31
PAGE 4
CUSTODIAN CONTRACT
This Contract by and between State Street Bank and Trust
Company, a Massachusetts trust company, having its principal
place of business at 225 Franklin Street, Boston, Massachusetts,
02110 (hereinafter called the "Custodian"), 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 Contract (each such fund
individually hereinafter called the "Fund," whose definition may
be found in Section 22),
WITNESSETH: That in consideration of the mutual covenants
and agreements hereinafter contained, the parties hereto agree as
follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of
its assets, including securities it desires to be held in places
within the United States ("domestic securities") and securities
it desires to be held outside the United States ("foreign
securities") pursuant to the Governing Documents of the Fund.
The Fund agrees to deliver to the Custodian all securities and
cash now or hereafter owned or acquired by it, and all payments
of income, payments of principal or capital distributions
received by it with respect to all securities owned by the Fund
from time to time, and the cash consideration received by it for
such new or treasury shares of capital stock ("Shares") of the
Fund as may be issued or sold from time to time. The Custodian
shall not be responsible for any property of the Fund held or
received by the Fund and not delivered to the Custodian.
With respect to domestic securities, upon receipt of "Proper
Instructions" (within the meaning of Article 5), the Custodian
shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable
vote by the Board of Directors/Trustees of the Fund, and provided
that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of
any sub-custodian so employed than any such sub-custodian has to
the Custodian, and further provided that the Custodian shall not
release the sub-custodian from any responsibility or liability
unless mutually agreed upon by the parties in writing. With
respect to foreign securities and other assets of the Fund held
outside the United States, the Custodian shall employ Chase
Manhattan Bank, N.A., as a sub-custodian for the Fund in
accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund
Held By the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and
physically segregate for the account of the Fund all
PAGE 5
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
2.10 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein
as "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 pursuant to
Section 2.11.
2.2 Delivery of Securities. The Custodian shall release
and deliver domestic securities owned by the Fund held by
the Custodian or in a Securities System account of the
Custodian or in the Custodian's Direct Paper book entry
system account ("Direct Paper System Account") only upon
receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by mutual agreement of
the parties, and only in the following cases:
1) Sale. Upon sale of such securities for the
account of the Fund and receipt of payment
therefor;
2) Repurchase Agreement. Upon the receipt of payment
in connection with any repurchase agreement
related to such securities entered into by the
Fund;
3) Securities System. In the case of a sale effected
through a Securities System, in accordance with
the provisions of Section 2.10 hereof;
4) Tender Offer. To the depository agent or other
receiving agent in connection with tender or other
similar offers for portfolio securities of the
Fund;
5) Redemption by Issuer. To the issuer thereof or
its agent when such securities 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) Transfer to Issuer, Nominee. Exchange. 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 2.9 or into the name or
nominee name of any sub-custodian appointed
pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other
evidence representing the same aggregate face
amount or number of units and bearing the same
interest rate, maturity date and call provisions,
PAGE 6
if any; provided that, in any such case, the new
securities are to be delivered to the Custodian;
7) Sale to Broker or Dealer. Upon the sale of such
securities for the account of the Fund, to the
broker or its clearing agent or dealer, against a
receipt, for examination in accordance with
"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 securities prior to
receiving payment for such securities except as
may arise from the Custodian's failure to act in
accordance with its duties as set forth in
Section 12.
8) Exchange or Conversion. For exchange or
conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization,
split-up of shares, change of par value 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 provided that,
in any such case, the new securities and cash, if
any, are to be delivered to the Custodian;
9) Warrants, Rights. In the case of warrants, rights
or similar 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;
provided that, in any such case, the new
securities and cash, if any, are to be delivered
to the Custodian;
10) Loans of Securities. For delivery in connection
with any loans of securities made by the Fund, but
only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and
the Fund, which may be in the form of cash,
obligations issued by the United States
government, its agencies or instrumentalities, or
such other property as mutually agreed by the
parties, 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 securities owned
by the Fund prior to the receipt of such
collateral, unless the Custodian fails to act in
accordance with its duties set forth in
Article 12;
PAGE 7
11) Borrowings. For delivery as security in
connection with any borrowings 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
for that purpose;
12) Options. 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"), relating to
compliance with the rules of The Options Clearing
Corporation, any registered national securities
exchange, any similar organization or
organizations, or the Investment Company Act of
1940, regarding escrow or other arrangements in
connection with transactions by the Fund;
13) Futures. 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, any similar organization or
organizations, or the Investment Company Act of
1940, regarding account deposits in connection
with transactions by the Fund;
14) In-Kind Distributions. Upon receipt of
instructions from the transfer agent ("Transfer
Agent") for the Fund, 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 and statement of
additional information ("prospectus"), in
satisfaction of requests by holders of Shares for
repurchase or redemption;
15) Miscellaneous. For any other proper corporate
purpose, but only upon receipt of, in addition to
Proper Instructions, a certified copy of a
resolution of the Board of Directors/Trustees or
of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities to
be delivered, setting forth the purpose for which
such delivery is to be made, declaring such
PAGE 8
purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of
such securities shall be made; and
16) Type of Payment. In any or all of the above
cases, payments to the Fund shall be made in cash,
by a certified check upon or a treasurer's or
cashier's check of a bank, by effective bank wire
transfer through the Federal Reserve Wire System
or, if appropriate, outside of the Federal Reserve
Wire System and subsequent credit to the Fund's
Custodian account, or, in case of delivery through
a stock clearing company, by book-entry credit by
the stock clearing company in accordance with the
then current street custom, or such other form of
payment as may be mutually agreed by the parties,
in all such cases collected funds to be promptly
credited to the Fund.
2.3 Registration of Securities. Domestic securities 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 2.9 or in the name or nominee
name of any sub-custodian appointed pursuant to Article 1.
All securities accepted by the Custodian on behalf of the
Fund under the terms of this Contract shall be in "street
name" or other good delivery form.
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 Contract, 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 Investment Company Act of 1940. Funds
held by the Custodian for the Fund may be deposited for the
Fund's credit in the Banking Department of the Custodian or
in such other banks or trust companies as the Custodian may
in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company
Act of 1940 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/Trustees of the Fund. Such funds shall be
PAGE 9
deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that
capacity.
2.5 Sale of Shares and Availability of Federal Funds. Upon
mutual agreement between the Fund and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions,
make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for
Shares of the Fund which are deposited into the Fund's
account.
2.6 Collection of Income, Dividends. The Custodian shall
collect on a timely basis all income and other payments with
respect to United States registered securities held
hereunder to which the Fund shall be entitled either by law
or pursuant to custom in the securities business, and shall
collect on a timely basis all income and other payments with
respect to United States bearer securities if, on the date
of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income
or other payments, 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 and shall collect interest when due on
securities held hereunder. The Custodian will also receive
and collect all stock dividends, rights and other items of
like nature as and when they become due or payable. Income
due the Fund on United States securities 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.
2.7 Payment of Fund Monies. Upon receipt of Proper
Instructions,
which may be continuing instructions when deemed appropriate
by mutual agreement of the parties, the Custodian shall pay
out monies of the Fund in the following cases only:
1) Purchases. Upon the purchase of domestic
securities, options, futures contracts or options
on futures contracts for the account of the Fund
but only (a) against the delivery of such
securities, 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 Investment
PAGE 10
Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian
as its agent for this purpose in accordance with
Section 2.9 hereof) registered in the name of the
Fund or in the name of a nominee of the Fund or of
the Custodian referred to in Section 2.3 hereof or
in other proper form for transfer; (b) in the case
of a purchase effected through a Securities
System, in accordance with the conditions set
forth in Section 2.10 hereof or (c) in the case of
a purchase involving the Direct Paper System, in
accordance with the conditions set forth in
Section 2.11; or (d) in the case of repurchase
agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer
which is a member of NASD, (i) against delivery of
the securities either in certificate form or
through an entry crediting the Custodian's account
at the Federal Reserve Bank with such securities
or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the
Custodian along with written evidence of the
agreement by the Custodian to repurchase such
securities from the Fund. All coupon bonds
accepted by the Custodian shall have the coupons
attached or shall be accompanied by a check
payable on coupon payable date for the interest
due on such date.
2) Exchanges. In connection with conversion,
exchange or surrender of securities owned by the
Fund as set forth in Section 2.2 hereof;
3) Redemptions. For the redemption or repurchase of
Shares issued by the Fund as set forth in Article
4 hereof;
4) Expense and Liability. 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, accounting, transfer agent and
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) Dividends. For the payment of any dividends or
other distributions to shareholders declared
pursuant to the Governing Documents of the Fund;
6) Short Sale Dividend. For payment of the amount of
dividends received in respect of securities sold
short;
7) Loan. For repayment of a loan upon redelivery of
pledged securities and upon surrender of the
PAGE 11
note(s), if any, evidencing the loan;
8) Miscellaneous. For any other proper purpose, but
only upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of
the Board of Directors/Trustees or of the
Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary
or an Assistant Secretary, 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 purpose, and naming the
person or persons to whom such payment is to be
made.
2.8 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.
2.9 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 Investment Company Act of 1940, as
amended, to act as a custodian, as its agent to carry out
such of the provisions of this Article 2 as the Custodian
may from time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian of
its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in Securities Systems. The
Custodian may deposit and/or maintain domestic securities
owned by the Fund in a clearing agency registered with the
Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal
agencies, collectively referred to herein as "Securities
System" in accordance with applicable Federal Reserve Board
and Securities and Exchange Commission rules and
regulations, if any, and subject to the following
provisions:
1) Account of Custodian. The Custodian may keep
domestic securities of the Fund in a Securities
System provided that such securities are
represented in an account ("Account") of the
Custodian in the Securities System which shall not
include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise
PAGE 12
for customers;
2) Records. The records of the Custodian, with
respect to domestic securities of the Fund which
are maintained in a Securities System, shall
identify by book-entry those securities belonging
to the Fund;
3) Payment of Fund Monies, Delivery of Securities.
Subject to Section 2.7, the Custodian shall pay
for domestic securities purchased for the account
of the Fund upon (i) receipt of advice from the
Securities System that such securities have been
transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to
reflect such payment and transfer for the account
of the Fund. Subject to Section 2.2, the
Custodian shall transfer domestic securities sold
for the account of the Fund upon (i) receipt of
advice from the Securities System that payment for
such securities 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 Securities System of
transfers of domestic securities 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. 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 Securities System
for the account of the Fund;
4) Reports. The Custodian shall provide the Fund
with any report obtained by the Custodian on the
Securities System's accounting system, internal
accounting control and procedures for safeguarding
domestic securities deposited in the Securities
System, and further agrees to provide the Fund
with copies of any documentation it has relating
to its arrangements with the Securities Systems as
set forth in this Agreement or as otherwise
required by the Securities and Exchange
Commission;
5) Annual Certificate. The Custodian shall have
received the initial or annual certificate, as the
case may be, required by Article 13 hereof;
6) Indemnification. Anything to the contrary in this
Contract notwithstanding, the Custodian shall be
liable to the Fund for any loss or expense,
PAGE 13
including reasonable attorneys fees, or damage to
the Fund resulting from use of the Securities
System by reason of any failure by the Custodian
or any of its agents or of any of its or their
employees or agents or from failure of the
Custodian or any such agent to enforce effectively
such rights as it may have against the Securities
System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the
Custodian with respect to any claim against the
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
the Fund has not been made whole for any such
loss, expense or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper
System. The Custodian may deposit and/or maintain
securities owned by the Fund in the Direct Paper System of
the Custodian subject to the following provisions:
1) No transaction relating to securities in the
Direct Paper System will be effected in the
absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in
the Direct Paper System only if such securities
are represented in an account ("Account") of the
Custodian in the Direct Paper System which 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
securities of the Fund which are maintained in the
Direct Paper System shall identify by book-entry
those securities belonging to the Fund;
4) The Custodian shall pay for securities 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 securities to the
account of the Fund. The Custodian shall transfer
securities 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 Securities System for the
account of the Fund;
PAGE 14
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;
2.12 Segregated Account. The Custodian shall, upon receipt
of Proper Instructions, which may be of a continuing nature
where deemed appropriate by mutual agreement of the parties,
establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts
may be transferred cash and/or securities, including
securities 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 securities 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 Investment Company
Act Release No. 10666, or any subsequent release, rule or
policy, of the Securities and Exchange Commission relating
to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt
of, in addition to Proper Instructions, a certified copy of
a resolution of the Board of Directors/Trustees or of the
Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate
purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian
shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in
connection with receipt of income or other payments with
respect to domestic securities of the Fund held by it and in
connection with transfers of such securities.
2.14 Proxies. If the securities are registered other than
in the name of the Fund or a nominee of the Fund, the
Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the
PAGE 15
registered holder of such securities, 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 and all notices relating to
such securities.
2.15 Communications Relating to Fund Portfolio Securities.
The Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency
of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of
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 from issuers of the domestic
securities being held for the Fund by the Custodian, an
agent appointed under Section 2.9, or sub-custodian
appointed under Section 1. With respect to tender or
exchange offers, the Custodian shall transmit promptly to
the Fund all written information received by the Custodian,
an agent appointed under Section 2.9, or sub-custodian
appointed under Section 1 from issuers of the domestic
securities 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 of such
desired action at least 72 hours (excluding holidays and
weekends) 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)
the Fund's notice. Where the Fund does not notify the
Custodian of its desired action within the aforesaid 72 hour
period, the Custodian shall use its best efforts to timely
transmit the Fund's notice to the appropriate person.
2.16 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 securities, futures
contracts and options on futures contracts, including
domestic securities deposited and/or maintained in a
Securities System, relating to the services provided by the
Custodian under this Contract; such reports shall be of
sufficient scope and in sufficient detail, as may reasonably
be required by the Fund to provide reasonable assurance that
any material inadequacies existing or arising since the
prior examination would be disclosed by such examination.
The reports must describe any material inadequacies
disclosed and, if there are no such inadequacies, the
reports shall so state.
