PAGE 1
Registration Nos. 033-08093/811-4525
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Post-Effective Amendment No. 19 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 / X /
Amendment No. 15 / X /
Fiscal Year Ended February 28, 1997
________________________________________
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
___________________________________________________
(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 410-345-2000
____________
Henry H. Hopkins
100 East Pratt Street
Baltimore, Maryland 21202
________________________________________
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering July 1, 1997
____________
It is proposed that this filing will become effective (check
appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/X/ on July 1, 1997 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
PAGE 2
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
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 April 30, 1998.
+Not applicable, as no securities are being registered by this
Post-Effective Amendment No. 18 to the Registration Statement.
SUBJECT TO COMPLETION
Information contained herein is subject to completion or
amendment. A Registration Statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
PAGE 3
The Registration Statement of T. Rowe Price California Tax-
Free Income Trust on Form N-1A (File Number 33-08093) is hereby
amended under the Securities Act of 1933 to update the
Registrant's financial statements, make other changes in the
Registrant's Prospectus and Statement of Additional Information,
and to satisfy the annual amendment requirements of Rule 8b-16
under the Investment Company Act of 1940.
This Amendment consists of the following:
Cross Reference Sheet
Part A of Form N-1A, Revised Prospectus
Part B of Form N-1A, Statement of Additional Information
Part C of Form N-1A, Other Information
Opinion of Counsel
Accountants' Consent
PAGE 4
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
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 Transaction and Fund
Registrant Expenses; Fund,
Market, and Risk
Characteristics;
Organization and
Management;
Understanding
Performance
Information;
Investment Policies
and Practices; Types
of Management
Practices
Item 5. Management of the Fund Transaction and Fund
Expenses; Fund,
Market, and Risk
Characteristics;
Organization and
Management
Item 6. Capital Stock and Other Distributions and
Securities Taxes; Organization
and Management
Item 7. Purchase of Securities Being Pricing Shares and
Offered Receiving Sale
Proceeds; Transaction
Procedures and Special
Requirements; Account
Requirements and
Transaction
Information;
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 +
PAGE 5
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +
Item 13. Investment Objectives and Investment Objectives
Policies and Policies; Risk
Factors Associated
with a California
Portfolio; Investment
Program; Investment
Restrictions; Risk
Factors; Yield
Information;
Investment Performance
Item 14. Management of the Registrant Management of the
Trust
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
Item 18. Capital Stock and Other Dividends and
Securities Distributions;
Organization of the
Trust
Item 19. Purchase, Redemption and Redemptions in Kind;
Pricing of Securities Being Pricing of Securities;
Offered Net Asset Value Per
Share; Federal
Registration of
Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for the
Trust
Item 22. Calculation of Yield Quotations
of Money Market Funds Yield Information
Item 23. Financial Statements Incorporated by
Reference from Annual
Report
PAGE 6
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 7
<PAGE>
PROSPECTUS
July 1, 1997
California Tax-Free Funds
A long-term bond fund and a money market fund for investors seeking income that
is exempt from federal and California state income taxes.
T. ROWE PRICE RAM LOGO
<PAGE>
FACTS AT A GLANCE
California Tax-Free Funds
Investment Goal
The highest level of income exempt from federal and California state income
taxes consistent with each fund's prescribed investment program.
As with all mutual funds, these funds may not meet their goal.
Strategy and Risk/Reward
California Tax-Free Money Fund Invests in high-quality, short-term municipal
securities, and its average maturity will not exceed 90 days. Your investment
in the fund is neither insured nor guaranteed by the U.S. government, and there
is no assurance that the fund will be able to maintain a stable net asset value
of $1.00 per share. Because the fund concentrates its investments in securities
of California issuers, an investment in this fund may be riskier than an
investment in more broadly diversified money funds.
Risk/Reward: Lowest potential risk and reward.
California Tax-Free Bond Fund Invests primarily in investment-grade municipal
bonds. The fund's average maturity is expected to exceed 15 years.
Risk/Reward: Significantly higher income than the money fund and greater
potential price fluctuation than a shorter-term bond fund.
Investor Profile
California taxpayers who, because of their tax bracket, can benefit from income
that is exempt from federal and California state income taxes. Not appropriate
for tax-deferred retirement plans, such as IRAs.
Fees and Charges
100% no load. No fees or charges to buy or sell shares or to reinvest
dividends; no 12b-1 marketing fees; free telephone exchange.
Investment Manager
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc. ("T. Rowe Price") and its affiliates managed approximately $103 billion,
including over $6.1 billion in municipal bond assets, for more than five
million individual and institutional investor accounts as of March 31, 1997.
<PAGE>
T. Rowe Price California Tax-Free Income Trust
Prospectus
July 1, 1997
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
T. ROWE PRICE 2
CONTENTS
1
ABOUT THE FUNDS
Transaction and Fund Expenses 2
Financial Highlights 4
Fund, Market, and Risk Characteristics 6
2
ABOUT YOUR ACCOUNT
Pricing Shares and Receiving Sale Proceeds 15
Distributions and Taxes 16
Transaction Procedures and Special Requirements 19
3
MORE ABOUT THE FUNDS
Organization and Management 22
Understanding Performance Information 24
Investment Policies and Practices 25
4
INVESTING WITH T. ROWE PRICE
Account Requirements and Transaction Information 34
Opening a New Account 34
Purchasing Additional Shares 35
Exchanging and Redeeming 36
Shareholder Services 37
Discount Brokerage 40
Investment Information 40
This prospectus contains information you should know before investing. Please
keep it for future reference. A Statement of Additional Information about the
funds, dated July 1, 1997, 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
ABOUT THE FUNDS
1
TRANSACTION AND FUND EXPENSES
----------------------------------------------------------
o Like all T. Rowe Price funds, these funds are 100% no load.
These tables should help you understand the kinds of expenses you will bear
directly or indirectly as a fund shareholder.
Shareholder Transaction Expenses in Table 1 shows that you pay no sales
charges. All the money you invest in a fund goes to work for you, subject to
the fees explained below. Annual Fund Expenses shows how much it will cost to
operate each fund for a year, based on 1997 fiscal year expenses (and any
applicable expense limitations). These are costs you pay indirectly, because
they are deducted from each 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.
<TABLE>
Table 1
<CAPTION>
<S> <C> <C> <C>
Shareholder Transaction
Expenses
Money Fund Bond Fund
Sales charge "load" on
purchases None None
Sales charge "load" on
reinvested distributions None None
Redemption fees None None
Exchange fees None None
Annual Fund Expenses Percentage of Fiscal 1997 Average Net Assets
Management fee 0.26/a/% 0.43%
Marketing fees (12b-1) None None
Total other (shareholder
servicing, custodial,
auditing, etc.) 0.29% 0.19%
Total fund expenses 0.55/a/% 0.62%
- -------------------------------------------------------------------------------
</TABLE>
/a/
The money fund's management fee and its total expenses ratio would have been
0.43% and 0.72%, respectively, had T. Rowe Price not agreed to reduce
management fees in accordance with the expense limitation described in Table
3.
Note:
The funds charge a $5 fee for wire redemptions under $5,000, subject to change
without notice, and a $10 fee is charged for small accounts when applicable
(see Small Account Fee under Transaction Procedures and Special Requirements).
The main types of expenses, which all mutual funds may charge against fund
assets, are:
<PAGE>
T. ROWE PRICE 4
o A management fee The percent of fund assets paid to the fund's investment
manager. Each fund's fee comprises a group fee, 0.33% as of February 28,
1997, and an individual fund fee of 0.10%.
o "Other" administrative expenses Primarily the servicing of shareholder
accounts, such as providing statements and reports, disbursing dividends, and
providing custodial services.
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 Organization and Management.
o Hypothetical example Assume you invest $1,000, the fund returns 5% annually,
expense ratios remain as listed previously, and you close your account at the
end of the time periods shown. Your expenses would be:
<TABLE>
Table 2
<CAPTION>
<S> <C> <C> <C> <C> <C>
Hypothetical Fund Expenses
Fund 1 year 3 years 5 years 10 years
Money $6 $18 $31 $69
Bond $6 $20 $35 $77
- ----------------------------------------------------------
</TABLE>
o Table 2 is just an example; actual expenses can be higher or lower than
those shown.
Table 3 sets forth expense ratio limitations and the periods for which they
are effective. For each, T. Rowe Price has agreed to waive its fees and bear
any expenses to the extent such fees or expenses would cause the funds' ratio
of expenses to average net assets to exceed the indicated percentage
limitations. Subject to shareholder approval, fees waived or expenses paid or
assumed are subject to reimbursement to T. Rowe Price by each fund through
the indicated reimbursement date, but no reimbursement will be made if it
would result in the funds' expense ratio exceeding its specified limit.
<TABLE>
Table 3
<CAPTION>
<S> <C> <C> <C> <C>
Expense Ratio Limitations
Expense Ratio
Limitation Period Limitation Reimbursement Date
Money/a/ 3/1/97-2/28/99 0.55% 2/28/01
Bond/b/ 3/1/95-2/28/97 0.65% 2/28/99
- ---------------------------------------------------------------------------------
</TABLE>
/a/The money fund previously operated under a 0.55% limitation that expired
February 28, 1995. Effective March 1, 1997, T. Rowe Price agreed to extend
the existing expense limitation of 0.55%, for a period of two years from
March 1, 1997, through February 28, 1999. Subject to shareholder approval,
fees waived or expenses paid or assumed under these agreements are subject to
reimbursement to T. Rowe Price by the
<PAGE>
ABOUT THE FUNDS 5
fund whenever the expense ratio is below 0.55%; however, no reimbursement
will be made after February 28, 1997 (for the first agreement), or February
28, 1999 (for the second agreement), or if it would result in the expense
ratio exceeding 0.55%. Any amounts reimbursed will have the effect of
increasing fees otherwise paid by the fund.
/b/The bond fund previously operated under a 0.60% limitation that expired
February 28, 1995. Effective March 1, 1995, T. Rowe Price agreed to increase
the existing expense limitation of 0.60% to 0.65%, for the period indicated.
Subject to shareholder approval, fees waived or expenses paid or assumed
under these agreements are subject to reimbursement to T. Rowe Price by the
fund whenever the expense ratio is below 0.60% for the previous agreement or
0.65% for the current agreement; however, no reimbursement will be made after
February 28, 1997 for the previous agreement or February 28, 1999 for the
current agreement, or if it would result in the expense ratio exceeding 0.60%
for the previous agreement or 0.65% for the current agreement. Any amounts
reimbursed will have the effect of increasing fees otherwise paid by the
fund.
FINANCIAL HIGHLIGHTS
----------------------------------------------------------
Table 4, which provides information about each fund's financial history, is
based on a single share outstanding throughout each fiscal year. Each fund's
section of the table is part of the financial statements which are included
in its annual report and are incorporated by reference into the Statement of
Additional Information (available upon request). The financial statements in
the funds' annual report were audited by Coopers & Lybrand L.L.P., the funds'
independent accountants.
<TABLE>
Table 4 Financial Highlights
<CAPTION> Income From Investment Activities Less Distributions Net Asset
Value
Period Net Asset Net Net Realized Total From Net Net Realized Total Net Asset
Ended Value, Investment & Unrealized Investment Investment Gain (Loss) Distributions Value, End
Beginning Income (Loss) Gain (Loss) on Activities Income (Loss) of Period
of Period Investments
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Fund
1988/d/ $ 1.000 $0.41/a/ -- $ 0.041 $(0.041) -- $(0.041) $ 1.000
-- --
1989 1.000 0.47/a/ -- 0.047 (0.047) -- (0.047) 1.000
-- --
1990 1.000 0.53 -- 0.053 (0.053) -- (0.053) 1.000
-- --
1991 1.000 0.46/b/ -- 0.046 (0.046) -- (0.046) 1.000
-- --
1992/d/ 1.000 0.35/b/ -- 0.035 (0.035) -- (0.035) 1.000
-- --
1993 1.000 0.23/b/ -- 0.023 (0.023) -- (0.023) 1.000
-- --
1994 1.000 0.19/b/ -- 0.019 (0.019) -- (0.019) 1.000
-- --
1995 1.000 0.25/b/ -- 0.025 (0.025) -- (0.025) 1.000
-- --
1996/d/ 1.000 0.32/b/ -- 0.032 (0.032) -- (0.032) 1.000
-- --
1997 1.000 0.28/b/ -- 0.028 (0.028) -- (0.028) 1.000
- ----------------------------------------------------------------------------------------------------------------------------------
Footnotes appear on page 6. (continued on next page)
Bond Fund
1988/d/ $10.48 $0.57/a/ $(1.04) $ (0.47) $(0.57) -- $(0.57) $ 9.44
--
1989 9.44 0.57/a/ (0.13) 0.44 (0.57) -- (0.57) 9.31
--
1990 9.31 0.59/c/ 0.08 0.67 (0.59) -- (0.59) 9.39
--
1991 9.39 0.58/c/ 0.12 0.70 (0.58) -- (0.58) 9.51
--
1992/d/ 9.51 0.59/c/ 0.34 0.93 (0.59) -- (0.59) 9.85
--
1993 9.85 0.57/c/ 0.80 1.37 (0.57) -- (0.57) 10.65
1994 10.65 0.56/c/ 0.01 0.57 (0.56) $(0.23) (0.79) 10.43
1995 10.43 0.55/c/ (0.41) 0.14 (0.55) (0.02) (0.57) 10.00
1996/d/ 10.00 0.55 0.45 1.00 (0.55) -- (0.55) 10.45
--
1997 10.45 0.55 0.02 0.57 (0.55) -- (0.55) 10.47
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
T. ROWE PRICE 6
<TABLE>
Table 4 Financial Highlights (continued)
<CAPTION>
Returns, Ratios, and Supplemental Data
Total Return Ratio of Ratio of Net
Period (Includes Net Assets Expenses to Investment Portfolio
Ended Reinvested ($ Thousands) Average Net Income to Turnover
Distributions) Assets Average Net Rate
Assets
<S> <C> <C> <C> <C> <C> <C>
Money Fund
1988/d/ 4.17 %/a/ $ 59,673 0.80 %/a/ 4.18 %/a/ --
--
1989 4.76/a/ 75,180 0.80/a/ 4.69/a/ --
--
1990 5.40 87,270 0.80 5.28 --
--
1991 4.73/b/ 82,408 0.71/b/ 4.64/b/ --
--
1992/d/ 3.55/b/ 70,302 0.55/b/ 3.50/b/ --
--
1993 2.31/b/ 66,617 0.55/b/ 2.29/b/ --
--
1994 1.92/b/ 74,016 0.55/b/ 1.90/b/ --
--
1995 2.55/b/ 76,289 0.55/b/ 2.51/b/ --
--
1996/d/ 3.24/b/ 72,739 0.55/b/ 3.20/b/ --
--
1997 2.87/b/ 82,210 0.55/b/ 2.82/b/ --
- ---------------------------------------------------------------------------------------
Footnotes appear on page 6. (continued on next page)
Bond Fund
1988/d/ (4.17 )%/a/ $ 36,379 1.00 %/a/ 6.19 %/a/ 152.4%
1989 4.93/a/ 42,902 1.00///a/ 6.23/a/ 77.0
1990 7.35/c/ 65,056 0.93/c/ 6.25/c/ 88.4
1991 7.84/c/ 84,375 0.73/c/ 6.29/c/ 192.7
1992/d/ 10.05/c/ 108,494 0.60/c/ 6.07/c/ 80.3
1993 14.41/c/ 143,973 0.60/c/ 5.69/c/ 57.5
1994 5.37/c/ 151,936 0.60/c/ 5.19/c/ 73.4
1995 1.60/c/ 131,953 0.60/c/ 5.60/c/ 78.0
1996/d/ 10.28 146,194 0.63 5.40 61.9
1997 5.64 160,813 0.62 5.29 47.3
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ABOUT THE FUNDS 7
/a/
Excludes expenses in excess of a 0.80% voluntary expense limitation in effect
through February 28, 1989.
/b/
Excludes expenses in excess of a 0.55% voluntary expense limitation in effect
November 7, 1990, through February 28, 1999.
/c/
Excludes expenses in excess of a 0.60% voluntary expense limitation in effect
November 7, 1990, through February 28, 1995, and an 0.80% voluntary expense
limitation in effect November 1, 1989, through November 6, 1990, and a 1.00%
voluntary expense limitation in effect during the year ended February 29,
1988.
/d/ Fiscal year ended February 29.
FUND, MARKET, AND RISK CHARACTERISTICS: WHAT TO EXPECT
----------------------------------------------------------
To help you decide whether the funds are appropriate for you, this section
takes a closer look at their investment objectives and approaches.
o Income from California municipal securities is exempt from federal and
California state income taxes.
<TABLE>
Table 5
<CAPTION>
<S> <C> <C> <C> <C> <C>
Funds Comparison Guide
Credit-Quality Expected Share Expected Average
Fund Categories Income Price Fluctuation Maturity
Money Two highest Lowest Stable 90 days or less
Bond Primarily four highest High High 15+ years
- ----------------------------------------------------------------------------------------
</TABLE>
What are the funds' objectives and investment programs?
o The California Tax-Free Money Fund's objective is preservation of capital,
liquidity, and, consistent with these objectives, the highest current income
exempt from federal and California state income taxes. The fund invests in
<PAGE>
T. ROWE PRICE 8
municipal securities that mature in 397 days or less, and its dollar-weighted
average maturity will not exceed 90 days. The fund's yield will fluctuate in
response to changes in interest rates, but the share price is managed to
remain stable at $1.00. Although the fund has maintained a constant share
price since its inception, and fund managers will make every effort to
continue to meet this objective in the future, the price could drop below
$1.00 under certain circumstances, such as a major change in interest rates
or default on one or more fund holdings. Unlike most bank accounts or
certificates of deposit, your investment in the fund is not insured or
guaranteed by the U.S. government.
o The California Tax-Free Bond Fund's investment objective is, consistent with
prudent portfolio management, the highest level of income exempt from federal
and California state income taxes by investing primarily in investment-grade
California municipal bonds. The fund's dollar-weighted average maturity is
expected to exceed 15 years.
o Each fund will invest at least 65% of its total assets in California
municipal securities. However, due to seasonal variations or shortages in the
supply of suitable short-term California securities, each fund may invest
periodically in municipals whose interest is exempt from federal but not
California state income taxes. Every effort will be made to minimize such
investments, but they could compose up to 10% of each fund's annual income.
What are the funds' credit-quality guidelines?
o The money fund will generally purchase securities rated within the two
highest money market rating categories assigned by established rating
agencies, or, if not rated, of equivalent investment quality as determined by
T. Rowe Price. All securities purchased by the fund will present minimal
credit risks in the opinion of T. Rowe Price.
o The bond fund will generally purchase investment-grade securities, which
means their ratings are within the four highest credit categories (AAA, AA,
A, BBB) as determined by a national rating organization or, if unrated, by T.
Rowe Price. The fund may occasionally purchase below investment-grade
securities (including those with the lowest or no rating), but no such
purchase will be made if it would cause the fund's noninvestment-grade bonds
to exceed 5% of its net assets. Unrated bonds may be less liquid than rated
bonds.
Investment-grade securities include a range from the highest rated to medium
quality. Securities in the BBB category may be more susceptible to adverse
economic conditions or changing circumstances, and the securities at the
lower end of the BBB category have certain speculative characteristics.
o At its discretion, the bond fund may retain a security whose credit quality
is downgraded after purchase. The money fund may also do so, but only in
accordance with Rule 2a-7 under the Investment Company Act of 1940.
<PAGE>
ABOUT THE FUNDS 9
What are the main risks of investing in municipal bond and money market funds?
Since they are managed to maintain a $1.00 share price, money market funds
should have little risk of principal loss. However, the potential for
realizing a loss of principal in a bond or money market fund could derive
from:
o Interest rate or market risk The decline in the price of bonds and bond
funds that may accompany a rise in the overall level of interest rates
(please see Table 5). A sharp and unexpected rise in interest rates could
cause a money fund's price to drop below one dollar. However, the very
short-term securities held in money market portfolios-a means of achieving an
overall fund objective of principal safety-reduces their potential for price
fluctuation.
o Credit risk The chance that any of a fund's holdings will have its credit
rating downgraded or will default (fail to make scheduled interest and
principal payments), potentially reducing a fund's income level and share
price. Money funds invest in very high-rated securities, thus reducing this
risk.
o Political risk The chance that a significant restructuring of federal income
tax rates, or even serious discussion on the topic in Congress, could cause
municipal bond prices to fall. The demand for municipal bonds is strongly
influenced by the value of tax-exempt income to investors. Broadly lower tax
rates could reduce the advantage of owning municipal bonds.
o Geographical risk The chance of price declines resulting from developments
in a single state.
o A more detailed discussion of these and other risk considerations is
contained in the funds' Statement of Additional Information.
What are the particular risks associated with single-state funds versus those
that invest nationally?
A fund investing within a single state is, by definition, less diversified
geographically than one investing across many states. The risk arises from
the fund's greater exposure to that state's economy and politics, factors
that loom large in establishing the credit quality of bonds issued by the
state and its political subdivisions. For example, general obligation bonds
of a state or locality that has a high income level, reasonable debt levels,
and a positive long-term outlook should have a higher credit rating than
those of a state without those attributes.
Of course, many municipal bonds are not general obligations backed by the
state's "full faith and credit" (its full taxing and revenue raising
resources) and may not rely on any government for money to service their
debt. Bonds issued by governmental authorities may depend wholly on revenues
generated by the project they financed or on other dedicated revenue streams.
The credit quality of these "revenue" bonds may vary significantly from that
of the state's general obligations.
<PAGE>
T. ROWE PRICE 10
o Significant political and economic developments within a state may have
direct and indirect repercussions on virtually all municipal bonds issued in
the state.
How does the portfolio manager try to reduce risk?
Consistent with each fund's objective, the portfolio manager actively seeks
to reduce risk and increase total return. Risk management tools include:
o Diversification of assets to reduce the impact of a single holding on the
funds' net asset value.
o Thorough credit research by our own analysts.
o Adjustment of fund duration to try to reduce the negative impact of rising
interest rates or take advantage of the benefits of falling rates. (Duration
is a more accurate measure than maturity of a fund's sensitivity to interest
rate changes.)
What is the credit quality of California general obligations?
As of June 1, 1997, the state was rated A1 by Moody's, A+ by Standard &
Poor's, and A+ (with a positive outlook) by Fitch. These ratings were most
recently changed in 1996 when both Standard & Poor's and Fitch upgraded the
state's general obligation bonds from A. The revisions were in response to
improvements in the state's economic and financial posture following a period
of stress experienced during the recession of the early 1990's.
Restrictions on taxes and spending, such as Proposition 13 and Article XIIIB
of the constitution, have resulted in a broad shift by state and local
governments away from general obligation debt toward lease revenue financing,
which is subject to annual appropriation and generally does not require voter
approval. Lease-backed debt is generally viewed as a less secure form of
borrowing and therefore entails more credit risk than general obligation
borrowing. California will continue to be exposed to similar initiatives
which could put pressure on the expenditures of the state and local
governments and restrict their ability to raise revenues.
o Credit ratings and the financial and economic conditions of the state, local
governments, public authorities, and others in which the funds may invest are
subject to change at any time.
What about the quality of the funds' other holdings?
In addition to the state's general obligations, the funds will invest a
portion of their assets in securities that are rated according to the
issuer's individual creditworthiness, such as bonds of local governments and
public authorities. While local governments in California depend principally
on their own revenue sources, they could experience budget shortfalls due to
reallocations of tax revenues or responsibilities by the state.
<PAGE>
ABOUT THE FUNDS 11
This was the case in the early 1990's as the state struggled to achieve
fiscal balance during the recession. The combination of increasing
responsibilities and declining resources resulted in the downgrades of many
large counties and other local governments during the last six years.
Orange County filed a petition in bankruptcy in 1994. The county emerged from
bankruptcy on June 12, 1996, when the proceeds of a recovery financing
provided funds for it to repay the majority of its remaining claims. However,
the long-term consequences of the bankruptcy are unknown.
The funds may invest in certain sectors with special risks, for example
health care, which could be affected by federal or state legislation,
electric utilities with exposure to nuclear power plants, and private
activity bonds without government backing.
The funds sometimes invest in obligations of the Commonwealth of Puerto Rico
and its public corporations (as well as U.S. territories of Guam and the
Virgin Islands) that are exempt from federal and California state income
taxes. These investments require careful assessment of certain risk factors,
including reliance on substantial federal assistance and favorable tax
programs that have recently become subject to phaseout by Congress. As of
June 1, 1997, Puerto Rico's general obligations were rated Baa1 by Moody's
and A by Standard & Poor's.
o The yield of each fund will fluctuate with changing market conditions and
interest rate levels. The share price of the bond fund will also fluctuate;
when you sell your shares, you may lose money.
What are derivatives and can the funds invest in them?
The term derivative is used to describe financial instruments whose value is
derived from an underlying security (e.g., a stock or bond) or a market
benchmark (e.g., an interest rate index). Many types of investments
representing a wide range of potential risks and rewards fall under the
"derivatives" umbrella- from conventional instruments, such as callable
bonds, futures, and options to more exotic investments, such as stripped
mortgage securities and structured notes. While the term "derivative" only
recently became widely known among the investing public, derivatives have in
fact been employed by investment managers for many years.
The money fund does not invest in high-risk, highly leveraged derivatives.
The bond fund will invest in derivatives only if the expected risks and
rewards are consistent with its objective, policies, and overall risk profile
as described in this prospectus. The bond fund limits its use of derivatives
to situations in which they may enable the fund to accomplish the following:
increase yield;
<PAGE>
T. ROWE PRICE 12
hedge against a decline in principal value; invest in eligible asset classes
with greater efficiency and lower cost than is possible through direct
investment; or adjust the fund's duration.
The bond fund will not invest in any high-risk, highly leveraged derivative
instrument that is expected to cause the price volatility of the portfolio to
be meaningfully different from that of a long-term, investment-grade bond.
The following are some characteristics of municipal securities.
Who issues municipal securities?
State and local governments and governmental authorities sell notes and bonds
(usually called "municipals") to pay for public projects and services.
Who buys municipal securities?
Individuals are the primary investors, and a principal way they invest is
through mutual funds. Prices of municipals may be affected by major changes
in cash flows of money into or out of municipal funds. For example,
substantial and sustained redemptions from municipal bond funds could result
in lower prices for these securities.
Is interest income from municipal issues always exempt from federal taxes?
No. Since 1986 income from so-called "private activity" municipals has been
subject to the federal alternative minimum tax (AMT). For instance, some
bonds financing airports, stadiums, and student loan programs fall into this
category. Shareholders subject to the AMT must include income derived from
private activity bonds in their AMT calculation. Relatively few taxpayers are
required to pay the tax. Normally, the funds will not purchase any security
if, as a result, more than 20% of the fund's income would be subject to the
AMT. The funds will report annually to shareholders the portion of income, if
any, subject to the AMT. (Please see Distributions and Taxes -Taxes on Fund
Distributions.)
o Municipal securities are also called "tax-exempts" because the interest
income they provide is usually exempt from federal income taxes.
Why are yields on municipals usually below those on otherwise comparable
taxable securities?
Since the income provided by most municipals is exempt from federal taxation,
investors are willing to accept lower yields on a municipal bond than on an
otherwise similar (in quality and maturity) taxable bond.
Why are yields on California bonds often below those of comparable issues from
other states?
Strong demand for California securities, due to a relatively high state
income tax rate tends to push their prices up and yields down.
<PAGE>
ABOUT THE FUNDS 13
Is there an easy way to compare after-tax yields on a California fund with a
similar tax-exempt fund that invests nationally?
Subtract your state tax rate from 1 and multiply this number times the yield
on the national fund. The result is the yield to you on the national fund
after paying California income tax. Compare this with the California fund's
yield.
What are the major differences between money market and bond funds?
o Price Bond funds have fluctuating share prices. Money market funds are
managed to maintain a stable share price.
o Maturity Short- and intermediate-term bond funds have longer average
maturities (from one to 10 years) than money market funds (90 days or less).
Longer-term bond funds have the longest average maturities (10 years or
more).
o Income Limited-term bond funds typically offer more income than money market
funds and less income than longer-term bond funds.
You may want to review some fundamentals that apply to all fixed income
investments.
Is a fund's yield fixed or will it vary?
It will vary. The yield is calculated every day by dividing a fund's net
income per share, expressed at annual rates, by the share price. Since both
income and share price will fluctuate, a fund's yield will also vary.
(Although money fund prices are stable, income is variable.)
Is a fund's "yield" the same thing as the "total return"?
Not for bond funds. The total return reported for a fund is the result of
reinvested distributions (income and capital gains) 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. Since money funds are managed to maintain a stable share
price, their yield and total return should be the same.
What is "credit quality" and how does it affect a fund's 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 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.
<PAGE>
T. ROWE PRICE 14
What is meant by a bond fund's "maturity"?
Every bond has a stated maturity date when the issuer must repay the
security's entire principal value to the investor. However, many bonds are
"callable," meaning their principal can be repaid before their stated
maturity dates on (or after) specified call dates. Bonds are most likely to
be called when interest rates are falling, because the issuer can refinance
at a lower rate, just as a homeowner refinances a mortgage. In such an
environment, a bond's "effective maturity" is calculated using its nearest
call date.
A bond mutual fund has no maturity in the strict sense of the word, but it
does have an average maturity and an average effective maturity. This number
is an average of the stated or effective maturities of the underlying bonds,
with each bond's maturity "weighted" by the percentage of fund assets it
represents. Funds that target effective maturities would use the effective
(rather than stated) maturities of the underlying instruments when computing
the average. Targeting effective maturity provides additional flexibility in
portfolio management but, all else being equal, could result in higher
volatility than a fund targeting a stated maturity or maturity range.
What is meant by a bond fund's "duration"?
Duration is a calculation that seeks to measure the price sensitivity of a
bond or a bond fund to changes in interest rates. It measures bond price
sensitivity to interest rate changes more accurately than maturity because it
takes into account the time value of cash flows generated over the bond's
life. Future interest and principal 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 takes into account call features and sinking fund payments
that 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 fund's share price. Simply multiply the fund's
duration (available for T. Rowe Price bond funds in our shareholder reports)
by an expected change in interest rates. For example, the price of a bond
fund with a duration of five years would be expected to fall approximately 5%
if rates rose by one percentage point.
How is a municipal's price affected by changes in interest rates?
When interest rates rise, a bond's price usually falls, and vice versa. In
general, the longer a bond's maturity, the greater the price increase or
decrease in response to a given change in interest rates, as shown in Table
6.
<PAGE>
ABOUT THE FUNDS 15
<TABLE>
Table 6
<CAPTION>
How Interest Rates Affect Bond Prices
Price per $1,000 of a Municipal Bond if Interest Rates:
Increase Decrease
Bond Maturity Coupon 1 Point 2 Points 1 Point 2 Points
<S> <S> <C> <C> <C> <C> <C>
1 year 3.75% $990 $981 $1,010 $1,020
5 years 4.55% 957 916 1,045 1,093
10 years 4.90% 925 857 1,082 1,173
20 years 5.45% 889 794 1,132 1,287
30 years 5.50% 869 763 1,164 1,370
- ----------------------------------------------------------------------------------------
</TABLE>
Coupons reflect yields on AAA-rated municipals as of May 31, 1997. This is an
illustration and does not represent expected yields or share price changes of
any T. Rowe Price fund.
Do money market securities react to changes in interest rates?
Yes. As interest rates change, the prices of some money market securities
fluctuate, but changes are usually small because of their very short
maturities. Investments are typically held until maturity in a money fund to
help it maintain a $1.00 share price.
How can I decide which California fund is most appropriate for me?
Review your own financial objectives, time horizon, and risk tolerance. Use
Table 5, which summarizes each fund's main characteristics, to help choose a
fund (or funds) suitable for your particular needs. For example, only the
money fund is designed to provide principal stability, which makes it a good
choice for money you may need for occasional or unexpected expenses. However,
if you are investing for the highest possible income and can tolerate some
price volatility, you should consider a longer-term bond fund.
o Neither fund should be relied upon as a complete investment program nor be
used for short-term trading purposes.
Is there other information I need to review before making a decision?
Be sure to read Investment Policies and Practices in Section 3, which
discusses the principal types of portfolio securities that the funds may
purchase as well as the types of management practices that the funds may use.
<PAGE>
T. ROWE PRICE 16
ABOUT YOUR ACCOUNT
2
PRICING SHARES AND RECEIVING SALE PROCEEDS
----------------------------------------------------------
Here are some procedures you should know when investing in a T. Rowe Price
tax-free fund.
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 each day the New York Stock Exchange is open
for business. To calculate the NAV, a fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. Amortized cost is used to value money fund
securities.
o The various ways you can buy, sell, and exchange shares are explained at the
end of this prospectus and on the New Account Form. These procedures may
differ for institutional accounts.
How your purchase, sale, or exchange price is determined
If we receive your request in correct form by 4 p.m. ET, your transaction
will be priced at that day's NAV. If we receive it after 4 p.m., it will be
priced at the next business day's NAV.
We cannot accept orders that request a particular day or price for your
transaction or any other special conditions.
Note: The time at which transactions and shares are priced and the time until
which orders are accepted may be changed in case of an emergency or if the
New York Stock Exchange closes at a time other than 4 p.m. ET.
How you can receive the proceeds from a sale
o When filling out the New Account Form, you may wish to give yourself the
widest range of options for receiving proceeds from a sale.
If your request is received by 4 p.m. ET in correct form, proceeds are
usually sent on the next business day. Proceeds can be sent to you by mail or
to your bank account by Automated Clearing House (ACH) transfer or bank wire.
Proceeds sent by ACH transfer should be credited the second day after the
sale. ACH is an automated method of initiating payments from and receiving
payments in your
<PAGE>
ABOUT YOUR ACCOUNT 17
financial institution account. ACH is a payment system supported by over
20,000 banks, savings banks, and credit unions, which electronically
exchanges the transactions primarily through the Federal Reserve Banks.
Proceeds sent by bank wire should be credited to your account the next
business day.
o Exception: 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 a
bond or money fund, your new investment would not begin to earn dividends
until the sixth business day.
o If for some reason we cannot accept your request to sell shares, we will
contact you.
USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
----------------------------------------------------------
o All net investment income and realized capital gains are distributed 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 income dividends and capital gain distributions on a
rising number of shares.
Distributions not reinvested are paid by check or transmitted to your bank
account via ACH. If the Post Office cannot deliver your check, or if your
check remains uncashed for six months, the fund reserves the right to
reinvest your distribution check in your account at the NAV on the business
day of the reinvestment 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 at that time provided payment has been received on the previous
business day.
o Money funds declare income dividends daily to shareholders of record as of
12:00 noon ET on that day. Wire purchase orders received before 12:00 noon ET
receive the dividend for that day. Other purchase orders receive the dividend
on the next business day after payment has been received.
o Bond and money funds pay dividends on the first business day of each month.
<PAGE>
T. ROWE PRICE 18
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 Since money funds are managed to maintain a constant share price, they are
not expected to make capital gain distributions.
o A capital gain or loss is the difference between the purchase and sale price
of a security.
o If a fund has net capital gains for the year (after subtracting any capital
losses), they are usually declared and paid in December to shareholders of
record on a specified date that month. If a second distribution is necessary,
it is usually declared and paid during the first quarter of the following
year.
Tax Information
o You will be sent timely information for your tax filing needs.
Although the regular monthly income dividends you receive from the funds are
expected to be exempt from federal income taxes, you need to be aware of the
possible tax consequences when:
o You sell fund shares, including an exchange from one fund to another.
o The fund makes a distribution to your account.
Due to 1993 tax legislation, a portion of the capital gains realized on the
sale of market discount bonds with maturities beyond one year may be treated
as ordinary income and cannot be offset by other capital losses. Therefore,
to the extent the fund invests in these securities, the likelihood of a
taxable gain distribution will be increased.
Note: You must report your total tax-exempt income on IRS Form 1040. The IRS
uses this information to help determine the tax status of any Social Security
payments you may have received during the year.
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. If you realize a
loss on the sale or exchange of fund shares held six months or less, your
capital loss is reduced by the tax-exempt dividends received on those shares.
<PAGE>
ABOUT YOUR ACCOUNT 19
In January, you will be sent Form 1099-B, indicating the date and amount of
each sale you made in the fund during the prior year. This information will
also be reported to the IRS. For accounts opened new or by exchange in 1983
or later, we will provide you with the gain or loss of the shares you sold
during the year, based on the "average cost" method. This information is not
reported to the IRS, and you do not have to use it. You may calculate the
cost basis using other methods acceptable to the IRS, such as "specific
identification."
To help you maintain accurate records, we send you a confirmation immediately
following each transaction you make (except for systematic purchases and
redemptions) and a year-end statement detailing all your transactions in each
fund account during the year.
Taxes on fund distributions
In January, the funds will send you Form 1099-DIV indicating the tax status
of any capital gain distribution made to you. This information will also be
reported to the IRS. All capital gain distributions are taxable to you for
the year in which they are paid. The only exception is that dividends
declared during the last three months of the year and paid in January are
taxed as though they were paid by December 31. Dividends are expected to be
tax-exempt.
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 long-term capital gain
distribution received.
If the funds invest in certain "private activity" bonds, shareholders who are
subject to the alternative minimum tax (AMT) must include income generated by
these bonds in their AMT computation. The portion of your fund's income which
should be included in your AMT calculation, if any, will be reported to you
in January.
o Distributions are taxable whether reinvested in additional shares or
received in cash.
Tax effect of buying shares before a capital gain distribution
If you buy shares shortly before or on the "record date"- the date that
establishes you as the person to receive the upcoming distribution-you will
receive a portion of the money you just invested in the form of a taxable
distribution. Therefore, you may also wish to find out the fund's record date
before investing. Of course, the fund's share price may, at any time, reflect
undistributed capital gains or income and unrealized appreciation. When these
amounts are eventually distributed, they are taxable.
<PAGE>
T. ROWE PRICE 20
Note: For shareholders who receive Social Security benefits, the receipt of
tax-exempt interest may increase the portion of benefits that are subject to
tax.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
----------------------------------------------------------
o Following these procedures helps assure timely and accurate transactions.
Purchase Conditions
Nonpayment
If your payment is not received or you pay with a check or ACH transfer that
does not clear, your purchase will be canceled. You will be responsible for
any losses or expenses incurred by the fund or transfer agent, and the fund
can redeem shares you own in this or another identically registered T. Rowe
Price fund as reimbursement. The fund and its agents have the right to reject
or cancel any purchase, exchange, or redemption due to nonpayment.
U.S. dollars
All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
banks.
Sale (Redemption) Conditions
10-day hold
If you sell shares that you just purchased and paid for by check or ACH
transfer, the fund will process your redemption, but will generally delay
sending you the proceeds for up to 10 calendar days to allow the check or
transfer to clear. If your redemption request was sent by mail or mailgram,
proceeds will be mailed no later than the seventh calendar day following
receipt unless the check or ACH transfer has not cleared. If, during the
clearing period, we receive a check drawn against your bond or money market
account, it will be returned marked "uncollected." (The 10-day hold does not
apply to the following: purchases paid for by bank wire; cashier's,
certified, or treasurer's checks; or automatic purchases through your
paycheck.)
Telephone, Tele*Access/(R)/, and personal computer transactions
Exchange and redemption services through Telephone and Tele*Access are
established automatically when you sign the New Account Form unless you check
the box which states that you do not want these services. Personal computer
transactions must be authorized separately. Each fund uses reasonable
procedures (including shareholder identity verification) to confirm that
instructions given by telephone are genuine and is not liable for acting on
these instructions. If these procedures are not followed, it is the opinion
of certain
<PAGE>
ABOUT YOUR ACCOUNT 21
regulatory agencies that a fund may be liable for any losses that may result
from acting on the instructions given. A confirmation is sent promptly after
the telephone transaction. All conversations are recorded.
Redemptions over $250,000
Large sales can adversely affect a portfolio manager's ability to implement a
fund's investment strategy by causing the premature sale of securities that
would otherwise be held. If, in any 90-day period, you redeem (sell) more
than $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
o T. Rowe Price may bar excessive traders from purchasing shares.
Frequent trades, involving either substantial fund assets or a substantial
portion of your account or accounts controlled by you, can disrupt management
of the fund and raise its expenses. 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 fund A
to fund B and, within the next 120 days, sell your shares in fund B to return
to fund A or move to fund C.
If you exceed 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 to a fund of maintaining small accounts, we
ask you to maintain an account balance of at least $1,000. If your balance is
below $1,000 for three months or longer, we have the right to close your
account after giving you 60 days in which to increase your balance.
Small Account Fee
Because of the disproportionately high costs of servicing accounts with low
balances, a $10 fee, paid to T. Rowe Price Services, the funds' transfer
agent, will automatically be deducted from nonretirement accounts with
balances falling below a minimum level. The valuation of accounts and the
deduction are expected to take place during the last five business days of
September. The fee
<PAGE>
T. ROWE PRICE 22
will be deducted from accounts with balances below $2,000, except for UGMA/
UTMA accounts, for which the limit is $500. The fee will be waived for any
investor whose aggregate T. Rowe Price mutual fund investments total $25,000
or more. Accounts employing automatic investing (e.g., payroll deduction,
automatic purchase from a bank account, etc.) are also exempt from the
charge. The fee will not apply to IRAs and other retirement plan accounts. (A
separate custodial fee may apply to IRAs and other retirement plan accounts.)
Signature Guarantees
o A signature guarantee is designed to protect you and the T. Rowe Price funds
from fraud by verifying your signature.
You may need to have your signature guaranteed in certain situations, such
as:
o Written requests 1) to redeem over $100,000, or 2) to wire redemption
proceeds.
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 (name or ownership) 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.
<PAGE>
ABOUT YOUR ACCOUNT 23
MORE ABOUT THE FUNDS
3
ORGANIZATION AND MANAGEMENT
----------------------------------------------------------
How are the funds organized?
The T. Rowe Price California Tax-Free Income Trust (the "Trust") was
organized in 1986 as a Massachusetts business trust and is a "diversified,
open-end investment company," or mutual fund. Both California funds were
organized in 1986. Mutual funds pool money received from shareholders and
invest it to try to achieve specified objectives.
o Shareholders benefit from T. Rowe Price's 60 years of investment management
experience.
What is meant by "shares"?
As with all mutual funds, investors purchase shares when they put money in a
fund. These shares are part of a fund's authorized capital stock, but share
certificates are not issued.
Each share and fractional share entitles the shareholder to:
o Receive a proportional interest in a fund's income and capital gain
distributions.
o Cast one vote per share on certain fund matters, including the election of
fund directors, changes in fundamental policies, or approval of changes in
the fund's management contract.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and, in order to avoid
unnecessary costs to fund shareholders, do not intend to do so except when
certain matters, such as a change in a 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 or trustee. If a meeting is held and you
cannot attend, you can vote by proxy. Before the meeting, the fund will send
you proxy materials that explain the issues to be decided and include a
voting card for you to mail back.
<PAGE>
T. ROWE PRICE 24
Who runs the funds?
General Oversight
The Trust is governed by a Board of Trustees that elects the Trust's officers
and meets regularly to review the funds' investments, performance, expenses,
and other business affairs. The policy of the Trust is that a majority of
Board members will be independent of T. Rowe Price.
o All decisions regarding the purchase and sale of fund investments are made
by T. Rowe Price-specifically by the funds' portfolio managers.
Portfolio Management
Each fund has an Investment Advisory Committee whose chairman has day-to-day
responsibility for managing the portfolio and works with the committee in
developing and executing the fund's investment programs. The Investment
Advisory Committees are composed of the following members:
Money Fund Patrice L. Berchtenbreiter Ely, Chairman, Jeremy N. Baker, Paul W.
Boltz, Patricia S. Deford, Joseph K. Lynagh, Konstantine B. Mallas, Mary J.
Miller, Theodore E. Robson, and Arthur S. Varnado. Ms. Berchtenbreiter Ely
has been chairman of the fund's committee since 1992. She joined T. Rowe
Price in 1972 and has been managing investments since 1987.
Bond Fund Mary J. Miller, Chairman, Jeremy N. Baker, Paul W. Boltz, Patricia
S. Deford, Patrice L. Berchtenbreiter Ely, Joseph K. Lynagh, Konstantine B.
Mallas, Theodore E. Robson, and Arthur S. Varnado. Mrs. Miller has been
chairman of the fund's committee since 1990. She joined T. Rowe Price in 1983
and has been managing investments since 1987.
Marketing
T. Rowe Price Investment Services, Inc., a wholly owned subsidiary of T. Rowe
Price, distributes (sells) shares of these and all other T. Rowe Price funds.
Shareholder Services
T. Rowe Price Services, Inc., another wholly owned subsidiary, acts as the
funds' transfer and dividend disbursing agent and provides shareholder and
administrative services. The address for T. Rowe Price Investment Services,
Inc., and T. Rowe Price Services, Inc., is 100 East Pratt St., Baltimore, MD
21202.
How are fund expenses determined?
The management agreement spells out the expenses to be paid by each fund. In
addition to the management fee, each 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.
<PAGE>
MORE ABOUT THE FUNDS 25
The fund's paid the expenses shown in Table 7 for the fiscal year ended
February 28, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund Transfer Agent Accounting
Money $ 65,000 $ 67,000
Bond 91,000 72,000
- ------------------------------------------------------------
</TABLE>
Table 7 Services Fees Paid
The Management Fee
This fee has two parts-an "individual fund fee" (discussed under Transaction
and Fund Expenses), which reflects a 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 investment management
complex, is calculated daily based on the combined net assets of all T. Rowe
Price funds (except Equity Index and the 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
0.480% First $1 billion 0.360% Next $2 billion 0.310% Next $16 billion
--------------------------
0.450% Next $1 billion 0.350% Next $2 billion 0.305% Next $30 billion
----------------------------------------------------
0.420% Next $1 billion 0.340% Next $5 billion 0.300% Thereafter
----------------------------------------------------
0.390% Next $1 billion 0.330% Next $10 billion
------------------------------------------------------------------------------
0.370% Next $1 billion 0.320% Next $10 billion
</TABLE>
Each fund's portion of the group fee is determined by the ratio of its daily
net assets to the daily net assets of all the T. Rowe Price funds described
previously. Based on combined Price funds' assets of approximately $63
billion at March 31, 1997, the group fee was 0.33%.
UNDERSTANDING PERFORMANCE INFORMATION
----------------------------------------------------------
This section should help you understand the terms used to describe fund
performance. You will come across them in shareholder reports you receive
from us, in our newsletter, The Price Report, in Insights articles, in T.
Rowe Price advertisements, and in the media.
Total Return
This tells you how much an investment in a fund has changed in value over a
given time period. It reflects any net increase or decrease in the share
price and assumes that all dividends and capital gains (if any) paid during
the period were reinvested in additional shares. 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.
<PAGE>
T. ROWE PRICE 26
Advertisements for a 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.
o Total return is the most widely used performance measure. Detailed
performance information is included in each fund's annual and semiannual
shareholder reports and in the quarterly Performance Update, which are all
available without charge.
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 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.
Yield
The current or "dividend" yield on a fund or any investment tells you the
relationship between the investment's current level of annual income and its
price on a particular day. The dividend yield reflects the actual income paid
to shareholders for a given period, annualized, and divided by the net asset
value. 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 money fund may advertise a "current" yield, reflecting the latest 7-day
income annualized, or an "effective" yield, which assumes the income has been
reinvested in the fund.
For the bond fund, the advertised or "SEC" yield is found by determining the
net income per share (as defined by the SEC) earned by a 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.
o You will see frequent references to a fund's yield in our reports, in
advertisements, in media stories, and so on.
<PAGE>
MORE ABOUT THE FUNDS 27
INVESTMENT POLICIES AND PRACTICES
----------------------------------------------------------
This section takes a detailed look at some of the types of securities the
funds may hold in their portfolios and the various kinds of investment
practices that may be used in day-to-day portfolio management. Each fund's
investment program is subject to further restrictions and risks described in
the Statement of Additional Information.
Shareholder approval is required to substantively change a fund's objective
and certain investment restrictions noted in the following section as
"fundamental policies." The managers also follow certain "operating policies"
which can be changed without shareholder approval. However, significant
changes are discussed with shareholders in fund reports. Each 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 funds' holdings of certain kinds of investments cannot exceed maximum
percentages of total assets, which are set forth herein. For instance, the
bond fund is not permitted to invest more than 10% of total assets in
residual interest bonds. While these restrictions provide a useful level of
detail about the fund's investment programs, 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 residual interest bonds could have
significantly more of an impact on a fund's share price than its weighting in
the portfolio. 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 funds' other investments.
Changes in the funds' holdings, the funds' performance, and the contribution
of various investments are discussed in the shareholder reports sent to you.
o Fund managers have considerable leeway in choosing investment strategies and
selecting securities they believe will help the funds achieve their
objectives.
Types of Portfolio Securities
In seeking to meet their investment objectives, the funds may invest in any
type of municipal security or instrument (including certain potentially
high-risk derivatives described in this section) whose investment
characteristics are consistent with the funds' investment programs. The
following pages describe the principal types of portfolio securities and
investment management practices of the funds.
Fundamental policy Each fund will not purchase a security if, as a result,
with respect to 75% of its total assets, more than 5% of its total assets
would be invested in securities of a single issuer or more than 10% of the
outstanding
<PAGE>
T. ROWE PRICE 28
voting securities of the issuer would be held by a fund; provided that these
limitations do not apply to a fund's purchase of securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities.
Operating policy (money fund only) The money fund will not purchase a
security if, as a result, with respect to 75% of its total assets, more than
5% of its total assets would be invested in securities of a single issuer,
provided that this limitation does not apply to purchases of U.S. government
securities or securities subject to certain types of guarantees.
Municipal Securities
Each fund's assets are invested primarily in various tax-free municipal debt
securities. The issuers have 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 or dates. An issuer may have the right to redeem or
"call" a bond before maturity, and the funds may have to reinvest the
proceeds at lower rates.
There are two broad categories of municipal bonds. General obligation bonds
are backed by the issuer's "full faith and credit," that is, its full taxing
and revenue raising power. Revenue bonds usually rely exclusively on a
specific revenue source, such as charges for water and sewer service, to
generate money for debt service.
o In purchasing municipals, the funds rely on the opinion of the issuer's bond
counsel regarding the tax-exempt status of the investment.
Private Activity Bonds
While income from most municipals is exempt from federal income taxes, the
income from certain types of so-called private activity bonds (a type of
revenue bond) may be subject to the alternative minimum tax (AMT). However,
only persons subject to the AMT pay this tax. Private activity bonds may be
issued for purposes such as housing or airports or to benefit a private
company. (Being subject to the AMT does not mean the investor necessarily
pays this tax. For further information, please see Distributions and Taxes.)
Fundamental policy Under normal market conditions, the funds will not
purchase any security if, as a result, less than 80% of the funds' income
would be exempt from federal and California state income taxes. The income
included under the 80% test does not include income from securities subject
to the alternative minimum tax.
Operating policy During periods of abnormal market conditions, for temporary
defensive purposes, the funds may invest without limit in high-quality,
short-term securities whose income is subject to federal and California state
income tax.
<PAGE>
MORE ABOUT THE FUNDS 29
In addition to general obligation and revenue bonds, the funds' investments
may include, but are not limited to, the following types of securities:
Municipal Lease Obligations
A lease is not a full faith and credit obligation of the issuer and is
usually backed only by the borrowing government's unsecured pledge to make
annual appropriations for lease payments. There have been challenges to the
legality of lease financing in numerous states and, from time to time,
certain municipalities have considered not appropriating money for lease
payments. In deciding whether to purchase a lease obligation, the funds would
assess the financial condition of the borrower, the merits of the project,
the level of public support for the project, and the legislative history of
lease financing in the state. These securities may be less readily marketable
than other municipals. The funds may also purchase unrated lease obligations.
Municipal Warrants (bond fund)
Municipal warrants are essentially call options on municipal bonds. In
exchange for a premium, they give the purchaser the right, but not the
obligation, to purchase a municipal bond in the future. The bond fund might
purchase a warrant to lock in forward supply in an environment where the
current issuance of bonds is sharply reduced. Like options, warrants may
expire worthless and they may have reduced liquidity.
Operating policy The bond fund will not invest more than 2% of its total
assets in municipal warrants.
Securities With "Puts" or Other Demand Features
Some longer-term municipals give the investor the right to "put" or sell the
security at par (face value) within a specified number of days following the
investor's request-usually one to seven days. This demand feature enhances a
security's liquidity by shortening its effective maturity and enables it to
trade at a price equal to or very close to par. The money fund typically
purchases a significant number of these securities. If a demand feature
terminates prior to being exercised, the funds would hold the longer-term
security, which could experience substantially more volatility.
Securities With Credit Enhancements
o Letters of credit Letters of credit are issued by a third party, usually a
bank, to enhance liquidity and ensure repayment of principal and any accrued
interest if the underlying municipal security should default.
o T. Rowe Price periodically reviews the credit quality of the insurer.
o Municipal Bond Insurance This insurance, which is usually purchased by the
bond issuer from a private, nongovernmental insurance company, provides an
unconditional and irrevocable guarantee that the insured bond's principal and
<PAGE>
T. ROWE PRICE 30
interest will be paid when due. Insurance does not guarantee the price of the
bond or the share price of any fund. The credit rating of an insured bond
reflects the credit rating of the insurer, based on its claims-paying
ability.
The obligation of a municipal bond insurance company to pay a claim extends
over the life of each insured bond. Although defaults on insured municipal
bonds have been low to date and municipal bond insurers have met their
claims, there is no assurance this will continue. A higher-than-expected
default rate could strain the insurer's loss reserves and adversely affect
its ability to pay claims to bondholders, such as the fund. The number of
municipal bond insurers is relatively small, and not all of them have the
highest rating.
o Standby Purchase Agreements A Standby Bond Purchase Agreement (SBPA) is a
liquidity facility provided to pay the purchase price of bonds that cannot be
remarketed. The obligation of the liquidity provider (usually a bank) is only
to advance funds to purchase tendered bonds that cannot be remarketed and
does not cover principal or interest under any other circumstances. The
liquidity provider's obligations under the SBPA are usually subject to
numerous conditions, including the continued creditworthiness of the
underlying borrower.
Synthetic or Derivative Securities
These securities are created from existing municipal bonds:
o Residual Interest Bonds (bond fund) (These are a type of potentially
high-risk derivative.) The income stream provided by an underlying bond is
divided to create two securities, one short term and one long term. The
interest rate on the short-term component is reset by an index or auction
process normally every seven to 35 days. After income is paid on the
short-term securities at current rates, the residual income goes to the
long-term securities. Therefore, rising short-term interest rates result in
lower income for the longer-term portion, and vice versa. The longer-term
bonds can be very volatile and may be less liquid than other municipals of
comparable maturity.
Operating policy The bond fund will not invest more than 10% of its total
assets in residual interest bonds.
o Participation Interests This term covers various types of securities created
by converting fixed rate bonds into short-term, variable rate certificates.
These securities have been developed in the secondary market to meet the
demand for short-term, tax-exempt securities. The funds will invest only in
securities deemed tax-exempt by a nationally recognized bond counsel, but
there is no guarantee the interest will be exempt because the IRS has not
issued a definitive ruling on the matter.
o Embedded Interest Rate Swaps and Caps (bond fund) In a fixed rate, long-term
municipal bond with an interest rate swap attached to it, the bondholder
usually
<PAGE>
MORE ABOUT THE FUNDS 31
receives the bond's fixed coupon payment as well as a variable rate payment
that represents the difference between a fixed rate for the term of the swap
(which is typically shorter than the bond it is attached to) and a variable
rate short-term municipal index. The bondholder receives excess income when
short-term rates remain below the fixed interest rate swap rate. If
short-term rates rise above the fixed income swap rate, the bondholder's
income is reduced. At the end of the interest rate swap term, the bond
reverts to a single fixed coupon payment.
An embedded interest rate cap allows the bondholder to receive payments
whenever short-term rates rise above a level established at the time of
purchase. They normally are used to hedge against rising short-term interest
rates.
Both instruments may be volatile and of limited liquidity, and their use may
adversely affect a fund's total return.
Operating policy The bond fund will not invest more than 10% of its total
assets in embedded interest rate swaps and caps.
Private Placements
The funds may seek to enhance their yield through the purchase of private
placements. These securities are sold through private negotiations, usually
to institutions or mutual funds, and may have resale restrictions. Their
yields are usually higher than comparable public securities to compensate the
investor for their limited marketability.
Operating policy The bond fund may not invest more than 15% (10% for the
money fund) of its net assets in illiquid securities, including unmarketable
private placements.
Types of Management Practices
Cash Position (bond fund)
The fund will hold a portion of its assets in short-term, tax-exempt money
market securities maturing in one year or less. The reserve position
accomplishes the following: provides flexibility in meeting redemptions,
expenses, and the timing of new investments; can help in structuring a fund's
weighted average maturity; and serves as a short-term defense during periods
of unusual market volatility. The fund's cash reserve position will be
comprised of short-term, investment-grade securities including tax-exempt
commercial paper, municipal notes, and short-term maturity bonds. Some of
these securities may have adjustable, variable, or floating rates.
When-Issued Securities (each fund) and Forwards (bond fund)
New issues of municipals are often sold on a "when-issued" basis, that is,
delivery and payment take place 15-45 days after the buyer has agreed to the
purchase. Some bonds, called "forwards," have longer-than-standard settlement
dates, typically six to 24 months. When buying these securities, each fund
will maintain
<PAGE>
T. ROWE PRICE 32
cash or high-grade marketable securities held by its custodian equal in value
to its commitment for these securities. The funds do not earn interest on
when-issued and forward securities until settlement, and the value of the
securities may fluctuate between purchase and settlement. Municipal
"forwards" typically carry a substantial yield premium to compensate the
buyer for their greater interest rate, credit, and liquidity risks.
Interest Rate Futures (bond fund)
Futures (a type of potentially high-risk derivative) 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. Specifically, the fund may use futures (and options
on futures) for any number of reasons, including: to hedge against a
potentially unfavorable change in interest rates and to adjust its exposure
to the municipal bond market; to protect portfolio value; in an effort to
enhance income; and to adjust portfolio duration. The use of futures for
hedging and non-hedging purposes may not always be successful. Their prices
can be highly volatile, using them could lower a fund's total return, and the
potential loss from their use could exceed a fund's initial exposure to such
contracts.
Operating policy Initial margin deposits on futures and premiums on options
used for non-hedging purposes will not equal more than 5% of the bond fund's
net asset value.
Borrowing Money and Transferring Assets
Each fund can borrow money from banks as a temporary measure for emergency
purposes, to facilitate redemption requests, or for other purposes consistent
with each fund's investment objective and program. Such borrowings may be
collateralized with fund assets, subject to restrictions.
Fundamental policy Borrowings may not exceed 33/1//\\/3/\\% of total fund
assets.
Operating policy Each 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 a
fund's total assets. A fund may not purchase additional securities when
borrowings exceed 5% of total assets.
Portfolio Turnover (bond fund)
The fund generally purchases securities with the intention of holding them
for investment; however, when market conditions or other circumstances
warrant, securities may be purchased and sold without regard to the length of
time held. Due to the nature of the fund's investment program, the fund's
portfolio turnover rate may exceed 100%. Although the fund does not expect to
generate any taxable income, a high turnover rate may increase transaction
costs and may affect taxes paid by shareholders to the extent short-term
gains are distributed.
<PAGE>
MORE ABOUT THE FUNDS 33
The bond fund's portfolio turnover rates for the fiscal years ended February
28, 1997, February 29, 1996, and February 28, 1995, were 47.3%, 61.9%, and
78.0%, respectively.
Sector Concentration
It is possible that each fund could have a considerable amount of assets (25%
or more) in securities that would tend to respond similarly to particular
economic or political developments. An example would be securities of issuers
related to a single industry, such as health care or nuclear energy.
Operating policy Each fund will not invest more than 25% of total assets in
industrial development bonds of projects in the same industry (such as solid
waste, nuclear utility, or airlines). Bonds which are refunded with escrowed
U.S. government securities are not subject to the 25% limitation.
Credit-Quality Considerations
The credit quality of most bond issues is evaluated by rating agencies such
as Moody's and Standard & Poor's. Credit quality refers to the issuer's
ability to meet all required interest and principal payments. The highest
ratings are assigned to issuers perceived to be the best credit risks. T.
Rowe Price research analysts also evaluate all portfolio holdings of each
fund, including those rated by outside agencies. The lower the rating on a
bond, the higher the yield, other things being equal.
Table 8 shows the rating scale used by the major rating agencies, and Table 9
provides an explanation of quality ratings. T. Rowe Price considers publicly
available ratings, but emphasizes its own credit analysis when selecting
investments.
<TABLE>
Table 8
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratings of Municipal Debt Securities
Moody's Standard & Fitch
Investors Poor's Investors
Service, Inc. Corporation Service, Inc. Definition
Long Term Aaa AAA AAA Highest quality
Aa AA AA High quality
A A A Upper medium grade
Baa BBB BBB Medium grade
Moody's S&P Fitch
SP1+ Very strong quality F-1+ Exceptionally strong quality
Short Term MIG1/VMIG1 Best quality SP1 Strong grade F-1 Very strong quality
C
MIG2/VMIG2 High quality SP2 Satisfactory grade F-2 Good credit quality
C
A-1+ Extremely strong F-1+ Exceptionally strong quality
Commercial Superior A-1 quality F-1 Very strong quality
Paper P-1 quality Strong quality
C
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
T. ROWE PRICE 34
<TABLE>
Table 9
<CAPTION>
<S> <C> <C> <C>
Explanation of Quality Ratings
Bond
Rating Explanation
Moody's Investors Aaa Highest quality, smallest degree of
Service, Inc. investment risk.
Aa High quality; together with Aaa bonds, they
compose the high-grade bond group.
A Upper-medium-grade obligations; many
favorable investment attributes.
Baa Medium-grade obligations; neither highly
protected nor poorly secured. Interest and
principal appear adequate for the present,
but certain protective elements may be
lacking or may be unreliable over any great
length of time.
Ba More uncertain with speculative elements.
Protection of interest and principal payments
not well safeguarded in good and bad times.
B Lack characteristics of desirable investment;
potentially low assurance of timely interest
and principal payments or maintenance of
other contract terms over time.
Caa Poor standing, may be in default; elements of
danger with respect to principal or interest
payments.
Ca Speculative in high degree; could be in
default or have other marked
shortcomings.
C Lowest rated. Extremely poor prospects of
ever attaining investment standing.
Standard & Poor's AAA Highest rating; extremely strong capacity to
Corporation pay principal and interest.
AA High quality; very strong capacity to pay
principal and interest.
A Strong capacity to pay principal and
interest; somewhat more susceptible to the
adverse effects of changing circumstances and
economic conditions.
BBB Adequate capacity to pay principal and
interest; normally exhibit adequate
protection parameters, but adverse economic
conditions or changing circumstances more
likely to lead to weakened capacity to pay
principal and interest than for higher-rated
bonds.
BB, B, Predominantly speculative with respect to the
CCC, CC issuer's capacity to meet required interest
and principal payments. BB-lowest degree of
speculation;
CC-the highest degree of speculation. Quality
and protective characteristics outweighed by
large uncertainties or major risk exposure to
adverse conditions.
D In default.
Fitch Investors AAA Highest quality; obligor has exceptionally
Service, Inc. strong ability to pay interest and repay
principal, which is unlikely to be affected
by reasonably foreseeable events.
AA Very high quality; obligor's ability to pay
interest and repay principal is very strong.
Because bonds rated in the AAA and AA
categories are not significantly vulnerable
to foreseeable future developments,
short-term debt of these issuers is generally
rated F-1+.
A High quality; obligor's ability to pay
interest and repay principal is considered to
be strong, but may be more vulnerable to
adverse changes in economic conditions and
circumstances than higher-rated bonds.
BBB Satisfactory credit quality; obligor's
ability to pay interest and repay principal
is considered adequate. Unfavorable changes
in economic conditions and circumstances are
more likely to adversely affect these bonds
and impair timely payment. The likelihood
that the ratings of these bonds will fall
below investment grade is higher than for
higher-rated bonds.
BB, Not investment grade; predominantly
CCC, speculative with respect to the issuer's
CC, C capacity to repay interest and repay
principal in accordance with the terms of the
obligation for bond issues not in default. BB
is the least speculative. C is the most
speculative.
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
MORE ABOUT THE FUNDS 35
INVESTING WITH T. ROWE PRICE
4
ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
----------------------------------------------------------
Tax Identification Number
We must have your correct Social Security or corporate tax identification number
on a signed New Account Form or W-9 Form. Otherwise, federal law requires the
funds to withhold a percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed, priced at the NAV on the date of redemption.
Always verify your transactions by carefully reviewing the confirmation we send
you. Please report any discrepancies to Shareholder Services promptly.
Institutional Accounts
Transaction procedures in the following sections may not apply to institutional
accounts. For procedures regarding institutional accounts, please call your
designated account manager or service representative.
OPENING A NEW ACCOUNT
----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for gifts or transfers to minors
(UGMA/UTMA) accounts
Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)
By Mail
Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check together with the New Account Form to the address
below. We do not accept third party checks to open new accounts.
<PAGE>
T. ROWE PRICE 36
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. Owings Mills, MD 21117
By Wire
Call Investor Services for an account number and give the following wire
information to your bank:
PNC Bank, N.A. (Pittsburgh) ABA# 043000096 T. Rowe Price [fund name] Account#
1004397951 account name and account number
Complete a New Account Form and mail it to one of the appropriate addresses
listed on the previous page.
Note: No services will be established and IRS penalty withholding may occur
until a signed New Account Form is received.
By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under 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. For limitations on exchanging, see explanation of Excessive
Trading under Transaction Procedures and Special Requirements.
In Person
Drop off your New Account Form at any location listed on the cover and obtain a
receipt.
PURCHASING ADDITIONAL SHARES
----------------------------------------------------------
$100 minimum purchase; $50 minimum for Automatic Asset Builder, and gifts or
transfers to minors (UGMA/UTMA) accounts
<PAGE>
INVESTING WITH T. ROWE PRICE 37
By ACH Transfer
Use Tele*Access, your personal computer, or call Investor Services if you have
established electronic transfers using the ACH network.
By Wire
Call Shareholder Services or use the wire address in Opening a New Account.
By Mail
1. Make your check payable to T. Rowe Price Funds (otherwise it may be
returned).
2. Mail the check to us at the address shown below with either a fund
------
reinvestment slip or a note indicating the fund you want to buy and your fund
account number.
3. Remember to provide your account number and the fund name on the memo line
of your check.
Regular Mail
T. Rowe Price Funds Account Services P.O. Box 89000 Baltimore, MD 21289-1500
/(For mailgrams, express, registered, or certified mail, see previous /
/section.)/
By Automatic Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.
EXCHANGING AND REDEEMING SHARES
----------------------------------------------------------
By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer, Tele*Access (if you have
previously authorized telephone services), mailgram, or express mail. 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 (provided your bank information is already on file). For
charges, see Electronic Transfers -By Wire under Shareholder Services.
<PAGE>
T. ROWE PRICE 38
By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to indicate any fund you
are exchanging out of and the fund or funds you are exchanging into. Please mail
to the appropriate address on the next page. T. Rowe Price requires the
----------------
signatures of all owners exactly as registered, and possibly a signature
guarantee (see Transaction Procedures and Special Requirements-Signature
Guarantees).
Regular Mail
T. Rowe Price Account Services P.O. Box 89000 Baltimore, MD 21289-0220
Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Account Services 10090 Red Run Boulevard Owings Mills, MD 21117
Rights Reserved by the Fund
The fund and its agents reserve the right to waive or lower investment minimums;
to accept initial purchases by telephone or mailgram; to refuse any purchase
order; to cancel or rescind any purchase or exchange (for example, if an account
has been restricted due to excessive trading or fraud) 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; to
freeze any account and suspend account services when notice has been received of
a dispute between the registered or beneficial account owners or there is reason
to believe a fraudulent transaction may occur; to otherwise modify the
conditions of purchase and any services at any time; or to act on instructions
believed to be genuine.
<PAGE>
INVESTING WITH T. ROWE PRICE 39
SHAREHOLDER SERVICES
----------------------------------------------------------
Shareholder Services 1-800-225-5132 1-410-625-6500 Investor Services
1-800-638-5660 1-410-547-2308
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 on, 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.
Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. For more
information, call Investor Services.
Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs (profit sharing, money
purchase pension), 401(k), and 403(b)(7). For information on IRAs, call Investor
Services. For information on all other retirement plans, including our no-load
variable annuity, please call our Trust Company at 1-800-492-7670.
Exchange Service
You can move money from one account to an existing identically registered
account, or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the funds are registered.) Some of
the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on shares held
for less than six months or one year, as specified in the prospectus. The fee is
paid to the fund.
Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days
Tele*Access
24-hour service via toll-free number enables you to (1) access information on
fund yields, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-
<PAGE>
T. ROWE PRICE 40
cate statements, and tax forms; and (3) initiate purchase, redemption, and
exchange transactions in your accounts (see Electronic Transfers on the next
-----------
page).
- ----
T. Rowe Price OnLine
24-hour service via dial-up modem provides the same services as Tele*Access but
on a personal computer. Please call Investor Services for an information guide.
After obtaining proper authorization, account transactions may also be conducted
on the Internet.
Plan Account Line 1-800-401-3279
Plan Account Line
This 24-hour service is similar to Tele*Access, but is designed specifically to
meet the needs of retirement plan investors.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the cover.
Electronic Transfers
By ACH
With no charges to pay, you can initiate a purchase or redemption for as little
as $100 or as much as $100,000 between your bank account and fund account using
the ACH network. Enter instructions via Tele*Access or your personal computer,
or call Shareholder Services.
By Wire
Electronic transfers can be conducted via bank wire. There is currently a $5 fee
for wire redemptions under $5,000, and your bank may charge for incoming or
outgoing wire transfers regardless of size.
Checkwriting
(Not available for equity funds, or the High Yield or Emerging Markets Bond
Funds) You may write an unlimited number of free checks on any money market
fund, and most bond funds, with a minimum of $500 per check. Keep in mind,
however, that a check results in a redemption; a check written on a bond fund
will create a taxable event which you and we must report to the IRS.
Automatic Investing
($50 minimum) You can invest automatically in several different ways, including:
<PAGE>
INVESTING WITH T. ROWE PRICE 41
Automatic Asset Builder
You instruct us to move $50 or more from your bank account, or you can instruct
your employer to send all or a portion of your paycheck to the fund or funds you
designate.