PAGE 16
3. Duties of the Custodian with Respect to Property of the Fund
Held Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Custodian
is authorized and instructed to employ Chase Manhattan Bank,
N.A, ("Chase") as sub-custodian for the Fund's securities,
cash and other assets maintained outside of the United
States ("foreign assets") all as described in the
Subcustodian Agreement between the Custodian and Chase.
Upon receipt of "Proper Instructions", together with a
certified resolution of the Fund's Board of
Directors/Trustees, the Custodian and the Fund may agree to
designate additional proper institutions and foreign
securities depositories to act as sub-custodians of the
Fund's foreign assets. Upon receipt of Proper Instructions
from the Fund, the Custodian shall cease the employment of
any one or more of such sub-custodians for maintaining
custody of the Fund's foreign assets.
3.2 Assets to be Held. The Custodian shall limit the
foreign assets maintained in the custody of foreign sub-
custodians to foreign assets specified under the terms of
the Subcustodian Agreement between the Custodian and Chase.
3.3 Foreign Securities Depositories. Except as may
otherwise be agreed upon in writing by the Custodian and the
Fund, foreign assets of the Fund shall be maintained in
foreign securities depositories only through arrangements
implemented by the banking institutions serving as sub-
custodians pursuant to the terms hereof.
3.4 Segregation of Securities. The Custodian shall
identify on its books as belonging to the Fund, the foreign
assets of the Fund held by Chase and by each foreign sub-
custodian.
3.5 Access of Independent Accountants of the Fund. Upon
request of the Fund, the Custodian will use its best efforts
(subject to applicable law) to arrange for the independent
accountants, officers or other representatives of the Fund
or the Custodian to be afforded access to the books and
records of Chase and any banking or other institution
employed as a sub-custodian for the Fund by Chase or the
Custodian insofar as such books and records relate to the
performance of Chase or such banking or other institution
under any agreement with the Custodian or Chase. Upon
request of the Fund, the Custodian shall furnish to the Fund
such reports (or portions thereof) of Chase's external
auditors as are available to the Custodian and which relate
directly to Chase's system of internal accounting controls
applicable to Chase's duties as a subcustodian or which
relate to the internal accounting controls of any
subcustodian employed by Chase with respect to foreign
assets of the Fund.
PAGE 17
3.6 Reports by Custodian. The Custodian will supply to the
Fund from time to time, as mutually agreed upon, statements
in respect of the foreign assets of the Fund held pursuant
to the terms of the Subcustodian Agreement between the
Custodian and Chase, including but not limited, to an
identification of entities having possession of the Fund's
foreign assets and advices or notifications of any transfers
of foreign assets to or from each custodial account
maintained by any sub-custodian on behalf of the Fund
indicating, as to foreign assets acquired for the Fund, the
identity of the entity having physical possession of such
foreign assets.
3.7 Transactions in Foreign Assets of the Fund. All
transactions with respect to the Fund's foreign assets shall
be in accordance with, and subject to, the provisions of the
Subcustodian Agreement between Chase and the Custodian.
3.8 Responsibility of Custodian, Sub-Custodian, and Fund.
Notwithstanding anything to the contrary in this Custodian
Contract, the Custodian shall not be liable to the Fund for
any loss, damage, cost, expense, liability or claim arising
out of or in connection with the maintenance of custody of
the Fund's foreign assets by Chase or by any other banking
institution or securities depository employed pursuant to
the terms of any Subcustodian Agreement between Chase and
the Custodian, except that the Custodian shall be liable for
any such loss, damage, cost, expense, liability or claim to
the extent provided in the Subcustodian Agreement between
Chase and the Custodian or attributable to the failure of
the Custodian to exercise the standard of care set forth in
Article 12 hereof in the performance of its duties under
this Contract or such Subcustodian Agreement. At the
election of the Fund, the Fund shall be entitled to be
subrogated to the rights of the Custodian under the
Subcustodian Agreement with respect to any claims arising
thereunder against Chase or any other banking institution or
securities depository employed by Chase if and to the extent
that the Fund has not been made whole therefor. As between
the Fund and the Custodian, the Fund shall be solely
responsible to assure that the maintenance of foreign
securities and cash pursuant to the terms of the
Subcustodian Agreement complies with all applicable rules,
regulations, interpretations and orders of the Securities
and Exchange Commission, and the Custodian assumes no
responsibility and makes no representations as to such
compliance.
3.9 Monitoring Responsibilities. With respect to the
Fund's foreign assets, the Custodian shall furnish annually
to the Fund, during the month of June, information
concerning the sub-custodians employed by the Custodian.
PAGE 18
Such information shall be similar in kind and scope to that
furnished to the Fund in connection with the initial
approval of this Contract. In addition, the Custodian will
promptly inform the Fund in the event that the Custodian
learns of a material adverse change in the financial
condition of a sub-custodian.
3.10 Branches of U.S. Banks. Except as otherwise set forth
in this Contract, the provisions of this Article 3 shall not
apply where the custody of the Fund's assets is maintained
in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment
Company Act of 1940 which meets the qualification set forth
in Section 26(a) of said Act. The appointment of any such
branch as a sub-custodian shall be governed by Section 1 of
this Contract.
4. Payments for Repurchases or Redemptions and Sales of Shares
of the Fund
From such funds as may be available for the purpose but
subject to the limitations of the Governing Documents of the Fund
and any applicable votes of the Board of Directors/Trustees of
the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer
Agent a request for redemption or repurchase of their Shares. In
connection with the redemption or repurchase of Shares of the
Fund, the Custodian is authorized upon receipt of instructions
from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholder. In connection with
the redemption or repurchase of Shares of the Fund, 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
procedures and controls as are mutually agreed upon from time to
time between the Fund and the Custodian.
The Custodian shall receive from the distributor for the
Fund's Shares or from the Transfer Agent of the Fund and deposit
as received into the Fund's account such payments as are received
for Shares of the Fund issued or sold from time to time by the
Fund. The Custodian will provide timely notification to the Fund
and the Transfer Agent of any receipt by it of payments for
Shares of the Fund.
5. Proper Instructions
Proper Instructions as used herein means a writing signed or
initialled by one or more person or persons as the Board of
Directors/Trustees shall have from time to time authorized. Each
such writing shall set forth the specific transaction or type of
transaction involved, including a specific statement of the
purpose for which such action is requested, or shall be a blanket
instruction authorizing specific transactions of a repeated or
PAGE 19
routine nature. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all
oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Directors/Trustees of the Fund
accompanied by a detailed description of procedures approved by
the Board of Directors/Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or
electronic devices provided that the Board of Directors/Trustees
and the Custodian are satisfied that such procedures afford
adequate safeguards for the Fund's assets.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express
authority from the Fund:
1) make payments to itself or others for minor
expenses of handling securities or other similar
items relating to its duties under this Contract,
provided that all such payments shall be accounted
for to the Fund;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments on
the same day as received; and
4) in general, attend to all non-discretionary
details in connection with the sale, exchange,
substitution, purchase, transfer and other
dealings with the securities and property of the
Fund except as otherwise directed by the Board of
Directors/Trustees of the Fund.
7. Evidence of Authority, Reliance on Documents
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 in accordance with Article 5 hereof. The Custodian
may receive and accept a certified copy of a vote of the Board of
Directors/Trustees of the 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 of
Directors/Trustees pursuant to the Governing Documents of the
Fund as 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. So long as and to the extent
that it is in the exercise of the standard of care set forth in
Article 12 hereof, 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
PAGE 20
Contract 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.
8. 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 person or persons appointed by the Board of
Directors/Trustees of the Fund to keep the books of account of
the Fund and/or compute the net asset value per share of the
outstanding shares of the Fund or, if directed in writing 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 calculate daily the net income of the Fund
as described in the Fund's currently effective prospectus and
shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an
officer of the Fund to do so, shall 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 and in the manner described from time to time in the Fund's
currently effective prospectus.
9. Records, Inventory
The Custodian shall create and maintain all records relating
to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the
Investment Company Act of 1940, with particular attention to
Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the
Fund. 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 and audit by duly authorized
officers, employees or agents of the Fund and employees and
agents of the Securities and Exchange Commission, and, in the
event of termination of this Agreement, will be delivered in
accordance with Section 14 hereof. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of securities
owned by the Fund and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall
be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations. The Custodian shall
conduct a periodic inventory of all securities and other property
subject to this Agreement and provide to the Fund a periodic
reconciliation of the vaulted position of the Fund to the
appraised position of the Fund. The Custodian will promptly
report to the Fund the results of the reconciliation, indicating
any shortages or discrepancies uncovered thereby, and take
appropriate action to remedy any such shortages or discrepancies.
PAGE 21
10. Opinion of Fund's Independent Accountant
The Custodian shall cooperate with the Fund's independent
public accountants in connection with the annual and other audits
of the books and records of the Fund and take all reasonable
action, as the Fund may from time to time request, to provide
from year to year the necessary information to such accountants
for the expression of their opinion without any qualification as
to the scope of their examination, including but not limited to,
any opinion in connection with the preparation of the Fund's Form
N-lA, and Form N-SAR or other annual reports to the Securities
and Exchange Commission and with respect to any other
requirements of such Commission.
11. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation
for its services and expenses as Custodian, as agreed upon from
time to time between the Fund and the Custodian.
12. Responsibility of Custodian
Notwithstanding anything to the contrary in this Agreement,
the Custodian shall be held to the exercise of reasonable care in
carrying out the provisions of this Contract, but 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 to indemnify or save 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 all 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 against the Fund. The Fund,
shall have the option to defend the Custodian against any claim
which may be the subject of this indemnification, and in the
event that the Fund so elects, it will so notify the Custodian,
and thereupon the Fund shall take over complete defense of the
claim and the Custodian shall in such situation initiate no
further legal or other expenses for which it shall seek
indemnification under this Section. The Custodian shall in no
case confess any claim or make any compromise in any case in
which the Fund will be asked to indemnify the Custodian 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 Contract 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 such other counsel as may be
agreed to by the parties) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to
such advice. Notwithstanding the foregoing, the responsibility
PAGE 22
of the Custodian with respect to redemptions effected by check
shall be in accordance with a separate Agreement entered into
between the Custodian and the Fund.
If the Fund requires the Custodian to take any action with
respect to securities, which action involves the payment of money
or which action may, in the 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 Fund requires the Custodian to advance cash or
securities for any purpose 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 Contract, 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's
assets to the extent necessary to obtain reimbursement, provided
that the Custodian gives the Fund reasonable notice to repay such
cash or securities advanced, however, such notice shall not
preclude the Custodian's right to assert any lien under this
provision.
13. Effective Period, Termination and Amendment
This Contract shall become effective as 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 sixty (60) days after the date of such delivery or
mailing in the case of a termination by the Fund, and not sooner
than 180 days after the date of such delivery or mailing in the
case of a termination by the Custodian; provided, however that
the Custodian shall not act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Directors/Trustees of
the Fund has approved the initial use of a particular Securities
System and the receipt of an annual certificate of the Secretary
or an Assistant Secretary that the Board of Directors/Trustees
has reviewed the use by the Fund of such Securities System, as
required in each case by Rule 17f-4 under the Investment Company
Act of 1940, as amended and that the Custodian shall not act
under Section 2.11 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the
Board of Directors/Trustees has approved the initial use of the
Direct Paper System and the receipt of an annual certificate of
PAGE 23
the Secretary or an Assistant Secretary that the Board of
Directors/Trustees has reviewed the use by the Fund of the Direct
Paper System; provided further, however, that the Fund shall not
amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the
Governing Documents of the Fund, and further provided, that the
Fund may at any time by action of its Board of Directors/Trustees
(i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the
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 Contract, 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
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, which approval shall not be unreasonably
withheld.
14. Successor Custodian
If a successor custodian shall be appointed by the Board of
Directors/Trustees of the Fund, the Custodian shall, upon
termination, deliver to such successor custodian at the office of
the Custodian, duly endorsed and in the form for transfer, all
securities, funds and other properties then held by it hereunder
and shall transfer to an account of the successor custodian all
of the Fund's securities held in a Securities System. The
Custodian shall also use its best efforts to assure that the
successor custodian will continue any subcustodian agreement
entered into by the Custodian and any subcustodian on behalf of
the Fund.
If no such successor custodian shall be appointed, the
Custodian shall, in like manner, upon receipt of a certified copy
of a vote of the Board of Directors/Trustees of the Fund, deliver
at the office of the Custodian and transfer such securities,
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 of
Directors/Trustees 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 Investment
Company Act of 1940, doing business in Boston, Massachusetts, of
its own selection, having an aggregate capital, surplus, and
undivided profits, as shown by its last published report, of not
PAGE 24
less than $25,000,000, all securities, funds and other properties
held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this
Contract and to transfer to an account of such successor
custodian all of the Fund's securities held in any Securities
System. Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract.
In the event that securities, funds and other properties
remain 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 of
Directors/Trustees 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
securities, funds and other properties and the provisions of this
Contract relating to the duties and obligations of the Custodian
shall remain in full force and effect. If while this Contract is
in force the Fund shall be liquidated pursuant to law, the
Custodian shall distribute, either in cash or (if the Fund so
orders) in the portfolio securities and other assets of the Fund,
pro rata among the holders of shares of the Fund as certified by
the Transfer Agent, the property of the Fund which remains after
paying or satisfying all expenses and liabilities of the Fund.
Section 12 hereof shall survive any termination of this Contract.
15. Interpretive and Additional Provisions
In connection with the operation of this Contract, the
Custodian and the Fund may from time to time agree on such
provisions interpretive of or in addition to the provisions of
this Contract as may in their joint opinion be consistent with
the general tenor of this Contract. 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 of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
16. Notice
Any notice shall be sufficiently given when sent by
registered or certified mail, or by such other means as the
parties shall agree, to 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.
17. 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
PAGE 25
and embezzlement, covering each officer and employee of 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 furnish to the
Fund a copy of each such bond and each amendment thereto.
18. 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.
19. Exemption from Liens
The securities and other assets held by the Custodian for
the Fund shall be subject to no lien or charge of any kind in
favor of the Custodian or any person claiming through the
Custodian, but 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.