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.
DISCOUNT BROKERAGE
----------------------------------------------------------
This additional service gives you the opportunity to easily consolidate all of
your investments with one company. Through our discount brokerage, you can buy
and sell individual securities-stocks, bonds, options, and others - at
commission savings over full-service brokers. We also provide a wide range of
services, including:
To open an account 1-800-638-5660 For existing discount brokerage investors
1-800-225-7720
Automated telephone and on-line services
You can enter trades, access quotes, and review account information 24 hours a
day, seven days a week. Any trades executed through these programs save you an
additional 10% on commissions.
Note: Discount applies to our current commission schedule, subject to our $35
minimum commission.
Investor information
A variety of informative reports, such as our Brokerage Insights series, S&P
Market Month Newsletter, and select stock reports can help you better evaluate
economic trends and investment opportunities.
Dividend Reinvestment Service
Virtually all stocks held in customer accounts are eligible for this
service-free of charge.
/Discount Brokerage is a division of //T. Rowe Price// Investment Services, /
/Inc., Member NASD/SIPC./
<PAGE>
T. ROWE PRICE 42
INVESTMENT INFORMATION
----------------------------------------------------------
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety of
information in addition to account statements.
Shareholder Reports
Fund managers' reviews of their strategies and results. If several members of a
household own the same fund, only one fund report is mailed to that address. To
receive additional copies, please call Shareholder Services or write to us at
100 East Pratt Street, Baltimore, Maryland 21202.
The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies.
Performance Update
Quarterly review of all T. Rowe Price fund results.
Insights
Educational reports on investment strategies and financial markets.
Investment Guides
Asset Mix Worksheet, College Planning Kit, Personal Strategy Planner, Retirees
Financial Guide, Retirement Planning Kit, Tax Considerations for Investors, and
Diversifying Overseas: A T. Rowe Price Guide to International Investing.
<PAGE>
INVESTING WITH T. ROWE PRICE 43
To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
timely, informative reports.
To Open a Mutual Fund Account
Investor Services
1-800-638-5660
1-410-547-2308
For Existing Accounts
Shareholder Services
1-800-225-5132
1-410-625-6500
For Yields, Prices, Account Information, or to Conduct Transactions
Tele*Access/(R)/
1-800-638-2587 24 hours, 7 days
To Open a Discount Brokerage Account
1-800-638-5660
Internet Address
www.troweprice.com
Investor Centers
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
<PAGE>
T. ROWE PRICE 44
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
C05-040 7/1/97
(LOGO)
PAGE 8
PAGE 1
STATEMENT OF ADDITIONAL INFORMATION
T. Rowe Price State Tax-Free Income Trust
(the "Trust")
New York Tax-Free Money Fund
New York Tax-Free Bond Fund
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
(collectively the "Funds" and individually the "Fund")
T. Rowe Price California Tax-Free Income Trust
(the "Trust")
California Tax-Free Bond Fund
California Tax-Free 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
prospectus dated July 1, 1997, which may be obtained from T. Rowe
Price Investment Services, Inc., 100 East Pratt Street,
Baltimore, Maryland 21202. The purchase or exchange of shares in
any of the above-listed funds is limited to investors residing in
states where the funds are qualified for sale.
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 July
1, 1997.
C23-043 7/1/97
PAGE 2
TABLE OF CONTENTS
Page Page
Code of Ethics . . . . . . . . Pricing of Securities Being
Custodian . . . . . . . . . . . Offered . . . . . . . . . . .
Determination of Maturity of Principal Holders of
Money Market Securities . . . Securities . . . . . . . . .
Distributor for the Trusts . . Ratings of Commercial
Dividends . . . . . . . . . . . Paper . . . . . . . . . . . .
Federal and State Registration Ratings of Municipal
of Shares . . . . . . . . . . Debt Securities . . . . . . .
Forwards . . . . . . . . . . . Ratings of Municipal Notes
Futures Contracts . . . . . . . and Variable Securities . . .
Independent Accountants . . . . Risk Factors . . . . . . . . .
Investment Management Risk Factors Associated with
Services . . . . . . . . . . . a California Portfolio . . .
Investment in Taxable Money Risk Factors Associated with
Market Securities . . . . . . a Florida Portfolio . . . . .
Investment Objectives and Risk Factors Associated with
Policies . . . . . . . . . . . a Georgia Portfolio . . . . .
Investment Performance . . . . Risk Factors Associated with
Investment Programs . . . . . . a Maryland Portfolio . . . .
Investment Restrictions . . . . Risk Factors Associated with
Legal Counsel . . . . . . . . . a New Jersey Portfolio . . .
Management of the Trusts . . . Risk Factors Associated with
Municipal Securities . . . . . a New York Portfolio . . . .
Net Asset Value Per Share . . . Risk Factors Associated with
Options . . . . . . . . . . . . a Virginia Portfolio . . . .
Organization of the Trusts . . Tax-Exempt vs. Taxable
Portfolio Management Yield . . . . . . . . . . . .
Practices . . . . . . . . . . Tax Status . . . . . . . . . .
Portfolio Transactions . . . . When-Issued Securities . . . .
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 Trust's
Board of Trustees without shareholder approval. However,
shareholders will be notified of a material change in an
operating policy. The fundamental policies of each Fund may not
be changed without the approval of at least a majority of the
outstanding shares of the Fund or, if it is less, 67% of the
shares represented at a meeting of shareholders at which the
holders of 50% or more of the shares of the Fund are represented.
PAGE 3
RISK FACTORS
All Funds
The Funds are designed for investors who, because of their
tax bracket, can benefit from investment in municipal bonds whose
income is exempt from federal taxes. The Funds are not
appropriate for qualified retirement plans where income is
already tax deferred.
Municipal Securities
There can be no assurance that the Funds will achieve their
investment objectives. Yields on municipal securities are
dependent on a variety of factors, including the general
conditions of the money market and the municipal bond market, the
size of a particular offering, the maturity of the obligation,
and the rating of the issue. Municipal securities with longer
maturities tend to produce higher yields and are generally
subject to potentially greater capital appreciation and
depreciation than obligations with shorter maturities and lower
yields. The market prices of municipal securities usually vary,
depending upon available yields. An increase in interest rates
will generally reduce the value of portfolio investments, and a
decline in interest rates will generally increase the value of
portfolio investments. The ability of all the Funds to achieve
their investment objectives is also dependent on the continuing
ability of the issuers of municipal securities in which the Funds
invest to meet their obligations for the payment of interest and
principal when due. The ratings of Moody's, S&P, and Fitch
represent their opinions as to the quality of municipal
securities which they undertake to rate. Ratings are not
absolute standards of quality; consequently, municipal securities
with the same maturity, coupon, and rating may have different
yields. There are variations in municipal securities, both
within a particular classification and between classifications,
depending on numerous factors. It should also be pointed out
that, unlike other types of investments, municipal securities
have traditionally not been subject to regulation by, or
registration with, the SEC, although there have been proposals
which would provide for regulation in the future.
The federal bankruptcy statutes relating to the debts of
political subdivisions and authorities of states of the United
States provide that, in certain circumstances, such subdivisions
or authorities may be authorized to initiate bankruptcy
proceedings without prior notice to or consent of creditors,
which proceedings could result in material and adverse changes in
the rights of holders of their obligations.
Proposals have been introduced in Congress to restrict or
eliminate the federal income tax exemption for interest on
municipal securities, and similar proposals may be introduced in
PAGE 4
the future. Proposed "Flat Tax" and "Value Added Tax" proposals
would also have the effect of eliminating the tax preference for
municipal securities. Some of the past proposals would have
applied to interest on municipal securities issued before the
date of enactment, which would have adversely affected their
value to a material degree. If such a proposal were enacted, the
availability of municipal securities for investment by the Funds
and the value of a Fund's portfolio would be affected and, in
such an event, a Fund would reevaluate its investment objectives
and policies.
Although the banks and securities dealers with which the
Fund will transact business will be banks and securities dealers
that T. Rowe Price believes to be financially sound, there can be
no assurance that they will be able to honor their obligations to
the Fund with respect to such securities.
After purchase by a Fund, a security may cease to be rated
or its rating may be reduced below the minimum required for
purchase by the Fund. For the 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 would require a sale of such security by the
Fund. However, T. Rowe Price Associates, Inc. ("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 Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P"), or Fitch Investors
Service, Inc. ("Fitch") may change as a result of changes in such
organizations or their rating systems, the Fund will attempt to
use comparable ratings as standards for investments in accordance
with the investment policies contained in the prospectus. When
purchasing unrated securities, T. Rowe Price, under the
supervision of the Fund's Board of Trustees, determines whether
the unrated security is of a quality comparable to that which the
Fund is allowed to purchase.
Municipal Bond Insurance. All of the Funds may purchase
insured bonds from time to time. The Florida Insured
Intermediate Tax-Free Fund must purchase such bonds. Municipal
bond insurance provides an unconditional and irrevocable
guarantee that the insured bond's principal and interest will be
paid when due. The guarantee is purchased from a private, non-
governmental insurance company.
There are two types of insured securities that may be
purchased by the Funds, bonds carrying either (1) new issue
insurance or (2) secondary insurance. New issue insurance is
purchased by the issuer of a bond in order to improve the bond's
credit rating. By meeting the insurer's standards and paying an
PAGE 5
insurance premium based on the bond's total debt service, the
issuer is able to obtain a higher credit rating for the bond.
Once purchased, municipal bond insurance cannot be cancelled, and
the protection it affords continues as long as the bonds are
outstanding and the insurer remains solvent.
The Funds may also purchase bonds which carry secondary
insurance purchased by an investor after a bond's original
issuance. Such policies insure a security for the remainder of
its term. Generally, the Funds expect that portfolio bonds
carrying secondary insurance will have been insured by a prior
investor. However, the Funds may, on occasion, purchase
secondary insurance on their own behalf.
Each of the municipal bond insurance companies has
established reserves to cover estimated losses. Both the method
of establishing these reserves and the amount of the reserves
vary from company to company. The obligation of a municipal bond
insurance company to pay a claim extends over the life of each
insured bond. Municipal bond insurance companies are obligated
to pay a bond's interest and principal when due if the issuing
entity defaults on the insured bond. Although defaults on
insured municipal bonds have been low to date and municipal
insurers have met these claims, there is no assurance this low
rate will continue in the future. A higher than expected default
rate could deplete loss reserves and adversely affect the ability
of a municipal bond insurer to pay claims to holders of insured
bonds, such as the Fund.
Money Funds
The Money Funds will limit their purchases of portfolio
instruments to those U.S. dollar-denominated securities which the
Fund's Board of Trustees determines present minimal credit risk,
and which are Eligible Securities as defined in Rule 2a-7 under
the Investment Company Act of 1940 (1940 Act). Eligible
Securities are generally securities which have been rated (or
whose issuer has been rated or whose issuer has comparable
securities rated) in one of the two highest short-term rating
categories by nationally recognized statistical rating
organizations or, in the case of any instrument that is not so
rated, is of comparable high quality as determined by T. Rowe
Price pursuant to written guidelines established under the
supervision of the Fund's Board of Trustees. In addition, the
Funds may treat variable and floating rate instruments with
demand features as short-term securities pursuant to Rule 2a-7
under the 1940 Act.
There can be no assurance that the Money Funds will achieve
their investment objectives or be able to maintain their net
asset value per share at $1.00. The price stability and
PAGE 6
liquidity of the Money Funds may not be equal to that of a
taxable money market fund which exclusively invests in short-term
taxable money market securities. The taxable money market is a
broader and more liquid market with a greater number of
investors, issuers, and market makers than the short-term
municipal securities market. The weighted average maturity of
the Money Funds varies (subject to a 90 day maximum under Rule
2a-7): the shorter the average maturity of a portfolio, the less
its price will be impacted by interest rate fluctuations.
Bond Funds
Because of their investment policies, the Bond Funds may not
be suitable or appropriate for all investors. The Funds are
designed for investors who wish to invest in non-money market
funds for income, and who would benefit, because of their tax
bracket, from receiving income that is exempt from federal income
taxes. The Funds' investment programs permit the purchase of
investment grade securities that do not meet the high quality
standards of the Money Funds. Since investors generally perceive
that there are greater risks associated with investment in lower
quality securities, the yields from such securities normally
exceed those obtainable from higher quality securities. In
addition, the principal value of long term lower-rated securities
generally will fluctuate more widely than higher quality
securities. Lower quality investments entail a higher risk of
default--that is, the nonpayment of interest and principal by the
issuer than higher quality investments. The value of the
portfolio securities of the Bond Funds will fluctuate based upon
market conditions. Although these Funds seek to reduce credit
risk by investing in a diversified portfolio, such
diversification does not eliminate all risk. The Funds are also
not intended to provide a vehicle for short-term trading
purposes.
Special Risks of High Yield Investing
Junk bonds are regarded as predominantly speculative with
respect to the issuer's continuing ability to meet principal and
interest payments. Because investment in low and lower-medium
quality bonds involves greater investment risk, to the extent the
Bond Funds invest in such bonds, achievement of their investment
objectives will be more dependent on T. Rowe Price's credit
analysis than would be the case if the Funds were investing in
higher quality bonds. High yield bonds may be more susceptible
to real or perceived adverse economic conditions than investment
grade bonds. A projection of an economic downturn, or higher
interest rates, for example, could cause a decline in high yield
bond prices because such events could lessen the ability of
highly leveraged issuers to make principal and interest payments
on their debt securities. In addition, the secondary trading
market for high yield bonds may be less liquid than the market
PAGE 7
for higher grade bonds, which can adversely affect the ability of
a Fund to dispose of its portfolio securities. Bonds for which
there is only a "thin" market can be more difficult to
value inasmuch as objective pricing data may be less available
and judgment may play a greater role in the valuation
process.
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.
RISK FACTORS ASSOCIATED WITH A CALIFORNIA PORTFOLIO
The Funds' concentration in debt obligations of one state
carries a higher risk than a portfolio that is geographically
diversified. In addition to State general obligations and notes,
the Funds will invest in local bond issues, lease obligations and
revenue bonds, the credit quality and risk of which will vary
according to each security's own structure and underlying
economics.
Debt. The State, its agencies and local governmental
entities issued $24.9 billion in debt in 1996. Approximately 16%
was general obligation debt, backed by the taxing power of the
issuer, and 84% were revenue bonds and lease backed obligations,
issued for a wide variety of purposes, including transportation,
housing, education and healthcare.
As of March 1, 1997, the State of California had
approximately $17.7 billion outstanding general obligation bonds
secured by the State's revenue and taxing power. An additional
$3.3 billion in authorized but unissued state general obligation
debt remains to be issued to comply with voter initiatives and
legislative mandates. Debt service on roughly 21% of the State's
outstanding debt is met from revenue producing projects such as
water, harbor, and housing facilities. As part of its cash
management program, the State regularly issues short-term notes
to meet its disbursement requirements in advance of revenue
collections. During fiscal 1997, the State issued $3.0 billion
in short-term notes for this purpose.
The State also supports $5.5 billion in lease-purchase
obligations attributable to the State Public Works Board. These
obligations are not backed by the full faith and credit of the
State but instead, are subject to annual appropriations from the
State's General Fund.
In addition to the State obligations described above, bonds
have been issued by special public authorities in California that
are not obligations of the State. These include bonds issued by
the California Housing Finance Agency, the Department of Water
PAGE 8
Resources, the Department of Veterans Affairs, California State
University and the California Transportation Commission.
Economy. California's economy is the largest among the 50
states and one of the largest in the world. The 1996 population
of 32 million represents 12% of the U.S. total. The State's per
capita personal income in 1995 exceeded the U.S. average by 4%.
California s economy suffered through a severe recession
during the early 1990 s as the effects of a slowdown in the
national economy were compounded by federal defense spending cuts
and military base closings. Since 1994, the State has been in a
steady recovery, positing significant job growth and gains in
personal income. The level of economic activity within the State
is important as it influences the growth or contraction of State
and local government revenues available for operations and debt
service.
Recessionary influences and the effects of overbuilding in
selected areas have resulted in a contraction in real estate
values in many regions of the State in prior years. Most areas
have begun to show improvement corresponding to gains in the
general economic level. Future declines in property values could
have a negative effect on the ability of certain local
governments to meet their obligations.
As a state, California is more prone to earthquakes than
most other states in the country, creating potential economic
losses from damages. On January 17, 1994, a major earthquake,
measuring 6.8 on the Richter scale, hit Southern California
centered in the area of Northridge. Total damage has been
estimated at $20 billion. Significant federal aid has been
received.
Legislative. Due to the Funds' concentration in California
state and its municipal issuers, the Funds may be affected by
certain amendments to the California constitution and state
statutes which limit the taxing and spending authority of
California governmental entities and may affect their ability to
meet their debt service obligations.
In 1978, California voters approved "Proposition 13" adding
Article XIIIA, to the state constitution which limits ad valorem
taxes on real property to 1% of "full cash value" and restricts
the ability of taxing entities to increase real property taxes.
In subsequent actions, the State substantially increased its
expenditures to provide assistance to its local governments to
offset the losses in revenues and to maintain essential local
services; later the State phased out most local aid in response
to its own fiscal pressures.
Another constitutional amendment, Article XIIIB, was passed
by voters in 1979 prohibiting the State from spending revenues
PAGE 9
beyond its annually adjusted "appropriations limit". Any
revenues exceeding this limit must be returned to the taxpayers
as a revision in the tax rate or fee schedule over the following
two years. Such a refund, in the amount of $1.1 billion,
occurred in fiscal year 1987.
Proposition 218, the "Right to Vote on Taxes Act", was
approved by the voters in 1996. It further restricts the ability
of local governments to levy and collect both existing and future
taxes, assessments and fees. In addition to further limiting the
financial flexibility of local governments in the state, it also
increases the possibility of voter determined tax rollbacks and
repeals. The interpretation and application of this proposition
will ultimately be determined by the courts.
An effect of the tax and spending limitations in California
has been a broad scale shift by local governments away from
general obligation debt that requires voter approval and pledging
future tax revenues, towards lease revenue financing that is
subject to abatement and does not require voter approval. Lease
backed debt is generally viewed as a less secure form of
borrowing and therefore entails greater credit risk. Local
governments also raise capital through the use of Mello-Roos,
1915 Act, and Tax Increment Bonds, all of which are generally
riskier than general obligation debt as they often rely on tax
revenues to be generated by future development for their support.
Proposition 98, enacted in 1988, changed the State's method
of funding education for grades below the university level.
Under this constitutional amendment, the schools are guaranteed a
minimum share of State General Fund revenues. The major effect
of Proposition 98 has been to restrict the State's flexibility to
respond to fiscal stress.
Future initiatives, if proposed and adopted or future court
decisions could create renewed pressure on California governments
and their ability to raise revenues. The State and its
underlying localities have displayed flexibility, however, in
overcoming the negative effects of past initiatives.
Financial. The recession of the early 1990 s placed
California's finances under pressure. From 1991 through 1995,
accumulated deficits were carried over into the following years
and the State s general obligation bonds were downgraded from AAA
to A. Reflecting the recent trend of economic recovery, the
state s financial condition has improved. Fiscal 1997 is
expected to close with a reserve balance of $312 million. The
Governor has proposed a budget for fiscal 1998 which features a
proposed cut in the corporation and bank tax rate and increased
school funding levels, supported by economic growth and health
and welfare savings. The projected surplus will increase the
state s reserve to $580 million (1.1% of expenditures). We are
PAGE 10
unable to predict whether the budget package will be negotiated
in a timely manner by the Governor and the legislature.
As of June 1, 1997, the State's general obligation bonds are
rated A1 by Moody's, A+ by Standard & Poor's and A+ by Fitch.
The consequences of the State's fiscal actions reach beyond its
own general obligation bond ratings. Many state agencies and
local governments which depend upon state appropriations have
realized significant cutbacks in funding in recent years.
Entities which have been forced to make program reductions or to
increase fees or raise special taxes to cover their debt service
and lease obligations may recover somewhat during periods of
economic prosperity.
On December 6, 1994, Orange County filed for protection
under Chapter 9 of the U.S. Bankruptcy Code after reports of
significant losses in its investment pool. Upon restructuring,
the realized losses in the pool were $1.6 billion or 21% of
assets. More than 200 public entities, most of which, but not
all, are located in Orange County were also depositors in the
pool. The County defaulted on a number of its debt obligations.
The County emerged from bankruptcy on June 12, 1996. Through a
series of long-term financings, it repaid most of its obligations
to pool depositors and has become current on its public debt
obligations. The balance of claims against the County are
payable from any proceeds received from litigation against
securities dealers and other parties.
Sectors
Certain areas of potential investment concentration present
unique risks. In 1996, $1.8 billion of tax-exempt debt issued in
California was for public or non-profit hospitals. A significant
portion of the Funds' assets may be invested in health care
issues. For over a decade, the hospital industry has been under
significant pressure to reduce expenses and shorten length of
stay, a phenomenon which has negatively affected the financial
health of many hospitals. While each hospital bond issue is
separately secured by the individual hospital's revenues, third
party reimbursement sources such as the federal Medicare and
state MediCal programs or private insurers are common to all
hospitals. To the extent these third party payors reduce
reimbursement levels, the individual hospitals may be affected.
In the face of these pressures, the trend of hospital mergers and
acquisitions has accelerated in recent years. These
organizational changes present both risks and opportunities for
the institutions involved.
The Funds may from time to time invest in electric revenue
issues. The financial performance of these utilities may be
impacted as the industry moves toward deregulation and increased
competition. California s electric utility restructuring plan,
Assembly Bill 1890, permits direct competition to be phased in
PAGE 11
between 1998 and 2002. Municipal utilities, while not subject to
the legislation, will be faced with competitive market forces and
must use the transition period wisely to prepare for
deregulation. In addition, some electric revenue issues have
exposure to or participate in nuclear power plants which could
affect the issuer s financial performance. Risks include
unexpected outages or plant shutdowns, increased Nuclear
Regulatory Commission surveillance or inadequate rate relief.
The Funds may invest in private activity bond issues for
corporate and non-profit borrowers. These issues sold through
various governmental conduits, are backed solely by the revenues
pledged by the respective borrower corporations. No governmental
support is implied.
RISK FACTORS ASSOCIATED WITH A MARYLAND PORTFOLIO
Each Fund's concentration in the debt obligations of one
state carries a higher risk than a portfolio that is
geographically diversified. In addition to State of Maryland
general obligations and state agency issues, the Fund will invest
in local bond issues, lease obligations and revenue bonds, the
credit quality and risk of which will vary according to each
security's own structure and underlying economics.
Debt. The State of Maryland and its local governments issue
three basic types of debt, with varying degrees of credit risk:
general obligation bonds backed by the unlimited taxing power of
the issuer, revenue bonds secured by specific pledged fees or
charges for a related project, and tax-exempt lease obligations,
secured by annual appropriations by the issuer, usually with no
implied tax or specific revenue appropriations by the issuer. In
1996, $3.0 billion in state and local debt was issued in
Maryland, with approximately 47% representing general obligation
debt and 53% revenue bonds and lease backed debt.
The State of Maryland had $2.9 billion in general obligation
bonds outstanding as of December 31, 1996 along with an
additional $1.4 billion in other tax-supported debt. General
obligation debt of the State of Maryland is rated Triple-A by
Moody's, Standard & Poor's and Fitch. There is no general debt
limit imposed by the State Constitution or public general laws.
The State Constitution imposes a 15 year maturity limit on State
general obligation bonds. Although voters approved a
constitutional amendment in 1982 permitting the State to borrow
up to $100 million in short-term notes in anticipation of taxes
and revenues, the State has not made use of this authority.
Many agencies and other instrumentalities of the State
government are authorized to borrow money under legislation which
expressly provides that the loan obligations shall not be deemed
PAGE 12
to constitute a debt or a pledge of the faith and credit of the
State. The Community Development Administration of the
Department of Housing and Community Development, the Maryland
Stadium Authority, the Board of Trustees of St. Mary's College of
Maryland, the Maryland Environmental Service, the Board of
Regents of the University of Maryland System, the Board of
Regents of Morgan State University, the Maryland Food Center
Authority, and the Maryland Water Quality Financing
Administration have issued and have outstanding bonds of this
type. The principal of and interest on bonds issued by these
bodies are payable solely from pledged revenues, principally fees
generated from use of the facilities, enterprises financed by the
bonds, or other dedicated fees. Total outstanding revenue and
enterprise debt of these State units, the Maryland Transportation
Authority, and the Maryland Department of Transportation at
December 31, 1996 was $3.7 billion.
Economy. The economy of the State of Maryland generally
demonstrates strong performance relative to the nation. Per
capita income is 12% above the U.S. average. Unemployment was
4.9% in 1996, compared to a national average of 5.4%. The
State's population in 1996 was 5.0 million, with 87% concentrated
in the Baltimore-Washington corridor.
Financial. To a large degree, the risk of the Funds is
dependent upon the financial strength of the State of Maryland
and its localities. Over the long term, Maryland's financial
condition has been strong; however, in fiscal 1992, the State
experienced unanticipated shortfalls in revenues, as collections
of major taxes fell during the recession. To address this loss,
the governor enacted a series of mid-year reductions in
expenditures, primarily cuts in local aid.
Balancing the state budget for fiscal year 1993 involved a
variety of additional taxes, including a higher income tax on
upper income households and an expanded sales tax. The
legislature also adopted further cuts in State aid to localities,
but this action was offset by the ability of localities to
increase the local "piggyback" tax from 50 percent to 60 percent
of the State rate. These actions were successful in restoring
the State's financial condition and replenishing reserves. In
fiscal 1994 Maryland s economy began to improve, allowing the
state to continue to strengthen its financial condition. The
results of fiscal year 1997 are projected to show a general fund
balance of $489 million (6.5% of revenues). The fiscal 1998
budget enacts a 10% reduction in the personal income tax rate, to
be phased in over five years. Funding the final years of this
plan may require a draw down of the reserve position.
Many local Maryland governments also suffered from fiscal stress
and general declines in financial performance during the
recession. Downturns in real estate related receipts, declines in
the growth of income tax revenues, lower cash positions and
PAGE 13
reduced interest income were common problems. State aid to local
governments was also reduced during that period. Local
governments closed these gaps by increasing property and local
income tax rates, implementing program cuts, and curtailing pay
raises. Certain counties in Maryland are subject to voter
approval limitations on property tax levy increases or on
governmental spending which limits their flexibility in
responding to external changes.
Future voter initiatives, if proposed and adopted, could
create pressure on the counties and other local governments and
their ability to raise revenues. The Funds cannot predict the
impact of any such future tax limitations on debt quality.
Sectors. Certain areas of potential investment
concentration present unique risks. In 1996 $346 million of tax-
exempt debt issued in Maryland was for public or non-profit
hospitals. A significant portion of the Funds' assets may be
invested in health care issues. For over a decade, the hospital
industry has been under significant pressure to reduce expenses
and shorten length of stay, a phenomenon which has negatively
affected the financial health of some hospitals. While each
hospital bond issue is separately secured by the individual
hospital's revenues, third party reimbursement mechanisms are
common to the group. At the present time Maryland hospitals
operate under a system which reimburses hospitals according to a
State administered set of rates and charges rather than the
Federal Diagnosis Related Group (DRG s) system for Medicare
payments. Since 1983, Maryland hospitals, on average over the
trailing three year period, have increased hospital charges at a
level below the national average in terms of Medicare cost
increases, allowing them to continue operating under a Medicare
waiver. Any loss of this waiver in the future may have an
adverse impact upon the credit quality of Maryland hospitals.
The Funds may from time to time invest in electric revenue
issues which have exposure to or participate in nuclear power
plants which could affect the issuers' financial performance.
Such risks include unexpected outages or plant shutdowns,
increased Nuclear Regulatory Commission surveillance or
inadequate rate relief. In addition, the financial performance
of electric utilities may be impacted by increased competition
and deregulation in the industry.
The Funds may invest in private activity bond issues for
corporate and non-profit borrowers. These issues sold through
various governmental conduits, are backed solely by the revenues
pledged by the respective borrowing corporations. No
governmental support is implied.
RISK FACTORS ASSOCIATED WITH A GEORGIA PORTFOLIO
PAGE 14
The Fund's concentration in the debt obligations of one
state carries a higher risk than a portfolio that is
geographically diversified. In addition to State of Georgia
general obligations and state agency issues, the Fund will invest
in local bond issues, lease obligations and revenue bonds, the
credit quality and risk of which will vary according to each
security's own structure and underlying economics.
Debt. The State of Georgia and its local governments issued
$3.5 billion in municipal bonds in 1996, approximately 24%
general obligation debt backed by the unlimited taxing power of
the issuer and 76% revenue bonds secured by specific pledged fees
or charges for an enterprise or project. As of June 1, 1997, the
State was rated Aaa by Moody's, AA+ by Standard & Poor's and AAA
by Fitch.
As of April 30,1997, the State of Georgia had net direct
obligations of $5.0 billion. Since 1973, when a Constitutional
Amendment authorizing the issuance of state general obligation
(GO) bonds was implemented, the State has funded most of its
capital needs through the issuance of general obligation (GO)
bonds. Previously, capital requirements were funded through the
issuance of bonds by ten separate authorities and secured by
lease rental agreements and annual state appropriations. Its
Constitution permits the State to issue bonds for two types of
public purposes: (1) general obligation debt and (2) guaranteed
revenue debt. The Constitution imposes certain debt limits and
controls. GO debt service cannot exceed 10% of total revenue
receipts less refunds of the state treasury. GO bonds have a
maximum maturity of 25 years. Currently, maximum GO debt service
requirements are well below the legal limit at 5.5% of Fiscal
Year 1996 treasury receipts.
In addition to the general obligation and lease backed debt
described above, $198 million bonds have been issued by the
Georgia World Congress Authority and $754 million bonds have been
issued and are outstanding by the Georgia Housing and Finance
Authority, none of which represent direct obligations of the
State.
Economy. The State of Georgia has a population of
approximately 7.4 million, making it the 10th largest state.
Since the 1960s, the State's population has grown at a rate
exceeding the national average, with the growth rate during the
1980s nearly twice that of the entire country. Stable to strong
economic growth during the 1980s was led by the Atlanta
metropolitan statistical area, where approximately 45% of the
State's population is located. This area includes the capital
city of Atlanta, and 18 surrounding counties. The next largest
metropolitan area is the Columbus-Muscogee area followed by the
Macon area.
PAGE 15
The State's economy is well diversified. The current labor
force of 3.6 million is largely concentrated in wholesale/retail
trade and service jobs, followed by lesser amounts in
manufacturing and government. Employment gains have
substantially exceeded the region and the U.S. since 1980. The
State s economy continues to outperform the nation, despite a
slowing after the high level of economic activity resulting from
the 1996 Olympic Games. Georgia's per capita income has steadily
improved against the national average since the 1960s and
currently is 94% of the U.S., ranking it 26th among the states.
Financial. To a large degree, the creditworthiness of the
portfolio is dependent on the financial strength of the State of
Georgia and its localities. During the 1980s, the State's strong
economic performance translated into solid financial performance
and the accumulation of substantial reserves.
During fiscal 1989 to 1991, the State's financial condition
was affected by three years of revenue shortfalls brought on by
recession. During these periods, the Governor called special
legislative sessions to enact sizable spending cuts to achieve
budget balance. Economic conditions improved in 1992, allowing
the State to restore its financial cushion. Results for fiscal
1996 showed a continuation of this positive trend with an ending
unreserved general fund balance of $620 million, or 5.9% of
revenues.
A significant portion of the portfolio's assets is expected
to be invested in the debt obligations of local governments and
public authorities with investment grade ratings of BBB or
higher. While local governments in Georgia are primarily reliant
on independent revenue sources, such as property taxes, they are
not immune to budget shortfalls caused by cutbacks in State aid.
The Fund may purchase obligations issued by public authorities in
Georgia which are not backed by the full faith and credit of the
State and may or may not be subject to annual appropriations from
the State's General Fund. Likewise, certain enterprises such as
water and sewer systems or hospitals may be affected by changes
in economic activity.
Sectors. Certain areas of potential investment
concentration present unique risks. In 1996, $533 million of
tax-exempt debt issued in Georgia was for public or non-profit
hospitals. A significant portion of the Fund's assets may be
invested in health care issues. For over a decade, the hospital
industry has been under significant pressure to reduce expenses
and shorten length of stay, a phenomenon which has negatively
affected the financial health of many hospitals. While each
hospital bond issue is separately secured by the individual
hospital's revenues, third party reimbursement sources such as
the federal Medicare and state Medicaid programs or private
insurers are common to all hospitals. To the extent these payors
reduce reimbursement levels, the individual hospitals may be
PAGE 16
affected. In the face of these pressures, the trend of hospital
mergers and acquisitions has accelerated in recent years. These
organizational changes present both risks and opportunities for
the institutions involved.
The Fund may from time to time invest in electric revenue
issues which have exposure to or participate in nuclear power
plants which could affect the issuers' financial performance.
Such risks include unexpected outages or plant shutdowns,
increased Nuclear Regulatory Commission surveillance or
inadequate rate relief. In addition, the financial performance
of electric utilities may be impacted by increased competition
and deregulation of the electric utility industry.
The Fund may invest in private activity bond issues for
corporate and non-profit borrowers. These issues sold through
various governmental conduits, are backed solely by the revenues
pledged by the respective borrowing corporations. No
governmental support is implied. This category accounted for
3.4% of the tax-exempt debt issued in Georgia during 1996.
RISK FACTORS ASSOCIATED WITH A FLORIDA PORTFOLIO
The Fund's program of investing primarily in insured, AAA-
rated Florida municipal bonds should significantly lessen the
credit risks which would be associated with a portfolio of
uninsured Florida bonds. Nevertheless, to a certain degree, the
Fund's concentration in securities issued by the State of Florida
and its political subdivisions involves greater risk than a fund
broadly invested in insured bonds across many states and
municipalities. The credit quality of the Fund will depend upon
the continued financial strength of the insurance companies
insuring the bonds purchased by the Fund as well as the State of
Florida and the numerous public bodies, municipalities and other
issuers of debt securities in Florida.
Debt. The State of Florida and its local governments issue
three basic types of debt, with varying degrees of credit risk:
general obligation bonds backed by the unlimited taxing power of
the issuer, revenue bonds secured by specific pledged funds or
charges for a related project, and tax-exempt lease obligations,
supported by annual appropriations from the issuer, usually with
no implied tax or specific revenue pledge. During 1996, $10.2
billion in state and local debt was issued in Florida, with
approximately 14% representing general obligation debt and 86%
representing revenue bonds and lease-backed obligations. Debt
issued in 1996 was for a wide variety of public purposes,
including transportation, housing, education, health care and
industrial development.
As of April 30, 1996, the State of Florida had $7.4 billion
outstanding general obligation bonds secured by the State's full
PAGE 17
faith and credit and taxing power. General bonded debt service
accounted for a modest 2.3% of all governmental expenditures in
fiscal year 1996. An additional $3.3 billion in outstanding
bonds have been issued by the State and secured by limited state
tax and revenue sources. General obligation debt of the State of
Florida is rated Aa2 by Moody's, AA+ by Standard & Poor's and AA
by Fitch as of June 1, 1997. State debt may only be used to fund
capital outlay projects; Florida is not authorized to issue
obligations to fund operations.
Several agencies of the State are also authorized to issue
debt which does not represent a pledge of the state's credit.
The Florida Housing Finance Authority and Florida Board of
Regents are the largest issuers of this type. The principal and
interest on bonds issued by these bodies are payable solely from
specified sources such as mortgage repayments and university
tuition and fees.
Economy. The State of Florida has a population of
approximately 14.4 million, making it the fourth largest state.
Due to immigration, the State's population has grown at a rate
exceeding the nation for four decades. Florida's economy is
broadly based with a large concentration in the service and trade
sectors. Tourism is one of Florida's most important industries.
Rebounding from a decline in 1994, visitor traffic grew by 2.5%
in 1995 and 2.0% to 41.5 million people in 1996.
During most of the 1980's, as Florida's population and
employment base grew, its job growth rate was double that of the
nation. However, beginning in 1988, job growth slowed and
unemployment rates began trending above national levels for a
number of years. During 1995, Florida's unemployment rate was
8.2% versus 7.4% for the U.S. With total non-farm jobs growing
faster than the national average in 1996, Florida s unemployment
rate has improved, coming in at 5.1% versus 5.4% for the U.S.
State per capita income is 99% of the national average, well
above norms for the Southeast.
Legislative. The State of Florida does not have a personal
income tax. A constitutional amendment would be required in
order to implement such a tax. Although the probability appears
very low, the Fund cannot rule out the possibility that a
personal income tax may be implemented at some time in the
future. If such a tax were to be imposed, there is no assurance
that interest earned on Florida Municipal Obligations would be
exempt from this tax.
Under current Florida law, shares of the Fund will be exempt
from the State's intangible personal property tax to the extent
that on the annual assessment date (January 1) its assets are
solely invested in Florida Municipal Obligations and U.S.
government securities, certain short-term cash investments, or
other exempt securities. There can be no assurance that this
PAGE 18
exemption for Florida securities will be maintained. Also, the
constitutionality of the intangibles tax has been challenged in
court.
The Florida Constitution limits the total ad valorem
property tax that may be levied by each county, municipality and
school district to ten mills (1.0% of value). The limit applies
only to taxes levied for operating purposes and excludes taxes
levied for the payment of bonds. This restricts the operating
flexibility of local governments in the State and may result from
time to time in budget deficits for some local units.
Financial. The Florida Constitution and Statutes mandate
that the State budget as a whole, and each separate fund within
the State budget, be kept in balance from currently available
revenues each State fiscal year (July 1 - June 30.) The Governor
and Comptroller are responsible for insuring that sufficient
revenues are collected to meet appropriations and that no deficit
occurs in any State fund.
The State's revenue structure is narrowly based, relying on
the sales and use tax for 70% of its general revenues. This
structure, combined with the effects of the recession and heavy
spending demands, created budget shortfalls in fiscal years 1991
and 1992. Through mid-year spending adjustments and a draw upon
its reserves, the State was able to achieve budget balance for
both fiscal years. The State's finances received a substantial
boost in fiscal 1993 as a result of increased economic activity
associated with rebuilding efforts after Hurricane Andrew, which
hit south Florida on August 24, 1992. At the end of 1996, the
State had reserves of $698 million in the General Revenue Fund
(4.8% of revenues).
In November 1994, State voters passed a proposal to limit
State revenue growth to the average annual growth in personal
income over the previous five years. The cap excludes revenue to
pay certain expenditures, including debt service. The limitation
should no pose an onerous burden on State finance. However, the
demand for governmental services continues to grow because of
above average population growth and demographics.
Sectors. Certain areas of potential investment
concentration present unique risks. In 1996, $1.5 billion of
tax-exempt debt issued in Florida was for public or non-profit
hospitals. A significant portion of the Fund's assets may be
invested in health care issues.
For over a decade, the hospital industry has been under
significant pressure to reduce expenses and shorten length of
stay, a phenomenon which has negatively affected the financial
health of many hospitals. While each hospital bond issue is
separately secured by the individual hospital's revenues, third
party reimbursement sources such as the federal Medicare and
PAGE 19
state Medicaid programs or private insurers are common to all
hospitals. To the extent these payors reduce reimbursement
levels, the individual hospitals may be affected. In the face of
these pressures, the trend of hospital mergers and acquisitions
has accelerated in recent years. These organizational changes
present both risks and opportunities for the institutions
involved. Due to the high proportion of elderly residents,
Florida hospitals tend to be highly dependent on Medicare. In
addition to the regulations imposed by Medicare, the State also
regulates healthcare. A State board must approve the budgets of
all Florida hospitals; certificates of need are required for all
significant capital expenditures. The primary management
objective is cost control. The inability of some hospitals to
achieve adequate cost control while operating in a competitive
environment has led to a number of hospital bond defaults.
The Fund may from time to time invest in electric revenue
issues which have exposure to or participate in nuclear power
plants which could affect the issuers' financial performance.
Such risks include unexpected outages or plant shutdowns,
increased Nuclear Regulatory Commission surveillance or
inadequate rate relief. In addition, the financial performance
of electric utilities may be impacted by increased competition
and deregulation in the electric utility industry.
The Fund may invest in private activity bond issues for
corporate and non-profit borrowers. These issues, sold through
various governmental conduits, are backed solely by the revenues
pledged by the respective borrowing corporations. No government
support is implied. This category accounted for only 1.4% of the
tax-exempt debt issued in Florida during 1996.
RISK FACTORS ASSOCIATED WITH A NEW YORK PORTFOLIO
The Funds' concentration in the debt obligations of one
state carries a higher risk than a portfolio that is
geographically diversified. In addition to state general
obligation bonds and notes and the debt of various state
agencies, the Fund will invest in local bond issues, lease
obligations and revenue bonds, the credit quality and risk of
which will vary according to each security's own structure and
underlying economics.
The Funds' ability to maintain a high level of "triple-
exempt" income is primarily dependent upon the ability of New
York issuers to continue to meet debt service obligations in a
timely fashion. In 1975 the State, New York City, and other
related issuers experienced serious financial difficulties that
ultimately resulted in much lower credit ratings and loss of
access to the public debt markets. A series of fiscal reforms
and an improved economic climate allowed these entities to return
to financial stability by the early 1980s. Credit ratings were
PAGE 20
reinstated or raised and access to the public credit markets was
restored. During the early 1990s, the State and City confronted
renewed fiscal pressure, as the region suffered moderate economic
decline. Conditions began to improve in 1993, though below
average economic performance and tight budgetary conditions
persist. Both entities experienced financial relief in fiscal
1997 because of the strong national economy, a robust financial
services sector, and vigilant spending control. The State and
City continue to face challenging budgets while they attempt to
adjust spending levels and priorities.
New York State
The State, its agencies, and local governments issued $21.7
billion in long-term municipal bonds in 1996. Approximately 38%
was general obligation debt, backed by the taxing power of the
issuer and 62% were revenue bonds and lease backed obligations,
issued for a wide variety of purposes, including transportation,
housing, education and healthcare.
As of March 31, 1996, total State-related bonded debt was
$37.9 billion, of which $5.0 billion was general obligation debt,
$6.4 billion was State moral obligation debt, and $26.4 billion
was financed under lease-purchase or other contractual
obligations. In addition, the State had $293 million in bond
anticipation notes outstanding. Since 1993, the State has not
issued Tax and Revenue Anticipation Notes (TRANs) terminating the
practice of annual seasonal borrowing which had occurred since
1952. As of June 1, 1997, the State's general obligation bonds
were rated A by Moody's, A- by Standard & Poor's and A+ by Fitch.
All general obligation bonds must be approved by the voters prior
to issuance.
The fiscal stability of the State is also important for
numerous authorities which have responsibilities for financing,
constructing, and operating revenue-producing public benefit
facilities. As of September 30, 1995 there were 17 authorities
that had aggregate debt outstanding, including refunding bonds,
of $73 billion.
The authorities most reliant upon annual direct State
support include the Metropolitan Transit Authority (MTA), the
Urban Development Authority (UDC), and the New York Housing
Finance Agency (HFA). In February 1975, the UDC defaulted on
approximately $1.0 billion of short-term notes. The default was
ultimately cured by the creation of the Project Finance Authority
(PFA), through which the State provided assistance to the UDC,
including support for debt service. Since then, there have been
no additional defaults by State authorities although substantial
annual assistance is required by the MTA and the HFA in
particular.
PAGE 21
Subsequent to the fiscal crisis of the mid-70's, New York
State maintained balanced operations on a cash basis, although by
1992 it had built up an accumulated general fund deficit of over
$6 billion on a "Generally Accepted Accounting Principles" (GAAP)
basis. This deficit consisted mainly of overdue tax refunds and
payments due localities.
To resolve its accumulated general fund deficit the State
established the Local Government Assistance Corporation (LGAC) in
1990. A total of $5.2 billion in LGAC bonds have been issued.
The proceeds of these bonds were used to provide the State's
assistance to localities and school districts, enabling the State
to reduce its accumulated general fund deficit. State short-term
borrowing requirements, which peaked at a record $5.9 billion in
fiscal 1991, have been reduced to zero. Nonetheless, the State
ended fiscal 1996 with a General Fund unreserved deficit balance
of $3.6 billion. The adopted budget for fiscal 1996 included a
multi-year tax reduction plan which lowers the maximum personal
income tax rate from 7.875 to 6.85%. The original budget
proposal for the fiscal year ended March 31,1997 included a
multi-year personal income tax rate cut and emphasized cost
control to balance against the effects of a weak economy.
Because of strong growth in personal income and business taxes,
fiscal year 1997 ended with an estimated operating surplus of
$1.4 billion, which will help smooth budget balancing efforts for
next year. The budget for the fiscal year which began on April
1, 1997 had not been adopted as of June 1, 1997.
New York State has a large, diversified economy which has
witnessed a basic shift away from manufacturing toward service
sector employment. In 1996, per capita income in New York State
was $28,782, 18% above the national average. Like most
northeastern states, New York suffered a population loss during
the 1970s. However, during the 1980s that trend reversed and
population increased slightly, standing at 18,185,000 in 1996.
During 1990-1992, the State experienced a slowing of economic
growth evidenced by the loss of 425,000 jobs. Conditions have
improved with non-farm employment growing by an average of 0.6%
between 1992 and 1996, or by roughly one-fourth of the national
average. Such economic trends are important as they influence
the growth or contraction of State revenues available for
operations and debt service.
New York City
The financial problems of New York City were acute between
1975 and 1979, highlighted by a payment moratorium on the City's
short-term obligations. In the subsequent decade, the City made
a significant recovery. The most important contribution to the
City's fiscal recovery was the creation of the Municipal
PAGE 22
Assistance Corporation for the City of New York (MAC). Backed by
sales, use, stock transfer, and other taxes, MAC issued bonds and
used the proceeds to purchase City bonds and notes. Although the
MAC bonds met with reluctance by investors at first, the program
has proven to be very successful.
Much progress has been made since the fiscal crisis of 1975.
By 1981, the City achieved a budget balanced in accordance with
Generally Accepted Accounting Principles (GAAP) and has continued
to generate small surpluses on an operating basis. By 1983, the
City eliminated its accumulated General Fund deficit and as of
the fiscal year ending June 30, 1996, had a total General Fund
balance of $368 million. Although the City continues to finance
its seasonal cash flow needs through public borrowings, the total
amount of these borrowings has not exceeded 10% of any year's
revenues and all have been repaid by the end of the fiscal year.
As of June 1, 1997 the City's general obligation bonds are
rated Baa1 by Moody's, BBB+ by Standard & Poor's and A- by Fitch
with a Stable credit trend.
While New York City sustained a decade long record of
relative financial stability, during the 1990's budgetary
pressures have been evident. Its major revenue sources, income
and sales taxes, were slowed and a downturn in the real estate
market reduced property tax revenues. Nonetheless, the City
concluded the 1996 fiscal year with an operating surplus of $229
million. Revenues and expenditures for the 1996 fiscal year were
balanced in accordance with GAAP for the sixteenth consecutive
year. New York City will require some combination of cuts in
expenditures and state approval of new revenue sources to achieve
permanent fiscal balance in future fiscal years.
Long Island and LILCO
The Long Island Lighting Company (LILCO) is the single
largest property taxpayer in both Nassau and Suffolk Counties.
LILCO has experienced substantial financial difficulty primarily
arising from problems related to its completed but unlicensed 809
megawatt Shoreham Nuclear Power Facility located in Suffolk
County. In 1987, the State Legislature created the Long Island
Power Authority (LIPA). In February, 1989, an agreement was
reached with the state of New York to transfer ownership of the
Shoreham Plant to LIPA for one dollar in exchange for certain
rate benefits to LILCO.
LILCO has challenged various property tax assessments levied
in Suffolk County on its facilities and seeks substantial
refunds. An $81 million refund was made to LILCO in January 1996
for Phase I of this tax litigation. In November, 1996, the New
York State Supreme Court ruled in the company s favor for Phase
II, equating to a $1.16 billion refund, including interest, to
LILCO.
PAGE 23
As requested by the Governor, LIPA has proposed a plan to
restructure LILCO, reduce rates on Long Island and provide a
framework for long-term competition in power production.
Included in the plan would be a settlement of the Suffolk County
tax liability. Certain of LILCO s assets would be purchased by
LIPA with the issuance of approximately $7.3 billion of tax-
exempt debt. Numerous approvals are required, including an IRS
ruling exempting the deal from capital gains taxes. In addition,
a merger agreement between LILCO and Brooklyn Union Gas Company
was announced at year end 1996, providing another positive
development for the company. The merger is subject to various
federal and state approvals.
Sectors
Certain areas of potential investment concentration present
unique risks. In 1996, $1.8 billion of tax-exempt debt issued in
New York was for public or non-profit hospitals. A significant
portion of the Fund's assets may be invested in health care
issues. For over a decade, the hospital industry has been under
significant pressure to reduce expenses and shorten length of
stay, a phenomenon which has negatively affected the financial
health of many hospitals. While each hospital bond issue is
separately secured by the individual hospital's revenues, third
party reimbursement sources such as the federal Medicare and
state Medicaid programs or private insurers are common to all
hospitals. To the extent these third party payors reduce
reimbursement levels, the individual hospitals may be affected.
The proposed fiscal 1997 State budget calls for sizable
reductions in the state's support of Medicaid and health
services. In the face of these pressures, the trend of hospital
mergers and acquisitions has accelerated in recent years. These
organizational changes present both risks and opportunities for
the institutions.
The Funds may from time to time invest in electric revenue
issues which have exposure to or participate in nuclear power
plants which could affect the issuers' financial performance.
Such risks include unexpected outages or plan shutdowns,
increased Nuclear Regulatory Commission surveillance or
inadequate rate relief. In addition, the financial performance
of electric utilities may be impacted by increased competition
and deregulation in the industry.
The Funds may invest in private activity bond issues for
corporate and non-profit borrowers. These issues sold through
various governmental conduits, are backed solely by the revenues
pledged by the respective borrowing corporations. No
governmental support is implied. This category accounted for
6.6% of the tax-exempt debt issued in New York during 1996.
RISK FACTORS ASSOCIATED WITH A VIRGINIA PORTFOLIO
PAGE 24
The Funds concentration in the debt obligations of one
state carries a higher risk than a portfolio that is
geographically diversified. In addition to State of Virginia
general obligations and state agency issues, the Fund will invest
in local bond issues, lease obligations and revenue bonds, the
credit quality and risk of which will vary according to each
security's own structure and underlying economics.
Debt. The State of Virginia and its local governments
issued $3.9 billion municipal bonds in 1996, approximately 31%
general obligation debt backed by the unlimited taxing power of
the issuer and 69% revenue bonds secured by specific pledged fees
or charges for an enterprise or project. Included within the
revenue bond category are tax-exempt lease obligations that are
subject to annual appropriations of a governmental body to meet
debt service, usually with no implied tax or specific revenue
pledge. Debt issued in 1996 was for a wide variety of public
purposes, including transportation, housing, education, health
care, and industrial development.
As of June 30, 1996 the State of Virginia had $1.0 billion
outstanding general obligation bonds secured by the State's
revenue and taxing power, a modest amount compared to many other
states. Under state law, general obligation debt is limited to
1.15 times the average of the preceding three years' income tax
and sales and use tax collections. The State's outstanding
general obligation debt is well below that limit and over 90% of
the debt service is actually met from revenue producing capital
projects such as universities and toll roads.
The State also supports $1.5 billion in debt issued by the
Virginia Public Building Authority, the Virginia College Building
Authority, the Virginia Port Authority, the Innovative Technology
Authority and for transportation purposes. These bonds are not
backed by the full faith and credit of the State but instead, are
subject to annual appropriations from the State's General Fund.
In addition to the State and public authorities described
above, an additional $6.5 billion bonds have been issued by
special public authorities in Virginia that are not obligations
of the State. These bonds include debt issued by the Virginia
Education Loan Authority, the Virginia Public School Authority,
the Virginia Resources Authority, and the Virginia Housing
Development Authority.
Economy. The State of Virginia has a population of
approximately 6.6 million, making it the twelfth largest state.
Since the 1930s the State's population has grown at a rate near
or exceeding the national average. Stable to strong economic
growth during the 1980s was led by the northern Virginia area
outside of Washington, D.C. where approximately 25% of the
State's population is concentrated. The next largest
metropolitan area is the Norfolk-Virginia Beach-Newport News
PAGE 25
area, followed by the Richmond-Petersburg area, including the
State's capital of Richmond. The State's economy is broadly
based, with a large concentration in service and governmental
jobs, followed by manufacturing. Virginia has significant
concentrations of high technology employers, with nearly 150,000
people employed in 3,900 establishments. Per capita income
exceeds national averages while unemployment figures have
consistently tracked below national averages.
Financial. To a large degree, the risk of the portfolio is
dependent on the financial strength of the State of Virginia and
its localities. As of June 1, 1997, the State was rated Triple-A
by Moody's, Standard & Poor's and Fitch. The State's budget is
prepared on a biennial basis. From 1970 through 1996 the State's
General Fund showed a positive balance for all of its two year
budgetary periods. The national recession and its negative
effects on State personal income tax collections did, however,
force the State to draw down its General Fund balances to a
deficit position in 1992. Spending cuts and improved economic
conditions allowed for positive operations in 1993-1995. The
State posted a budgetary surplus for fiscal years 1995 and 1996
despite federal retiree settlements and other transfers. On June
30, 1996, the unreserved general fund balance, including a
revenue stabilization account, totaled $148 million.
A significant portion of the Funds assets is expected to be
invested in the debt obligations of local governments and public
authorities with investment grade ratings of BBB or higher.
While local governments in Virginia are primarily reliant on
independent revenue sources, such as property taxes, they are not
immune to budget shortfalls caused by cutbacks in State aid.
Likewise, certain enterprises such as toll roads or hospitals may
be affected by changes in economic activity.
Sectors. Certain areas of potential investment
concentration present unique risks. In 1996, $487 million of
tax-exempt debt issued in Virginia was for public or non-profit
hospitals. A significant portion of the Fund's assets may be
invested in health care issues. For over a decade, the hospital
industry has been under significant pressure to reduce expenses
and shorten length of stay, a phenomenon which has negatively
affected the financial health of many hospitals. While each
hospital bond issue is separately secured by the individual
hospital's revenues, third party reimbursement sources such as
the federal Medicare and state Medicaid programs or private
insurers are common to all hospitals. To the extent these payors
reduce reimbursement levels, the individual hospitals may be
affected. In the face of these pressures, the trend of hospital
mergers and acquisitions has accelerated in recent years. These
organizational changes present both risks and opportunities for
the institutions involved.
PAGE 26
The Funds may from time to time invest in electric revenue
issues which have exposure to or participate in nuclear power
plants which could affect the issuers' financial performance.
Such risks include unexpected outages or plant shutdowns,
increased Nuclear Regulatory Commission surveillance or
inadequate rate relief.
The Funds may invest in private activity bond issues for
corporate and non-profit borrowers. These issues sold through
various governmental conduits, are backed solely by the revenues
pledged by the respective borrowing corporations. No
governmental support is implied.
RISK FACTORS ASSOCIATED WITH A NEW JERSEY PORTFOLIO
The Fund's concentration in the debt obligations of one
state carries a higher risk than a portfolio that is
geographically diversified. In addition to State of New Jersey
general obligation bonds, notes and state agency issues, the Fund
will invest in local bond issues, lease obligations and revenue
bonds, the credit quality and risk of which will vary according
to each security's own structure and underlying economics.
Debt. The State of New Jersey and its local governments
issued $5.7 billion of municipal bonds in 1996. Of this amount,
approximately 42% was general obligation debt backed by the
unlimited taxing power of the issuer and 58% were revenue bonds
secured by specific pledged fees or charges for an enterprise or
project. Included within the revenue bond sector are tax-exempt
lease obligations that are subject to annual appropriations of a
governmental body, usually with no implied tax or specific
revenue pledge. Debt issued in 1996 was for a wide array of
public purposes, including water and sewer projects, health care,
housing, education, transportation, and pollution control.
The State of New Jersey has approximately $3.6 billion
outstanding general obligation bonds secured by the State's
revenue and taxing power. As of June 1, 1997, its general
obligation bonds were rated Aa1 by Moody's, AA+ by Standard &
Poor's and AA+ by Fitch. In addition to the State's direct debt,
it is obligated for certain lease backed debt issued through the
Mercer County Improvement Authority, the New Jersey Economic
Development Authority, the New Jersey Building Authority, the
Educational Facilities Authority and the Transportation Trust
Fund Authority. Under State law, the obligations of certain
local school districts and county college districts have been
supported by State appropriations. The State has also entered
into a "moral obligation" (as opposed to a legal commitment) to
make up debt service shortfalls for the New Jersey Housing and
Mortgage Finance Agency as well as the South Jersey Port
Corporation. While no assistance has ever been required for the
New Jersey Housing and Mortgage Finance Agency, from time to
PAGE 27
time, the State has supported the operations and debt service of
the South Jersey Port Corporation. The State has also guaranteed
bonds issued by the Sports and Exposition Authority. The related
obligations of the State described in this paragraph total an
additional $6.0 billion.
A number of other state-created agencies issue tax-exempt
revenue bonds that are not a debt or liability of the State. The
largest such entities include the New Jersey Turnpike Authority,
the New Jersey Educational Facilities Authority and the New
Jersey Health Care Facilities Financing Authority.
A significant portion of the portfolio's assets is expected
to be invested in the debt obligations of local governments and
public authorities with investment grade ratings of BBB or
higher. While local governments in New Jersey are primarily
reliant on independent revenue sources, such as property taxes,
they are not immune to budget shortfalls caused by economic
downturns or cutbacks in State aid. Likewise, certain
enterprises such as toll roads or hospitals may be affected by
changes in economic activity. Under the New Jersey Local Budget
Law, the State oversees the budget preparation of local
governments and has certain powers to enforce balanced budgets,
limit short term borrowing and regulate overall debt limits.
Economy. New Jersey is the ninth largest and most densely
populated state with 7.9 million residents. The economic base is
diversified among manufacturing, construction, services, and
agricultural uses. The per capita personal income of $31,053
ranks the State as the second highest in the United States. Over
the long term, the State's economy has been a strong performer,
with unemployment levels generally below national averages;
however, since the recession of 1991-92, the State's growth rate
has lagged the nation.
Financial. To a large degree, the risk of the portfolio is
dependent on the financial strength of the State of New Jersey
and its localities. Characteristically, the State has
demonstrated solid financial performance, but operations suffered
as the State's economy stagnated during the recession of the
early 1990's. In fiscal 1990 through 1994 New Jersey utilized
non-recurring revenues and expenditure deferrals and a tax
increase to achieve balance. An environment of cost controls and
a slightly improved economy allowed the State to conclude fiscal
year 1996 with an undesignated general fund balance of $442
million (2.5% of general fund revenues). Effective January 1996,
the State completed the last stage of a 30% reduction in personal
income tax rates which was accommodated for in the budget for
fiscal year 1997. The proposed budget for fiscal 1998 evidences
initial signs of fiscal pressure. The budget plan relies on
savings from a controversial pension financing and is complicated
by a recent State court ruling which mandates additional funding
for certain school districts.
PAGE 28
Sectors. Certain areas of potential investment
concentration present unique risks. In 1996, 7% of tax-exempt
debt issued in New Jersey was for public or non-profit hospitals.
A significant portion of the Fund's assets may be invested in
health care issues. For over a decade, the hospital industry has
been under significant pressure to reduce expenses and shorten
length of stay, a phenomenon which has negatively affected the
financial health of many hospitals. While each hospital bond
issue is separately secured by the individual hospital's
revenues, third party reimbursement sources such as the federal
Medicare and state Medicaid programs or private insurers are
common to all hospitals. To the extent these payors reduce
reimbursement levels, the individual hospitals may be affected.
In the face of these pressures, the trend of hospital mergers and
a acquisitions has accelerated in recent years. These
organizational changes present both risks and opportunities for
the institutions involved. In May 1996, the State of New Jersey
reauthorized the funding of charity care subsidies to eligible
hospitals. The new authorization runs through December 31, 1997.
The failure of the State to renew this program or put in place a
permanent funding mechanism may affect the financial performance
of certain New Jersey hospitals in future years.
The Fund may from time to time invest in electric revenue
issues which have exposure to or participate in nuclear power
plants which could affect the issuers' financial performance.
Such risks include delay in construction and operation due to
increased regulation, unexpected outages or plant shutdowns,
increased Nuclear Regulatory Commission surveillance or
inadequate rate relief. In addition, the financial performance
of electric utilities may be impacted by increased competition
and deregulation in the industry.
The Fund may invest in private activity bond issues for
corporate and non-profit borrowers. These issues sold through
governmental conduits, such as the New Jersey Economic
Development Authority and various local issuers, are backed
solely by the revenues pledged by the respective borrowing
corporations. No governmental support is implied. This category
accounted for 6.6% of the tax-exempt debt issued in New Jersey
during 1996. In the past, a number of New Jersey Economic
Development Authority issues have defaulted as a result of
borrower financial difficulties. A number of counties and
utility authorities in the state have issued several billion
dollars of bonds to fund incinerator projects and solid waste
projects. A recent federal court decision striking down New
Jersey s system of solid waste flow control increases the
potential risk of default absent a successful appeal, legislative
solution, or some form of subsidy by local or State governments.
All Funds
Puerto Rico
PAGE 29
From time to time the Fund invests in obligations of the
Commonwealth of Puerto Rico and its public corporations which are
exempt from federal, state and city or local income taxes. The
majority of the Commonwealth's debt is issued by the major public
agencies that are responsible for many of the islands' public
functions, such as water, wastewater, highways,
telecommunications, education, and public construction. As of
December 31, 1996, public sector debt issued by the Commonwealth
and its public corporations totaled $18.4 billion.
Since the 1980s, Puerto Rico's economy and financial
operations have paralleled the economic cycles of the United
States. The island's economy, particularly the manufacturing
sector, has experienced substantial gains in employment. Much of
these economic gains are attributable in part to favorable
treatment under Section 936 of the Federal Internal Revenue Code
for United States corporations doing business in Puerto Rico.
The number of persons employed in Puerto Rico during fiscal 1994
averaged 1 million persons -- a record level. Unemployment,
however, still remains high at 13.8 percent.
Debt ratios for the Commonwealth are high as it assumes much
of the responsibility for local infrastructure. Sizable
infrastructure programs are ongoing to upgrade the island's
water, sewer, and road systems. The Commonwealth's general
obligation debt is secured by a first lien on all available
revenues. The Commonwealth has maintained a fiscal policy which
seeks to correlate the growth in public sector debt to the growth
of the economic base available to service that debt. Between
fiscal years 1992 and 1996, debt increased 27.5% while gross
product rose 27.7%. Short term debt remains a modest 13% of total
debt outstanding as of December 31, 1996. The maximum annual
debt service requirement on Commonwealth general obligation debt
totaled 8.7% of governmental revenues for fiscal 1997. This is
well below the 15% limit imposed by the Constitution of Puerto
Rico.
After recording 3 years of positive operating results in the
1989 to 1991 period, the Commonwealth's General Fund moved into a
deficit position, with a $62 million cash deficit for fiscal 1992
and a $116 million deficit for fiscal 1993. The fiscal 1994
budget was balanced with an increase in the "tollgate" tax on
Section 936 companies and improved revenue collections, which
enabled the Commonwealth to record a strong turnaround in the
General Fund balance to $309 million (6.8% of general fund
expenses). A General Fund unreserved balance of $171 million was
recorded for the end of fiscal year 1996.
The Commonwealth's economy remains vulnerable to changes in
oil prices, American trade, foreign policy, and levels of federal
assistance. Per capita income levels, while being the highest in
the Caribbean, lag far behind the United States. In November
1993, the voters of Puerto Rico were asked in a non-binding
PAGE 30
referendum to consider the options of statehood, continued
Commonwealth status, or independence. 48.4% of the voters
favored continuation of Commonwealth status, 46.2% were for
statehood, and 4.4% were for independence. In February 1997,
legislation was introduced in Congress proposing a mechanism to
permanently settle the political relationship with the United
States.
For many years U.S. companies operating in Puerto Rico were
eligible to receive a special tax credit available under Section
936 of the federal tax code, which helped spur significant
expansion in capital intensive manufacturing activity. Federal
tax legislation was passed in 1993 which revised the tax benefits
received by U.S. corporations (Section 936 firms) that operate
manufacturing facilities in Puerto Rico. The legislation provides
these firms with two options: a 5 year phased reduction of the
income based tax credit to 40% of the previously allowable credit
or the conversion to a wage based standard, allowing a tax credit
for the first 60% of qualified compensation paid to employees as
defined in the IRS Code. Studies indicate that there have been
no reductions in the economic growth rate or employment in
industries which were expected to be impacted by the 1993
amendments. In 1996, amendments were signed into law to phase
out the tax credit over a ten year period for existing claimants
and to eliminate it for corporations without established
operations after October 1995. At present, it is difficult to
forecast what the short and long term effects of a phase-out of
the Section 936 credit would have on the economy of Puerto Rico.
A final risk factor with the Commonwealth is the large
amount of unfunded pension liabilities. The two main public
pension systems are largely underfunded. The employees
retirement system has a funded ratio of 19% and an unfunded
liability of $5.0 billion. The teachers retirement system has a
funded ratio of 56% and an unfunded liability of $1.1 billion. A
measure enacted by the legislature in 1990 is designed to address
the solvency of the plans over a 50 year period.
INVESTMENT PROGRAMS
(Throughout the discussion on Investments, the term "the Fund" is
intended to refer to each of the Funds eligible to invest in the
security or engage in the practice being described.)
Municipal Securities
All Funds
Subject to the investment objective and program described in
the prospectus and the additional investment restrictions
described in this Statement of Additional Information, each
PAGE 31
Fund's portfolio may consist of any combination of the various
types of municipal securities described below or others that may
be developed. The amount of each Fund's assets invested in any
particular type of municipal security can be expected to vary.
The term "municipal securities" means obligations issued by
or on behalf of states, territories, and possessions of the
United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, as well as certain
other persons and entities, the interest from which is exempt
from federal, state, and/or city or local, if applicable, income
tax. In determining the tax-exempt status of a municipal
security, the Funds rely on the opinion of the issuer's bond
counsel at the time of the issuance of the security. However, it
is possible this opinion could be overturned, and as a result,
the interest received by the Funds from such a security might not
be exempt from federal, state, and/or city or local income tax.
Municipal securities are classified by maturity as notes,
bonds, or adjustable rate securities.
Municipal Notes. Municipal notes generally are used to
provide for short-term operating or capital needs and generally
have maturities of one year or less. Municipal notes include:
Tax Anticipation Notes. Tax anticipation notes are
issued to finance working capital needs of
municipalities. Generally, they are issued in
anticipation of various seasonal tax revenue, such as
income, property, use and business taxes, and are
payable from these specific future taxes.
Revenue Anticipation Notes. Revenue anticipation
notes are issued in expectation of receipt of other
types of revenue, such as federal or state revenues
available under the revenue sharing or grant programs.
Bond Anticipation Notes. Bond anticipation notes are
issued to provide interim financing until long-term
financing can be arranged. In most cases, the
long-term bonds then provide the money for the
repayment of the notes.
Tax-Exempt Commercial Paper. Tax-exempt commercial
paper is a short-term obligation with a stated
maturity of 270 days or less. It is issued by state
and local governments or their agencies to finance
seasonal working capital needs or as short-term
financing in anticipation of longer term financing.
Municipal Bonds. Municipal bonds, which meet longer
term capital needs and generally have maturities of
more than one year when issued, have two principal
PAGE 32
classifications: general obligation bonds and revenue
bonds. Two additional categories of potential
purchases are lease revenue bonds and
pre-refunded/escrowed to maturity bonds. Another type
of municipal bond is referred to as an Industrial
Development Bond.
General Obligation Bonds. Issuers of general
obligation bonds include states, counties, cities,
towns, and special districts. The proceeds of these
obligations are used to fund a wide range of public
projects, including construction or improvement of
schools, public buildings, highways and roads, and
general projects not supported by user fees or
specifically identified revenues. The basic security
behind general obligation bonds is the issuer's pledge
of its full faith and credit and taxing power for the
payment of principal and interest. The taxes that can
be levied for the payment of debt service may be
limited or unlimited as to the rate or amount of
special assessments. In many cases voter approval is
required before an issuer may sell this type of bond.
Revenue Bonds. The principal security for a revenue
bond is generally the net revenues derived from a
particular facility, or enterprise, or in some cases,
the proceeds of a special charge or other pledged
revenue source. Revenue bonds are issued to finance a
wide variety of capital projects including: electric,
gas, water and sewer systems; highways, bridges, and
tunnels; port and airport facilities; colleges and
universities; and hospitals. Revenue bonds are
sometimes used to finance various privately operated
facilities provided they meet certain tests
established for tax-exempt status.
Although the principal security behind these bonds may
vary, many provide additional security in the form of
a mortgage or debt service reserve fund. Some
authorities provide further security in the form of
the state's ability (without obligation) to make up
deficiencies in the debt service reserve fund.
Revenue bonds usually do not require prior voter
approval before they may be issued.
Lease Revenue Bonds. Municipal borrowers may also
finance capital improvements or purchases with
tax-exempt leases. The security for a lease is
generally the borrower's pledge to make annual
appropriations for lease payments. The lease payment
is treated as an operating expense subject to
appropriation risk and not a full faith and credit
obligation of the issuer. Lease revenue bonds are
PAGE 33
generally considered less secure than a general
obligation or revenue bond and often do not include a
debt service reserve fund. To the extent the Board
determines such securities are illiquid, they will be
subject to the Funds' 15% limit on illiquid securities
(10% limit for the Money Funds). There have also been
certain legal challenges to the use of lease revenue
bonds in various states.
The liquidity of such securities will be determined
based on a variety of factors which may include, among
others: (1) the frequency of trades and quotes for the
obligation; (2) the number of dealers willing to
purchase or sell the security and the number of other
potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; (4) the
nature of the marketplace trades, including, the time
needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer; and
(5) the rating assigned to the obligation by an
established rating agency or T. Rowe Price.
Pre-refunded/Escrowed to Maturity Bonds. Certain
municipal bonds have been refunded with a later bond
issue from the same issuer. The proceeds from the
later issue are used to defease the original issue.
In many cases the original issue cannot be redeemed or
repaid until the first call date or original maturity
date. In these cases, the refunding bond proceeds
typically are used to buy U.S. Treasury securities
that are held in an escrow account until the original
call date or maturity date. The original bonds then
become "pre-refunded" or "escrowed to maturity" and
are considered as high quality investments. While
still tax-exempt, the security is the proceeds of the
escrow account. To the extent permitted by the
Securities and Exchange Commission and the Internal
Revenue Service, a Fund's investment in such
securities refunded with U.S. Treasury securities
will, for purposes of diversification rules applicable
to the Fund, be considered as an investment in the
U.S. Treasury securities.