Neither the Custodian nor any sub-custodian appointed pursuant to
Section 1 hereof shall have any power or authority to assign,
hypothecate, pledge or otherwise dispose of any securities held
by it for the Fund, except upon the direction of the Fund, duly
given as herein provided, and only for the account of the Fund.
20. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth
of Massachusetts.
21. Prior Contracts
Without derogating any of the rights established by such
contracts, this Contract supersedes and terminates, as of the
date hereof, all prior contracts between the Fund and the
Custodian relating to the custody of the Fund's assets.
22. The Parties
All references herein to "the Fund" are to each of the funds
listed on Appendix A individually, as if this Contract 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
PAGE 26
appropriate. Any reference in this Contract to "the parties"
shall mean the Custodian and such other individual Fund as to
which the matter pertains.
23. Governing Documents.
The term "Governing Documents" means the Articles of
Incorporation, Agreement of Trust, By-Laws and Registration
Statement filed under the Securities Act of 1933, as amended from
time to time.
24. Subcustodian Agreement.
Reference to the "Subcustodian Agreement" between the
Custodian and Chase shall mean any such agreement which shall be
in effect from time to time between Chase and the Custodian with
respect to foreign assets of the Fund.
25. Directors and Trustees.
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.
26. Massachusetts Business Trust
With respect to any Fund which is a party to this Contract
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 Contract 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.
27. Successors of Parties.
This Contract shall be binding on and shall inure to the
benefit of the Fund and the Custodian and their respective
successors.
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly
authorized representative and its seal to be hereunder affixed as
of the dates indicated below.
DATED: September 28, 1987
__________________
PAGE 27
STATE STREET BANK AND TRUST
COMPANY
ATTEST:
/s/Kathleen M. Kubit By/s/Charles Cassidy
_____________________ _________________________________
Assistant Secretary Vice President
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 INTERNATIONAL TRUST
T. Rowe Price International Stock Fund
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
PAGE 28
(SIGNATURES CONTINUED)
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
New York Tax-Free Money Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
New York Tax-Free Bond Fund
T. ROWE PRICE INTERNATIONAL TRUST
T. Rowe Price International Bond Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Money Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
DATED: September 28, 1987
___________________
ATTEST:
/s/Nancy J. Wortman By/s/Carmen F. Deyesu
____________________________ __________________________________
PAGE 29
Appendix A
The following Funds are parties to this Agreement and have
so indicated their intention to be bound by such Agreement by
executing the Agreement on the dates indicated thereon.
T. Rowe Price California Tax-Free Income Trust on behalf of
the
California Tax-Free Bond Fund and
California Tax-Free Money Fund
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Equity Income Fund
T. Rowe Price GNMA Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price Institutional Trust on behalf of the
Tax-Exempt Reserve Portfolio
T. Rowe Price International Trust on behalf of the
T. Rowe Price International Bond Fund and
T. Rowe Price International Stock Fund
T. Rowe Price New America Growth Fund
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Prime Reserve Fund, Inc.
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price State Tax-Free Income Trust on behalf of the
Maryland Tax-Free Bond Fund,
New York Tax-Free Bond Fund and
New York Tax-Free Money 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 Short-Intermediate Fund, Inc.
T. Rowe Price U.S. Treasury Money Fund, Inc.
PAGE 30
AMENDMENT NO. 1 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
THIS AGREEMENT, made as of this 24th day of June, 1988, by
and between: 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 Trust, T. Rowe Price U.S.
Treasury Money Fund, Inc., T. Rowe Price Growth & Income Fund,
Inc., T. Rowe Price Tax-Exempt Money Fund, Inc., T. Rowe Price
Tax-Free 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 Institutional
Trust, T. Rowe Price State Tax-Free Income Trust, T. Rowe Price
California Tax-Free Income Trust, T. Rowe Price Science &
Technology Fund, Inc., (hereinafter together called the "Funds"
and individually "Fund") and State Street Bank and Trust Company,
a Massachusetts trust,
W I T N E S S E T H:
It is mutually agreed that the Custodian Contract made by
the parties on the 28th day of September, 1987, is hereby amended
by adding thereto the T. Rowe Price Small-Cap Value Fund, Inc.
T. ROWE PRICE GROWTH STOCK FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE NEW HORIZONS FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE NEW ERA FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE NEW INCOME FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
PAGE 31
(SIGNATURES CONTINUED)
T. ROWE PRICE PRIME RESERVE FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE INTERNATIONAL TRUST
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
/s/Henry H.Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE GROWTH & INCOME FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE
FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE HIGH YIELD FUND, INC.
/s/ Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
PAGE 32
(SIGNATURES CONTINUED)
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE NEW AMERICA GROWTH FUND
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE EQUITY INCOME FUND
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE GNMA FUND
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE CAPITAL APPRECIATION FUND
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE INSTITUTIONAL TRUST
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
PAGE 33
(SIGNATURES CONTINUED)
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/William Blackwell
______________________________________________
By:
PAGE 34
AMENDMENT NO. 2 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, between State Street Bank and Trust Company and
each of the Parties listed on Appendix A thereto is hereby
further amended, as of October 19, 1988, by adding thereto the T.
Rowe Price International Discovery Fund, Inc., a separate series
of T. Rowe Price International Trust.
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 TRUST
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
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
PAGE 35
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money 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.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Guy R. Sturgeon
______________________________________________
By:
PAGE 36
AMENDMENT NO. 3 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988 and October 19, 1988, between State Street Bank and
Trust Company and each of the Parties listed on Appendix A
thereto is hereby further amended, as of February 22, 1989, by
adding thereto the T. Rowe Price International Equity Fund, Inc.
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 TRUST
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
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
PAGE 37
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money 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.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/K. Donelson
______________________________________________
By:
PAGE 38
AMENDMENT NO. 4 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988 and February 22, 1989, between
State Street Bank and Trust Company and each of the Parties
listed on Appendix A thereto is hereby further amended, as of
July 19, 1989, by adding thereto the Institutional International
Funds, Inc., on behalf of the Foreign Equity Fund.
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 TRUST
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
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
PAGE 39
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money 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.
T. ROWE PRICE INTERNATIONAL
EQUITY FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________________
By:
PAGE 40
AMENDMENT NO. 5 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, and July 19,
1989 between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of September 15, 1989, by adding thereto the T. Rowe Price
U.S. Treasury Funds, Inc., on behalf of the U.S. Treasury
Intermediate Fund and the U.S. Treasury Long-Term Fund.
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 TRUST
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
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
PAGE 41
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money 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.
T. ROWE PRICE INTERNATIONAL
EQUITY 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
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________________
By:
PAGE 42
AMENDMENT NO. 6 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989
and September 15, 1989, between State Street Bank and Trust
Company and each of the Parties listed on Appendix A thereto is
hereby further amended, as of December 15, 1989, by restating
Section 2.15 as follows:
2.15 Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to the Fund all written
information (including, without limitation, pendency of calls and
maturities of domestic securities and expirations of rights in
connection therewith and notices of 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 from
issuers of the domestic securities being held for the Fund by the
Custodian, an agent appointed under Section 2.9, or sub-custodian
appointed under Section 1. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian, an agent appointed
under Section 2.9, or sub-custodian appointed under Section 1
from issuers of the domestic securities 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 of such desired
action at least 48 hours (excluding holidays and weekends) 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) the Fund's notice. Where the Fund does not
notify the custodian of its desired action within the aforesaid
48 hour period, 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 negotiate and agree to
alternative procedures with respect to such 48 hour notice period
on a selective and individual basis.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
PAGE 43
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL TRUST
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. ROWE PRICE U.S. TREASURY MONEY FUND, INC.
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 INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money 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.
PAGE 44
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE INTERNATIONAL
EQUITY 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
/s/Carmen F. Deyesu
______________________________________________
By: Carmen F. Deyesu,
Treasurer
STATE STREET BANK AND TRUST COMPANY
/s/ E. D. Hawkes, Jr.
______________________________________________
By: E. D. Hawkes, Jr.
Vice President
PAGE 45
Amendment No. 7 filed on Form SE January 25, 1990 with
International Trust (CIK 313212) Post Effective Amendment No. 17.
PAGE 46
AMENDMENT NO. 8 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, and December 20,
1989, between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of January 25, 1990, by adding thereto the T. Rowe Price
European Stock Fund, a separate series of T. Rowe Price
International Trust.
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 TRUST
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 U.S. TREASURY MONEY FUND, INC.
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
PAGE 47
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money 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.
T. ROWE PRICE INTERNATIONAL
EQUITY 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
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________________
By:
PAGE 48
AMENDMENT NO. 9 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
and January 25, 1990 between State Street Bank and Trust Company
and each of the Parties listed on Appendix A thereto is hereby
further amended, as of February 21, 1990, by adding thereto the
T. Rowe Price Index Trust, Inc., on behalf of the T. Rowe Price
Equity Index Fund.
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 TRUST
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 U.S. TREASURY MONEY FUND, INC.
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
PAGE 49
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money 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.
T. ROWE PRICE INTERNATIONAL
EQUITY 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
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
/s/Henry H. Hopkins
__________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
___________________________________________
By:
PAGE 50
AMENDMENT NO. 10 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, between State Street Bank
and Trust Company and each of the Parties listed on Appendix A
thereto is hereby further amended, as of June 12, 1990, by adding
thereto the T. Rowe Price Spectrum Fund, Inc., on behalf of the
Spectrum Growth Fund and the Spectrum Income Fund.
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 TRUST
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 U.S. TREASURY MONEY FUND, INC.
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
PAGE 51
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money 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.
T. ROWE PRICE INTERNATIONAL
EQUITY 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
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
/s/Henry H. Hopkins
__________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
___________________________________________
By:
PAGE 52
AMENDMENT NO. 11 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, and June 12, 1990 between
State Street Bank and Trust Company and each of the Parties
listed on Appendix A thereto is hereby further amended, as of
July 18, 1990, by adding thereto the T. Rowe Price New Asia Fund,
a separate series of the T. Rowe Price International Funds, Inc.
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 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
PAGE 53
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money 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.
T. ROWE PRICE INTERNATIONAL
EQUITY 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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
/s/Henry H. Hopkins
__________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/ Guy R. Sturgeon
___________________________________________
By: Guy R. Sturgeon
PAGE 54
AMENDMENT NO. 12 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, and July 18,
1990 between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of October 15, 1990, by adding thereto the T. Rowe Price
Global Government Bond Fund, a separate series of the T. Rowe
Price International Funds, Inc.
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 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
PAGE 55
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE INSTITUTIONAL TRUST
Tax-Exempt Reserve Portfolio
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money 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.
T. ROWE PRICE INTERNATIONAL
EQUITY 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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
/s/Henry H. Hopkins
__________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/ Guy R. Sturgeon
___________________________________________
By:
PAGE 56
AMENDMENT NO. 13 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, and October 15, 1990, between State Street Bank and Trust
Company and each of the Parties listed on Appendix A thereto is
hereby further amended, as of February 13, 1991, by adding
thereto the Virginia Tax-Free Bond Fund and New Jersey Tax-Free
Bond Fund, two separate series of the T. Rowe Price State Tax-
Free Income Trust
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 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.
PAGE 57
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
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond 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.
T. ROWE PRICE INTERNATIONAL
EQUITY 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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
/s/Henry H. Hopkins
__________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/ Guy Sturgeon
___________________________________________
By: Vice President
PAGE 58
AMENDMENT NO. 14 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, and February 13, 1991, between State
Street Bank and Trust Company and each of the Parties listed on
Appendix A thereto is hereby further amended, as of March 6,
1991, by adding thereto the T. Rowe Price Balanced Fund, Inc.
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 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
PAGE 59
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
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond 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.
T. ROWE PRICE INTERNATIONAL
EQUITY 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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
/s/Henry H. Hopkins
__________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
___________________________________________
By:
PAGE 60
AMENDMENT NO. 15 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, and March 6, 1991,
between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of September 12, 1991, by adding thereto the T. Rowe Price
Adjustable Rate U.S. Government Fund, Inc.
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 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
PAGE 61
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
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond 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.
T. ROWE PRICE INTERNATIONAL
EQUITY 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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S.
GOVERNMENT FUND, INC.
/s/Henry H. Hopkins
__________________________________________
By: Henry H. Hopkins, Vice President
PAGE 62
STATE STREET BANK AND TRUST COMPANY
/s/
___________________________________________
By:
PAGE 63
AMENDMENT NO. 16 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as
amended June 24, 1988, October 19, 1988, February 22, 1989, July
19, 1989, September 15, 1989, December 15, 1989, December 20,
1989, January 25, 1990, February 21, 1990, June 12, 1990, July
18, 1990, October 15, 1990, February 13, 1991, March 6, 1991 and
September 12, 1991, between State Street Bank and Trust Company
and each of the Parties listed on Appendix A thereto is hereby
further amended, as of November 6, 1991, by adding thereto the T.
Rowe Price Japan Fund, a separate series of the T. Rowe Price
International Funds, Inc.
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 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.
PAGE 64
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
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond 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.
T. ROWE PRICE INTERNATIONAL
EQUITY 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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S.
GOVERNMENT FUND, INC.
PAGE 65
/s/Henry H. Hopkins
__________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
___________________________________________
By:
PAGE 66
AMENDMENT NO. 17 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991 and November 6, 1991, between State Street
Bank and Trust Company and each of the Parties listed on
Appendix A thereto is hereby further amended, as of April 23,
1992, by adding thereto the T. Rowe Price Mid-Cap Growth Fund,
Inc. and T. Rowe Price Short-Term Global Income Fund, a separate
series of the T. Rowe Price International Funds, Inc.
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 Short-Term Global Income 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.
PAGE 67
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
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond 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.
T. ROWE PRICE INTERNATIONAL EQUITY 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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
/s/Henry H. Hopkins
__________________________________
By:Henry H. Hopkins, Vice President
PAGE 68
STATE STREET BANK AND TRUST COMPANY
/s/
_________________________________________
By:
PAGE 69
AMENDMENT NO. 18 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, and April 23, 1992, between
State Street Bank and Trust Company and each of the Parties
listed on Appendix A thereto is hereby further amended, as of
September 2, 1992, by adding thereto the T. Rowe Price OTC Fund,
a series of the T. Rowe Price OTC Fund, Inc.
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 OTC FUND, INC.
T. Rowe Price OTC Fund
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 Short-Term Global Income 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.
PAGE 70
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
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond 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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By:Henry H. Hopkins, Vice President
PAGE 71
STATE STREET BANK AND TRUST COMPANY
/s/
_____________________________________________
By:
PAGE 72
AMENDMENT NO. 19 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, and
September 2, 1992, between State Street Bank and Trust Company
and each of the Parties listed on Appendix A thereto is hereby
further amended, as of November 3, 1992, by adding thereto the T.
Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc.
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 Short-Term Global Income 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
PAGE 73
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
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond 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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
PAGE 74
/s/Henry H. Hopkins
______________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________________
By:
PAGE 75
AMENDMENT NO. 20 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, and November 3, 1992, between State Street Bank and
Trust Company and each of the Parties listed on Appendix A
thereto is hereby further amended, as of December 16, 1992, by
adding thereto the T. Rowe Price Dividend Growth Fund, Inc.
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 Short-Term Global Income 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
PAGE 76
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
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
New Jersey Tax-Free Bond 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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
PAGE 77
/s/Henry H. Hopkins
______________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________________
By:
PAGE 78
AMENDMENT NO. 21 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, and December 16, 1992, between State
Street Bank and Trust Company and each of the Parties listed on
Appendix A thereto is hereby further amended, as of December 21,
1992, by adding thereto the Maryland Short-Term Tax-Free Bond
Fund, an additional series to the T. Rowe Price State Tax-Free
Income Trust.
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 Short-Term Global Income 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.
PAGE 79
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
New Jersey Tax-Free Bond 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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
PAGE 80
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________________
By:
PAGE 81
AMENDMENT NO. 22 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, and December 21,
1992, between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of January 28, 1993, by adding thereto the Georgia Tax-Free
Bond Fund and the Florida Insured Intermediate Tax-Free Fund,
additional series to the T. Rowe Price State Tax-Free Income
Trust.
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 Short-Term Global Income 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.
PAGE 82
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
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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
PAGE 83
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________________
By:
PAGE 84
AMENDMENT NO. 23 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
and January 28, 1993, between State Street Bank and Trust Company
and each of the Parties listed on Appendix A thereto is hereby
further amended, as of April 22, 1993, by adding thereto the T.
Rowe Price Blue Chip Growth Fund, Inc.
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 Short-Term Global Income 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.
PAGE 85
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
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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
PAGE 86
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.
/s/Henry H. Hopkins
______________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_______________________________________________
By:
PAGE 87
AMENDMENT NO. 24 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, between State Street Bank and
Trust Company and each of the Parties listed on Appendix A
thereto is hereby further amended, as of September 16, 1993, by
adding thereto the T. Rowe Price Summit Funds, Inc. and T. Rowe
Price Summit Municipal Funds, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Summit Funds, Inc. and T. Rowe
Price Summit Municipal Funds, Inc. (collectively referred to as
the "Funds") shall not be responsible for paying any of the fees
or expenses set forth herein but that, in accordance with the
Investment Management Agreement, dated September 16, 1993,
between the Funds and T. Rowe Price Associates, Inc. ("T. Rowe
Price"), the Funds will require T. Rowe Price to pay all such
fees and expenses.
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 Short-Term Global Income Fund
PAGE 88
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
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
PAGE 89
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
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
/s/Henry H. Hopkins
_____________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_____________________________________________
By:
PAGE 90
AMENDMENT NO. 25 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, and September 16, 1993, between
State Street Bank and Trust Company and each of the Parties
listed on Appendix A thereto is hereby further amended, as of
November 3, 1993, by adding thereto the T. Rowe Price Latin
America Fund, a separate series of the T. Rowe Price
International Funds, Inc.
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 Short-Term Global Income Fund
T. Rowe Price Latin America 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.
PAGE 91
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
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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
PAGE 92
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
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
/s/Henry H. Hopkins
_____________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_____________________________________________
By:
<PAGE>
PAGE 93
AMENDMENT NO. 26 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, and
November 3, 1993, between State Street Bank and Trust Company and
each of the Parties listed on Appendix A thereto is hereby
further amended, as of March 1, 1994, by adding thereto the T.
Rowe Price Equity Income Portfolio and T. Rowe Price New America
Growth Portfolio, two separate series of the T. Rowe Price Equity
Series, Inc. and T. Rowe Price International Stock Portfolio, a
separate series of the T. Rowe Price International Series, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Equity Series, Inc. and T. Rowe
Price International Series, Inc. (collectively referred to as the
"Funds") shall not be responsible for paying any of the fees or
expenses set forth herein but that, in accordance with the
Investment Management Agreements, dated March 1, 1994, between
the Funds and T. Rowe Price Associates, Inc. and Rowe Price-
Fleming International, Inc. (collectively referred to as "T. Rowe
Price"), the Funds will require T. Rowe Price to pay all such
fees and expenses.
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.
<PAGE>
PAGE 94
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 Short-Term Global Income Fund
T. Rowe Price Latin America 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
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.
PAGE 95
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 Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
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
PAGE 96
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
/s/Henry H. Hopkins
_____________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_____________________________________________
By:
<PAGE>
PAGE 97
AMENDMENT NO. 27 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, November 3,
1993, and March 1, 1994, 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, 1994, by adding thereto
the T. Rowe Price Limited-Term Bond Portfolio, a separate series
of the T. Rowe Price Fixed Income Series, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Fixed Income Series, Inc.
(referred to as the "Fund") shall not be responsible for paying
any of the fees or expenses set forth herein but that, in
accordance with the Investment Management Agreement, dated April
21, 1994, between the Fund and T. Rowe Price Associates, Inc.
(referred to as "T. Rowe Price"), the Fund will require T. Rowe
Price to pay all such fees and expenses.
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 Short-Term Global Income Fund
T. Rowe Price Latin America Fund
PAGE 98
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
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
PAGE 99
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
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 INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
<PAGE>
PAGE 100
/s/Henry H. Hopkins
_____________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_____________________________________________
By:
<PAGE>
PAGE 101
AMENDMENT NO. 28 TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
W I T N E S S E T H:
The Custodian Contract of September 28, 1987, as amended
June 24, 1988, October 19, 1988, February 22, 1989, July 19,
1989, September 15, 1989, December 15, 1989, December 20, 1989,
January 25, 1990, February 21, 1990, June 12, 1990, July 18,
1990, October 15, 1990, February 13, 1991, March 6, 1991,
September 12, 1991, November 6, 1991, April 23, 1992, September
2, 1992, November 3, 1992, December 16, 1992, December 21, 1992,
January 28, 1993, April 22, 1993, September 16, 1993, November 3,
1993, March 1, 1994, and April 21, 1994, between State Street
Bank and Trust Company and each of the Parties listed on
Appendix A thereto is hereby further amended, as of July 27,
1994, by adding thereto the T. Rowe Price Personal Strategy
Balanced Fund, T. Rowe Price Personal Strategy Growth Fund, and
T. Rowe Price Personal Strategy Income Fund, three separate
series of the T. Rowe Price Personal Strategy Funds, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Personal Strategy Funds, Inc.
(collectively referred to as the "Funds") shall not be
responsible for paying any of the fees or expenses set forth
herein but that, in accordance with the Investment Management
Agreements, dated July 27, 1994, between the Funds and T. Rowe
Price Associates, Inc. (referred to as "T. Rowe Price"), the
Funds will require T. Rowe Price to pay all such fees and
expenses.
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 Short-Term Global Income Fund
T. Rowe Price Latin America 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
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
PAGE 102
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
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 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 PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
PAGE 103
T. Rowe Price Personal Strategy Income Fund
/s/Henry H. Hopkins
_____________________________________________
By:Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_____________________________________________
By:
Agmts\CustAgmt.Amd
The Transfer Agency and Service Agreement between T. Rowe Price Services, Inc.
and T. Rowe Price Funds, dated January 1, 1994, as amended, should be inserted
here.
PAGE 1
TRANSFER AGENCY AND SERVICE AGREEMENT
between
T. ROWE PRICE SERVICES, INC.
and
EACH OF THE PARTIES INDICATED ON APPENDIX A
PAGE 2
TABLE OF CONTENTS
Page
Article A Terms of Appointment . . . . . . . . . . . . . .2
Article B Duties of Price Services . . . . . . . . . . . .3
1. Receipt of Orders/Payments. . . . . . . . .3
2. Written Redemptions . . . . . . . . . . . .4
3. Transfers . . . . . . . . . . . . . . . . .6
4. Confirmations . . . . . . . . . . . . . . .6
5. Issuance of Share Certificates. . . . . . .6
6. Returned Checks and ACH Debits. . . . . . 7
7. Redemptions of Shares under Ten Day Hold. 7
8. Dividends, Distributions and Other
Corporate Actions. . . . . . . . . . . . 9
9. Unclaimed Payments and Certificates . . .10
10. Books and Records . . . . . . . . . . . .10
11. Authorized Issued and Outstanding Shares.12
12. Tax Information . . . . . . . . . . . . .13
13. Information to be Furnished to the Fund .13
14. Correspondence. . . . . . . . . . . . . .13
15. Lost or Stolen Securities . . . . . . . .14
16. Telephone Services . . . . . . . . . . .14
17. Proxies . . . . . . . . . . . . . . . . .14
18. Form N-SAR. . . . . . . . . . . . . . . .15
19. Cooperation With Accountants. . . . . . .15
20. Blue Sky. . . . . . . . . . . . . . . . .15
21. Other Services. . . . . . . . . . . . . .15
22. Fees and Out-of-Pocket Expenses . . . . .15
Article C Representations and Warranties of the Price
Services. . . . . . . . . . . . . . . . . . .17
Article D Representations and Warranties of the Fund . .18
Article E Standard of Care/Indemnification . . . . . . .18
Article F Dual Interests . . . . . . . . . . . . . . . . 20
Article G Documentation. . . . . . . . . . . . . . . . . 20
Article H References to Price Services . . . . . . . . . 22
Article I Compliance with Governmental Rules and
Regulations . . . . . . . . . . . . . . . . . 22
Article J Ownership of Software and Related Material . . 22
PAGE 3
Article K Quality Service Standards. . . . . . . . . . . 23
Article L As of Transactions . . . . . . . . . . . . . . 23
Article M Term and Termination of Agreement. . . . . . . 26
Article N Notice . . . . . . . . . . . . . . . . . . . . 26
Article O Assignment . . . . . . . . . . . . . . . . . . 26
Article P Amendment/Interpretive Provisions. . . . . . . 26
Article Q Further Assurances . . . . . . . . . . . . . . 27
Article R Maryland Law to Apply. . . . . . . . . . . . . 27
Article S Merger of Agreement. . . . . . . . . . . . . . 27
Article T Counterparts . . . . . . . . . . . . . . . . . 27
Article U The Parties. . . . . . . . . . . . . . . . . . 27
Article V Directors, Trustees, Shareholders and Massachusetts
Business Trust . . . . . . . . . . . . . . . . 28
Article W Captions . . . . . . . . . . . . . . . . . . . 28
PAGE 4
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the first day of January, 1994, 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 U);
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, certain of the Funds are named investment options
under various tax-sheltered retirement plans including, but not
limited to, individual retirement accounts, simplified employee
pension 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");
PAGE 5
WHEREAS, Price Services 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, including, but not
limited to, DST, SRI, Moore Business Forms, Boston Financial Data
Services, Inc., and the 440 Financial Group, to perform certain
of the functions and services described herein including services
to Retirement Plans and Retirement Accounts. 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. Subject
to guidelines mutually agreed upon by the Funds and Price
Services, excess balances, if 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.
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
PAGE 6
referred to as "Shares"); (2) any accumulation, open-account or
similar plans provided to the shareholders of the Fund
("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:
o Examine the check to determine if the check conforms to
the Funds' acceptance procedures (including certain
third-party check procedures). If the check conforms,
PAGE 7
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);
o 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 relating to payments so received by it;
o Maintain a record of all unpaid purchases and report
such information to the Fund daily;
o Process periodic payment orders, as authorized by
investors, in accordance with the payment procedures
for pre-authorized checking ("PAC") and ACH purchases
mutually agreed upon by both parties;
o 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"); and
PAGE 8
o 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 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 7 hereof:
o 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;
o Notify the Fund on the next business day of the total
number of Shares presented and covered by all such
requests;
PAGE 9
o 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;
o 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;
o Make such withholdings as may be required under
applicable Federal and State tax law;
o In the event redemption proceeds for the payment of
fees are to be wired through the Federal Reserve Wire
System or by bank wire, Price Services shall cause such
proceeds to be wired in Federal funds to the bank
account designated; and
o 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.
PAGE 10
Procedures and requirements for effecting and accepting
redemption orders from investors by telephone, Tele*Access,
Mailgram, 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 certificates, if any, to credit
a like amount of Shares to the transferee and to
countersign, issue and deliver new certificates, if
requested, for those Funds issuing certificates.
4. Confirmations
Mail all confirmations and 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. Issuance of Share Certificates
o Those Funds which issue stock certificates shall supply
Price Services with a sufficient supply of blank stock
certificates and shall renew such supply upon request
of Price Services. Such blank stock certificates shall
PAGE 11
be properly signed, manually or facsimile, if
authorized by the Fund, and shall bear the seal or
facsimile thereof of the Fund; and notwithstanding the
death, resignation or removal of any officers of the
Fund authorized to sign certificates of stock, on
behalf of the Fund, Price Services may continue to
countersign certificates which bear the manual or
facsimile signature of such officer until otherwise
directed by the Fund.
o If an investor requests a share certificate of a Fund
which issues stock certificates (except shares in
Retirement Plans and Retirement Accounts which will be
non certificated), Price Services will countersign and
mail by first class mail, a share certificate to the
investor at his address as set forth on the transfer
books of the Fund, subject to any other instructions
for delivery of certificates which the Fund may give to
Price Services with respect to certificates
representing newly purchased Shares.