Private Activity Bonds. Under current tax law all
municipal debt is divided broadly into two groups:
governmental purpose bonds and private activity bonds.
Governmental purpose bonds are issued to finance
traditional public purpose projects such as public
buildings and roads. Private activity bonds may be
issued by a state or local government or public
authority but principally benefit private users and
are considered taxable unless a specific exemption is
provided.
PAGE 34
The tax code currently provides exemptions for certain
private activity bonds such as not-for-profit hospital
bonds, small-issue industrial development revenue
bonds and mortgage subsidy bonds, which may still be
issued as tax-exempt bonds. Some, but not all,
private activity bonds are subject to alternative
minimum tax.
Industrial Development Bonds. Industrial development
bonds are considered Municipal Bonds if the interest
paid is exempt from federal income tax. They are
issued by or on behalf of public authorities to raise
money to finance various privately operated facilities
for business and manufacturing, housing, sports, and
pollution control. These bonds are also used to
finance public facilities such as airports, mass
transit systems, ports, and parking. The payment of
the principal and interest on such bonds is dependent
solely on the ability of the facility's user to meet
its financial obligations and the pledge, if any, of
real and personal property so financed as security for
such payment.
Adjustable Rate Securities. Municipal securities may
be issued with adjustable interest rates that are
reset periodically by pre-determined formulas or
indexes in an effort to minimize movements in the
principal value of the investment. For example, the
interest rate on a bond could be indexed to the
consumer price index. 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 a variety of
forms including the following:
Variable Rate Securities. Variable rate securities
are those whose terms provide for the adjustment of
their interest rates on set dates and which, upon each
adjustment until the final maturity of the instrument
or the period remaining until the principal amount can
be recovered through demand, can reasonably be
expected to have a market value that approximates its
amortized cost. Subject to the provisions of Rule 2a-
7 under the Investment Company Act of 1940 (1940 Act):
(1) a variable rate security, the principal amount of
which is scheduled to be paid in 397 calendar days or
less, is deemed to have a maturity equal to the
earlier of the period remaining until the next
readjustment of the interest rate or the period
remaining until the principal amount can be recovered
PAGE 35
through demand; (2) a variable rate security, the
principal amount of which is scheduled to be paid in
more than 397 calendar days, which is subject to a
demand feature, as defined in Rule 2a-7, 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; and (3) a
security that is issued or guaranteed by the U.S.
Government or any agency thereof which has a variable
rate of interest readjusted no less frequently than
every 762 calendar days may be deemed to have a
maturity equal to the period remaining until the next
readjustment of the interest rate. Should the
provisions of Rule 2a-7 change, the Fund will
determine the maturity of these securities in
accordance with the amended provisions of such Rule.
Floating Rate Securities. Floating rate securities
are those whose terms provide for the adjustment of
their interest rates whenever a specified interest
rate changes and which, at any time until the final
maturity of the instrument or the period remaining
until the principal amount can be recovered through
demand, can reasonably be expected to have a market
value that approximates its amoritized cost. Subject
to the provisions of Rule 2a-7 under the 1940 Act: (1)
the maturity of a floating rate security, the
principal amount of which must be unconditionally paid
in 397 calendar days or less, is deemed to be one day;
and (2) a floating rate security, the principal amount
of which is scheduled to be paid in more than 397
calendar days, that is subject to a demand feature, is
deemed to have a maturity equal to the period
remaining until the principal amount can be recovered
through demand. Should the provisions of Rule 2a-7
change, the Fund will determine the maturity of these
securities in accordance with the amended provisions
of such Rule.
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.
Residual Interest Bonds (Bond Funds only)(These are a
type of potentially high-risk derivative). The Funds
may purchase municipal bond issues that are structured
as two-part, residual interest bond and variable rate
PAGE 36
security offerings. The issuer is obligated only to
pay a fixed amount of tax-free income that is to be
divided among the holders of the two securities. The
interest rate for the holders of the variable rate
securities will be determined by an auction process
held approximately every 35 days while the bond
holders will receive all interest paid by the issuer
minus the amount given to the variable rate security
holders and a nominal auction fee. Therefore, the
coupon of the residual interest bonds, and thus the
income received, will move inversely with respect to
short-term, 35 day tax-exempt interest
rates. There is no assurance that the auction will be
successful and that the variable rate security will
provide short-term liquidity. The issuer is not
obligated to provide such liquidity. In general,
these securities offer a significant yield advantage
over standard municipal securities, due to the
uncertainty of the shape of the yield curve (i.e.,
short-term versus long-term rates)and consequent
income flows. Unlike many adjustable rate securities,
residual interest bonds are not necessarily expected
to trade at par and in fact present significant market
risks. In certain market environments, residual
interest bonds may carry substantial premiums or be at
deep discounts. This is a relatively new product in
the municipal market with limited liquidity to date.
Participation Interests. The Funds may purchase, from
third parties, participation interests in all or part
of specific holdings of municipal securities. The
purchase may take different forms: in the case of
short-term securities, the participation may be backed
by a liquidity facility that allows the interest to be
sold back to the third party (such as a trust, broker
or bank) for a predetermined price of par at stated
intervals. The seller may receive a fee from the
Funds in connection with the arrangement.
In the case of longer-term bonds, the Funds may
purchase interests in a pool of municipal bonds or a
single municipal bond or lease without the right to
sell the interest back to the third party.
The Funds will not purchase participation interests
unless a satisfactory opinion of counsel or ruling of
the Internal Revenue Service has been issued that the
interest earned from the municipal securities on which
the Funds holds participation interests is exempt from
federal, state, and/or city or local income tax to the
Funds. However, there is no guarantee the IRS would
treat such interest income as tax-exempt.
PAGE 37
Embedded Interest Rate Swaps and Caps (Bond Funds).
In a fixed-rate, long-term municipal bond with an
interest rate swap attached to it, the bondholder
usually receives the bond's fixed-coupon payment as
well as a variable rate payment that represents the
difference between a fixed rate for the term of the
swap (which is typically shorter than the bond it is
attached to) and a variable rate short-term municipal
index. The bondholder receives excess income when
short-term rates remain below the fixed interest rate
swap rate. If short-term rates rise above the fixed-
income swap rate, the bondholder's income is reduced.
At the end of the interest rate swap term, the bond
reverts to a single fixed-coupon payment. Embedded
interest rate swaps enhance yields, but also increase
interest rate risk.
An embedded interest rate cap allows the bondholder to
receive payments whenever short-term rates rise above
a level established at the time of purchase. They
normally are used to hedge against rising short-term
interest rates.
Both instruments may be volatile and of limited
liquidity and their use may adversely affect a Fund's
total return.
The Funds may invest in other types of derivative
instruments as they become available.
There are, of course, other types of municipal
securities that are, or may become, available, and the
Funds reserve the right to invest in them.
For the purpose of the Funds' investment restrictions,
the identification of the "issuer" of municipal
securities which are not general obligation bonds is
made by the Funds' investment manager, T. Rowe Price,
on the basis of the characteristics of the obligation
as described above, the most significant of which is
the source of funds for the payment of principal and
interest on such securities.
When-Issued Securities
All Funds
New issues of municipal securities are often offered on a
when-issued basis; that is, delivery and payment for the
securities normally takes place 15 to 45 days or more after the
date of the commitment to purchase. The payment obligation and
the interest rate that will be received on the securities are
each fixed at the time the buyer enters into the commitment. A
PAGE 38
Fund will only make a commitment to purchase such securities with
the intention of actually acquiring the securities. However, a
Fund may sell these securities before the settlement date if it
is deemed advisable as a matter of investment strategy. Each
Fund will establish a segregated account in which it will
maintain cash and high-grade marketable debt securities equal in
value to commitments for when-issued securities. Such segregated
securities either will mature or, if necessary, be sold on or
before the settlement date. Securities purchased on a
when-issued basis and the securities held in a Fund's portfolio
are subject to changes in market value based upon the public
perception of the creditworthiness of the issuer and changes in
the level of interest rates (which will generally result in
similar changes in value; i.e., both experiencing appreciation
when interest rates decline and depreciation when interest rates
rise). Therefore, to the extent a Fund remains substantially
fully invested at the same time that it has purchased securities
on a when-issued basis, there will be greater fluctuations in its
net asset value than if it solely set aside cash to pay for
when-issued securities. In the case of the Money Funds, this
could increase the possibility that the market value of a Fund's
assets could vary from $1.00 per share.
In addition, there will be a greater potential for the
realization of capital gains, which are not exempt from federal,
state and/or city or local income tax. When the time comes to
pay for when-issued securities, a Fund will meet its obligations
from then-available cash flow, sale of securities or, although it
would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a value greater or less
than the payment obligation). The policies described in this
paragraph are not fundamental and may be changed by a Fund upon
notice to its shareholders.
Forwards
Bond Funds
The Funds also may purchase bonds on a when-issued basis
with longer than standard settlement dates, in some cases
exceeding one to two years. In such cases, the Funds must
execute a receipt evidencing the obligation to purchase the bond
on the specified issue date, and must segregate cash internally
to meet that forward commitment. Municipal "forwards" typically
carry a substantial yield premium to compensate the buyer for the
risks associated with a long when-issued period, including:
shifts in market interest rates that could materially impact the
principal value of the bond, deterioration in the credit quality
of the issuer, loss of alternative investment options during the
when-issued period, changes in tax law or issuer actions that
would affect the exempt interest status of the bonds and prevent
delivery, failure of the issuer to complete various steps
required to issue the bonds, and limited liquidity for the buyer
PAGE 39
to sell the escrow receipts during the when-issued period. Each
Fund will not invest more than 10% of its total assets in
forwards.
Investment in Taxable Money Market Securities
Although the Funds expect to be invested solely in municipal
securities, it is anticipated that, when it is deemed to be in
the best interests of each Fund's shareholders to do so, the
Funds may also invest a portion of their respective assets on a
temporary basis, in the taxable money market instruments set
forth below. The interest earned on these money market
securities is not exempt from federal, state, and/or city or
local income tax and may be taxable to shareholders as ordinary
income.
U.S. Government Obligations - direct obligations of the
government and its agencies and instrumentalities;
U.S. Government Agency Securities - obligations issued or
guaranteed by U.S. government sponsored enterprises, federal
agencies and international institutions. Some of these
securities are supported by the full faith and credit of the U.S.
Treasury; others are supported by the right of the issuer; and
the remainder are supported only by the credit of the
instrumentality;
Bank Obligations - certificates of deposit, bankers'
acceptances, and other short-term obligations of U.S. and
Canadian banks and their foreign branches;
Commercial Paper - paper rated A-2 or better by S&P, Prime-2
or better by Moody's, or F-2 or better by Fitch or, if not rated,
is issued by a corporation having an outstanding debt
issue rated A or better by Moody's, S&P or Fitch, and, with
respect to the Money Funds, is of equivalent investment quality
as determined by the Board of Trustees; and
Short-Term Corporate Debt Securities - short-term corporate
debt securities rated at least AA by S&P, Moody's or Fitch.
Determination of Maturity of Money Market Securities
The Money Funds may only purchase securities which at the
time of investment have remaining maturities of 397 calendar days
or less. The Bond Funds may also purchase money-market
securities. In determining the maturity of money market
securities, the Funds will follow the provisions of Rule 2a-7
under the 1940 Act.
PORTFOLIO MANAGEMENT PRACTICES
PAGE 40
Futures Contracts (Bond Funds only)
Futures are a type of potentially high-risk derivative.
Transactions in Futures
The Fund may enter into interest rate futures contracts
("futures" or "futures contracts"). Interest rate futures
contracts may be used as a hedge against changes in prevailing
levels of interest rates in order to establish more definitely
the effective return on securities held or intended to be
acquired by the Fund. The Fund could sell interest rate futures
as an offset against the effect of expected increases in interest
rates and purchase such futures as an offset against the effect
of expected declines in interest rates. Futures can also be used
as an efficient means of regulating a Fund's exposure to the
market.
The Fund will enter into futures contracts which are traded
on national futures exchanges and are standardized as to maturity
date and underlying financial instrument. A public market exists
in futures contracts covering various taxable fixed income
securities as well as municipal bonds. Futures exchanges and
trading in the United States are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission
("CFTC"). Although techniques other than the sale and purchase
of futures contracts could be used for the above-referenced
purposes, futures contracts offer an effective and relatively low
cost means of implementing the Fund's objectives in these areas.
Regulatory Limitations
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.
The Fund may not purchase or sell futures contracts or
related options if, with respect to positions which do not
quality 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 options traded on a commodities
exchange will be considered "related options." This policy may
be modified by the Board of Trustees without a shareholder vote
and does not limit the percentage of the Fund's assets at risk to
5%.
PAGE 41
The Fund's use of futures will not result in leverage.
Therefore, to the extent necessary, in instances involving the
purchase of futures contracts or the writing of calls 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.
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.
It is possible that the Fund's hedging activities will occur
primarily through the use of municipal bond index futures
contracts since the uniqueness of that index contract should
better correlate with the Fund's portfolio and thereby be more
effective. However, there may be times when it is deemed in the
best interest of shareholders to engage in the use of Treasury
bond futures, and the Fund reserves to right to use Treasury bond
futures at any time. Use of these futures could occur, as an
example, when both the Treasury bond contract and municipal bond
index futures contract are correlating well with municipal bond
prices, but the Treasury bond contract is trading at a more
advantageous price making the hedge less expensive with the
Treasury bond contract than would be obtained with the municipal
bond index futures contract. The Fund's activity in futures
contracts generally will be limited to municipal bond index
futures contracts and Treasury bond and note contracts.
PAGE 42
Unlike when the Fund purchases or sells a security, no price
would be paid or received by the Fund upon the purchase or sale
of a futures contract. Upon entering into a futures contract,
and to maintain the Fund's open positions in futures contracts,
the Fund would be required to deposit with its custodian in a
segregated account in the name of the futures broker an amount of
cash, U.S. government securities, suitable money market
instruments, or liquid, high-grade debt securities, known as
"initial margin." The margin required for a particular futures
contract is set by the exchange on which the contract is traded,
and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are
customarily purchased and sold on margins that may range upward
from less than 5% of the value of the contract being traded.
If the price of an open futures contract changes (by
increase in the case of a sale or by decrease in the case of a
purchase) so that the loss on the futures contract reaches a
point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin.
However, if the value of a position increases because of
favorable price changes in the futures contract so that the
margin deposit exceeds the required margin, the broker will pay
the excess to the Fund.
These subsequent payments, called "variation margin," to and
from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short
positions in the futures contract more or less valuable, a
process known as "marking to the market." The Fund expects to
earn interest income on its margin deposits.
Although certain futures contracts, by their terms, require
actual future delivery of and payment for the underlying
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.
PAGE 43
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
municipal bond index futures 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 municipal bond index
futures on the same exchange. In such instance, the difference
between the price at which the futures contract was sold and the
price paid for the offsetting purchase, after allowance for
transaction costs, represents the profit or loss to the Fund.
Special Risks of Transactions in Futures Contracts
Volatility and Leverage. The prices of futures contracts
are volatile and are influenced, among other things, by actual
and anticipated changes in the market and interest rates, which
in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular
type of futures contract, no trades may be made on that day at a
price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting
some futures traders to substantial losses.
Because of the low margin deposits required, futures trading
involves an extremely high degree of leverage. As a result, a
relatively small price movement in a futures contract may result
in immediate and substantial loss, as well as gain, to the
investor. For example, if at the time of purchase, 10% of the
value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract
would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150%
of the original margin deposit, if the contract were closed out.
Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in
the underlying financial instrument and sold it after the
decline. Furthermore, in the case of a futures contract
PAGE 44
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
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
PAGE 45
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 are written might advance and the
value of the underlying instruments held in the Fund's portfolio
might decline. If this were to occur, the Fund would lose money
on the futures and also would experience a decline in value in
its underlying instruments. However, while this might occur to a
certain degree, T. Rowe Price believes that over time the value
of the Fund's portfolio will tend to move in the same direction
as the market indices used to hedge the portfolio. It is also
possible that if the Fund were to hedge against the possibility
of a decline in the market (adversely affecting the underlying
instruments held in its portfolio) and prices instead increased,
the Fund would lose part or all of the benefit of increased value
of those underlying instruments that it has hedged, because it
would have offsetting losses in its futures positions. In
addition, in such situations, if the Fund had insufficient cash,
it might have to sell underlying instruments to meet daily
variation margin requirements. Such sales of underlying
instruments might be, but would not necessarily be, at increased
prices (which would reflect the rising market). The Fund might
have to sell underlying instruments at a time when it would be
disadvantageous to do so.
In addition to the possibility that there might be an
imperfect correlation, or no correlation at all, between price
movements in the futures contracts and the portion of the
portfolio being hedged, the price movements of futures contracts
might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First,
all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors might close
futures contracts through offsetting transactions, which could
distort the normal relationship between the underlying
instruments and futures markets. Second, the margin requirements
in the futures market are less onerous than margin requirements
in the securities markets, and as a result the futures market
might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market
might also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and also
because of 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 might trade in municipal bond index option futures
or similar options on futures developed in the future. In
PAGE 46
addition, the Fund may also trade in options on futures contracts
on U.S. government securities and any U.S. government securities
futures index contract which might be developed. In the opinion
of T. Rowe Price, there is a high degree of correlation in the
interest rate, and price movements of U.S. government securities
and municipal securities. However, the U.S. government
securities market and municipal securities markets are
independent and may not move in tandem at any point in time.
The Fund will purchase put options on futures contracts to
hedge its portfolio of municipal securities against the risk of
rising interest rates, and the consequent decline in the prices
of the municipal securities it owns. The Funds will also write
call options on futures contracts as a hedge against a modest
decline in prices of the municipal securities held in the Fund's
portfolio. If the futures price at expiration of a written call
option is below the exercise price, the Fund will retain the full
amount of the option premium, thereby partially hedging against
any decline that may have occurred in the Fund's holdings of debt
securities. If the futures price when the option is exercised is
above the exercise price, however, the Fund will incur a loss,
which may be wholly or partially offset by the increase of the
value of the securities in the Fund's portfolio which were being
hedged.
Writing a put option on a futures contract serves as a
partial hedge against an increase in the value of securities the
Fund intends to acquire. If the futures price at expiration of
the option is above the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge
against any increase that may have occurred in the price of the
debt securities the Fund intends to acquire. If the futures
price when the option is exercised is below the exercise price,
however, the Fund will incur a loss, which may be wholly or
partially offset by the decrease in the price of the securities
the Fund intends to acquire.
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
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.
PAGE 47
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 Fund and the other T. Rowe Price Funds in a
fair and non-discriminatory manner.
Special Risks of Transactions in Options on Futures Contracts
The risks described under "Special Risks of Transactions on
Futures Contracts" are substantially the same as the risks of
using options on futures. In addition, where the Fund seeks to
close out an option position by writing or buying an offsetting
option covering the same index, underlying instrument or contract
and having the same exercise price and expiration date, its
ability to establish and close out positions on such options will
be subject to the maintenance of a liquid secondary market.
Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options, or underlying instruments; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that
exchange (or in the class or series of options) would cease to
exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times,
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. In the event no such
market exists for a particular contract in which the Fund
maintains a position, in the case of a written option, the Fund
would have to wait to sell the underlying securities or futures
positions until the option expires or is exercised. The Fund
would be required to maintain margin deposits on payments until
the contract is closed. Options on futures are treated for
accounting purposes in the same way as the analogous option on
securities are treated.
In addition, the correlation between movements in the price
of options on futures contracts and movements in the price of the
securities hedged can only be approximate. This risk is
PAGE 48
significantly increased when an option on a U.S. government
securities future or an option on a municipal securities index
future is used to hedge a municipal bond portfolio. Another risk
is that the movements in the price of options on futures
contracts may not move inversely with changes in interest rates.
If the Fund has written a call option on a futures contract and
the value of the call increases by more than the increase in the
value of the securities held as cover, the Fund may realize a
loss on the call which is not completely offset by the
appreciation in the price of the securities held as cover and the
premium received for writing the call.
The successful use of options on futures contracts requires
special expertise and techniques different from those involved in
portfolio securities transactions. 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 or interest rate trends. During
periods when municipal securities market prices are appreciating,
the Fund may experience poorer overall performance than if it had
not entered into any options on futures contracts.
General Considerations
Transactions by the Fund in options on futures will be
subject to limitations established by each of the exchanges,
boards of trade or other trading facilities governing the maximum
number of options in each class which may be written or purchased
by a single investor or group of investors acting in concert,
regardless of whether the options are written on the same or
different exchanges, boards of trade or other trading facilities
or are held or written in one or more accounts or through one or
more brokers. Thus, the number of contracts which the Fund may
write or purchase may be affected by contracts written or
purchased by other investment advisory clients of T. Rowe Price.
An exchange, board of trade or other trading facility may order
the liquidations of positions found to be in excess of these
limits, and it may impose certain other sanctions.
Additional Futures and Options Contracts
Although the Funds have no current intention of engaging in
futures and options on futures transactions other than those
described above, they reserve 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.
Federal Tax Treatment of Futures Contracts
Although the Fund invests almost exclusively in securities
which generate income which is exempt from federal income taxes,
the instruments described above are not exempt from such taxes.
PAGE 49
Therefore, use of the investment techniques described above could
result in taxable income to shareholders of the Fund.
Generally, the Fund is required, for federal income tax
purposes, to recognize as income for each taxable year its net
unrealized gains and losses on futures contracts as of the end of
the year as well as those actually realized during the year.
Gain or loss recognized with respect to a futures contract will
generally be 60% long-term capital gain or loss and 40% short-
term capital gain or loss, without regard to the holding period
of the contract.
Futures contracts which are intended to hedge against a
change in the value of securities may be classified as "mixed
straddles," in which case the recognition of losses may be
deferred to a later year. In addition, sales of such futures
contracts on securities may affect the holding period of the
hedged security and, consequently, the nature of the gain or loss
on such security on disposition.
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.
Gains realized on the sale or other disposition of securities,
including futures contracts on securities 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 held less than three months, the Fund may be
required to defer the closing out of futures contracts beyond the
time when it would otherwise be advantageous to do so. It is
anticipated that unrealized gains on futures 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 held less than three
months for purposes of the 30% test.
The Fund will distribute to shareholders annually any net
gains which have been recognized for federal income tax purposes
from futures transactions (including unrealized gains at the end
of the Fund's fiscal year). Such distributions will be combined
with distributions of ordinary income or capital gains realized
on the Fund's other investments. Shareholders will be advised of
the nature of the payments. The Fund's ability to enter into
transactions in options on futures contracts may be limited by
the Internal Revenue Code's requirements for qualification as a
regulated investment company.
Options on Securities
Options are another type of potentially high-risk
derivative.
PAGE 50
Bond Funds
The Funds have no current intention of investing in options
on securities, although they reserve the right to do so.
Appropriate disclosure would be added to the Funds' prospectus
and Statement of Additional Information when and if the Funds
decide to invest in options.
INVESTMENT RESTRICTIONS
Fundamental policies of the Funds may not be changed without
the approval of the lesser of (1) 67% of a Fund's shares present
at a meeting of shareholders if the holders of more than 50% of
the outstanding shares are present in person or by proxy or (2)
more than 50% of a Fund's outstanding shares. Other
restrictions, in the form of operating policies, are subject to
change by the Trusts' Board of 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, a 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 Money Funds) may
enter into futures contracts and options thereon;
(3) Industry Concentration. 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;
PAGE 51
(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
(California Funds only). 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
(California Funds only). Purchase a security if, as a
result, with respect to 75% of the value of the Fund's
total assets, more than 10% of the outstanding voting
securities of any issuer would be held by the Fund
(other than obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities);
(7) Real Estate. Purchase or sell real estate, including
limited partnership interests therein, unless acquired
as a result of ownership of securities or other
instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by
real estate or securities of companies engaged in the
real estate business);
(8) Senior Securities. Issue senior securities except in
compliance with the Investment Company Act of 1940;
(9) Taxable Securities. During periods of normal market
conditions, purchase any security if, as a result, less
than 80% of the Fund's income would be exempt from
federal and, if applicable, state, city or local income
tax. The income included under the 80% test does not
include income from securities subject to the
alternative minimum tax (AMT); or
(10) 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.
PAGE 52
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 they apply for and receive 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 Money
Funds have no current intention of engaging in any
borrowing transactions. With respect to investment
restriction (2), the Fund does not consider 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.
Industrial development bonds issued by nongovernmental
users are subject to the restriction on concentration.
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) Equity Securities. Purchase any equity security or
security convertible into an equity security provided
that the Fund (other than the Money Funds) may invest
up to 10% of its total assets in equity securities
which pay tax-exempt dividends and which are otherwise
consistent with the Fund's investment objective and,
further provided, that the Money Funds may invest up to
10% of their total assets in equity securities of other
tax-free open-end money market funds;
(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
PAGE 53
such positions would exceed 5% of the Fund's net asset
value.
(5) Illiquid Securities. Purchase illiquid securities if,
as a result, more than 15% (10% for the Money Funds) of
its net assets would be invested in such securities;
(6) Investment Companies. Purchase securities of open-end
or closed-end investment companies except in compliance
with the Investment Company Act of 1940 provided that,
the Money Funds may only purchase the securities of
other tax-free open-end money market investment
companies;
(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 respect to,
oil, gas, or other mineral exploration or development
programs if, as a result therof, more than 5% of the
value of the total assets of the fund would be invested
in such programs;
(10) Options, Etc. Invest in puts, calls, straddles,
spreads, or any combination thereof, except to the
extent permitted by the prospectus and Statement of
Additional Information;
(11) Short Sales. Effect short sales of securities;
(12) Warrants. Invest in warrants if, as a result thereof,
more than 2% of the value of the net assets of the Fund
would be invested in warrants.
For purposes of investment restriction (6), the Fund has no
current intention of purchasing the securities of other
PAGE 54
investment companies. Duplicate fees could result from any
such purchases.
RATINGS OF MUNICIPAL DEBT SECURITIES
Moody's Investors Service, Inc.
Aaa - Bonds rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge."
Aa - Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds.
A - Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations.
Baa - Bonds rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba - Bonds rated Ba are judged to have speculative elements:
their futures cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterize
bonds in this class.
B - Bonds rated B generally lack the characteristics of a
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with
respect to principal or interest.
Ca - Bonds rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked short-comings.
C - Lowest-rated; extremely poor prospects of ever attaining
investment standing.
PAGE 55
Standard & Poor's Corporation
AAA - This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong.
A - Bonds rated A have a strong capacity to pay principal
and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB - Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB, C, CCC, CC - Bonds rated BB, B, CCC, and CC are regarded
on balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. BB
indicates the lowest degree of speculation and CC the highest
degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
D - In default.
Fitch Investors Service, Inc.
AAA - Bonds rated AAA are considered to be investment grade and
of the highest credit quality. The obligor has an exceptionally
strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA - Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest
and repay principal is very strong, although not quite as strong
as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rate
F-1+.
A - Bonds rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB - Bonds rated BBB are considered to be investment grade and
of satisfactory credit quality. The obligor's ability to pay
PAGE 56
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB, B, CCC, CC, and C are regarded on balance as predominantly
speculative with respect to the issuer's capacity to repay
interest and repay principal in accordance with the terms of the
obligation for bond issues not in default. BB indicates the
lowest degree of speculation and C the highest degree of
speculation. The rating takes into consideration special
features of the issue, its relationship to other obligations of
the issuer, and the current and prospective financial condition
and operating performance of the issuer.
RATINGS OF MUNICIPAL NOTES AND VARIABLE SECURITIES
Moody's Investors Services, Inc.
VMIG-1/MIG-1: the best quality. VMIG-2/MIG-2: high quality,
with margins of protection ample though not so large as in the
preceding group.
VMIG-3/MIG-3: favorable quality, with all security elements
accounted for, but lacking the undeniable strength of the
preceding grades. Market access for refinancing, in particular,
is likely to be less well established. VMIG-4/MIG-4: adequate
quality but there is specific risk.
Standard & Poor's Corporation
SP-1: very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation. SP-2:
satisfactory capacity to pay principal and interest.
SP-3: speculative capacity to pay principal and interest.
Fitch Investors Service, Inc.
F-1+: exceptionally strong credit quality, strongest degree of
assurance for timely payment. F-1: very strong credit quality.
F-2: good credit quality, having a satisfactory degree of
assurance for timely payment. F-3: fair credit quality,
assurance for timely payment is adequate but adverse changes
could cause the securities to be rated below investment grade.
F-S: weak credit quality, having characteristics suggesting a
minimal degree of assurance for timely payment.
PAGE 57
RATINGS OF COMMERCIAL PAPER
Moody's Investors Service, Inc.
P-1: Superior capacity for repayment. P-2: strong capacity for
repayment.
P-3: acceptable capacity for repayment of short-term promissory
obligations.
Standard & Poor's Corporation
A-1: highest category, degree of safety regarding timely payment
is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+)
designation. A-2: satisfactory capacity to pay principal and
interest.
A-3: adequate capacity for timely payment, but are vulnerable to
adverse effects of changes in circumstances than higher rated
issues. B, and C: speculative capacity to pay principal and
interest.
Fitch Investors Service, Inc.
F-1+: exceptionally strong credit quality, strongest degree of
assurance for timely payment. F-1: very strong credit quality.
F-2: good credit quality, having a satisfactory degree of
assurance for timely payment. F-3: fair credit quality,
assurance for timely payment is adequate but adverse changes
could cause the securities to be rated below investment grade.
F-5: weak credit quality, having characteristics suggesting a
minimal degree of assurance for timely payment.
MANAGEMENT OF THE TRUSTS
The officers and trustees of each Trust 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 trustees who are considered "interested
persons" of T. Rowe Price or the Funds as defined under Section
2(a)(19) of the Investment Company Act of 1940 are noted with an
asterisk (*). These trustees are referred to as inside trustees
by virtue of their officership, directorship, and/or employment
with T. Rowe Price.
ROBERT P. BLACK, Trustee--Retired; formerly President, Federal
Reserve Bank of Richmond; Address: 10 Dahlgren Road, Richmond,
Virginia 23233
PAGE 58
CALVIN W. BURNETT, PH.D., Trustee--President, Coppin State
College; Board of Directors, McDonogh School, Inc. and Provident
Bank of Maryland; Past President, Baltimore Area Council Boy
Scouts of America; Vice President, Board of Directors, The
Walters Art Gallery; Address: 2000 North Warwick Avenue,
Baltimore, Maryland 21216
ANTHONY W. DEERING, Trustee--Director, President and Chief
Executive 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, Trustee--President, F. Pierce Linaweaver &
Associates, Inc., Consulting Environmental & Civil Engineer(s);
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
*WILLIAM T. REYNOLDS, Chairman of the Board--Managing Director,
T. Rowe Price
*JAMES S. RIEPE, Vice President and Trustee--Vice Chairman of
the Board and Managing Director, T. Rowe Price; Chairman of the
Board, T. Rowe Price Services, Inc., T. Rowe Price Retirement
Plan Services, Inc., and T. Rowe Price Investment Services, Inc;
President and Trust Officer, T. Rowe Price Trust Company;
Director, Rowe Price-Fleming International, Inc. and Rhone-
Poulenc Rorer, Inc.
JOHN G. SCHREIBER, Trustee--President, Schreiber Investments,
Inc., a real estate investment company; 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
M. DAVID TESTA, Trustee--Chairman of the Board, Price-Fleming;
Vice Chairman of the Board, Chief Investment Officer, and
Managing Director, T. Rowe Price; Vice President and Director, T.
Rowe Price Trust Company; Chartered Financial Analyst, Chartered
Investment Counselor
MARY J. MILLER, President--Managing Director, T. Rowe Price
JANET G. ALBRIGHT, Vice President--Vice President, T. Rowe Price
PATRICE L. BERCHTENBREITER ELY, Vice President--Vice
President, T. Rowe Price
A. GENE CAPONI, Vice President--Vice President and Analyst, T.
Rowe Price
PATRICIA S. DEFORD, Vice President--Vice President, T. Rowe Price
CHARLES B. HILL, Vice President--Assistant Vice President, T.
Rowe Price; formerly (9/86-11/91) managed municipal bonds at
Riggs National Bank, Washington, D.C.
CHARLES O. HOLLAND(a), Vice President--Vice President, T. Rowe
Price
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
PAGE 59
Trust Company; Vice President, Price-Fleming and T. Rowe Price
Retirement Plan Services, Inc.
JOSEPH LYNAGH, Vice President--Assistant Vice President, T.
Rowe Price
KONSTANTINE B. MALLAS, Vice President--Assistant Vice President,
T. Rowe Price
LAURA MCAREE, Vice President--Assistant Vice President, T. Rowe
Price; formerly (4/90-11/90) trader, Boeing Company, Seattle,
Washington and (8/87-3/90) financial analyst, Harvard Management
Company, Boston, Massachusetts
HUGH D. MCGUIRK(a), Vice President--Vice President, T. Rowe
Price; formerly (1991-1993) municipal underwriter, Alex. Brown &
Sons, Inc., Baltimore, Maryland
ALAN P. RICHMAN, Vice President--Vice President, T. Rowe Price;
formerly (10/89-6/91) Manager, Public Finance, Credit Local de
France, New York, New York and Public Finance, Tokai Bank, New
York, New York
THEODORE E. ROBSON(a), Vice President--Employee, T. Rowe Price
WILLIAM F. SNIDER(c), Vice President--Vice President, T. Rowe
Price
GWENDOLYN G. WAGNER(a), Vice President--Vice President and
Economist, T. Rowe Price
C. STEPHEN WOLFE II, Vice President--Vice President, T. Rowe
Price
LENORA V. HORNUNG, Secretary--Vice President, T. Rowe Price
PATRICIA S. BUTCHER, Assistant Secretary--Assistant Vice
President, T. Rowe Price and T. Rowe Price Investment Services,
Inc.
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
JEREMY N. BAKER(b), Assistant Vice President--Employee, T.
Rowe Price
EDWARD T. SCHNEIDER, Assistant Vice President--Vice President,
T. Rowe Price
INGRID I. VORDEMBERGE, Assistant Vice President--Employee, T.
Rowe Price
(a) Messrs. Holland, McGuirk, and Robson and Ms. Wagner are only
officers for the State Tax-Free Income Trust.
(b) Mr. Baker is only an officer of the California Tax-Free
Income Trust.
Each Trust's Executive Committee, comprised of Messrs.
Collins, Reynolds, and Riepe, has been authorized by its Board of
Trustees to exercise all powers of the Board to manage the Funds
in the intervals between meetings of the Board, except the powers
prohibited by statute from being delegated.
PAGE 60
COMPENSATION TABLE
The Funds do not pay pension or retirement benefits to their
officers or directors/trustees. Also, any director/trustee of a
Fund who is an officer or employee of T. Rowe Price does not
receive any remuneration from a Fund.