6. 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.
PAGE 12
7. Redemption of Shares under Ten Day Hold
o Uncollected Funds
Shares purchased by personal, corporate, or
governmental check, or by ACH will be considered
uncollected until the tenth calendar date following the
trade date of the trade ("Uncollected Funds");
o Good Funds
Share 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
following trade date.
o Redemption of Uncollected Funds
o Shareholders making telephone requests for
redemption of shares purchased with 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 funds are deemed Good Funds,
2. The redemption can be processed utilizing the
same procedures for written redemptions described
below.
o 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
PAGE 13
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, 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 after trade date, the redemption
proceeds will be released, regardless of whether
confirmation has been received.
o Checkwriting Redemptions.
o 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.
o All checkwriting redemptions under $10,000
reported as Uncollected or insufficient funds will
PAGE 14
be rejected and the check returned to the
Shareholder.
o 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 7, Section 7 will govern.
8. Dividends, Distributions and Other Corporate Actions
o 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.
PAGE 15
o 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 before the payment date of such
distribution, 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.
9. 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 or share certificates have
been returned; (b) for which accounts have aged outstanding
checks; or (c) accounts with unissued shares that have been
coded with stop mail and meet the dormancy period guidelines
specified in the individual states. Price Services shall
PAGE 16
make reasonable attempts to contact shareholders for those
accounts which have significant aged outstanding checks.
10. Books and Records
Maintain records showing for each Shareholder's
account, Retirement Plan or Retirement Account, as the case
may be, the following:
o Names, address and tax identification number;
o Number of Shares held;
o Certain historical information regarding the
account of each Shareholder, including dividends
and distributions distributed in cash or invested
in Shares;
o Pertinent information regarding the establishment
and maintenance of Retirement Plans and Retirement
Accounts necessary to properly administer each
account;
o 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;
o Any stop or restraining order placed against a
Shareholder's account;
o Information with respect to withholdings on
domestic and foreign accounts;
o Any instructions from a Shareholder including, all
forms furnished by the Fund and executed by a
PAGE 17
Shareholder with respect to (i) dividend or
distribution elections, and (ii) elections with
respect to payment options in connection with the
redemption of Shares;
o Any correspondence relating to the current
maintenance of a Shareholder's account;
o Certificate numbers and denominations for any
Shareholder holding certificates;
o 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 parties.
Any such records maintained pursuant to Rule 31a-1
under the Investment Company Act of 1940 ("the Act") will be
PAGE 18
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.
11. 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,
PAGE 19
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 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.
12. 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 and state 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.
13. 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.
PAGE 20
14. 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.
15. 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.
16. 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 themself before the transaction is
effected, in accordance with procedures agreed upon between
by both parties. Procedures for processing telephone
PAGE 21
transactions will be mutually agreed upon by both parties.
Price Services will also be responsible for providing
Tele*Access, PC*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.
17. Proxies
Monitor the mailing of proxy cards and other material
supplied to it by the Fund in connection with Shareholder
meetings of the Fund and shall coordinate the receipt,
examination and tabulation of returned proxies and the
certification of the vote to the Fund.
18. Form N-SAR
Maintain such records, if any, as shall enable the Fund
to fulfill the requirements of Form N-SAR.
19. 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.
PAGE 22
20. 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.
21. Other Services
Provide such other services as may be mutually agreed
upon between Price Services and the Fund.
22. Fees and Out-of-Pocket Expenses
Each Fund shall pay to Price Services and/or its agents
for its Transfer Agent Services 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:
o 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.
o 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
PAGE 23
of returned proxies and the certification of the
vote to the Fund.
o Communications
o 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.
o Print & Mail House. The cost of internal
and third party printing and mail house
services, including printing of statements
and reports.
o Voice and Data. The cost of equipment
(including associated maintenance), supplies
and services used for communicating to and
from the Shareholders of the Fund and
Retirement Plan participants, or their
agents, the Fund's transfer agent, other Fund
offices, and other agents of either the Fund
or Price Services. These charges shall
include:
o telephone toll charges (both incoming
and outgoing, local, long distance and
mailgrams); and
PAGE 24
o data and telephone lines and associated
equipment such as modems, multiplexers,
and facsimile equipment.
o 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.
o 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.
C. 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;
PAGE 25
2. It is duly qualified to carry on its business in
Maryland and California;
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.
D. 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 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
PAGE 26
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.
E. 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
PAGE 27
misconduct of Price Services or where Price Services has not
exercised reasonable care in selecting or monitoring the
performance of its agents or subcontractors.
3. Except as provided in Article L 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 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 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
PAGE 28
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.
6. Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of
this Agreement.
F. 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.
G. Documentation
o As requested by Price Services, the Fund shall promptly
furnish to Price Services the following:
o 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;
PAGE 29
o 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;
o 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;
o All account application forms and other documents
relating to Shareholders' accounts;
o 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
o 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.
o As requested by Price Services, the Fund will also furnish
from time to time the following documents:
o Each resolution of the Board of Directors/Trustees of
the Fund authorizing the original issue of its Shares;
PAGE 30
o 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;
o A certified copy of each amendment to the Articles of
Incorporation or Declaration of Trust, and the By-Laws
of the Fund;
o Certified copies of each vote of the Board of
Directors/Trustees authorizing officers to give
instructions to the Transfer Agent;
o Specimens of all new certificates accompanied by the
Board of Directors/Trustees' resolutions approving such
forms;
o 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
o 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.
H. References to Price Services
Each Fund agrees not to circulate any printed matter which
contains any reference to Price Services without the prior
PAGE 31
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.
I. 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.
J. 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.
K. 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.
PAGE 32
L. As Of Transactions
For purposes of this Article L, 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.
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.
o 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.
PAGE 33
3. With respect to any Transaction which causes
Dilution to the Fund of $25,000 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").
o 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
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 of
$25,000 or more ("Significant Transaction"), Price
Services will review with counsel to the Fund the
Report and the circumstances surrounding the underlying
PAGE 34
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
Board at its next 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. Settlement
will not be entered into with Price Services until
approved by the Board. The factors the Board would be
expected to consider in making any determination
regarding the settlement of a Significant Transaction
would include but not be limited to:
o Procedures and controls adopted by Price Services
to prevent "As Of" processing;
o Whether such procedures and controls were being
followed at the time of the Significant
Transaction;
o The absolute and relative volume of all
transactions processed by Price Services on the
day of the Significant Transaction;
PAGE 35
o The number of Transactions processed by Price
Services during prior relevant periods, and the
net Dilution/Gain as a result of all such
transactions to the Fund and to all other Price
Funds;
o The prior response of Price Services to
recommendations made by the Funds regarding
improvement to the Transfer Agent's "As Of"
Processing Procedures.
M. Term and Termination of Agreement
o 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.
o This Agreement may be terminated by the Fund upon one
hundred twenty (120) days' written notice to Price Services;
and by Price Services, upon three hundred sixty-five (365)
days' writing notice to the Fund.
o 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.
N. 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
PAGE 36
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.
O. 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.
P. 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, 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.
Q. Further Assurances
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the
purposes hereof.
PAGE 37
R. Maryland Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of Maryland.
S. 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.
T. 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.
U. 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.
V. 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
PAGE 38
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.
W. 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.
PAGE 39
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.
DATED: 2/18/94 T. ROWE PRICE SERVICES, INC.
ATTEST:
/s/Barbara A. VanHorn /s/Mark E. Rayford
____________________ BY:___________________________
Barbara A. VanHorn Mark E. Rayford
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
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 DIVIDEND GROWTH FUND, INC
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
PAGE 40
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 Short-Term Global Fund
T. Rowe Price Latin America Fund
T. ROWE PRICE MID-CAP GROWTH 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 OTC FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income 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 Money Fund
Virginia Tax-Free Money Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
Summit Cash Reserves Fund
Summit Limited-Term Bond Fund
Summit GNMA Fund
PAGE 41
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
Summit Municipal Money Market Fund
Summit Municipal Intermediate Fund
Summit Municipal Income 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 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
DATED: 2/16/94
ATTEST:
/s/Lenora V. Hornung /s/Carmen F. Deyesu
_________________________ BY:__________________________
Lenora V. Hornung Carmen F. Deyesu
PAGE 42
APPENDIX A
The following Funds are parties to this Agreement, and have so
indicated their intention to be bound by such Agreement by
executing the Agreement on the dates indicated thereon.
T. Rowe Price Adjustable Rate U.S. Government Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price California Tax-Free Income Trust on behalf of the
California Tax-Free Bond Fund and
California Tax-Free Money Fund
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Dividend Growth Fund, Inc.
T. Rowe Price Equity Income Fund
T. Rowe Price GNMA Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price Index Trust, Inc. on behalf of the
T. Rowe Price Equity Index Fund
T. Rowe Price Institutional International Funds, Inc. on behalf
of the
Foreign Equity Fund
T. Rowe Price International Funds, Inc. on behalf of the
T. Rowe Price International Bond Fund and
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 Short-Term Global Fund
T. Rowe Price Latin America Fund
T. Rowe Price Mid-Cap Growth Fund
PAGE 43
T. Rowe Price New America Growth Fund
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Prime Reserve Fund, Inc.
T. Rowe Price OTC Fund, Inc.
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
T. Rowe Price Spectrum Fund, Inc. on behalf of the
Spectrum Growth Fund
Spectrum Income Fund
T. Rowe Price State Tax-Free Income Trust on behalf of the
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
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free 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 Insured Intermediate Bond Fund, Inc.
T. Rowe Price Tax-Free Short-Intermediate Fund, Inc.
T. Rowe Price U.S. Treasury Funds, Inc. on behalf of the
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
Summit Cash Reserves Fund
Summit Limited-Term Bond Fund
Summit GNMA Fund
PAGE 44
T. Rowe Price Summit Municipal Funds, Inc. on behalf of the
Summit Municipal Money Market Fund
Summit Municipal Intermediate Fund
Summit Municipal Income Fund
PAGE 45
SCHEDULE A - FEE SCHEDULE
Effective January 1, 1994 to December 31, 1994,
For the account of:
THE T. ROWE PRICE FUNDS
EQUITY FUNDS
T. Rowe Price New American Growth Fund
T. Rowe Price Growth Stock Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price New Era Fund, Inc.
T. Rowe Price International Stock Fund
T. Rowe Price Equity Income Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Small Capital Value Fund, Inc.
T. Rowe Price International Discovery Fund
Foreign Equity Fund
T. Rowe Price Equity Index Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Spectrum Growth Fund
T.Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price Dividend Growth Fund, Inc.
T. Rowe Price Mid-Cap Growth Fund, Inc.
T. Rowe Price Over-the-Counter Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
BOND FUNDS
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Tax-Free Income Fund, Inc.
T. Rowe Price New Jersey Tax-Free Bond Fund
T. Rowe Price Virginia Tax-Free Bond Fund
T. Rowe Price Short Term Bond 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 Adjustable Rate U.S. Government Fund, Inc.
T. Rowe Price GNMA Fund
T. Rowe Price New York Tax-Free Bond Fund
T. Rowe Price California Tax-Free Bond Fund
T. Rowe Price International Bond Fund
T. Rowe Price Maryland Short-Term Tax-Free Bond Fund
T. Rowe Price Maryland Tax-Free Bond Fund
T. Rowe Price U.S. Treasury Intermediate Fund
T. Rowe Price U.S. Treasury Long-Term Fund
T. Rowe Price Global Government Bond Fund
PAGE 46
T. Rowe Price Spectrum Income Fund
T. Rowe Price Short-term Global Bond Fund
T. Rowe Price Tax-Free Insured Intermediate Fund, Inc.
T. Rowe Price Georgia Tax-Free Bond Fund
T. Rowe Price Florida Insured Intermediate Tax-Free Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
Money Market Funds
T. Rowe Price Prime Reserve Fund, Inc.
T. Rowe Price Tax-Exempt Money Fund, Inc.
T. Rowe Price U.S. Treasury Money Fund
T. Rowe Price New York Tax-Free Money Fund
T. Rowe Price California Tax-Free Money Fund
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Municipal Money Market Fund
PAGE 47
The following fees for services provided by T. Rowe Price
Services, Inc. (TRPS) and vendors will be billed by TRPS for
1994:
I. T. Rowe Price Services Maintenance and Transaction Charges -
Billable Monthly
A. Base Fee
1. Per Fund - Beginning January 1, 1994, chargeable at
the rate of $1,000 per month to each Fund shown on the previous
page. The fee is waived for new Funds for the first 6 months
after effective date.
2. Monthly - $5,987,000 payable in twelve monthly
installments of $498,917.
B. Per Account Annual Fee - $3.63 for each Equity, Bond, and
Money Market Account serviced.
The Per Account Annual Fee will be billed monthly at a rate
of 1/12 of the annual fee for each Fund account serviced during
the month. Accounts serviced is defined as all open accounts at
month end plus accounts which closed during the month.
C. Transaction Fees
1. New Account Fees
a. $3.00 for every account opened, including fiduciary
accounts, excluding those opened by exchange and those
established as described in (b) below.
b. A fee of $1.00 will be assessed for accounts
established within the model and list functions programs and
under the agreement that the registrant's name will be quality
controlled subsequent to its establishment.
2. Non-Automated Transactions
a. $1.05 for each non-automated transaction and
maintenance item processed for the Fund Group as a whole during a
month. The non-automated transaction count will include all
manually processed price dependent and maintenance transactions.
Also, the number of new account setups will be excluded from the
number of non-automated transactions.
b. Fee to be charged to the Funds based on each Fund's
number of total non-automated transactions and maintenance.
c. Fee to be billed monthly for that month.
PAGE 48
d. NOTE: The transaction count should not include
correction of transactions caused by non-shareholder
errors.