_________________________________________________________________
Total Compensation
Aggregate from Fund and
Name of Compensation Fund Complex
Person, from Paid to
Position Fund(a) Trustees(b)
_________________________________________________________________
California Tax-Free Bond Fund
Robert P. Black,
Trustee $1,261 $56,917
Calvin W. Burnett,
Trustee 1,261 56,917
Anthony W. Deering,
Trustee 1,092 70,667
F. Pierce Linaweaver,
Trustee 1,261 56,917
John Schreiber,
Trustee 1,261 56,917
_________________________________________________________________
California Tax-Free Money Fund
Robert P. Black,
Trustee $1,130 $56,917
Calvin W. Burnett,
Trustee 1,130 56,917
Anthony W. Deering,
Trustee 1,050 70,667
F. Pierce Linaweaver,
Trustee 1,130 56,917
John Schreiber,
Trustee 1,130 56,917
_________________________________________________________________
Florida Insured Intermediate Tax-Free Fund
Robert P. Black,
Trustee $1,121 $56,917
Calvin W. Burnett,
PAGE 61
Trustee 1,121 56,917
Anthony W. Deering,
Trustee 1,047 70,667
F. Pierce Linaweaver,
Trustee 1,121 56,917
John Schreiber,
Trustee 1,121 56,917
_________________________________________________________________
Georgia Tax-Free Bond Fund
Robert P. Black,
Trustee $1,054 $56,917
Calvin W. Burnett,
Trustee 1,054 56,917
Anthony W. Deering,
Trustee 1,018 70,667
F. Pierce Linaweaver,
Trustee 1,054 56,917
John Schreiber,
Trustee 1,054 56,917
_________________________________________________________________
Maryland Tax-Free Bond Fund
Robert P. Black,
Trustee $2,404 $56,917
Calvin W. Burnett,
Trustee 2,404 56,917
Anthony W. Deering,
Trustee 1,564 70,667
F. Pierce Linaweaver,
Trustee 2,404 56,917
John Schreiber,
Trustee 2,404 56,917
_________________________________________________________________
Maryland Short-Term Tax-Free Bond Fund
Robert P. Black,
Trustee $1,161 $56,917
Calvin W. Burnett,
Trustee 1,161 56,917
PAGE 62
Anthony W. Deering,
Trustee 1,062 70,667
F. Pierce Linaweaver,
Trustee 1,161 56,917
John Schreiber,
Trustee 1,161 56,917
_________________________________________________________________
New Jersey Tax-Free Bond Fund
Robert P. Black,
Trustee $1,125 $56,917
Calvin W. Burnett,
Trustee 1,125 56,917
Anthony W. Deering,
Trustee 1,050 70,667
F. Pierce Linaweaver,
Trustee 1,125 56,917
John Schreiber,
Trustee 1,125 56,917
_________________________________________________________________
New York Tax-Free Bond Fund
Robert P. Black,
Trustee $1,237 $56,917
Calvin W. Burnett,
Trustee 1,237 56,917
Anthony W. Deering,
Trustee 1,093 70,667
F. Pierce Linaweaver,
Trustee 1,237 56,917
John Schreiber,
Trustee 1,237 56,917
_________________________________________________________________
New York Tax-Free Money Fund
Robert P. Black,
Trustee $1,133 $56,917
Calvin W. Burnett,
Trustee 1,133 56,917
Anthony W. Deering,
Trustee 1,050 70,667
PAGE 63
F. Pierce Linaweaver,
Trustee 1,133 56,917
John Schreiber,
Trustee 1,133 56,917
_________________________________________________________________
Virginia Tax-Free Bond Fund
Robert P. Black,
Trustee $1,320 $56,917
Calvin W. Burnett,
Trustee 1,320 56,917
Anthony W. Deering,
Trustee 1,126 70,667
F. Pierce Linaweaver,
Trustee 1,320 56,917
John Schreiber,
Trustee 1,320 56,917
_________________________________________________________________
Virginia Short-Term Tax-Free Bond Fund
Robert P. Black,
Trustee $1,137 $56,917
Calvin W. Burnett,
Trustee 1,137 56,917
Anthony W. Deering,
Trustee 1,055 70,667
F. Pierce Linaweaver,
Trustee 1,137 56,917
John Schreiber,
Trustee 1,137 56,917
(a) Amounts in this Column are based on accrued compensation from
March 1, 1996 to February 28, 1997.
(b) Amounts in this column are based on compensation received
from January 1, 1996 to December 31, 1996. The T. Rowe Price
complex included 76 funds as of February 28, 1997.
PRINCIPAL HOLDERS OF SECURITIES
As of the date of the prospectus, the officers and trustees
of the Funds, as a group, owned less than 1% of the outstanding
shares of each Fund.
PAGE 64
As of May 30, 1997, the following shareholder of the New
York Tax-Free Money Fund beneficially owned more than 5% of the
outstanding shares of beneficial interest of the Fund:
Coleman M. Brandt and Grace L. Brandt JT TEN, 330 West 72nd
Street, Apt. 10A, New York, New York 10023-2649.
INVESTMENT MANAGEMENT SERVICES
Services
Under the Management Agreement with each Trust relating to
its Funds, T. Rowe Price provides each Fund with discretionary
investment services. Specifically, T. Rowe Price is responsible
for supervising and directing the investments of each Fund in
accordance with each Fund's investment objective, 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 each Fund,
including the allocation of principal business and portfolio
brokerage and the negotiation of commissions. In addition to
these services, T. Rowe Price provides each Fund with certain
administrative services, including: maintaining each Trust's
existence and records; registering and qualifying each Fund's
shares of beneficial interest under federal and state laws;
monitoring the financial, accounting, and administrative
functions of each Fund; maintaining liaison with the agents
employed by each Trust such as the Funds' custodian and transfer
agent; assisting the Funds in the coordination of such agents'
activities; and permitting T. Rowe Price employees to serve as
officers, trustees, and committee members of the Funds without
cost to the Funds.
The Management Agreements also provide that T. Rowe Price,
its directors, officers, employees, and certain other persons
performing specific functions for the Funds will only be liable
to the Funds for losses resulting from willful misfeasance, bad
faith, gross negligence, or reckless disregard of duty.
Management Fee
Each 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
PAGE 65
determined below ("Daily Price Funds' Group Fee Accrual") by the
ratio of each Fund's net assets for that day to the sum of the
aggregate net assets of the Price Funds for that day. The Daily
Price Funds' Group Fee Accrual for any particular day is
calculated by multiplying the fraction of one (1) over the number
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% Next $16 billion
0.305% Next $30 billion
0.300% Thereafter
For the purpose of calculating the Group Fee, the Price
Funds include all the mutual funds distributed by T. Rowe Price
Investment Services, Inc. (excluding T. Rowe Price Spectrum Fund,
Inc. and Equity Index Fund 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 each 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 of
0.10% (0.05% for the Florida Insured Intermediate Fund) and
multiplying this product by the net assets of each Fund for that
day, as determined in accordance with each Fund's prospectus as
of the close of business on the previous business day on which
the Funds were open for business.
The following chart sets forth the total management fees, if
any, paid to T. Rowe Price by the Funds for each of the last
three fiscal years:
PAGE 66
New York Money New York Bond
1997 $205,000 1997 $582,000
1996 172,000 1996 550,000
1995 122,000 1995 392,000
California Money California Bond
1997 $195,000 1997 $644,000
1996 175,000 1996 609,000
1995 169,000 1995 492,000
Maryland Bond Maryland Short-Term Bond
1997 $3,398,000 1997 $378,000
1996 3,352,000 1996 326,000
1995 3,243,000 1995 242,000
Virginia Bond Virginia Short-Term Bond
1997 $829,000 1997 $0+
1996 770,000 1996 0+
1995 611,000 1995 +
Florida Tax-Free Georgia Bond
1997 $211,000 1997 $41,000
1996 153,000 1996 13,000
1995 13,000 1995 +
New Jersey Bond
1997 $244,000
1996 206,000
1995 135,000
+ Due to effect of expense limitation discussed below, the
Virginia Short-Term and Georgia Bond Funds did not pay T. Rowe
Price an investment management fee.
Limitation on Fund Expenses
All Funds
The Management Agreements between each Fund and T. Rowe
Price provides that each Fund will bear all expenses of its
operations not specifically assumed by T. Rowe Price.
For the purpose of determining whether a Fund is entitled to
reimbursement, the expenses of the Fund are calculated on a
monthly basis. If a Fund is entitled to reimbursement, that
month's management fee will be reduced or postponed, with any
adjustment made after the end of the year.
PAGE 67
New York Funds and California Tax-Free Money Fund
Pursuant to its present expense limitation, $130,000, of
management fees were not accrued for the year ended February 28,
1997 and $141,000 remains unaccrued from prior periods for the
California Money Fund. Pursuant to these present expense
limitations, $3,000 and $127,000 of management fees for the New
York Bond and Money Funds, respectively, were not accrued for the
year ended February 28, 1997 and $5,000 and $131,000 remain
unaccrued from prior periods for the New York Bond and Money
Funds, respectively. Subject to shareholder approval, these
expenses may be reimbursed to T. Rowe Price, provided that the
recapture of fees would not cause the ratio of expenses to
average net assets to exceed the above-mentioned ratios.
Maryland Short-Term Tax-Free Bond Fund
Pursuant to its present expense limitation, $19,000 of
management fees were not accrued by the Maryland Short-Term Fund
for the year ended February 28, 1997, and $33,000 remains
unaccrued from the prior period.
New Jersey Fund
Pursuant to the present expense limitation, $74,000 of
management fees were not accrued by the New Jersey Fund for the
year ended February 28, 1997, and $77,000 remains unaccrued from
the prior period.
Georgia Fund
Pursuant to the present expense limitations, $108,000 of
management fees for the Georgia Bond Fund were not accrued for
the year ended February 28, 1997, and $108,000 remains unaccrued
from the prior period.
Florida Insured Intermediate Fund
Pursuant to the present expense limitation, $53,000 of
management fees for the Florida Insured Fund were not accrued for
the year ended February 28, 1997, and $70,000 remains unaccrued
from the prior period.
Virginia Short-Term Bond Fund
Pursuant to the present expense limitation, $61,000 of
management fees for the Virginia Short-Term Bond Fund were not
accrued for the year ended February 28, 1997, and $41,000 of
other Fund expenses for the Virginia Short-Term Bond Fund were
borne by T. Rowe Price and are subject to future reimbursement.
Additionally, $138,000 of unaccrued fees and expenses remain
subject to future reimbursement.
PAGE 68
DISTRIBUTOR FOR THE TRUSTS
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
distributor of each Trust. 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 shares of beneficial interest pertaining to each
Fund is continuous.
Investment Services is located at the same address as the
Trusts and T. Rowe Price Associates -- 100 East Pratt Street,
Baltimore, Maryland 21202.
Investment Services serves as distributor to the Trusts
pursuant to an Underwriting Agreement ("Underwriting Agreement"),
which provides that each Fund will pay all fees and expenses in
connection with: necessary state filings; preparing, setting in
type, printing, and mailing its prospectuses and reports to
shareholders; and issuing its shares, including expenses of
confirming purchase orders.
The Underwriting Agreement provides that Investment Services
will pay all fees and expenses in connection with: printing and
distributing prospectuses and reports for use in offering and
selling Fund shares; preparing, setting in type, printing, and
mailing all sales literature and advertising; Investment
Services' federal and state registrations as a broker-dealer; and
offering and selling Fund shares, except for those fees and
expenses specifically assumed by the Funds. Investment Services'
expenses are paid by T. Rowe Price.
Investment Services acts as the agent of the Trusts in
connection with the sale of the Funds' shares in the various
states in which Investment Services is qualified as a
broker-dealer. Under the Underwriting Agreement, Investment
Services accepts orders for Fund shares at net asset value. No
sales charges are paid by investors or the Funds.
CUSTODIAN
State Street Bank and Trust Company (the "Bank") is the
custodian for each Fund's securities and cash, but it does not
participate in the Funds' investment decisions. Each Trust, on
behalf of the Funds, has authorized the Bank to deposit certain
portfolio securities in central depository systems as allowed by
Federal law. In addition, the Funds are authorized to maintain
certain of its securities, in particular variable rate demand
notes, in uncertificated form in the proprietary deposit systems
of various dealers in municipal securities. State Street Bank's
main office is 225 Franklin Street, Boston, Massachusetts 02110.
PAGE 69
SHAREHOLDER SERVICES
The Fund from time to time may enter into agreements with
outside parties through which shareholders hold Fund shares. The
shares would be held by such parties in omnibus accounts. The
agreements would provide for payments by the Fund to the outside
party for shareholder services provided to shareholders in the
omnibus accounts.
CODE OF ETHICS
The Fund's investment adviser (T. Rowe Price) has a written
Code of Ethics which requires all employees to obtain prior
clearance before engaging in personal securities transactions.
Transactions must be executed within three business days of their
clearance. 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 seven calendar days prior to the date of the
proposed transaction; or the security is subject to internal
trading restrictions. In addition, employees are prohibited from
profiting from short-term trading (e.g., purchases and sales
involving the same security within 60 days). Any material
violation of the Code of Ethics is reported to the Board of the
Fund. The Board also reviews the administration of the Code of
Ethics on an annual basis.
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 portfolio securities are normally done on a
principal basis and do not involve the payment of a commission
although they may involve the designation of selling concessions.
That part of the discussion below relating solely to brokerage
commissions would not normally apply to the Funds. However, it
is included because T. Rowe Price does manage a significant
number of common stock portfolios which do engage in agency
transactions and pay commissions and because some research and
services resulting from the payment of such commissions may
benefit the Fund.
PAGE 70
How Brokers and Dealers are Selected
Fixed Income Securities
Fixed income securities are generally purchased from the
issuer or a primary market-maker acting as principal for the
securities on a net basis, with no brokerage commission being
paid by the client although the price usually includes an
undisclosed compensation. Transactions placed through dealers
serving as primary market-makers reflect the spread between the
bid and asked prices. Securities may also be purchased from
underwriters at prices which include underwriting fees.
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 brokerage and research services in connection with such
designations in fixed price underwritings.
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
PAGE 71
primarily in the form of written reports, computer generated
services, telephone contacts and personal meetings with security
analysts. In addition, such services may be provided in the form
of meetings arranged with corporate and industry spokespersons,
economists, academicians and government representatives. In some
cases, research services are generated by third parties but are
provided to T. Rowe Price by or through broker-dealers.
Research services received from brokers and dealers are
supplemental to T. Rowe Price's own research effort and, when
utilized, are subject to internal analysis before being
incorporated by T. Rowe Price into its investment process. As a
practical matter, it would not be possible for T. Rowe Price to
generate all of the information presently provided by brokers and
dealers. T. Rowe Price pays cash for certain research services
received from external sources. T. Rowe Price also allocates
brokerage for research services which are available for cash.
While receipt of research services from brokerage firms has not
reduced T. Rowe Price's normal research activities, the expenses
of T. Rowe Price could be materially increased if it attempted to
generate such additional information through its own staff. To
the extent that research services of value are provided by
brokers or dealers, T. Rowe Price may be relieved of expenses
which it might otherwise bear.
T. Rowe Price has a policy of not allocating brokerage
business in return for products or services other than brokerage
or research services. In accordance with the provisions of
Section 28(e) of the Securities Exchange Act of 1934, T. Rowe
Price may from time to time receive services and products which
serve both research and non-research functions. In such event,
T. Rowe Price makes a good faith determination of the anticipated
research and non-research use of the product or service and
allocates brokerage only with respect to the research component.
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
PAGE 72
the value of their research services, T. Rowe Price would expect
to assess the reasonableness of commissions in light of the total
brokerage and research services provided by each particular
broker. T. Rowe Price may receive research, as defined in
Section 28(e), in connection with selling concessions and
designations in fixed price offerings in which the Funds
participate.
Internal Allocation Procedures
T. Rowe Price has a policy of not precommitting a specific
amount of business to any broker or dealer over any specific time
period. Historically, the majority of brokerage placement has
been determined by the needs of a specific transaction such as
market-making, availability of a buyer or seller of a particular
security, or specialized execution skills. However, T. Rowe
Price does have an internal brokerage allocation procedure for
that portion of its discretionary client brokerage business where
special needs do not exist, or where the business may be
allocated among several brokers or dealers which are able to meet
the needs of the transaction.
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.
PAGE 73
From time to time, orders for clients may be placed through
a computerized transaction network. The Fund does not allocate
business to any broker-dealer on the basis of its sales of the
Fund's shares. However, this does not mean that broker-dealers
who purchase Fund shares for their clients will not receive
business from the Fund.
Some of T. Rowe Price's other clients have investment
objectives and programs similar to those of the Fund. T. Rowe
Price may occasionally make recommendations to other clients
which result in their purchasing or selling securities
simultaneously with the Fund. As a result, the demand for
securities being purchased or the supply of securities being sold
may increase, and this could have an adverse effect on the price
of those securities. It is T. Rowe Price's policy not to favor
one client over another in making recommendations or in placing
orders. T. Rowe Price frequently follows the practice of
grouping orders of various clients for execution which generally
results in lower commission rates being attained. In certain
cases, where the aggregate order is executed in a series of
transactions at various prices on a given day, each participating
client's proportionate share of such order reflects the average
price paid or received with respect to the total order. T. Rowe
Price has established a general investment policy that it will
ordinarily not make additional purchases of a common stock of a
company for its clients (including the T. Rowe Price Funds) if,
as a result of such purchases, 10% or more of the outstanding
common stock of such company would be held by its clients in the
aggregate.
To the extent possible, T. Rowe Price intends to recapture
solicitation fees paid in connection with tender offers through
T. Rowe Price Investment Services, Inc., the Fund's distributor.
At the present time, T. Rowe Price does not recapture commissions
or underwriting discounts or selling group concessions in
connection with taxable securities acquired in underwritten
offerings. T. Rowe Price does, however, attempt to negotiate
elimination of all or a portion of the selling-group concession
or underwriting discount when purchasing tax-exempt municipal
securities on behalf of its clients in underwritten offerings.
Other
The Funds engaged in portfolio transactions involving
broker-dealers in the following amounts for the fiscal years
ended February 28, 1997, February 29, 1996, and February 28,
1995:
1997 1996 1995
New York Tax-Free
Money Fund $451,170,000 $323,642,000 $318,998,000
New York Tax-Free
PAGE 74
Bond Fund 432,992,000 479,720,000 523,495,000
California Tax-Free
Money Fund 474,186,000 451,803,000 531,661,000
California Tax-Free
Bond Fund 286,416,000 321,786,000 360,305,000
Maryland Tax-Free
Bond Fund 775,356,000 608,562,000 1,004,363,000
Maryland Short-Term
Tax-Free Bond 112,384,000 181,246,000 318,873,000
Virginia Tax-Free
Bond Fund 508,640,000 586,982,000 513,098,000
New Jersey Tax-Free
Bond Fund 238,572,000 244,765,000 295,898,000
Georgia Tax-Free
Bond Fund 104,491,000 101,969,000 117,380,000
Florida Insured
Intermediate
Tax-Free Fund 244,915,000 244,903,000 116,527,000
Virginia Short-Term
Tax-Free Bond Fund 35,817,000 33,183,000 10,600,000
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, 1997, February 29, 1996, and February 28,
1995:
1997 1996 1995
New York Tax-Free
Money Fund $451,170,000 $323,642,000 $318,998,000
New York Tax-Free
Bond Fund 394,711,000 465,446,000 510,410,000
California Tax-Free
Money Fund 472,277,000 449,790,000 531,661,000
California Tax-Free
Bond Fund 260,704,000 298,191,000 351,902,000
Maryland Tax-Free
Bond Fund 680,479,000 530,615,000 969,185,000
Maryland Short-Term
Tax-Free Bond Fund 108,581,000 178,280,000 313,554,000
Virginia Tax-Free
Bond Fund 483,074,000 550,422,000 484,867,000
New Jersey Tax-Free
Bond Fund 225,435,000 232,059,000 288,542,000
Georgia Tax-Free
Bond Fund 98,598,000 95,309,000 109,324,000
Florida Insured
Intermediate
Tax-Free Fund 229,787,000 234,913,000 114,179,000
Virginia Short-Term
Tax-Free Bond Fund 34,013,000 32,888,000 10,550,000
PAGE 75
The following amounts involved trades with brokers
acting as agents or underwriters for the fiscal years ended
February 28, 1997, February 29, 1996, and February 28, 1995:
1997 1996 1995
New York Tax-Free
Money Fund $ 0 $ 0 $ 0
New York Tax-Free
Bond Fund 38,281,000 14,274,000 13,085,000
California Tax-Free
Money Fund 1,909,000 2,013,000 0
California Tax-Free
Bond Fund 25,712,000 23,595,000 8,403,000
Maryland Tax-Free
Bond Fund 94,877,000 77,947,000 35,178,000
Maryland Short-Term
Tax-Free Bond Fund 3,803,000 2,966,000 5,319,000
Virginia Tax-Free
Bond Fund 25,566,000 36,560,000 28,231,000
New Jersey Tax-Free
Bond Fund 13,137,000 12,706,000 7,356,000
Georgia Tax-Free
Bond Fund 5,893,000 6,660,000 8,056,000
Florida Insured
Intermediate
Tax-Free Fund 15,128,000 9,990,000 2,348,000
Virginia Short-Term
Tax-Free Bond Fund 1,804,000 295,000 50,000
The following amounts involved trades with brokers acting as
agents or underwriters, in which such brokers received total
commissions, including discounts received in connection with
underwritings for the fiscal years ended February 28, 1997,
February 29, 1996, and February 28, 1995:
1997 1996 1995
New York Tax-Free Money Fund $ 0 $ 0 $ 0
New York Tax-Free Bond Fund 251,000 92,000 51,875
California Tax-Free Money Fund 1,000 6,000 0
California Tax-Free Bond Fund 111,000 152,000 43,750
Maryland Tax-Free Bond Fund 371,000 243,000 204,475
Maryland Short-Term Tax-Free
Bond Fund 12,000 10,000 17,620
Virginia Tax-Free Bond Fund 121,000 188,000 38,201
New Jersey Tax-Free Bond Fund 75,000 62,000 43,375
Georgia Tax-Free Bond Fund 30,000 30,000 52,475
Florida Insured Intermediate
Tax-Free Fund 85,000 42,000 11,625
Virginia Short-Term Tax-Free
Bond Fund 4,000 1,000 188
PAGE 76
Of all such portfolio transactions, none were 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.
The portfolio turnover rates of the Funds for the fiscal
years ended February 28, 1997, February 29, 1996, and February
28, 1995, have been as follows:
1997 1996 1995
New York Tax-Free Money Fund N/A N/A N/A
New York Tax-Free Bond Fund 96.9% 116.0% 134.3%
California Tax-Free Money Fund N/A N/A N/A
California Tax-Free Bond Fund 47.3% 61.9% 78.0%
Maryland Tax-Free Bond Fund 26.2% 23.9% 28.9%
Maryland Short-Term
Tax-Free Bond Fund 21.4% 39.3% 105.3%
Virginia Tax-Free Bond Fund 66.2% 93.7% 89.1%
New Jersey Tax-Free Bond Fund 78.9% 98.4% 139.1%
Georgia Tax-Free Bond Fund 71.1% 71.5% 170.2%
Florida Insured Intermediate
Tax-Free Fund 75.8% 98.7% 140.5%
Virginia Short-Term Tax-Free
Bond Fund 32.5% 36.4% 14.8%
PRICING OF SECURITIES BEING OFFERED
Fixed income securities are generally traded in the over-
the-counter market. With the exception of the Money Market Funds,
investments in 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. Securities held by the Money Market Funds are
valued at amortized cost.
There are a number of pricing services available, and the
Directors of the Funds, 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.
Securities or other assets for which the above valuation
procedures are inappropriate or are deemed not to reflect fair
value will be appraised at prices deemed best to reflect their
fair value. Such determinations will be made in good faith by or
under the supervision of officers of each Fund, as authorized by
the Board of Directors.
Maintenance of New York and California Money Funds' Net Asset
Value Per Share at $1.00
PAGE 77
It is the policy of the Funds to attempt to maintain a net
asset value of $1.00 per share by using the amortized cost method
of valuation permitted by Rule 2a-7 under the Investment Company
Act of 1940. Under this method, securities are valued by
reference to the Fund's acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than
by reference to their market value. Under Rule 2a-7:
(a) The Board of Trustees must establish written procedures
reasonably designed, taking into account current market
conditions and the fund's investment objectives, to stabilize
the fund's net asset value per share, as computed for the
purpose of distribution, redemption and repurchase, at a
single value;
(b) Each Fund must (i) maintain a dollar-weighted average
portfolio maturity appropriate to its objective of
maintaining a stable price per share, (ii) not purchase any
instrument with a remaining maturity greater than 397 days,
and (iii) maintain a dollar-weighted average portfolio
maturity of 90 days or less;
(c) Each Fund must limit its purchase of portfolio
instruments, including repurchase agreements, to those U.S.
dollar-denominated instruments which a Fund's Board of
Trustees determines present minimal credit risks, and which
are eligible securities as defined by Rule 2a-7. Eligible
securities are generally securities which have been rated (or
whose issuer has been rated or whose issuer has comparable
securities rated) in or of the two highest rating categories
by nationally recognized statistical rating organizations or,
in the case of any instrument that is not so rated, is of
comparable quality as determined by procedures adopted by the
Funds' Board of Trustees; and
(d) Each Board of Trustees must determine that (i) it is in
the best interest of a Fund and its shareholders to maintain
a stable net asset value per share under the amortized cost
method; and (ii) a Fund will continue to use the amortized
cost method only so long as each Board of Trustees believes
that it fairly reflects the Fund's market based net asset
value per share.
Although the Funds believe 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 a 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 Trustees of a 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
PAGE 78
reduction or suspension had not taken place. Such action could
result in an investor receiving no dividend for the period during
which he holds his shares and in his receiving, upon redemption,
a price per share lower than that which he paid. On the other
hand, if a 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 Trustees of a Fund might supplement
dividends in an effort to maintain the net asset value at $1.00
per share.
NET ASSET VALUE PER SHARE
The purchase and redemption price of each Fund's shares is
equal to that Fund's net asset value per share (or share price).
Each Fund determines its net asset value per share by subtracting
its liabilities (including accrued expenses and dividends
payable) from its total assets (the market value of the
securities a Fund holds plus cash and other assets, including
income accrued but not yet received) and dividing the result by
the total number of shares outstanding. The net asset value per
share of each Fund is calculated as of the close of trading on
the New York Stock Exchange ("NYSE") every day the NYSE is open
for trading. The NYSE is closed on the following days: New
Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Determination of net asset value (and the offering, sale,
redemption and repurchase of shares) for a Fund may be suspended
at times (a) during which the NYSE is closed, other than
customary weekend and holiday closings, (b) during which trading
on the NYSE is restricted (c) during which an emergency exists as
a result of which disposal by a Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable
for a Fund fairly to determine the value of its net assets, or
(d) during which a governmental body having jurisdiction over the
Funds may by order permit such a suspension for the protection of
the Funds' shareholders; provided that applicable rules and
regulations of the Securities and Exchange Commission (or any
succeeding governmental authority) shall govern as to whether the
conditions prescribed in (b), (c), or (d) exist.
DIVIDENDS
Unless you elect otherwise, each 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
PAGE 79
Each Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986,
as amended ("Code").
Dividends and distributions paid by the Funds are not
eligible for the dividends-received deduction for corporate
shareholders. For tax purposes, it does not make any difference
whether dividends and capital gain distributions are paid in cash
or in additional shares. Each Fund must declare by its year end
dividends equal to at least 90% of net tax-exempt income (as of
its tax year-end) to permit the pass-through of tax-exempt income
to shareholders, and declare by December 31, 98% of capital gains
(as of October 31) in order to avoid a federal excise tax and
distribute within 12 months, 100% of capital gains (as of its tax
year-end) to avoid federal income tax.
At the time of your purchase, each Fund's net asset value may
reflect undistributed capital gains or net unrealized
appreciation of securities held by the Funds. A subsequent
distribution to you of such amounts, although constituting a
return of your investment, would be taxable as a capital gain
distribution. For federal income tax purposes, the Funds are
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, 1997, the books of each Fund
indicated that the Fund's aggregate net assets included:
Realized Capital Unrealized
Gains/(Losses) Appreciation
(Depreciation)
________________ ____________
New York Tax-Money Fund $ (3,180) $ 0
New York Tax-Free Bond Fund (958,541) 7,070,413
California Tax-Free Money Fund (104,891) 0
California Tax-Free Bond Fund (1,060,456) 8,564,287
Maryland Tax-Free Bond Fund (3,707,072) 43,836,833
Maryland Short-Term Tax-Free
Bond Fund (801,298) 776,063
Virginia Tax-Free Bond Fund (1,641,717) 7,276,802
New Jersey Tax-Free Bond Fund (1,911,909) 3,449,502
Georgia Tax-Free Bond Fund (1,081,414) 1,575,022
Florida Insured Intermediate
Tax-Free Fund (433,854) 1,661,557
Virginia Short-Term Tax-Free
Bond Fund (17,585) 71,415
If, in any taxable year, a Fund should not qualify as a
regulated investment company under the Code: (i) the Fund would
be taxed at normal corporate rates on the entire amount of its
taxable income, if any, without deduction for dividends or other
distributions to shareholders and (ii) the Fund's distributions
PAGE 80
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 or tax-exempt dividends).
The Funds anticipate acquiring bonds after initial issuance
at a price less than the principal amount of such bonds ("market
discount bonds"). Gain on the disposition of such bonds is
treated as taxable ordinary income to the extent of accrued
market discount. Such gains cannot be offset by losses on the
sale of other securities but must be distributed to shareholders
annually and taxed as ordinary income.
Each year, the Funds will mail you information on the tax
status of dividends and distributions. The Funds anticipate that
substantially all of the dividends to be paid by each Fund will
be exempt from federal, state, and/or city or local income taxes,
as applicable. However, due to seasonal variations in the supply
of short-term investments, there may be periods when it would not
be unusual for a certain percentage of dividends of a Fund to be
derived from out of state securities. Any such dividends would
be subject to state and local income taxes (if any). If any
portion of a Fund's dividends is not exempt from federal income
taxes, you will receive a Form 1099 stating the taxable portion.
The Funds will also advise you of the percentage of your
dividends, if any, which should be included in the computation of
alternative minimum tax. Social security recipients who receive
interest from tax-exempt securities may have to pay taxes on a
portion of their social security benefits.
Because the interest on municipal securities is tax exempt,
any interest on money you borrow that is directly or
indirectly used to purchase shares of a Fund is not deductible.
(See Section 265(a)(2) of the Internal Revenue Code.) Further,
entities or persons who are "substantial users" (or persons
related to "substantial users") of facilities financed by
industrial development bonds should consult their tax advisers
before purchasing shares of a Fund. The income from such bonds
may not be tax exempt for such substantial users.
Florida Insured Intermediate Tax-Free Fund
Although Florida does not have a state income tax, it does
impose an intangible personal property tax (intangibles tax) on
assets, including shares of mutual funds. This tax is based on
the net asset value of shares owned on January 1.
Under Florida law, shares of the Fund will be exempt from
the intangibles tax to the extent that, on January 1, the Fund's
assets are solely invested in certain exempt Florida securities,
U.S. government securities, certain short-term cash investments,
or other exempt securities. If, on January 1, the Fund's assets
are invested in these tax-exempt securities and other non-tax-
PAGE 81
exempt securities, only that portion of a share's net asset value
represented by U.S. government securities will be exempt from the
intangibles tax. Because the Fund will make every effort to have
its portfolio invested exclusively in exempt Florida municipal
obligations (and other qualifying investments) on January 1,
shares of the Fund should be exempt from the intangibles tax.
However, under certain circumstances, the Fund may invest in
securities other than Florida municipal obligations and there can
be no guarantee that such non-exempt investments would not be in
the Fund's portfolio on January 1. In such cases, all or a
portion of the value of the Fund's shares may be subject to the
intangibles tax, and a portion of the Fund's income may be
subject to federal income taxes.
YIELD INFORMATION
Bond Funds
From time to time, the Funds may advertise a yield figure
calculated in the following manner:
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
income factors are then totalled for all securities in the
portfolio. Next, expenses of each 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. A taxable equivalent
yield is calculated by dividing this yield by one minus the sum
of the effective federal, state, and/or city or local income tax
rates. Quoted yield factors are for comparison purposes only,
and are not intended to indicate future performance or forecast
the dividend per share of each Fund.
The yield of each Fund calculated under the above-described
method for the month ended February 28, 1997, was as follows:
New York Tax-Free Bond Fund 4.67%
California Tax-Free Bond Fund 4.63%
Maryland Tax-Free Bond Fund 4.69%
Maryland Short-Term Tax-Free Bond Fund 3.39%
Virginia Tax-Free Bond Fund 4.79%
Virginia Short-Term Tax-Free Bond Fund(d) 3.33%
New Jersey Tax-Free Bond Fund 4.74%
Georgia Tax-Free Bond Fund 4.67%
Florida Insured Intermediate
Tax-Free Fund 4.08%
PAGE 82
The tax equivalent yields (assuming a federal tax bracket of
31.0%) for each Fund for the same period were as follows:
New York Tax-Free Bond Fund(a) 7.54%
California Tax-Free Bond Fund(b) 7.40%
Maryland Tax-Free Bond Fund(c) 7.39%
Maryland Short-Term Tax-Free
Bond Fund(c) 5.34%
Virginia Tax-Free Bond Fund(d) 7.37%
Virginia Short-Term Tax-Free Bond Fund(d) 5.12%
New Jersey Tax-Free Bond Fund(e) 7.34%
Georgia Tax-Free Bond Fund(f) 7.20%
Florida Insured Intermediate
Tax-Free Fund(g) 6.11%
(a) Assumes a state tax bracket of 6.85% and a local tax bracket
of 3.4%
(b) Assumes a state tax bracket of 9.3%.
(c) Assumes a state tax bracket of 5.0% and a local tax bracket
of 3.0%.
(d) Assumes a state tax bracket of 5.75%.
(e) Assumes a state tax bracket of 6.37%.
(f) Assumes a state tax bracket of 6.0%.
(g) Assumes an intangible tax rate of 0.2%.
The tax equivalent yields (assuming a federal tax bracket of
28.0%) for each Fund for the same period were as follows:
New York Tax-Free Bond Fund(a) 7.23%
California Tax-Free Bond Fund(b) 7.09%
Maryland Tax-Free Bond Fund(c) 7.08%
Maryland Short-Term Tax-Free Bond Fund(c) 5.12%
Virginia Tax-Free Bond Fund(d) 7.05%
Virginia Short-Term Tax-Free Bond Fund(d) 4.90%
New Jersey Tax-Free Bond Fund(e) 6.97%
Georgia Tax-Free Bond Fund(f) 6.90%
Florida Insured Intermediate 6.00%
Tax-Free Fund(g) 5.87%
(a) Assumes a state tax bracket of 6.85% and a local tax bracket
of 3.4%.
(b) Assumes a state tax bracket of 9.3%.
(c) Assumes a state tax bracket of 5.0% and a local tax bracket
of 3.0%.
(d) Assumes a state tax bracket of 5.75%.
(e) Assumes a state tax bracket of 5.525%.
(f) Assumes a state tax bracket of 6.0%.
(g) Assumes an intangible tax rate of 0.2%.
New York Money and California Money Funds
Each Fund's current and historical yield for a period is
calculated by dividing the net change in value of an account
PAGE 83
(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. Each
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 Money Funds' current yield and compound yield for the
seven days ended February 28, 1997 were:
Current Compound
Yield Yield
_______ ________
New York Tax-Free Money Fund 2.91% 2.95%
California Tax-Free Money Fund 2.81% 2.85%
From time to time, a Fund may also illustrate the effect of
tax equivalent yields using information such as that set forth
below:
TAX-EXEMPT VS. TAXABLE YIELDS
New York Funds
_________________________________________________________________
Your Taxable Income (1997)(a) Marginal Tax Rates
Joint Return Single Return Federal(d)State Local(b) Comb-
ined
Margin-
al(c)
_________________________________________________________________
$ 26,000- $ 40,000 $ 13,000-$ 20,000 15.0 5.90 3.30 22.8
40,001- 41,200 20,001- 24,650 15.0 6.85 3.30 23.6
41,201- 45,000 24,651- 25,000 28.0 6.85 3.30 35.3
45,001- 90,000 25,001- 50,000 28.0 6.85 3.35 35.3
90,001- 99,600 50,001- 59,750 28.0 6.85 3.40 35.4
99,601- 151,750 59,751- 124,650 31.0 6.85 3.40 38.1
151,751- 271,050 124,651- 271,050 36 6.85 3.40 42.6
271,051 and above 271,051 and above 39.6 6.85 3.40 45.8
_________________________________________________________________
A Tax-Exempt Yield Of:
3% 4% 5% 6% 7% 8% 9% 10%
Is Equivalent to a Taxable Yield of:
_________________________________________________________________
3.89 5.18 6.48 7.77 9.07 10.36 11.66 12.95
3.93 5.24 6.54 7.85 9.16 10.47 11.78 13.09
4.64 6.18 7.73 9.27 10.82 12.36 13.91 15.46
4.64 6.18 7.73 9.27 10.82 12.36 13.91 15.46
PAGE 84
4.64 6.19 7.74 9.29 10.84 12.38 13.93 15.48
4.85 6.46 8.08 9.69 11.31 12.92 14.54 16.16
5.23 6.97 8.71 10.45 12.20 13.94 15.68 17.42
5.54 7.38 9.23 11.07 12.92 14.76 16.61 18.45
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Tax rates are for New York City Residents.
(c) Combined marginal rate assumes the deduction of state and
local income taxes on the federal return.
(d) Marginal rates may vary depending on family size and nature
and amount of itemized deductions.
California Funds
_________________________________________________________________
Your Taxable Income (1997)(a) Marginal Tax Rates
Joint Return Single Return Federal(c) State Comb-
ined
Margin-
al(b)
_________________________________________________________________
$ 36,714- $ 41,200 $ 18,357- $ 24,650 15.0 6.0 20.1
41,201- 50,968 24,651- 25,484 28.0 6.0 32.3
50,969- 64,414 25,485- 32,207 28.0 8.0 33.8
64,414- 99,600 32,208- 59,750 28.0 9.3 34.7
99,601- 151,750 59,751- 124,650 31.0 9.3 37.4
151,751- 271,050 124,651- 271,050 36.0 9.3 42.0
271,051 and above 271,051 and above 39.6 9.3 45.2
_________________________________________________________________
A Tax-Exempt Yield Of:
3% 4% 5% 6% 7% 8% 9% 10%
Is Equivalent to a Taxable Yield of:
_________________________________________________________________
3.75 5.01 6.26 7.51 8.76 10.01 11.26 12.52
4.43 5.91 7.39 8.86 10.34 11.82 13.29 14.77
4.53 6.04 7.55 9.06 10.57 12.08 13.60 15.11
4.59 6.13 7.66 9.19 10.72 12.25 13.78 15.31
4.79 6.39 7.99 9.58 11.18 12.78 14.38 15.97
5.17 6.90 8.62 10.34 12.07 13.79 15.52 17.24
5.47 7.30 9.12 10.95 12.77 14.60 16.42 18.25
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Combined marginal rate assumes the deduction of state income
taxes on the federal return.
(c) Marginal rates may vary depending on family size and nature
and amount of itemized deductions.
Maryland Funds
_________________________________________________________________
Your Taxable Income (1997)(a) Marginal Tax Rates
PAGE 85
Joint Return Single Return Federal(d)State Local(b)Comb-
ined
Margin-
al(c)
_________________________________________________________________
$ 41,201-$ 99,600$ 24,651- $ 59,750 28.0 5.0 3.0 33.8
99,601- 151,750 59,751- 124,650 31.0 5.0 3.0 36.5
151,751- 271,050 124,651- 271,050 36.0 5.0 3.0 41.1
271,051 and above 271,051 and above 39.6 5.0 3.0 44.4
_________________________________________________________________
A Tax-Exempt Yield Of:
3% 4% 5% 6% 7% 8% 9% 10%
Is Equivalent to a Taxable Yield of:
_________________________________________________________________
4.53 6.04 7.55 9.06 10.57 12.08 13.60 15.11
4.72 6.30 7.87 9.45 11.02 12.60 14.17 15.75
5.09 6.79 8.49 10.19 11.88 13.58 15.28 16.98
5.40 7.19 8.99 10.79 12.59 14.39 16.19 17.99
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Assumes a local tax rate equal to 60% of the state rate for
residents in the 5% state bracket.
(c) Combined marginal rate assumes the deduction of state and
local income taxes on the federal return.
(d) Marginal rates may vary depending on family size and nature
and amount of itemized deductions.
New Jersey Fund
_________________________________________________________________
Your Taxable Income (1997)(a) Marginal Tax Rates
Joint Return Single Return Federal(c)State Comb-
ined
Margin-
al(b)
_________________________________________________________________
$ 0- $ 20,000 $ 0- $ 20,000 15.0 1.400 16.2
20,001- 41,200 20,001- 24,650 15.0 1.750 16.5
41,201- 50,000 24,651- 35,000 28.0 1.750 29.3
50,001- 70,000 28.0 2.450 29.8
70,001- 80,000 35,001- 40,000 28.0 3.500 30.5
80,001- 99,600 40,001- 59,750 28.0 5.525 32.0
99,601- 150,000 59,751- 75,000 31.0 5.525 34.8
150,001-151,750 75,001- 124,650 31.0 6.370 35.4
151,751- 271,050 124,651- 271,050 36.0 6.370 40.1
271,051 and above 271,051 and above 39.6 6.370 43.4
_________________________________________________________________
A Tax-Exempt Yield Of:
3% 4% 5% 6% 7% 8% 9% 10%
Is Equivalent to a Taxable Yield of:
PAGE 86
_________________________________________________________________
3.58 4.77 5.97 7.16 8.35 9.55 10.74 11.93
3.59 4.79 5.99 7.19 8.38 9.58 10.78 11.98
4.24 5.66 7.07 8.49 9.90 11.32 12.73 14.14
4.27 5.70 7.12 8.55 9.97 11.40 12.82 14.25
4.32 5.76 7.19 8.63 10.07 11.51 12.95 14.39
4.41 5.88 7.35 8.82 10.29 11.76 13.24 14.71
4.60 6.13 7.67 9.20 10.74 12.27 13.80 15.34
4.64 6.19 7.74 9.29 10.84 12.38 13.93 15.48
5.01 6.68 8.35 10.02 11.69 13.36 15.03 16.69
5.30 7.07 8.83 10.60 12.37 14.13 15.90 17.67
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Combined marginal rate assumes the deduction of state income
taxes on the federal return.
(c) Marginal rates may vary depending on family size and nature
and amount of itemized deductions.
Virginia Funds
_________________________________________________________________
Your Taxable Income (1997)(a) Marginal Tax Rates
Joint Return Single Return Federal(c) State Comb-
ined
Margin-
al(b)
_________________________________________________________________
$ 41,201- $ 99,600 $ 24,651- $ 59,750 28.0 5.75 32.1
99,601- 151,750 59,751- 124,650 31.0 5.75 35.0
151,751- 271,050 124,651- 271,050 36.0 5.75 39.7
271,051 and above 271,051 and above 39.6 5.75 43.1
_________________________________________________________________
A Tax-Exempt Yield Of:
3% 4% 5% 6% 7% 8% 9% 10%
Is Equivalent to a Taxable Yield of:
_________________________________________________________________
4.42 5.89 7.36 8.84 10.31 11.78 13.25 14.73
4.62 6.15 7.69 9.23 10.77 12.31 13.85 15.38
4.98 6.63 8.29 9.95 11.61 13.27 14.93 16.58
5.27 7.03 8.79 10.54 12.30 14.06 15.82 17.57
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Combined marginal rate assumes the deduction of state income
taxes on the federal return.
(c) Marginal rates may vary depending on family size and nature
and amount of itemized deductions.
Georgia Tax-Free Bond Fund
_________________________________________________________________
Your Taxable Income (1997)(a) Marginal Tax Rates
PAGE 87
Joint Return Single Return Federal(c) State Comb-
ined
Margin-
al(b)
_________________________________________________________________
$ 41,201- $ 99,600 $ 24,650-$ 59,750 28.0 6.00 32.3
99,601- 151,750 59,751- 124,650 31.0 6.00 35.1
151,751- 271,050 124,651- 271,050 36.0 6.00 39.8
271,051 and above 271,051 and above 39.6 6.00 43.2
_________________________________________________________________
A Tax-Exempt Yield Of:
3% 4% 5% 6% 7% 8% 9% 10%
Is Equivalent to a Taxable Yield of:
_________________________________________________________________
4.43 5.91 7.39 8.86 10.34 11.82 13.29 14.77
4.62 6.16 7.70 9.24 10.79 12.33 13.87 15.41
4.98 6.64 8.31 9.97 11.63 13.29 14.95 16.61
5.28 7.04 8.80 10.56 12.32 14.08 15.85 17.61
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Combined marginal rate assumes the deduction of state income
taxes on the federal return.
(c) Marginal rates may vary depending on family size and nature
and amount of itemized deductions.
Florida Fund
EFFECTIVE YIELD FACTORING IN INTANGIBLES TAX
_________________________________________________________________
Your Taxable Income (1997)(a)
Joint Return Single Return Federal Intangible
Tax Rate(c) Tax Rate
_________________________________________________________________
$ 41,200- $ 99,600 $ 24,650- $ 59,750
And Your Intangible Assets on 1/1/96 Total:
____________________________________________
40,000 or less 20,000 or less 28 N/A
40,001- 200,000 20,001- 100,000 28 0.1
200,001 and above 100,001 and above 28 0.2
_________________________________________________________________
$ 99,601- $151,750 $ 59,751- $124,650
And Your Intangible Assets on 1/1/96 Total:
____________________________________________
40,000 or less 20,000 or less 31 N/A
40,001- 200,000 20,001- 100,000 31 0.1
200,001 and above 100,001 and above 31 0.2
_________________________________________________________________
$151,751- $271,050 $124,651- $271,050
PAGE 88
And Your Intangible Assets on 1/1/96 Total:
____________________________________________
40,000 or less 20,000 or less 36 N/A
40,001- 200,000 20,001- 100,000 36 0.1
200,001 and above 100,001 and above 36 0.2
_________________________________________________________________
$271,051 and above+ $271,051 and above+
And Your Intangible Assets on 1/1/96 Total:
____________________________________________
40,000 or less 20,000 or less 39.6 N/A
40,001- 200,000 20,001- 100,000 39.6 0.1
200,001 and above 100,001 and above 39.6 0.2
_________________________________________________________________
A Tax-Exempt Yield Of (b):
3% 4% 5% 6% 7% 8% 9% 10% 11%
Is Equivalent to a Taxable Yield of:
_________________________________________________________________
4.17 5.56 6.94 8.33 9.72 11.11 12.50 13.89 15.28
4.27 5.66 7.04 8.43 9.82 11.21 12.60 13.99 15.38
4.37 5.76 7.14 8.53 9.92 11.31 12.70 14.09 15.48
_________________________________________________________________
4.35 5.80 7.25 8.70 10.14 11.59 13.04 14.49 15.94
4.45 5.90 7.35 8.80 10.24 11.69 13.14 14.59 16.04
4.55 6.00 7.45 8.90 10.34 11.79 13.24 14.69 16.14
_________________________________________________________________
4.69 6.25 7.81 9.38 10.94 12.50 14.06 15.63 17.19
4.79 6.35 7.91 9.48 11.04 12.60 14.16 15.73 17.29
4.89 6.45 8.01 9.58 11.14 12.70 14.26 15.83 17.39
________________________________________________________________
4.97 6.62 8.28 9.93 11.59 13.25 14.90 16.56 18.21
5.07 6.72 8.38 10.03 11.69 13.35 15.00 16.66 18.31
5.17 6.82 8.48 10.13 11.79 13.45 15.10 16.76 18.41
_________________________________________________________________
(a) Net amount subject to federal income tax after deductions
and exemptions.
(b) Assumes 100% exemption from federal income and Florida
intangible property taxes.
(c) Federal rates may vary depending on family size and nature
and amount of itemized deductions.
INVESTMENT PERFORMANCE
Total Return Performance
Each Fund's calculation of total return performance includes
the reinvestment of all capital gain distributions and income
dividends for the period or periods indicated, without regard to
tax consequences to a shareholder in each Fund. Total return is
calculated as the percentage change between the beginning value
of a static account in each Fund and the ending value of that
PAGE 89
account measured by the then current net asset value, including
all shares acquired through reinvestment of income and capital
gains dividends. The results shown are historical and should not
be considered indicative of the future performance of each Fund.
Each average annual compound rate of return is derived from the
cumulative performance of each Fund over the time period
specified. The annual compound rate of return for each Fund over
any other period of time will vary from the average.
Cumulative Performance Percentage Change
Since
Inception
1 Yr. 5 Yrs. 10 Yrs. Date
Inception Ended Ended Ended through
Date 2/28/97 2/28/97 2/28/97 2/28/97
________ ________ ________ ________ _______
New York Tax-
Free Bond Fund 8/28/86 5.02% 43.84% 93.66% 106.79%
California
Tax-Free Bond
Fund 9/15/86 5.64% 42.69% 82.79% 97.02%
Maryland
Tax-Free Bond
Fund 3/31/87 5.12% 41.33% N/A 89.76%
Maryland
Short-Term Tax-
Free Bond Fund 1/29/93 3.26% N/A N/A 18.75%
Virginia Tax-
Free Bond Fund 4/30/91 5.00% 42.68% N/A 54.27%
Virginia Short-
Term Tax-Free
Bond Fund 11/30/94 3.33% N/A N/A 12.48%
New Jersey
Tax-Free Bond
Fund 4/30/91 4.57% 42.66% N/A 54.86%
Florida Insured
Intermediate
Bond Fund 3/31/93 3.81% N/A N/A 25.00%
Georgia Tax-Free
Bond Fund 3/31/93 5.15% N/A N/A 27.93%
Average Annual Compound Rates of Return
Since
Inception
1 Yr. 5 Yrs. 10 Yrs. Date
Inception Ended Ended Ended through
Date 2/28/97 2/28/97 2/28/97 2/28/97
________ ________ ________ ________ _______
PAGE 90
New York Tax-
Free Bond Fund 8/28/86 5.02% 7.54% 6.83% 7.16%
California
Tax-Free Bond
Fund 9/15/86 5.64% 7.37% 6.22% 6.70%
Maryland
Tax-Free Bond
Fund 3/31/87 5.12% 7.16% N/A 6.67%
Maryland
Short-Term Tax-
Free Bond Fund 1/29/93 3.26% N/A N/A 4.30%
Virginia Tax-
Free Bond Fund 4/30/91 5.00% 7.37% N/A 7.71%
Virginia Short-
Term Tax-Free
Bond Fund 11/30/94 3.33% N/A N/A 5.38%
New Jersey
Tax-Free Bond
Fund 4/30/91 4.57% 7.36% N/A 7.79%
Florida Insured
Intermediate
Bond Fund 3/31/93 3.81% N/A N/A 5.87%
Georgia Tax-Free
Bond Fund 3/31/93 5.15% N/A N/A 6.49%
Outside Sources of Information
From time to time, in reports and promotional literature:
(1) the Fund's total return performance, ranking, or any other
measure of the Fund's performance may be compared to any one or
combination of the following: (i) a broad based index; (ii)
other groups of mutual funds, including T. Rowe Price Funds,
tracked by independent research firms ranking entities, or
financial publications; (iii) indices of stocks comparable to
those in which the Fund invests; (2) the Consumer Price Index (or
any other measure for inflation, government statistics, such as
GNP may be used to illustrate investment attributes of the Fund
or the general economic, business, investment, or financial
environment in which the Fund operates; (3) various financial,
economic and market statistics developed by brokers, dealers and
other persons may be used to illustrate aspects of the Fund's
performance; (4) the effect of tax-deferred compounding on the
Fund's investment returns, or on returns in general in both
qualified and non-qualified retirement plans or any other tax
advantage product, may be illustrated by graphs, charts, etc.;
and (5) the sectors or industries in which the Fund invests may
be compared to relevant indices or surveys in order to evaluate
the Fund's historical performance or current or potential value
with respect to the particular industry or sector.
Other Publications
PAGE 91
From time to time, in newsletters and other publications
issued by T. Rowe Price Investment Services, Inc., T. Rowe Price
mutual fund portfolio managers may discuss economic, financial
and political developments in the U.S. and abroad and how these
conditions have affected or may affect securities prices or the
Fund; individual securities within the Fund's portfolio; and
their philosophy regarding the selection of individual stocks,
including why specific stocks have been added, removed or
excluded from the Fund's portfolio.
Other Features and Benefits
The Fund is a member of the T. Rowe Price Family of Funds
and may help investors achieve various long-term investment
goals, which include, but are not limited to, investing money for
retirement, saving for a down payment on a home, or paying
college costs. To explain how the Fund could be used to assist
investors in planning for these goals and to illustrate basic
principles of investing, various worksheets and guides prepared
by T. Rowe Price Associates, Inc. and/or T. Rowe Price Investment
Services, Inc. may be made available.
No-Load Versus Load and 12b-1 Funds
Unlike the T. Rowe Price funds, many mutual funds charge
sales fees to investors or use fund assets to finance
distribution activities. These fees are in addition to the
normal advisory fees and expenses charged by all mutual funds.
There are several types of fees charged which vary in magnitude
and which may often be used in combination. A sales charge (or
"load") can be charged at the time the fund is purchased
(front-end load) or at the time of redemption (back-end load).
Front-end loads are charged on the total amount invested.
Back-end loads or "redemption fees" are charged either on the
amount originally invested or on the amount redeemed. 12b-1
plans allow for the payment of marketing and sales expenses from
fund assets. These expenses are usually computed daily as a
fixed percentage of assets.
The Funds are no-load funds which impose no sales charges or
12b-1 fees. No-load funds are generally sold directly to the
public without the use of commissioned sales representatives.
This means that 100% of your purchase is invested for you.
Redemptions in Kind
In the unlikely event a shareholder were to receive an in
kind redemption of portfolio securities of the Funds, brokerage
fees could be incurred by the shareholder in a subsequent sale of
such securities.
Issuance of Fund Shares for Securities
PAGE 92
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 a Fund; (b) are acquired for
investment and not for resale except in accordance with
applicable law; (c) have a value that is readily ascertainable
via listing on or trading in a recognized United States or
international exchange or market; and (d) are not illiquid.
ORGANIZATION OF THE TRUSTS
For tax and business reasons, the Trusts were organized in
1986 as Massachusetts Business Trusts. The State Tax-Free Income
Trust and California Tax-Free Income Trust are registered with
the Securities and Exchange Commission under the Investment
Company Act of 1940 as, respectively, a non-diversified and
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
beneficial interest of a single class without par value.
Currently, the State Tax-Free Income Trust consists of nine
series (i.e., the New York Tax-Free Bond Fund, the New York
Tax-Free Money Fund, the Maryland Tax-Free Bond Fund, the
Maryland Short-Term Tax-Free Bond Fund, the Virginia Tax-Free
Bond Fund, Virginia Short-Term Tax-Free Bond Fund the New Jersey
Tax-Free Bond Fund, the Georgia Tax-Free Bond Fund, and the
Florida Insured Intermediate Tax-Free Fund), and the California
Tax-Free Income Trust consists of two series (i.e., the Bond Fund
and the Money Fund) each of which represents a separate class of
each Trust's shares and has different objectives and investment
policies. The Declaration of Trust also provides that the Board
of Trustees may issue additional series of shares. Each share of
each Fund represents an equal proportionate beneficial interest
in that Fund, with each other share, and is entitled to such
dividends and distributions of income belonging to that fund as
are declared by the Trustees. In the event of the liquidation of
a Fund, each share is entitled to a pro rata share of the net
assets of that Fund.
Shareholders of each Fund are entitled to one vote for each
full share held (and fractional votes for fractional shares held)
irrespective of the relative net asset values of the Funds' share
and will vote in the election of or removal of trustees (to the
extent hereinafter provided); however, on matters affecting an
individual Fund, a separate vote of that Fund is required.
Shareholders of a Fund are not entitled to vote on any matter
which does not affect that Fund and which requires a separate
vote of the other Funds. There will normally be no meetings of
shareholders for the purpose of electing trustees unless and
PAGE 93
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 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 each Trust, in which event the
holders of the remaining shares will be unable to elect any
person as a trustee.
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 Trusts 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 each Trust, or (ii) upon
liquidation and distribution of the assets of each Trust, if
approved by the vote of the holders of a majority of the
outstanding shares of each Trust. If not so terminated, each
Trust will continue indefinitely. Under Massachusetts law,
shareholders could, under certain circumstances, be held
personally liable for the obligations of each Trust. However,
the Declarations of Trust disclaims shareholder liability for
acts or obligations of the Trusts and requires that notice of
such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Trusts or a Trustee.
The Declarations of Trust provides for indemnification from Trust
property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trusts. Thus, the
risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which each
Trust itself would be unable to meet its obligations, a
possibility which Price Associates believes is remote. Upon
payment of any liability incurred by a 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 each Fund in such a way so as to avoid,
as far as possible, ultimate liability of the shareholders for
liabilities of such Fund.
FEDERAL REGISTRATION OF SHARES
Each Fund's shares are registered for sale under the
Securities Act of 1933. Registration of each Fund's shares is not
required under any state law, but the Fund's are required to make
certain filings with and pay fees to the states in order to sell
PAGE 94
its shares in the states.
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP whose address is
919 Third Avenue, New York, New York 10022, is legal counsel to
the Funds.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 217 East Redwood Street,
Baltimore, Maryland 21202, are independent accountants to the
Trusts. The financial statements of the New York, California,
Maryland, Virginia, New Jersey, Florida, and Georgia Funds for
the fiscal year ended February 28, 1997 and the report of
independent accountants, are included in each Fund's Annual
Report for the fiscal year ended February 28, 1997 on pages 9-27,
9-27, 9-33, 9-26, 8-20, 8-18, and 8-18, respectively. A copy of
the Annual Report accompanies this Statement of Additional
Information. The following financial statements and the report
of independent accountants appearing in each Annual Report for
the fiscal year ended February 28, 1997 are incorporated into
this Statement of Additional Information by reference:
NEW YORK
FUNDS' ANNUAL
REPORT PAGE
____________
Report of Independent Accountants 27
Statement of Net Assets, February 28, 1997 11-20
Statement of Operations, year ended
February 28, 1997 21
Statement of Changes in Net Assets, years ended
February 28, 1997 and February 29, 1996 22
Notes to Financial Statements,
February 28, 1997 23-26
Financial Highlights 9-10
CALIFORNIA
FUNDS' ANNUAL
REPORT PAGE
_____________
Report of Independent Accountants 27
Statement of Net Assets, February 28, 1997 11-20
Statement of Operations, year ended
February 28, 1997 21
Statement of Changes in Net Assets, years ended
February 28, 1997 and February 29, 1996 22
Notes to Financial Statements,
PAGE 95
February 28, 1997 23-26
Financial Highlights 9-10
MARYLAND
FUNDS' ANNUAL
REPORT PAGE
______________
Report of Independent Accountants 33
Statement of Net Assets, February 28, 1997 11-26
Statement of Operations, year ended
February 28, 1997 27
Statement of Changes in Net Assets, years ended
February 28, 1997 and February 29, 1996 28
Notes to Financial Statements,
February 28, 1997 29-32
Financial Highlights 9-10
VIRGINIA
FUNDS' ANNUAL
REPORT PAGE
_____________
Report of Independent Accountants 26
Statement of Net Assets, February 28, 1997 11-20
Statement of Operations, year ended
February 28, 1997 21
Statement of Changes in Net Assets, years ended
February 28, 1997 and February 29, 1996 22
Notes to Financial Statements,
February 28, 1997 23-25
Financial Highlights 9-10
NEW JERSEY
TAX-FREE BOND
FUND ANNUAL
REPORT PAGE
___________
Report of Independent Accountants 20
Statement of Net Assets, February 28, 1997 9-13
Statement of Operations, year ended
February 28, 1997 14
Statement of Changes in Net Assets, years ended
February 28, 1997 and February 29, 1996 15
Notes to Financial Statements,
February 28, 1997 16-19
Financial Highlights 8
FLORIDA INSURED
INTERMEDIATE TAX-FREE
FUND ANNUAL
REPORT PAGE
PAGE 96
_____________
Report of Independent Accountants 18
Portfolio of Investments, February 28, 1997 9-11
Statement of Assets and Liabilities, year
ended February 28, 1997 12
Statement of Operations, February 28, 1997 13
Statement of Changes in Net Assets, years ended
February 28, 1997 and February 29, 1996 14
Notes to Financial Statements,
February 28, 1997 15-17
Financial Highlights 8
GEORGIA
TAX-FREE BOND
FUND ANNUAL
REPORT PAGE
___________
Report of Independent Accountants 18
Statement of Net Assets, February 28, 1997 9-12
Statement of Operations, year ended
February 28, 1997 13
Statement of Changes in Net Assets, years ended
February 28, 1997 and February 29, 1996 14
Notes to Financial Statements,
February 28, 1997 15-17
Financial Highlights 8
PAGE 9
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.
Portfolio of Investments, Statement of Assets and
Liabilities, 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 July 3,
1986 (electronically filed with Amendment No. 12
dated April 28, 1994)
(1)(b) Amendment to Master Trust Agreement, dated August 1,
1986 (electronically filed with Amendment No. 12
dated April 28, 1994)
(2) By-Laws of Registrant, dated July 23, 1986
(electronically filed with Amendment No. 12 dated
April 28, 1994)
(3) Inapplicable
(4) Specimen Stock Certificate (filed with Amendment
No. 1)
(5)(a) Investment Management Agreement between California
Tax-Free Bond Fund and T. Rowe Price Associates,
Inc., dated July 1, 1987 (electronically filed with
Amendment No. 12 dated April 28, 1994)
(5)(b) Investment Management Agreement between California
Tax-Free Money Fund and T. Rowe Price Associates,
Inc., dated July 1, 1987 (electronically filed with
Amendment No. 12 dated April 28, 1994)
(6) Underwriting Agreement between Registrant and T.
Rowe Price Investment Services, Inc., dated July 23,
1986 (electronically filed with Amendment No. 12
dated April 28, 1994)
PAGE 10
(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, July 27,
1994, September 21, 1994, November 1, 1994, November
2, 1994, January 25, 1995, September 20, 1995,
November 1, 1995, December 11, 1995, April 24, 1996,
August 2, 1996, November 12, 1996, February 4, 1997,
and April 24, 1997
(9)(a) Transfer Agency and Service Agreement between
T. Rowe Price Services, Inc. and T. Rowe Price
Funds, dated January 1, 1997, as amended February 4,
1997, and April 24, 1997
(9)(b) Agreement between T. Rowe Price Associates, Inc. and
T. Rowe Price Funds for Fund Accounting Services,
dated January 1, 1997, as amended February 4, 1997,
and April 24, 1997
(10) Opinion of Counsel, dated June 19, 1997
(11) Consent of Independent Accountants
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16) The Registrant hereby incorporates by reference the
methodology used in calculating the performance
information included in Post-Effective Amendment No.
36 and Amendment No. 20 of the T. Rowe Price Tax-
Free Income Fund, Inc. (SEC. File Nos. 2-57265 and
811-2684 and CIK 202927) dated April 22, 1994.
PAGE 11
(17) Financial Data Schedule for T. Rowe Price California
Tax-Free Bond and T. Rowe Price California Tax-Free
Money Funds as of February 28, 1997.
(18) Inapplicable
(19) Other Exhibits:
(a) Power of Attorney for T. Rowe Price California
Tax-Free Income Trust
Item 25. Persons Controlled by or Under Common Control With
Registrant.
None
Item 26. Number of Holders of Securities
As of May 31, 1997, there were 4,116 shareholders in the
Bond Fund.
As of May 31, 1997, there were 2,636 shareholders in the
Money 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 forty-five
other investment companies, including, T. Rowe Price Growth Stock
Fund, Inc., T. Rowe Price New Horizons Fund, Inc., T. Rowe Price
New Era Fund, Inc., T. Rowe Price New Income Fund, Inc., T. Rowe
Price Prime Reserve Fund, Inc., T. Rowe Price Tax-Free Income
Fund, Inc., T. Rowe Price Tax-Exempt Money Fund, Inc., T. Rowe
Price International Funds, Inc., T. Rowe Price Growth & Income
Fund, Inc., T. Rowe Price Tax-Free Short-Intermediate Fund, Inc.,
T. Rowe Price Short-Term Bond Fund, Inc., T. Rowe Price High
Yield Fund, Inc., T. Rowe Price Tax-Free High Yield Fund, Inc.,
T. Rowe Price New America Growth Fund, T. Rowe Price Equity
Income Fund, T. Rowe Price GNMA Fund, T. Rowe Price Capital
Appreciation Fund, T. Rowe Price Calfornia Tax-Free Income Trust,
T. Rowe Price State Tax-Free Income Trust, T. Rowe Price Science
& Technology Fund, Inc., T. Rowe Price Small-Cap Value Fund,
PAGE 12
Inc., Institutional International Funds, Inc., T. Rowe Price U.S.
Treasury Funds, Inc., T. Rowe Price Index Trust, Inc., T. Rowe
Price Spectrum Fund, Inc., T. Rowe Price Balanced Fund, Inc., T.
Rowe Price Short-Term U.S. Government Fund, Inc., T. Rowe Price
Mid-Cap Growth Fund, Inc., T. Rowe Price Small-Cap Stock Fund,
Inc., T. Rowe Price Tax-Free 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., T. Rowe
Price Fixed Income Series, Inc., T. Rowe Price Personal Strategy
Funds, Inc., T. Rowe Price Value Fund, Inc., T. Rowe Price
Capital Opportunity Fund, Inc., T. Rowe Price Corporate Income
Fund, Inc., T. Rowe Price Health Sciences Fund, Inc., T. Rowe
Price Mid-Cap Value Fund, Inc., Institutional Equity Funds, Inc.,
and T. Rowe Price Financial Services Fund, Inc. The Registrant
and the forty-five investment companies listed above, with the
exception of Institutional International Funds, Inc., will be
collectively referred to as the Price Funds. The investment
manager for the Price Funds, excluding T. Rowe Price
International Funds, Inc. and T. Rowe Price International Series,
Inc., is the Manager. Price-Fleming is the 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 International Holdings Limited. In addition to
the corporate insureds, the policies also cover the officers,
directors, and employees of each of the named insureds. The
premium is allocated among the named corporate insureds in
accordance with the provisions of Rule 17d-1(d)(7) under the
Investment Company Act of 1940.
Article 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
PAGE 13
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 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:
PAGE 14
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 another action, 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,
PAGE 15
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 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.
Price-Fleming was incorporated in Maryland in 1979 to provide
investment counsel service with respect to foreign securities for
institutional investors in the United States. In addition to
managing private counsel client accounts, Price-Fleming also
sponsors registered investment companies which invest in foreign
securities, serves as general partner of RPFI International
Partners, Limited Partnership, and provides investment advice to
the T. Rowe Price Trust Company, trustee of the International
Common Trust Fund.
T. Rowe Price Investment Services, Inc. ("Investment
Services"), a wholly owned subsidiary of the Manager, was
incorporated in Maryland in 1980 for the purpose of acting as the
principal underwriter and distributor for the 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, was incorporated in Maryland 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. (the
"Foundation"), was incorporated in 1981 (and is not a subsidiary
of the Manager). The Foundation s overall objective emphasizes
various community needs by giving to a broad range of
educational, civic, cultural, and health-related institutions.
PAGE 16
The Foundation has a very generous matching gift program whereby
employee gifts designated to qualifying institutions are matched
according to established guidelines.
T. Rowe Price Services, Inc. ("Price Services"), a wholly
owned subsidiary of the Manager, was incorporated in Maryland in
1982 and is registered as a transfer agent under the Securities
Exchange Act of 1934. Price Services provides transfer agent,
dividend disbursing, and certain other services, including
shareholder services, to the Price Funds.
T. Rowe Price Retirement Plan Services, Inc. ("RPS"), a
wholly owned subsidiary of the Manager, was incorporated in
Maryland in 1991 and is registered as a transfer agent under the
Securities Exchange Act of 1934. RPS provides administrative,
recordkeeping, and subaccounting services to administrators of
employee benefit plans.
T. Rowe Price Trust Company ("Trust Company"), a wholly
owned subsidiary of the Manager, is a Maryland-chartered limited-
purpose trust company, organized in 1983 for the purpose of
providing fiduciary services. The Trust Company serves as
trustee/custodian for employee benefit plans, individual
retirement accounts, and common trust funds and as
trustee/investment agent for one trust.
T. Rowe Price Investment Technologies, Inc. was incorporated
in Maryland in 1996. A wholly owned subsidiary of the Manager, it
owns the technology rights, hardware, and software of the Manager
and affiliated companies and provides technology services to
them.
T. Rowe Price Threshold Fund Associates, Inc., a wholly
owned subsidiary of the Manager, was incorporated in Maryland in
1994 and serves as the general partner of T. Rowe Price Threshold
Fund III, L.P., a Delaware limited partnership established in
1994.
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.
T. Rowe Price Threshold Fund III, L.P., a Delaware limited
partnership, was organized in 1994 by the Manager and invests in
private financings of small companies with high growth potential;
T. Rowe Price Threshold Fund Associates, Inc. is the General
Partner of this partnership.
PAGE 17
RPFI International Partners, L.P., is a Delaware limited
partnership organized in 1985 for the purpose of investing in a
diversified group of small and medium-sized non-U.S. companies.
Price-Fleming is the general partner of this partnership, and
certain institutional investors, including advisory clients of
Price-Fleming, are its limited partners.
T. Rowe Price 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, 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"), was incorporated in Maryland in 1988 as a wholly
owned subsidiary of the Manager. Stable Asset Management, is
registered as an investment adviser under the Investment Advisers
Act of 1940, and specializes in the management of investment
portfolios which seek stable and consistent investment returns
through the use of guaranteed investment contracts, bank
investment contracts, structured investment contracts, 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., T. Rowe Price
Recovery Fund II, L.P., Delaware limited partnerships which
invest in financially distressed companies.
T. Rowe Price Recovery Fund II Associates, Inc., is a
Maryland limited liability Company organized in 1996. Wholly
owned by the Manager, it serves as the General Partner of T. Rowe
Price Recovery Fund II, L.P., a Delaware limited partnership
which also invests in financially distressed companies.
PAGE 18
T. Rowe Price (Canada), Inc. ("TRP Canada") is a Maryland
corporation organized in 1988 as a wholly owned subsidiary of the
Manager. This entity is registered as an investment adviser under
the Investment Advisers Act of 1940 and as a non-Canadian Adviser
under the Securities Act (Ontario).