D. Telephone Fee
Billed at the rate of $5.20 per call for shareholder
servicing calls received in excess of 34,000 calls per
month. Calls received in Retail Services are allocated to
the Funds based on accounts serviced and calls received in
Telephone Services are allocated based on actual calls
received.
E. Items Scanned
$.29 will be billed for each document page scanned. It will
be allocated based on the number of items indexed to each
Fund.
F. Tele*Access
Base fee, per month for all calls is $39,000.
G. Institutional Electronic Interface
Maximum fee calculated is 10 basis points or less per Fund.
10 basis points < $500 million
8 basis points > $500 million < $1 billion
5 basis points > $1 billion < $2 billion
3 basis points > $2 billion
H. Correspondence
$4.20 billed for each shareholder correspondence request
completed in writing or by phone. Allocated to the Funds
based on accounts serviced.
I. Telephone Transaction Fee
Each price dependent transaction initiated through the
Telephone Services Group will be charged $.50.
II. Vendor Fees
A. DST
1. Annual Open Account Fee
a. $1.77 for each Equity Fund account serviced.
b. $4.20 for each Bond Fund account serviced.
c. $4.20 for each Money Market Fund account serviced.
PAGE 49
The Open Account Fee will be billed monthly at a rate of
1/12 of the annual fee for each Fund account serviced during
the month.
2. Closed Account Fee (Annualized)
Payable at an annual rate of $1.44. The Closed Account
Fee will be billed monthly at a rate of 1/12 of the
annual rate and will be charged in the month following
the month during which such account is closed and shall
cease to be charged in the month following the Purge
Date.
3. Fiduciary Sub-Accounting
Payable at the rate of $1.00 per month for each fiduciary
account. Fiduciary accounts closed during the prior year
will not be included as billable items.
4. Annual Base Fee Per Fund
Annual Fee of $7,205.88 will be charged at a monthly rate
of $600.49. The fee is waived for the first six (6)
months after a new Fund is effective. The definition of
new Fund excludes Funds created by mergers, purchases, or
reorganizations.
5. Bank Account Reconciliation System (Comp/Recon)
Annual charge of $120,000 payable at a rate of $10,000
per month.
6. TRAC 2000 - $7.00 per participant, per year
7. Voice Response Unit
a. $500 Set-up Fee will be charged for each investment
company unit.
b. $2,500 Maintenance Fee will be billed each month.
c. $.50 will be billed per call connected to the VRU.
8. Contingent Deferred Sales Charge.
Billed to each Fund utilizing this service at an annual
rate of $1.03 per open account.
B. State Street Bank
1. NSCC Settlements
PAGE 50
a. $11.30 for net redemptions
b. $ 5.14 per net purchases
2. Checkwriting Fees
$.565 for each checkwriting item processed (i.e. those
resulting in either redemptions or returned as non-
processable). This includes signature card maintenance
and verification, manual or special processing of checks,
stop payment processing, settlement functions, and
postage and mailing expenses to return canceled checks to
shareholders.
3. Stop Payments - Redemption/Distribution Accounts
$15.00 for each manual stop payment placed on a
redemption or distribution check.
4. ACH Transactions
$.06 for each ACH transaction processed by the Bank and
submitted to the ACH network.
5. Internal Book Transfers
$1.08 billed for money movement between TRP DDA's at the
Bank. Money is transferred by debit and credit memos.
6. Wire Fees
$4.00 for each incoming, manual, and internal bank
transfer wire; $3.75 for each outgoing transmission wire.
7. Paid checks
$.18 for each paid check processed.
8. DDA Research
$1.03 per request.
9. Special Handling
$2,917 billed per month for the special handling of
checks at Marina Bay.
10. Nightly Audits
$.0285 per page for the audit of the DST nightly update.
PAGE 51
11. VAX Computer Usage
Billed at the rate of $8,318 per month which covers both:
a. System Fee - for use of sub-systems such as capital
stock interface, PDPS, Direct Deposit, etc.
b. Communication Fee - charge for the line, modems, and
statistical multiplexers.
12. Abandoned Property
Services based on the following fee schedule:
a. Administrative charge $125/Fund
b. Processing charges $1.00/account
c. Due Diligence Mailings $1.50/account
d. Labor will be charged based on the number of hours
required.
13. Account maintenance $16.00 per account per month
14. Reporting (SSCAN) for selected accounts - $50.00 per
account per month
15. FDIC Passthrough - charged at prevailing FDIC rates
C. J.P. Morgan Bank
1. Wire Transfer Fees
Annual Account Maintenance $250.00
Annual MORCOM/CASH
First Account $5,000.00
Subsequent Accounts $3,000.00
Batch File Transfer (BFT)
Transmission $15.00 each
(capped at 10 per month)
BFT Per Outgoing Wire
Peak (8 a.m. and 8 p.m.) $0.064
Off Peak (8 p.m. and 8 a.m.) $0.032
Outgoing Wires
Straight-through (Repetitive or Freetype)
80% of total volume $3.25
Book Transfer (IBT) $1.50
Repair (Freeform) $7.00
Zero Balance Transfer $1.00
PAGE 52
Incoming Wires
Fed or CHIPS $3.25
Book (IBT) $1.50
FDIC Passthrough - charged at prevailing FDIC rates
2. Controlled Disbursement Fees
Annual Account Maintenance
(capped at 6 accounts) $760.00 per
account
Annual MORCOM Next Day $1,385.00
per account
Annual MORCOM Check $715.00 per
account
Batch File Transfer (BFT)
Transmission (capped at 10 per month) $15.00 each
Same Day Match Pay (Dividend & Redemption Checks)
DCD Match $2,500.00
per account
TRPS Matches .005 per
item
Checks Paid
Up to 500,000 items $0.051
Up to 750,000 items $0.042
Up to 1,000,000 items $0.035
Stops
On-line $3.00
Returned Checks $3.00 per
item
3. The bank may charge interest at a rate in excess of normal
borrowing rates if the TRPS balance is overdrawn or is in a
negative collected balance status.
D. Fleet Bank of Massachusetts
1. Demand Deposit Services
a. Monthly Account Maintenance $13.00/
14.00 in
May
PAGE 53
b. Deposit Ticket $.85
c. Deposited Item Fee (all inclusive) $.054
d. Return of a Deposited Item
Redeposit Fee per deposit $1.00
Per redeposited item $.50
Returned item $3.00
2. Treasury Master System
a. Previous Day Balance Reporting
Monthly module charge $60.00
Per Account $10.00
b. Previous Day Detail
Monthly module charge $70.00
Per Transaction $.10
c. Current Day Detail
Monthly module charge $70.00
Per Transaction $.10
d. Depository Transfer
Monthly module charge $75.00
Per Transfer $.25
e. Money Movers per transfer $.50
f. Wire Transfer no addt'l
charge-
normal wire
fees only
3. Wire Transfer
a. Outgoing Repetitive Wire
Placed prior to 1:00 pm $9.00
Placed after 1:00 pm $10.00
b. Outgoing Non-Repetitive Wire
Placed prior to 1:00 pm $12.00
Placed after 1:00 pm $13.00
c. Incoming Wire $6.00
4. The bank may charge interest at a rate in excess of
normal borrowing rates if the TRPS balance is overdrawn
or is in a negative collected balance status.
5. FDIC Passthrough - charged at prevailing FDIC rates.
E. First National Bank of Maryland
1. Internal Fund Transfer $5.40
2. Returned Items $2.70
PAGE 54
3. Deposit Items Charge
varies
4. Deposit Tickets $.45
5. Return/redeposit items $2.25
6. Deposit Corrections $4.50
7. Check copy $9.00
8. First Facts
CDA Repetitive Wire $4.05
System Reports/Per Module $27.00
Per Report Previous Day $1.80
Per Report Current Day $3.60
9. Account maintenance $11.25
10. Debit item $.54
11. Credit transaction $.54
12. Foreign Deposit $4.50
13. ACH Debit $.117
14. Tax Deposits $.90
15. Film - Monthly $121.50
16. TRPS may be charged interest when TRPS's balance at FNB
is in a negative collected balance status. TRPS may
also receive balance credits on a positive investable
balance
17. FDIC Passthrough charged at prevailing FDIC rates
III. New Funds
Funds added during the term of this contract may have their
Maintenance and Transaction charges and other charges (Section
I) waived for a period of time, as agreed to by TRPS and Fund
Directors, following the establishment of the Fund. Out-of-
pocket expenses will be billed to the Fund from the Fund's
inception.
IN WITNESS WHEREOF, T.Rowe Price Funds and T.Rowe Price Services,
Inc. have agreed upon this fee schedule to be executed in their
names and on their behalf through their duly authorized officers:
T. ROWE PRICE FUNDS T. ROWE PRICE SERVICES, INC.
/s/Carmen F. Deyesu /s/Mark E. Rayford
NAME ____________________ NAME ________________________
Carmen F. Deyesu Mark E. Rayford
TITLE Treasurer TITLE President
DATE 2/16/94 DATE 2/18/94
<PAGE>
PAGE 55
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,
1994, between T. Rowe Price Services, Inc. and each of the
Parties listed on Appendix A thereto is hereby amended, as of
March 1, 1994, by adding thereto the T. Rowe Price Equity Series,
Inc. and T. Rowe Price International Series, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Equity Series, Inc. and T. Rowe
Price International Series, Inc. (collectively referred to as the
"Funds") shall not be responsible for paying any of the fees or
expenses set forth herein but that, in accordance with the
Investment Management Agreements, dated March 1, 1994, between
the Funds and T. Rowe Price Associates, Inc. and Rowe Price-
Fleming International, Inc. (collectively referred to as "T. Rowe
Price"), the Funds will require T. Rowe Price to pay all such
fees and expenses.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
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 DIVIDEND GROWTH FUND, INC
PAGE 56
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 GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC.
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 Short-Term Global Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH 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 OTC FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
PAGE 57
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income 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 Money Fund
Virginia Tax-Free Money Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond 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 TAX-EXEMPT MONEY FUND,INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE
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
Attest:
/s/Lenora V. Hornung /s/Carmen F. Deyesu
______________________ ______________________________
Lenora V. Hornung, By: Carmen F. Deyesu
Secretary
<PAGE>
PAGE 58
Attest: T. ROWE PRICE SERVICES, INC.
/s/Barbara A. VanHorn /s/Henry H. Hopkins
______________________ ______________________________
Barbara A. VanHorn, By: Henry H. Hopkins,
Assistant Secretary Vice President
<PAGE>
PAGE 59
AMENDMENT NO. 2
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,
1994, as amended March 1, 1994, between T. Rowe Price Services,
Inc. and each of the Parties listed on Appendix A thereto is
hereby further amended, as of April 21, 1994, by adding thereto
the T. Rowe Price Fixed Income Series, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Fixed Income Series, Inc.
(referred to as the "Fund") shall not be responsible for paying
any of the fees or expenses set forth herein but that, in
accordance with the Investment Management Agreement, dated April
21, 1994, between the Fund and T. Rowe Price Associates, Inc.
(referred to as "T. Rowe Price"), the Fund will require T. Rowe
Price to pay all such fees and expenses.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
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 DIVIDEND GROWTH FUND, INC
T. ROWE PRICE EQUITY INCOME FUND
<PAGE>
PAGE 60
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC.
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 Short-Term Global Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH 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 OTC FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
PAGE 61
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income 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 Money Fund
Virginia Tax-Free Money Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond 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 TAX-EXEMPT MONEY FUND,INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE
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
Attest:
/s/Lenora V. Hornung /s/Carmen F. Deyesu
______________________ ______________________________
Lenora V. Hornung, By: Carmen F. Deyesu
Secretary
<PAGE>
PAGE 62
Attest: T. ROWE PRICE SERVICES, INC.
/s/Barbara A. VanHorn /s/Henry H. Hopkins
______________________ ______________________________
Barbara A. VanHorn, By: Henry H. Hopkins,
Assistant Secretary Vice President
<PAGE>
PAGE 63
AMENDMENT NO. 3
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,
1994, as amended March 1, 1994 and April 21, 1994, between T.
Rowe Price Services, Inc. and each of the Parties listed on
Appendix A thereto is hereby further amended, as of July 27,
1994, by adding thereto the T. Rowe Price Personal Strategy
Funds, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Personal Strategy Funds, Inc.
(referred to as the "Funds") shall not be responsible for paying
any of the fees or expenses set forth herein but that, in
accordance with the Investment Management Agreements, dated July
27, 1994, between the Funds and T. Rowe Price Associates, Inc.
(referred to as "T. Rowe Price"), the Funds will require T. Rowe
Price to pay all such fees and expenses.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
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 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 FIXED INCOME SERIES, INC.
PAGE 64
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC.
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 Short-Term Global Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH 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 OTC 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 SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
PAGE 65
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 Money Fund
Virginia Tax-Free Money Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond 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 TAX-EXEMPT MONEY FUND,INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE
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
Attest:
/s/Lenora V. Hornung /s/Carmen F. Deyesu
______________________ ______________________________
Lenora V. Hornung, By: Carmen F. Deyesu
Secretary
Attest: T. ROWE PRICE SERVICES, INC.
/s/Barbara A. VanHorn /s/Henry H. Hopkins
______________________ ______________________________
Barbara A. VanHorn, By: Henry H. Hopkins,
Assistant Secretary Vice President
Agmts\Transfer.Amd
The Agreement between T. Rowe Price Associates, Inc. and T. Rowe Price Funds
for Fund Accounting Services, dated January 1, 1994, as amended, should be
inserted here.
PAGE 1
AGREEMENT
between
T. ROWE PRICE ASSOCIATES, INC.
and
THE T. ROWE PRICE FUNDS
for
FUND ACCOUNTING SERVICES
PAGE 2
TABLE OF CONTENTS
Page
Article A Terms of Appointment/Duties of Price Associates .1
Article B Fees and Out-of-Pocket Expenses . . . . . . . . .2
Article C Representations and Warranties of Price Associates3
Article D Representations and Warranties of the Fund. . . .3
Article E Ownership of Software and Related Material. . . .3
Article F Quality Service Standards . . . . . . . . . . . .4
Article G Standard of Care/Indemnification. . . . . . . . .4
Article H Dual Interests. . . . . . . . . . . . . . . . . .5
Article I Documentation . . . . . . . . . . . . . . . . . .5
Article J Recordkeeping/Confidentiality . . . . . . . . . .5
Article K Compliance with Governmental Rules and Regulations6
Article L Terms and Termination of Agreement. . . . . . . .6
Article M Notice. . . . . . . . . . . . . . . . . . . . . . 6
Article N Assignment. . . . . . . . . . . . . . . . . . . . 7
Article O Amendment/Interpretive Provisions . . . . . . . .7
Article P Further Assurances. . . . . . . . . . . . . . . .7
Article Q Maryland Law to Apply . . . . . . . . . . . . . .7
Article R Merger of Agreement . . . . . . . . . . . . . . .7
Article S Counterparts. . . . . . . . . . . . . . . . . . .8
Article T The Parties . . . . . . . . . . . . . . . . . . . 8
Article U Directors, Trustee and Shareholders and Massachusetts
Business Trust. . . . . . . . . . . . . . . . . .8
PAGE 3
Article V Captions. . . . . . . . . . . . . . . . . . . . . 9
PAGE 4
AGREEMENT made as of the first day of January, 1994, 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;
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:
a. Maintain for each Fund a daily trial balance, a general
ledger, subsidiary records and capital stock accounts;
PAGE 5
b. Maintain for each Fund an investment ledger, including
amortized bond and foreign dollar denominated costs where
applicable;
c. Maintain for each Fund all records relating to the Fund's
income and expenses;
d. Provide for the daily valuation of each Fund's portfolio
securities and the computation of each Fund's daily net
asset value per share. 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;
e. Provide daily cash flow and transaction status information
to each Fund's adviser;
f. Prepare for each Fund such financial information that is
reasonably necessary for shareholder reports, reports to
PAGE 6
the Board of Directors and to the officers of the Fund,
and reports to the Securities and Exchange Commission and
the Internal Revenue Service and other Federal and state
regulatory agencies;
g. 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;
h. 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
i. 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
PAGE 7
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
services 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.
D. Representations and Warrantees 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.
PAGE 8
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 the 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. Price Associates 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 the Agreement provided Price Associates
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.
PAGE 9
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 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.
PAGE 10
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 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 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.
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
PAGE 11
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
PAGE 12
such information by duly constituted governmental authorities; or
(c) after so requested by the other party hereto.
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
PAGE 13
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 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.
PAGE 14
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 Appendices and
Schedules 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.
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
PAGE 15
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 16
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.
DATED: 2/22/94 T. ROWE PRICE ASSOCIATES, INC.
ATTEST:
/s/Barbara A. VanHorn /s/Alvin M. Younger
_________________________ BY:___________________________
Barbara A. VanHorn Managing Director
PAGE 17
T. ROWE PRICE ADJUSTABLE RATE U.S.
GOVERNMENT FUND, INC.
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 DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL EQUITY FUND,
INC.
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 Short-Term Global Fund
T. Rowe Price Latin America Fund
T. ROWE PRICE MID-CAP GROWTH FUND
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
PAGE 18
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND,
INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income 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
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond 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 SHORT-INTERMEDIATE
FUND, INC.
T. ROWE PRICE TAX-FREE INSURED
INTERMEDIATE BOND 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
PAGE 19
T. ROWE PRICE SUMMIT FUNDS, INC.
Summit Cash Reserves Fund
Summit Limited-Term Bond Fund
Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
Summit Municipal Money Market Fund
Summit Municipal Intermediate Fund
Summit Municipal Income Fund
DATED: 2/16/94
ATTEST:
/s/Lenora V. Hornung /s/Carmen F. Deyesu
_________________________ BY:______________________________
Lenora V. Hornung Carmen F. Deyesu
PAGE 20
APPENDIX A
The following Funds are parties to this Agreement, and have so
indicated their intention to be bound by such Agreement by
executing the Agreement on the dates indicated thereon.
T. Rowe Price Adjustable Rate U.S.
Government Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price California Tax-Free Income
Trust on behalf of the
California Tax-Free Bond Fund and
California Tax-Free Money Fund
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Dividend Growth Fund, Inc.
T. Rowe Price Equity Income Fund
T. Rowe Price GNMA Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price Index Trust, Inc. on behalf
of the T. Rowe Price Equity Index Fund
T. Rowe Price Institutional International
Funds, Inc. on behalf of the
Foreign Equity Fund
T. Rowe Price International Equity Fund,
Inc.
PAGE 21
T. Rowe Price International Funds, Inc.
on behalf of the
T. Rowe Price International Bond Fund and
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 Short-Term Global Fund
T. Rowe Price Latin American Fund
T. Rowe Price Mid-Cap Growth Fund
T. Rowe Price New America Growth Fund
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price OTC Fund, Inc.
T. Rowe Price Prime Reserve Fund, Inc.
T. Rowe Price Science & Technology Fund,
Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
T. Rowe Price Spectrum Fund, Inc. on
behalf of the
Spectrum Growth Fund
Spectrum Income Fund
T. Rowe Price State Tax-Free Income Trust
on behalf of the
Maryland Tax-Free Bond Fund,
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund and
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free
Bond Fund
Georgia Tax-Free Bond Fund
PAGE 22
T. Rowe Price Tax-Exempt Money Fund, Inc.
T. Rowe Price Tax-Free Insured
Intermediate Bond 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.
on behalf of the
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
Summit Cash Reserves Fund
Summit Limited-Term Bond Fund
Summit GNMA Fund
T. Rowe Price Summit Municipal Funds,
Inc. on behalf of
Summit Municipal Money Market Fund
Summit Municipal Intermediate Fund
Summit Municipal Income Fund
PAGE 23
FUND ACCOUNTING SERVICES
1994 FEE SCHEDULE
A. Fee Structure
1. Base Fee
Domestic Funds $60,000 each
International Funds $100,000 each
Spectrum Funds $35,000 each
Per Fund fee for basic recordkeeping
and financial reporting
2. Individual Fund Fee
Total fees reflecting special $ 883,000
characteristics of each Fund
3. Stock Lending Fee
Allocated to each Fund based $ 75,000
on ratio of net earnings from
stock loans
4. Additional Funds
Domestic Funds $60,000 each
International Funds $100,000 each
Spectrum Funds $35,000 each
B. Total Cost Per Fund
Growth Stock Fund $ 114,000
New Horizons Fund 95,000
Equity Income Fund 85,000
New Era Fund 72,000
International Stock Fund 115,000
Growth & Income Fund 85,000
New America Growth Fund 70,000
Capital Appreciation Fund 85,000
Small-Cap Value Fund 60,000
Foreign Equity Fund 105,000
International Discovery Fund 125,000
Science & Technology Fund 60,000
High Yield Fund 165,000
Tax-Free Income Fund 110,000
New Income Fund 100,000
Tax-Free High Yield Fund 110,000
European Stock Fund 100,000
Equity Index Fund 60,000
PAGE 24
New Asia Fund 110,000
Spectrum Growth Fund 35,000
GNMA Fund 120,000
International Bond Fund 125,000
Balanced Fund 90,000
Maryland Bond Fund 81,000
Tax-Free Short Intermediate Fund 85,000
Short-Term Bond Fund 120,000
California Bond Fund 72,000
New York Bond Fund 72,000
U.S. Treasury Short-Intermediate Fund 60,000
U.S. Treasury Long-Term Bond Fund 60,000
Spectrum Income Fund 35,000
Prime Reserve Fund 85,000
Tax-Exempt Money Fund 93,000
U.S. Treasury Money Fund 60,000
California Money Fund 67,000
New York Money Fund 67,000
Adjustable Rate Government Fund 110,000
Virginia Bond Fund 60,000
New Jersey Bond Fund 60,000
Global Government Bond Fund 100,000
OTC Fund 85,000
Japan Fund 100,000
Mid-Cap Growth Fund 60,000
Short-Term Global Fund 100,000
Maryland Short-Term Tax-Free Bond Fund 60,000
Florida Insured Intermediate Tax-Free Fund 60,000
Georgia Tax-Free Bond Fund 60,000
Tax-Free Insured Intermediate Bond Fund 60,000
Blue Chip Growth Fund 60,000
Dividend Growth Fund 65,000
Latin America Fund 100,000
Summit Cash Reserve Fund 60,000
Summit Limited-Term Bond Fund 60,000
Summit GNMA Fund 60,000
Summit Municipal Money Market Fund 60,000
Summit Municipal Intermediate Fund 60,000
Summit Municipal Income Fund 60,000
IN WITNESS WHEREOF, T. Rowe Price Funds and T. Rowe Price
Associates, Inc. have agreed upon this fee schedule to be
executed in their names and on their behalf through their duly
authorized officers:
T. ROWE PRICE FUNDS T. ROWE PRICE ASSOCIATES, INC.
/s/Carmen F. Deyesu /s/Alvin M. Younger
Name_________________________ Name__________________________
Carmen F. Deyesu Alvin M. Younger
Title Treasurer Title Treasurer and Managing
Director
Date 2/16/94 Date 2/16/94
<PAGE>
PAGE 25
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,
1994, between T. Rowe Price Associates, Inc. and each of the
Parties listed on Appendix A thereto is hereby amended, as of
March 1, 1994, by adding thereto the T. Rowe Price Equity Series,
Inc. and T. Rowe Price International Series, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Equity Series, Inc. and T. Rowe
Price International Series, Inc. (collectively referred to as the
"Funds") shall not be responsible for paying any of the fees or
expenses set forth herein but that, in accordance with the
Investment Management AgreementS, dated March 1, 1994, between
the Funds and T. Rowe Price Associates, Inc. and Rowe Price-
Fleming International, Inc. (collectively referred to as "T. Rowe
Price"), the Funds will require T. Rowe Price to pay all such
fees and expenses.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
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
PAGE 26
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 GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC.
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 Short-Term Global Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH FUND
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 OTC FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
PAGE 27
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income 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
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond 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 TAX-FREE INSURED INTERMEDIATE
FUND, 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.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
<PAGE>
PAGE 28
Attest:
/s/Lenora V. Hornung /s/Carmen F. Deyesu
________________________ ___________________________________
Lenora V. Hornung, By: Carmen F. Deyesu
Secretary
Attest: T. ROWE PRICE SERVICES, INC.
/s/Barbara A. VanHorn /s/Henry H. Hopkins
________________________ ___________________________________
Barbara A. VanHorn, By: Henry H. Hopkins, Vice President
Assistant Secretary
<PAGE>
PAGE 29
AMENDMENT NO. 2
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,
1994, as amended March 1, 1994, between T. Rowe Price Associates,
Inc. and each of the Parties listed on Appendix A thereto is
hereby further amended, as of April 21, 1994, by adding thereto
the T. Rowe Price Fixed Income Series, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Fixed Income Series, Inc.
(referred to as the "Fund") shall not be responsible for paying
any of the fees or expenses set forth herein but that, in
accordance with the Investment Management Agreement, dated April
21, 1994, between the Fund and T. Rowe Price Associates, Inc.
(referred to as "T. Rowe Price"), the Fund will require T. Rowe
Price to pay all such fees and expenses.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
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 DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
PAGE 30
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC.
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 Short-Term Global Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH FUND
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 OTC FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
PAGE 31
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income 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
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond 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 TAX-FREE INSURED INTERMEDIATE
FUND, 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.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
<PAGE>
PAGE 32
Attest:
/s/Lenora V. Hornung /s/Carmen F. Deyesu
________________________ ___________________________________
Lenora V. Hornung, By: Carmen F. Deyesu
Secretary
Attest: T. ROWE PRICE SERVICES, INC.
/s/Barbara A. VanHorn /s/Henry H. Hopkins
________________________ ___________________________________
Barbara A. VanHorn, By: Henry H. Hopkins, Vice President
Assistant Secretary
<PAGE>
PAGE 33
AMENDMENT NO. 3
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,
1994, as amended March 1, 1994 and April 21, 1994, between T.
Rowe Price Associates, Inc. and each of the Parties listed on
Appendix A thereto is hereby further amended, as of July 27,
1994, by adding thereto the T. Rowe Price Personal Strategy
Funds, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Personal Strategy Funds, Inc.
(referred to as the "Funds") shall not be responsible for paying
any of the fees or expenses set forth herein but that, in
accordance with the Investment Management Agreements, dated July
27, 1994, between the Funds and T. Rowe Price Associates, Inc.
(referred to as "T. Rowe Price"), the Funds will require T. Rowe
Price to pay all such fees and expenses.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT
FUND, INC.
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 DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
PAGE 34
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC.
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 Short-Term Global Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH FUND
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 OTC 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.
PAGE 35
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income 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
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond 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 TAX-FREE INSURED INTERMEDIATE
FUND, 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.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
Attest:
/s/Lenora V. Hornung /s/Carmen F. Deyesu
________________________ ___________________________________
Lenora V. Hornung, By: Carmen F. Deyesu
Secretary
PAGE 36
Attest: T. ROWE PRICE SERVICES, INC.
/s/Barbara A. VanHorn /s/Henry H. Hopkins
________________________ ___________________________________
Barbara A. VanHorn, By: Henry H. Hopkins, Vice President
Assistant Secretary
Agmts\FundAcct.Amd
The Agreement between T. Rowe Price Retirement Plan Services, Inc. and the
Taxable Funds, dated January 1, 1994, as amended should be inserted here.
AGREEMENT
between
T. ROWE PRICE RETIREMENT PLAN SERVICES, INC.
and
EACH OF THE PARTIES INDICATED ON APPENDIX A
TABLE OF CONTENTS
Page
Article ATerms of Appointment. . . . . . . . . . . . . . . . 2
Article BDuties of RPS . . . . . . . . . . . . . . . . . . . 2
1. Purchases - Retirement Plans and Retirement Accounts2
2. Retirement Plans - Redemptions to Cover
Distributions3
3. Exchanges. . . . . . . . . . . . . . . . . . . . 4
4. Shares held by Retirement Accounts . . . . . . . 4
5. Books and Records. . . . . . . . . . . . . . . . 4
6. Tax Information. . . . . . . . . . . . . . . . . 5
7. Other Information to be furnished to the Funds . 6
8. Correspondence . . . . . . . . . . . . . . . . . 6
9. Mailings/Confirmation Statements . . . . . . . . 6
10. Proxies. . . . . . . . . . . . . . . . . . . . . 6
11. Form N-SAR . . . . . . . . . . . . . . . . . . . 6
12. Backup Withholding . . . . . . . . . . . . . . . 6
Article CFee and Out-of-Pocket Expenses. . . . . . . . . . . 7
1. Postage. . . . . . . . . . . . . . . . . . . . . 7
2. Proxies. . . . . . . . . . . . . . . . . . . . . 7
3. Communications . . . . . . . . . . . . . . . . . 7
4. Record Retention . . . . . . . . . . . . . . . . 8
5. Disaster Recovery. . . . . . . . . . . . . . . . 8
Article DRepresentations and Warranties of RPS . . . . . . . 8
Article ERepresentations and Warranties of the Fund. . . . . 8
Article FStandard of Care/Indemnification. . . . . . . . . . 9
Article GDual Interests. . . . . . . . . . . . . . . . . . .11
Article HDocumentation . . . . . . . . . . . . . . . . . . .11
Article IRecordkeeping/Confidentiality . . . . . . . . . . .12
Article JOwnership of Software and Related Material. . . . .13
Article KAs of Transactions. . . . . . . . . . . . . . . . .13
1. Reporting. . . . . . . . . . . . . . . . . . . .13
2. Liability. . . . . . . . . . . . . . . . . . . .14
Article LTerm and Termination of Agreement . . . . . . . . .15
Article MNotice . . . . . . . . . . . . . . . . . . . . . .16
Article NAssignment. . . . . . . . . . . . . . . . . . . . .16
Article OAmendment/Interpretive Provisions . . . . . . . . .16
Article PFurther Assurances. . . . . . . . . . . . . . . . .16
Article QMaryland Law to Apply . . . . . . . . . . . . . . .16
Article RMerger of Agreement . . . . . . . . . . . . . . . .17
Article SCounterparts17
Article TThe Parties . . . . . . . . . . . . . . . . . . . .17
Article UDirectors, Trustees and Shareholders and Massachusetts
Business Trust17
Article VCaptions. . . . . . . . . . . . . . . . . . . . . .18
AGREEMENT, made as of the first day of January, 1994, 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 deferred compensation plans, 403(b)
plans, and profit sharing, thrift, 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 ("Retirement Accounts") of shareholders participating in
these Retirement Plans;
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 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 the foregoing
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.Purchases - 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 or Retirement Plan
participants ("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. Transmit by check or wire the aggregate money allocated to
each Fund to the Fund's
custodian;
b. In the case of a new Participant, establish and maintain a
Retirement Account for such
Participant; and
c. Compute the number of shares of each Fund to which the
Participant is entitled according
to the price of such Fund shares as provided by such Fund for
purchases made at that time
and date, and credit each such Account with the number of
shares of the Fund so
purchased.
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 amount due for shares to be redeemed from each
Retirement Account or
compute the number of shares to be redeemed from each such
Retirement Account for such
distributions and the total number of all shares of each Fund
to be redeemed in accordance
with the price per share at that time and date of such Fund
as calculated and provided by
the Fund. After such computation, inform the Fund of the
amount necessary to be
redeemed. Distribute to Participants or their designated
beneficiaries the amount to be
disbursed.
b. 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:
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 at that time and date,
of such Fund as calculated
and provided by the Fund;
ii.Effect the necessary redemption from the Fund's custodian
to cover such
disbursements; and
iii.Mail to the Administrator or such other person as
designated by the Administrator the
amount to be disbursed.
c. Other Provisions
i. If any instruction tendered by an Administrator to redeem
shares in a Retirement
Account is not satisfactory to RPS, RPS shall promptly
notify the Administrator of
such fact together with the reason therefor;
ii.The authority of RPS to perform its responsibilities under
Paragraph B(2) with respect
to each Fund shall be suspended upon receipt of
notification by such Fund of the
suspension of the determination of the Fund's net asset
value per share and shall
remain suspended until proper notification; and
iii.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.
3.Exchanges
Effect exchanges of shares of the Funds upon receipt of
appropriate instructions from the
Administrator and/or Participant.
4.Shares held by Retirement Accounts will be Noncertificate
Shares
RPS will have neither responsibility nor authority to issue
stock certificates evidencing
ownership of Fund shares held by Participants. All shares held
in Retirement Accounts maintained
by RPS shall be noncertificated shares.
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;
c. Historical information regarding the account of each
Participant and/or Retirement Plan,
including dividends and distributions invested in shares;
d. Pertinent information regarding the establishment and
maintenance of Retirement Plans and
Retirement Accounts necessary to properly administer each
account.
e. Any instructions from a Participant or Administrator
including, all forms furnished by the
Fund and executed by a Participant with respect to (i)
elections with respect to payment
options in connection with the redemption of shares; or
distribution elections, if applicable;
and
f. 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 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.
6.Tax Information
RPS shall also prepare and file with appropriate federal and
state agencies, such information
returns and reports as required by applicable Federal and State
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
and State law.
7.Other Information to be furnished to the Funds
RPS will furnish to the Fund, such information, including
shareholder lists and statistical
information as may be agreed upon from time to time between RPS
and the Fund.
8.Correspondence
RPS will promptly and fully answer correspondence from
Administrators and in some cases,
Participants, relating to 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 RPS in accordance with
applicable law.
9.Mailings/Confirmation Statements
RPS will be responsible for mailing all confirmations and other
enclosures and mailings, as
requested by the Administrators and as may be required of the
Funds by applicable Federal or state
law.
10.Proxies
RPS shall monitor the mailing of proxy cards and other material
supplied to it by the Fund in
connection with shareholder meetings of the Fund and shall
coordinate the receipt, examination and
tabulation of returned proxies and the certification of the vote
to the Fund.
11.Form N-SAR
RPS shall maintain such records, if any, as shall enable the
Fund to fulfill the requirements of
Form N-SAR.
12.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 for Participants.
C.Fees and Out-of-Pocket Expenses
Each Fund shall pay to RPS for its services hereunder fees
computed as set forth in the 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
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.
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 to and from the Participants,
or their agents, the Fund's
transfer agent, other Fund offices, and other agents of
either the Fund or RPS. These
charges shall include:
telephone toll charges (both incoming and outgoing, local,
long distance and
mailgrams); and
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:
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.
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
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.
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, claims,
actions or expense resulting from
such failure to perform or otherwise from such causes.
5.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
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.
6.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. A certified 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. 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;
d. All account application forms and other documents relating to
shareholders' accounts;
e. 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
f. 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
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 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;
e. Specimens of all new certificates accompanied by the Board of
Directors/Trustees'
resolutions approving such forms;
f. Such other documents or opinions which RPS, in its
discretion, may reasonably deem
necessary or appropriate in the proper performance of its
duties; and
g. Copies of new prospectuses issued.
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.
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; or (c) after so requested
by the other party hereto.
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) that
are 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. 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.
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 $25,000 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 of $25,000 or
more ("Significant
Transaction"), RPS will review with counsel to the Fund, the
Report and 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 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, as appropriate, will
negotiate settlement. All such
Significant Transactions will be reported to the Board at its
next 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. Settlement will not be
entered into with RPS until
approved by the Board. The factors the Board or the Funds
would be expected 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 transactions to
the Fund and to all other Price
Funds; and
v. The prior response of RPS to recommendations made by the
Funds regarding
improvement to the Transfer Agent's As Of Processing
Procedures.
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' written
notice to RPS; and by RPS, upon three hundred sixty-five (365)
days' writing 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
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.
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.
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 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 DATED:_________________________
SERVICES, INC.
ATTEST:
BY:
___________________________________________________________
__
T. ROWE PRICE ADJUSTABLE RATE U.S
GOVERNMENT FUND, INC.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND,
INC.
T. ROWE PRICE CAPITAL APPRECIATION
FUND
T. ROWE PRICE DIVIDEND GROWTH FUND,
INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND,
INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL INTERNATIONAL FUNDS,
INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL EQUITY
FUND,
INC.
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 Short-Term Global Fund
T. Rowe Price Latin America Fund
T. ROWE PRICE MID-CAP GROWTH FUND,
INC.
T. ROWE PRICE OTC 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 PRIME RESERVE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY
FUND,
INC.
T. ROWE PRICE SHORT-TERM BOND FUND,
INC.
T. ROWE PRICE SMALL-CAP VALUE FUND,
INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income 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.
Summit Cash Reserves Fund
Summit Limited-Term Bond Fund
Summit GNMA Fund
DATED: ______________________
ATTEST:
______________________________ BY:
_____________________________________
APPENDIX A
The following Funds are parties to this Agreement, and have so
indicated their intention to be bound by
such Agreement by executing the Agreement on the dates indicated
thereon.
T. Rowe Price
Adjustable Rate U.S. Government Fund,
Inc.
T. Rowe Price Balanced
Fund, Inc.
T. Rowe Price Blue
Chip Growth Fund, Inc.
T. Rowe Price Capital
Appreciation Fund
T. Rowe Price Dividend
Growth Fund, Inc.
T. Rowe Price Equity
Income Fund
T. Rowe Price
GNMA Fund
T. Rowe Price
Growth & Income Fund, Inc.
T. Rowe Price
Growth Stock Fund, Inc.
T. Rowe Price
High Yield Fund, Inc.
T. Rowe Price
Index Trust, Inc. on behalf of the T.
Rowe Price
Equity Index Fund
T. Rowe Price
Institutional International Funds, Inc. on
behalf of the
Foreign Equity
Fund
T. Rowe Price
International Equity Fund, Inc.
T. Rowe Price
International Funds, Inc. on behalf of the
T. Rowe Price
International Bond Fund and
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
Short-Term Global Fund
T. Rowe Price
Latin America Fund
T. Rowe Price
New America Growth Fund
T. Rowe Price
New Era Fund, Inc.
T. Rowe Price
New Horizons Fund, Inc.
T. Rowe Price
New Income Fund, Inc.
T. Rowe Price
OTC Fund, Inc.
T. Rowe Price
Prime Reserve Fund, Inc.
T. Rowe Price
Science & Technology Fund, Inc.
T. Rowe Price
Short-Term Bond Fund, Inc.
T. Rowe Price
Small-Cap Value Fund, Inc.
T. Rowe Price
Spectrum Fund, Inc. on behalf of the
Spectrum Growth
Fund
Spectrum Income
Fund
T. Rowe Price
U.S. Treasury Funds, Inc. on behalf of
the
U.S. Treasury
Intermediate Fund
U.S. Treasury
Long-Term Fund
U.S. Treasury
Money Fund
T. Rowe Price
Summit Funds, Inc.
Summit Cash
Reserves Fund
Summit
Limited-Term Bond Fund
Summit GNMA
Fund AMENDMENT NO. 1
AGREEMENT
between
T. ROWE PRICE RETIREMENT PLAN
SERVICES, INC.
and
EACH OF THE PARTIES
INDICATED
The Retirement Plan Services Contract of January 1, 1994,
between T. Rowe Price Retirement Plan
Services, Inc. and each of the Parties listed on Appendix A
thereto is hereby amended, as of July 27,
1994, by adding thereto the T. Rowe Price Personal Strategy
Funds, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Personal
Strategy Funds, Inc. (referred to as the "Funds") shall not be
responsible for paying any of the fees or
expenses set forth herein but that, in accordance with the
Investment Management Agreements, dated July
27, 1994, between the Funds and T. Rowe Price Associates, Inc.
(referred to as "T. Rowe Price"), the
Funds will require T. Rowe Price to pay all such fees and
expenses.
T. ROWE PRICE ADJUSTABLE
RATE U.S GOVERNMENT
FUND, INC.
T. ROWE PRICE BALANCED
FUND, INC.
T. ROWE PRICE BLUE CHIP
GROWTH FUND, INC.
T. ROWE PRICE CAPITAL
APPRECIATION FUND
T. ROWE PRICE DIVIDEND
GROWTH FUND, INC.
T. ROWE PRICE EQUITY
INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH &
INCOME FUND, INC.
T. ROWE PRICE GROWTH
STOCK FUND, INC.
T. ROWE PRICE HIGH YIELD
FUND, INC.
T. ROWE PRICE INDEX
TRUST, INC.
T. Rowe Price Equity
Index Fund
INSTITUTIONAL
INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE
INTERNATIONAL EQUITY FUND, INC.
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 Short-Term
Global Fund
T. Rowe Price Latin
America Fund
T. ROWE PRICE MID-CAP
GROWTH FUND, INC.
T. ROWE PRICE OTC 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 SCIENCE &
TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM
BOND FUND, INC.
T. ROWE PRICE SMALL-CAP
VALUE FUND, INC.
T. ROWE PRICE SPECTRUM
FUND, INC.
Spectrum Growth Fund
Spectrum Income 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.
Summit Cash Reserves
Fund
Summit Limited-Term Bond
Fund
Summit GNMA Fund
Attest:
___________________________
_____________________________________
Lenora V. Hornung, By: Carmen F. Deyesu
Secretary
Attest: T. ROWE PRICE RETIREMENT
PLAN
SERVICES, INC.
___________________________
_____________________________________
Barbara A. VanHorn, By: Henry H. Hopkins,
Vice President
Assistant Secretary
lhc\wpdata\agrmnt\rpsamd.94
LHC\RPS94
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. 16 to the Registration Statement on Form N-1A (the "Registration
Statement") of our report dated June 17, 1994, relating to the financial
statements and selected per share data and ratios appearing in the May 31,
1994 Annual Report to Shareholders of the T. Rowe Price GNMA Fund, which is
also 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/Price Waterhouse
PRICE WATERHOUSE
Baltimore, Maryland
July 28, 1994