T. Rowe Price Insurance Agency, Inc., is a wholly owned
subsidiary of T. Rowe Price Associates, Inc. organized in
Maryland in 1994 and licensed to do business in several states to
act primarily as an insurance agency in connection with the sale
of the Price Funds' variable annuity products.
Since 1983, the Manager has organized several distinct
Maryland limited partnerships, which are informally called the
Pratt Street Ventures partnerships, for the purpose of acquiring
interests in growth-oriented businesses.
TRP Suburban, Inc., is a Maryland corporation organized in
1990 as a wholly owned subsidiary of the Manager. It entered into
agreements with McDonogh School and CMANE-McDonogh-Rowe Limited
Partnership to construct an office building in Owings Mills,
Maryland, which currently houses the Manager's transfer agent,
plan administrative services, retirement plan services, and
operations support functions.
TRP Suburban Second, Inc., a wholly owned Maryland
subsidiary of T. Rowe Price Associates, Inc., was incorporated in
1995 to primarily engage in the development and ownership of real
property located in Owings Mills, Maryland.
TRP Finance, Inc., a wholly owned subsidiary of the Manager,
is a Delaware corporation organized in 1990 to manage certain
passive corporate investments and other intangible assets.
T. Rowe Price Strategic Partners Fund II, L.P. is a Delaware
limited partnership organized in 1992 for the purpose of
investing in small public and private companies seeking capital
for expansion or undergoing a restructuring of ownership. The
general partner of the Fund is T. Rowe Price Strategic Partners,
L.P., ("Strategic Partners"), a Delaware limited partnership
whose general partner is T. Rowe Price Strategic Partners
Associates, Inc., a Maryland corporation which is a wholly owned
subsidiary of the Manager.
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:
PAGE 19
GEORGE J. COLLINS, Director of the Manager and Price-Fleming.
Mr. Collins retired from the offices of Chairman of the Board,
Chief Executive Officer, and President of the Manager effective
as of May 31, 1997. He continues to serve on the Board of
Directors 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.
RICHARD L. MENSCHEL, Director of the Manager. Mr. Menschel is a
limited partner of The Goldman Sachs Group, L.P. Mr. Menschel's
address is 85 Broad Street, 2nd Floor, New York, New York 10004.
JOHN W. ROSENBLUM, Director of the Manager. Mr. Rosenblum is
the Dean of the Jepson School of Leadership Studies at the
University of Richmond 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;
Cone Mills Corporation, a textiles producer; and Providence
Journal Company, a publisher of newspapers and owner of broadcast
television stations. Mr. Rosenblum's address is: University of
Richmond, Virginia 23173.
ROBERT L. STRICKLAND, Director of the Manager. Mr. Strickland is
Chairman of Lowe's Companies, Inc., a retailer of specialty home
supplies and a Director of Hannaford Bros., Co., a food retailer.
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.
Mr. Walsh's address is: Pleasant Valley, Peapack, New Jersey
07977.
ANNE MARIE WHITTEMORE, Director of the Manager. Mrs.
Whittemore is a partner of the law firm of McGuire, Woods, Battle
& Boothe and is a director of Owens & Minor, Inc.; USF&G
Corporation; the James River Corporation of Virginia; and
Albemarle Corporation. Mrs. Whittemore's address is One James
Center, Richmond, Virginia 23219.
With the exception of Messrs. Collins, Halbkat, Menschel,
Rosenblum, Strickland, and Walsh, and Mrs. Whittemore, all of the
following directors of the Manager are employees of the
Manager.
PAGE 20
James S. Riepe, who is a Vice-Chairman of the Board, Director,
and Managing Director of the Manager, is also a Director of
Price-Fleming.
George A. Roche, who is Chairman of the Board, President, a
Director, and Managing Director of the Manager, is a Director and
Vice President of Price-Fleming.
M. David Testa, who is a Vice-Chairman of the Board, Director,
Chief Investment Officer, and Managing Director of the Manager,
is Chairman of the Board of Price-Fleming.
Henry H. Hopkins, who is a Director and Managing Director of the
Manager, is a Vice President of Price-Fleming.
Charles P. Smith and Peter Van Dyke, who are Managing Directors
of the Manager, are Vice Presidents of Price-Fleming.
James A. C. Kennedy III, John H. Laporte, Jr., William T.
Reynolds, and Brian C. Rogers are Directors and Managing
Directors of the Manager.
Preston G. Athey, Brian W.H. Berghuis, Edward C. Bernard,
Stephen W. Boesel, Thomas H. Broadus, Jr., Michael A. Goff,
Andrew C. Goresh, Mary J. Miller, Charles A. Morris, Edmund M.
Notzon III, R. Todd Ruppert, Charles E. Vieth, and Richard T.
Whitney are Managing Directors of the Manager.
George A. Murnaghan, who is a Managing Director of the Manager,
is also an Executive Vice President of Price-Fleming.
Robert P. Campbell, Michael J. Conelius, Roger L. Fiery III,
R. Aran Gordon, Veena A. Kutler, Heather R. Landon, Nancy M.
Morris, Robert W. Smith, William F. Wendler II, and Edward A.
Wiese, who are Vice Presidents of the Manager, are Vice
Presidents of Price-Fleming.
Todd J. Henry, and Kathleen G. Polk, who are employees of the
Manager, are Vice Presidents of Price-Fleming.
Kimberly A. Haker, an Assistant Vice President of the Manager,
is Assistant Vice President and Controller of Price-Fleming.
PAGE 21
Alvin M. Younger, Jr., who is Chief Financial Officer,
Managing Director, 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.
Ava M. Rainey, an Assistant Vice President of the Manager, is
an Assistant Vice President of Price-Fleming.
Elsie S. Crawford, an employee of the Manager, is an Assistant
Vice Presidents 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 seventy-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
commissions or other compensation for acting as principal
underwriter.
(b) The address of each of the directors and officers of
Investment Services listed below is 100 East Pratt Street,
Baltimore, Maryland 21202.
PAGE 22
Positions and
Name and Principal Positions and Offices Offices With
Business Address With Underwriter Registrant
__________________ ______________________ ______________
James S. Riepe Chairman of the Board Vice President
and Director
Edward C. Bernard President None
Henry H. Hopkins Vice President and DirectorVice
President
Charles E. Vieth Vice President and DirectorNone
Patricia M. Archer Vice President None
Joseph C. Bonasorte Vice President None
Darrell N. Braman Vice President None
Ronae M. Brock Vice President None
Meredith C. Callanan Vice President None
Christine M. Carolan Vice President None
Laura H. Chasney Vice President None
Renee M. Christoff Vice President None
Victoria C. Collins Vice President None
Alana S. Curtice Vice President None
Christopher W. Dyer Vice President None
Christine S. Fahlund Vice President None
Forrest R. Foss Vice President None
Andrea G. Griffin Vice President None
Douglas E. Harrison Vice President None
David J. Healy Vice President None
Joseph P. Healy Vice President None
Walter J. Helmlinger Vice President None
Eric G. Knauss Vice President None
Douglas G. Kremer Vice President None
Sharon R. Krieger Vice President None
Keith W. Lewis Vice President None
James Link Vice President None
Sarah McCafferty Vice President None
Maurice A. Minerbi Vice President None
Nancy M. Morris Vice President None
George A. Murnaghan Vice President None
Steven E. Norwitz Vice President None
Kathleen M. O'Brien Vice President None
Scott R. Powell Vice President None
Pamela D. Preston Vice President None
Lucy B. Robins Vice President None
John R. Rockwell Vice President None
Christopher S. Ross Vice President None
Kenneth J. Rutherford Vice President None
Daniel S. Schreiner Vice President None
Kristin E. Seeberger Vice President None
Monica R. Tucker Vice President None
William F. Wendler II Vice President None
PAGE 23
Jane F. White Vice President None
Thomas R. Woolley Vice President None
Alvin M. Younger, Jr. Secretary and Treasurer None
Mark S. Finn Controller & Vice
President None
Richard J. Barna Assistant Vice President None
Catherine L. Berkenkemper Assistant Vice President None
Robin C.B. Binkley Assistant Vice President None
Patricia S. Butcher Assistant Vice President Assistant
Secretary
Cheryl L. Emory Assistant Vice President None
John A. Galateria Assistant Vice President None
Edward F. Giltenan Assistant Vice President None
Janelyn A. Healey Assistant Vice President None
Kathleen Hussey Assistant Vice President None
Valerie King Assistant Vice President None
Steven A. Lasson Assistant Vice President None
Jeanette M. LeBlanc 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
Mark J. Mitchell Assistant Vice President None
Danielle N. Nicholson Assistant Vice President None
Barbara A. O'Connor Assistant Vice President None
JeanneMarie B. Patella Assistant Vice President None
Carin C. Quinn Assistant Vice President None
David A. Roscum Assistant Vice President None
Arthur J. Silber Assistant Vice President None
Jerome Tuccille Assistant Vice President None
Linda C. Wright Assistant Vice President None
Nolan L. North Assistant Treasurer None
Barbara A. Van Horn 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 Section 31(a) of the Investment Company Act of
1940 and the rules thereunder will be maintained by the T.
Rowe Price California Tax-Free Income Trust 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 the T. Rowe Price California Tax-Free Income
PAGE 24
Trust 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) Each series of the Registrant agrees to furnish, upon
request and without charge, a copy of its latest Annual
Report to each person to whom its prospectus is
delivered.
PAGE 25
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant certifies that it meets all of the requirements
for effectiveness of this registration statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baltimore,
State of Maryland, this 20th day of June, 1997.
T. ROWE PRICE CALIFORNIA TAX-FREE
INCOME TRUST
/s/William T. Reynolds
By: William T. Reynolds
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Registration Statement has been signed below by
the following persons in the capacities and on the dates
indicated:
SIGNATURE TITLE DATE
_________ ______ _____
/s/William T. Reynolds Chairman of the Board June 20, 1997
William T. Reynolds (Chief Executive Officer)
/s/Carmen F. Deyesu Treasurer June 20, 1997
Carmen F. Deyesu (Chief Financial Officer)
* Trustee June 20, 1997
Robert P. Black
* Trustee June 20, 1997
Calvin W. Burnett
* Trustee June 20, 1997
Anthony W. Deering
* Trustee June 20, 1997
F. Pierce Linaweaver
/s/James S. Riepe Vice President and June 20, 1997
James S. Riepe Trustee
* Trustee June 20, 1997
John G. Schreiber
/s/M. David Testa Trustee June 20, 1997
M. David Testa
PAGE 26
*/s/Henry H. Hopkins, Attorney-In-Fact
Henry H. Hopkins, Attorney-In-Fact
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>
PAGE 2
TABLE OF CONTENTS
1. Employment of Custodian and Property to be Held By It. . . 1
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 Funds. . . 7
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
PAGE 3
2.12 Segregated Account. . . . . . . . . . . . . . . . . .14
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 Income . . . . . . . . . . . . . . . . . . . . . . .22
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>
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
PAGE 6
interest rate, maturity date and call provisions,
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
PAGE 7
accordance with its duties set forth in
Article 12;
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
PAGE 8
Assistant Secretary, specifying the securities to
be delivered, setting forth the purpose for which
such delivery is to be made, declaring such
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
PAGE 9
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
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
PAGE 10
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
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;
<PAGE>
PAGE 11
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
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
PAGE 12
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
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
PAGE 13
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,
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
PAGE 14
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;
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
PAGE 15
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
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
PAGE 16
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.
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
PAGE 17
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.
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
PAGE 18
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.
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.
PAGE 19
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
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.
<PAGE>
PAGE 20
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
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
PAGE 21
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.
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
PAGE 22
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
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
PAGE 23
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
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
PAGE 24
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
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.
<PAGE>
PAGE 25
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
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.
<PAGE>
PAGE 26
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
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
PAGE 27
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
__________________
STATE STREET BANK AND TRUST COMPANY
ATTEST:
/s/Kathleen M. Kubit /s/Charles Cassidy
_____________________ By: ___________________________
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
PAGE 28
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
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.
<PAGE>
PAGE 29
DATED: September 28, 1987
___________________
ATTEST:
/s/Nancy J. Wortman /s/Carmen F. Deyesu
_______________________ By: _____________________________
<PAGE>
PAGE 30
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>
PAGE 31
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
<PAGE>
PAGE 32
(SIGNATURES CONTINUED)
T. ROWE PRICE NEW INCOME FUND, INC.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
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
PAGE 33
(SIGNATURES CONTINUED)
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
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
<PAGE>
PAGE 34
(SIGNATURES CONTINUED)
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
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>
PAGE 35
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
PAGE 36
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.
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Guy R. Sturgeon
______________________________________________
By:
<PAGE>
PAGE 37
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 38
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>
PAGE 39
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
PAGE 40
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
/s/Henry H. Hopkins
______________________________________________
By: Henry H. Hopkins
Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________________
By:
<PAGE>
PAGE 41
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 42
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>
PAGE 43
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 44
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.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
PAGE 45
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>
PAGE 46
Amendment No. 7 filed on Form SE January 25, 1990 with
International Trust (CIK 313212) Post Effective Amendment No. 17.
<PAGE>
PAGE 47
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 48
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>
PAGE 49
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 50
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>
PAGE 51
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 52
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>
PAGE 53
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
PAGE 54
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: Guy R. Sturgeon
<PAGE>
PAGE 55
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.
PAGE 56
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.
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>
PAGE 57
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 58
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>
PAGE 59
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 60
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>
PAGE 61
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.
PAGE 62
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.
/s/Henry H. Hopkins
_____________________________________
By: Henry H. Hopkins, Vice President
PAGE 63
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________
By:
<PAGE>
PAGE 64
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.
PAGE 65
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.
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>
PAGE 66
/s/Henry H. Hopkins
_____________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
______________________________________
By:
<PAGE>
PAGE 67
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.
PAGE 68
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
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 69
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
/s/Henry H. Hopkins
_________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
____________________________________
By:
<PAGE>
PAGE 70
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.
<PAGE>
PAGE 71
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
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.
PAGE 72
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
/s/Henry H. Hopkins
__________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
__________________________________
By:
<PAGE>
PAGE 73
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.
PAGE 74
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.
<PAGE>
PAGE 75
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND
FUND, INC.
/s/Henry H. Hopkins
_________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_________________________________________
By:
<PAGE>
PAGE 76
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.
PAGE 77
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.
<PAGE>
PAGE 78
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>
PAGE 79
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.
PAGE 80
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
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.
PAGE 81
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.
/s/Henry H. Hopkins
_________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_________________________________________
By:
<PAGE>
PAGE 82
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.
<PAGE>
PAGE 83
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 84
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.
/s/Henry H. Hopkins
_________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
_________________________________________
By:
<PAGE>
PAGE 85
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.
PAGE 86
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>
PAGE 87
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.
/s/Henry H. Hopkins
_________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
__________________________________________
By:
<PAGE>
PAGE 88
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 89
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>
PAGE 90
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>
PAGE 91
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>
PAGE 92
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 93
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 94
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 95
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 96
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 97
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 98
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 99
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 100
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 101
/s/Henry H. Hopkins
________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/
________________________________________
By:
<PAGE>
PAGE 102
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.
<PAGE>
PAGE 103
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 104
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 105
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
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:
<PAGE>
PAGE 106
AMENDMENT NO. 29 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 Strategy Balanced Portfolio, a separate series of the T.
Rowe Price Equity Series, Inc.
Notwithstanding anything to the contrary herein, it is
understood that the T. Rowe Price Personal Strategy Balanced
Portfolio, a separate series of the T. Rowe Price Equity 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 July
27, 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.
<PAGE>
PAGE 107
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 108
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
<PAGE>
PAGE 109
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. ROWE PRICE 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
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:
<PAGE>
PAGE 110
AMENDMENT NO. 30 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, April 21, 1994, and July 27, 1994 between
State Street Bank and Trust Company and each of the Parties
listed on Appendix A thereto is hereby further amended, as of
September 21, 1994, by adding thereto the T. Rowe Price Value
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 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 111
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 112
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 Personal Strategy Balanced
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
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
<PAGE>
PAGE 113
/s/Henry H. Hopkins
________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
________________________________________
By:Carol C. Ayotte, Vice President
<PAGE>
PAGE 114
AMENDMENT NO. 31 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, April 21, 1994, July 27, 1994, and September
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 November 1, 1994, by adding thereto the T. Rowe
Price Virginia Short-Term Tax-Free Bond Fund, a 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 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.
PAGE 115
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
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
<PAGE>
PAGE 116
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 Personal Strategy Balanced
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
T. Rowe Price Personal Strategy Income Fund
PAGE 117
T. ROWE PRICE VALUE FUND, INC.
/s/Henry H. Hopkins
________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
________________________________________
By: Carol C. Ayotte, Vice President
<PAGE>
PAGE 118
AMENDMENT NO. 32 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, April 21, 1994, July 27, 1994, September 21,
1994, and November 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 November 2, 1994, by adding thereto
the T. Rowe Price Capital Opportunity Fund, Inc. and the T. Rowe
Price Emerging Markets 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 Japan Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
PAGE 119
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
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
PAGE 120
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 Personal Strategy Balanced
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
T. Rowe Price Personal Strategy Income Fund
PAGE 121
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
/s/Henry H. Hopkins
________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
________________________________________
By:Carol C. Ayotte, Vice President
<PAGE>
PAGE 122
AMENDMENT NO. 33 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, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, and November 2, 1994 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,
1995, by adding thereto the T. Rowe Price Emerging Markets Stock
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 Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
PAGE 123
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
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>
PAGE 124
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 Personal Strategy Balanced
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 125
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
/s/Henry H. Hopkins
_____________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
_____________________________________________
By: Carol C. Ayotte, Vice President
<PAGE>
PAGE 126
AMENDMENT NO. 34 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, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, November 2, 1994, and January 25, 1995,
between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of September 20, 1995, by adding thereto the T. Rowe Price
Corporate Income 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 Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
PAGE 127
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
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
PAGE 128
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., now known as T. ROWE PRICE SHORT-TERM 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 Personal Strategy Balanced
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 129
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
/s/Henry H. Hopkins
_____________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
_____________________________________________
By: Carol C. Ayotte, Vice President
<PAGE>
PAGE 130
AMENDMENT NO. 35 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, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, November 2, 1994, January 25, 1995,
September 20, 1995, and October 11, 1995, between State Street
Bank and Trust Company and each of the Parties listed on
Appendix A thereto is hereby further amended, as of November 1,
1995, by adding thereto the T. Rowe Price Global Stock 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 Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
PAGE 131
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
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>
PAGE 132
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., now known as T. ROWE PRICE SHORT-TERM 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 Personal Strategy Balanced
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 133
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
/s/Henry H. Hopkins
_____________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
_____________________________________________
By: Carol C. Ayotte, Vice President
<PAGE>
PAGE 134
AMENDMENT NO. 36 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, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, November 2, 1994, January 25, 1995,
September 20, 1995, October 11, 1995, and November 1, 1995,
between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of December 11, 1995, by adding thereto the T. Rowe Price
Health Sciences 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 Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
PAGE 135
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
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>
PAGE 136
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., now known as T. ROWE PRICE SHORT-TERM 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 Personal Strategy Balanced
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 137
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
/s/Henry H. Hopkins
_____________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
_____________________________________________
By: Carol C. Ayotte, Vice President
<PAGE>
PAGE 138
AMENDMENT NO. 37 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, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, November 2, 1994, January 25, 1995,
September 20, 1995, October 11, 1995, November 1, 1995, and
December 11, 1995, between State Street Bank and Trust Company
and each of the Parties listed on Appendix A thereto is hereby
further amended, as of April 24, 1996, by adding thereto the T.
Rowe Price Mid-Cap Value Fund, Inc. and Mid-Cap Equity Growth
Fund, a separate series of the Institutional Domestic Equity
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 Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
PAGE 139
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
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 140
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., now known as T. ROWE PRICE SHORT-TERM 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 Personal Strategy Balanced
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 141
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
/s/Henry H. Hopkins
_____________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
_____________________________________________
By: Carol C. Ayotte, Vice President
<PAGE>
PAGE 142
AMENDMENT NO. 38 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, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, November 2, 1994, January 25, 1995,
September 20, 1995, October 11, 1995, November 1, 1995, December
11, 1995, and April 24, 1996, between State Street Bank and Trust
Company and each of the Parties listed on Appendix A thereto is
hereby further amended, as of August 2, 1996, by adding thereto
the T. Rowe Price Financial Services Fund, Inc., Mid-Cap Growth
Portfolio, a separate series of the T. Rowe Price Equity Series,
Inc. and Prime Reserve Portfolio, a separate series of the T.
Rowe Price Fixed Income Series, 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 Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
PAGE 143
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
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 144
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., now known as T. ROWE PRICE SHORT-TERM 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 Mid-Cap Growth Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
<PAGE>
PAGE 145
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
/s/Henry H. Hopkins
_____________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
_____________________________________________
By: Carol C. Ayotte, Vice President
<PAGE>
PAGE 146
AMENDMENT NO. 39 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, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, November 2, 1994, January 25, 1995,
September 20, 1995, October 11, 1995, November 1, 1995, December
11, 1995, April 24, 1996, and August 2, 1996, between State
Street Bank and Trust Company and each of the Parties listed on
Appendix A thereto is hereby further amended, as of November 12,
1996, by adding thereto the T. Rowe Price Spectrum International
Fund, a separate series of the T. Rowe Price Spectrum 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 Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
PAGE 147
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
T. Rowe Price Maryland Tax-Free Bond Fund
T. Rowe Price Maryland Short-Term Tax-Free Bond
Fund
T. Rowe Price New York Tax-Free Bond Fund
T. Rowe Price New York Tax-Free Money Fund
T. Rowe Price Virginia Tax-Free Bond Fund
T. Rowe Price Virginia Short-Term Tax-Free Bond
Fund
T. Rowe Price New Jersey Tax-Free Bond Fund
T. Rowe Price Georgia Tax-Free Bond Fund
T. Rowe Price Florida Insured Intermediate Tax-
Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
T. Rowe Price California Tax-Free Bond Fund
T. Rowe Price 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
PAGE 148
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
T. Rowe Price U.S. Treasury Intermediate Fund
T. Rowe Price U.S. Treasury Long-Term Fund
T. Rowe Price U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
T. Rowe Price Spectrum Growth Fund
T. Rowe Price Spectrum Income Fund
T. Rowe Price Spectrum International Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND,
INC., now known as T. ROWE PRICE SHORT-TERM 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 Mid-Cap Growth Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
PAGE 149
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
/s/Henry H. Hopkins
_____________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
_____________________________________________
By: Carol C. Ayotte, Vice President
<PAGE>
PAGE 150
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
Agreement between each fund listed on Appendix A to
the Custodian Contract (as defined below), as such Appendix A is
amended from time to time (each such fund listed on Appendix A
shall be individually referred to herein as the "Fund"), and
State Street Bank and Trust Company ("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as
custodian of certain assets of the Fund pursuant to a certain
Custodian Contract (the "Custodian Contract") dated as of
September 28, 1987, and amended thereafter from time to time;
WHEREAS, State Street has developed and utilizes
proprietary accounting and other systems, including State
Street's proprietary Multicurrency HORIZONR Accounting System, in
its role as custodian of the Fund, and maintains certain
Fund-related data ("Fund Data") in databases under the control
and ownership of State Street (the "Data Access Services"); and
WHEREAS, State Street makes available to the Fund
(and certain of the Fund' agents as set forth herein) certain
Data Access Services solely for the benefit of the Fund, and
intends to provide additional services, consistent with the terms
and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements herein contained, and for other good and
valuable consideration, the parties agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a. System. Subject to the terms and conditions of
this Agreement and solely for the purpose of providing access to
Fund Data as set forth herein, State Street hereby agrees to
provide the Fund, or certain third parties approved by State
Street that serve as the Fund's investment advisors, investment
managers or fund accountants (the "Fund Accountants") or as the
Fund's independent auditors (the "Auditor"), with access to State
Street's Multicurrency HORIZONR Accounting System and the other
information systems described in Attachment A (collectively, the
"System") on a remote basis solely on the computer hardware,
system software and telecommunication links described in
Attachment B (the "Designated Configuration") or on any
designated substitute or back-up equipment configuration
PAGE 151
consented to in writing by State Street, such consent not to be
unreasonably withheld.
b. Data Access Services. State Street agrees to
make available to the Fund the Data Access Services subject to
the terms and conditions of this Agreement and such data access
operating standards and procedures as may be issued by State
Street from time to time. The Fund shall be able to originate
electronic instructions to State Street in order to (i) effect
the transfer or movement of cash or securities held under custody
by State Street or (ii) transmit accounting or other information
(the transactions described in (i) and (ii) above are referred to
herein as "Client Originated Electronic Financial Instructions"),
and (iii) access data for the purpose of reporting and analysis,
which shall all be deemed to be Data Access Services for purposes
of this Agreement.
c. Additional Services. State Street may from
time to time agree to make available to the Fund additional
Systems that are not described in the attachments to this
Agreement. In the absence of any other written agreement
concerning such additional systems, the term "System" shall
include, and this Agreement shall govern, the Fund's access to
and use of any additional System made available by State Street
and/or accessed by the Fund.
2. NO USE OF THIRD PARTY SYSTEMS-LEVEL SOFTWARE
State Street and the Fund acknowledge that in
connection with the Data Access Services provided under this
Agreement, the Fund will have access, through the Data Access
Services, to Fund Data and to functions of State Street's
proprietary systems; provided, however that in no event will the
Fund have direct access to any third party systems-level software
that retrieves data for, stores data from, or otherwise supports
the System.
3. LIMITATION ON SCOPE OF USE
a. Designated Equipment; Designated Locations.
The System and the Data Access Services shall be used and
accessed solely on and through the Designated Configuration at
the offices of the Fund or the Fund Accountants in Baltimore,
Maryland or Owings Mills, Maryland ("Designated Locations").
b. Designated Configuration; Trained Personnel.
State Street and the Fund shall be responsible for supplying,
installing and maintaining the Designated Configuration at the
Designated Locations. State Street and the Fund agree that each
PAGE 152
will engage or retain the services of trained personnel to enable
both parties to perform their respective obligations under this
Agreement. State Street agrees to use commercially reasonable
efforts to maintain the System so that it remains serviceable,
provided, however, that State Street does not guarantee or assure
uninterrupted remote access use of the System.
c. Scope of Use. The Fund will use the System and
the Data Access Services only for the processing of securities
transactions, the keeping of books of account for the Fund and
accessing data for purposes of reporting and analysis. The Fund
shall not, and shall cause its employees and agents not to (i)
permit any unauthorized third party to use the System or the Data
Access Services, (ii) sell, rent, license or otherwise use the
System or the Data Access Services in the operation of a service
bureau or for any purpose other than as expressly authorized
under this Agreement, (iii) use the System or the Data Access
Services for any fund, trust or other investment vehicle), other
than as set forth herein, without the prior written consent of
State Street, (iv) allow access to the System or the Data Access
Services through terminals or any other computer or
telecommunications facilities located outside the Designated
Locations, (v) allow or cause any information (other than
portfolio holdings, valuations of portfolio holdings, and other
information reasonably necessary for the management or
distribution of the assets of the Fund) transmitted from State
Street's databases, including data from third party sources,
available through use of the System or the Data Access Services
to be redistributed or retransmitted to another computer,
terminal or other device for other than use for or on behalf of
the Fund or (vi) modify the System in any way, including without
limitation developing any software for or attaching any devices
or computer programs to any equipment, system, software or
database which forms a part of or is resident on the Designated
Configuration.
d. Other Locations. Except in the event of an
emergency or of a planned System shutdown, the Fund's access to
services performed by the System or to Data Access Services at
the Designated Locations may be transferred to a different
location only upon the prior written consent of State Street. In
the event of an emergency or System shutdown, the Fund may use
any back-up site included in the Designated Configuration or any
other back-up site agreed to by State Street, which agreement
will not be unreasonably withheld. The Fund may secure from
State Street the right to access the System or the Data Access
Services through computer and telecommunications facilities or
PAGE 153
devices complying with the Designated Configuration at additional
locations only upon the prior written consent of State Street and
on terms to be mutually agreed upon by the parties.
e. Title. Title and all ownership and proprietary
rights to the System, including any enhancements or modifications
thereto, whether or not made by State Street, are and shall
remain with State Street.
f. No Modification. Without the prior written
consent of State Street, the Fund shall not modify, enhance or
otherwise create derivative works based upon the System, nor
shall the Fund reverse engineer, decompile or otherwise attempt
to secure the source code for all or any part of the System.
g. Security Procedures. The Fund shall comply
with data access operating standards and procedures and with user
identification or other password control requirements and other
security procedures as may be issued from time to time by State
Street for use of the System on a remote basis and to access the
Data Access Services. The Fund shall have access only to the
Fund Data and authorized transactions agreed upon from time to
time by State Street and, upon notice from State Street, the Fund
shall discontinue remote use of the System and access to Data
Access Services for any security reasons cited by State Street;
provided, that, in such event, State Street shall, for a period
not less than 180 days (or such other shorter period specified by
the Fund) after such discontinuance, assume responsibility to
provide accounting services under the terms of the Custodian
Contract.
h. Inspections. State Street shall have the right
to inspect the use of the System and the Data Access Services by
the Fund, the Fund Accountants and the Auditor to ensure
compliance with this Agreement. The on-site inspections shall be
upon prior written notice to Fund, the Fund Accountants and the
Auditor and at reasonably convenient times and frequencies so as
not to result in an unreasonable disruption of the Fund's or the
Fund Accountants' or the Auditor respective businesses.
4. PROPRIETARY INFORMATION
a. Proprietary Information. The Fund acknowledges
and State Street represents that the System and the databases,
computer programs, screen formats, report formats, interactive
design techniques, documentation and other information made
available to the Fund by State Street as part of the Data Access
Services and through the use of the System constitute
copyrighted, trade secret, or other proprietary information of
PAGE 154
substantial value to State Street. Any and all such information
provided by State Street to the Fund shall be deemed proprietary
and confidential information of State Street (hereinafter
"Proprietary Information"). The Fund agrees that it will hold
such Proprietary Information in the strictest confidence and
secure and protect it in a manner consistent with its own
procedures for the protection of its own confidential information
and to take appropriate action by instruction or agreement with
its employees or agents who are permitted access to the
Proprietary Information to satisfy its obligations hereunder.
The Fund further acknowledges that State Street shall not be
required to provide the Fund Accountants or the Auditor with
access to the System unless it has first received from the Fund
Accountants and the Auditor an undertaking with respect to State
Street's Proprietary Information in the form of Attachment C
and/or Attachment C-1 to this Agreement. The Fund shall use all
commercially reasonable efforts to assist State Street in
identifying and preventing any unauthorized use, copying or
disclosure of the Proprietary Information or any portions thereof
or any of the logic, formats or designs contained therein.
b. Cooperation. Without limitation of the
foregoing, the Fund shall advise State Street immediately in the
event the Fund learns or has reason to believe that any person to
whom the Fund has given access to the Proprietary Information, or
any portion thereof, has violated or intends to violate the terms
of this Agreement, and the Fund will, at its reasonable expense,
cooperate with State Street in seeking injunctive or other
equitable relief in the name of the Fund or State Street against
any such person.
c. Injunctive Relief. The Fund acknowledges that
the disclosure of any Proprietary Information, or of any
information which at law or equity ought to remain confidential,
will immediately give rise to continuing irreparable injury to
State Street inadequately compensable in damages at law. In
addition, State Street shall be entitled to obtain immediate
injunctive relief against the breach or threatened breach of any
of the foregoing undertakings, in addition to any other legal
remedies which may be available.
d. Survival. The provisions of this Section 4
shall survive the termination of this Agreement.
5. LIMITATION ON LIABILITY
a. Standard of Care and Limitation on Amount and
Time for Bringing Action. State Street shall be held to a
PAGE 155
standard of reasonable care with respect to all of its duties and
obligations under this Agreement. The Fund agrees that any
liability of State Street to the Fund or any third party arising
with respect to the System or State Street's provision of Data
Access Services under this Data Access Services Addendum shall be
limited to the amount paid by the Fund for the preceding 24
months for such services. In no event shall State Street be
liable to the Fund or any other party pursuant to this Addendum
for any special, indirect, punitive or consequential damages even
if advised of the possibility of such damages. No action,
regardless of form, arising out of the terms of this Addendum may
be brought by the Fund more than two years after the Fund has
knowledge that the cause of action has arisen.
b. Limited Warranties. NO OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ARE MADE BY STATE STREET.
c. Third-Party Data. Organizations from which
State Street may obtain certain data included in the System or
the Data Access Services are solely responsible for the contents
of such data, and State Street shall have no liability for claims
arising out of the contents of such third-party data, including,
but not limited to, the accuracy thereof.
d. Regulatory Requirements. As between State
Street and the Fund, the Fund shall be solely responsible for the
accuracy of any accounting statements or reports produced using
the Data Access Services and the System and the conformity
thereof with any requirements of law.
e. Force Majeure. Neither party shall be liable
for any costs or damages due to delay or nonperformance under
this Data Access Services Addendum arising out of any cause or
event beyond such party's control, including, without limitation,
cessation of services hereunder or any damages resulting
therefrom to the other party as a result of work stoppage, power
or other mechanical failure, computer virus, natural disaster,
governmental action, or communication disruption.
6. INDEMNIFICATION
The Fund agrees to indemnify and hold State Street
harmless from any loss, damage or expense including reasonable
attorney's fees, (a "loss") suffered by State Street arising from
(i) the negligence or willful misconduct in the use by the Fund
of the Data Access Services or the System, including any loss
incurred by State Street resulting from a security breach at the
PAGE 156
Designated Locations or committed by the Fund's employees or
agents or the Fund Accountants or the and Auditor, and (ii) any
loss resulting from incorrect Client Originated Electronic
Financial Instructions. State Street shall be entitled to rely
on the validity and authenticity of Client Originated Electronic
Financial Instructions without undertaking any further inquiry as
long as such instruction is undertaken in conformity with
security procedures established by State Street from time to
time.
7. FEES
Fees and charges for the use of the System and the
Data Access Services and related payment terms shall be as set
forth in the custody fee schedule in effect from time to time
between the parties (the "Fee Schedule"). Any tariffs, duties or
taxes imposed or levied by any government or governmental agency
by reason of the transactions contemplated by this Agreement,
including, without limitation, federal, state and local taxes,
use, value added and personal property taxes (other than income,
franchise or similar taxes which may be imposed or assessed
against State Street) shall be borne by the Fund. Any claimed
exemption from such tariffs, duties or taxes shall be supported
by proper documentary evidence delivered to State Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a. Training. State Street agrees to provide
training, at a designated State Street training facility or at
the Designated Locations, to the Fund's personnel in connection
with the use of the System on the Designated Configuration. The
Fund agrees that it will set aside, during regular business hours
or at other times agreed upon by both parties, sufficient time to
enable all operators of the System and the Data Access Services,
designated by the Fund, to receive the training offered by State
Street pursuant to this Agreement.
b. Installation and Conversion. State Street and
the Fund shall be responsible for the technical installation and
conversion ("Installation and Conversion") of the Designated
Configuration. The Fund shall have the following
responsibilities in connection with Installation and Conversion
of the System:
(i) The Fund shall be solely responsible for the
timely acquisition and maintenance of the hardware and software
that attach to the Designated Configuration in order to use the
Data Access Services at the Designated Locations, and
PAGE 157
(ii) State Street and the Fund each agree that they
will assign qualified personnel to actively participate during
the Installation and Conversion phase of the System
implementation to enable both parties to perform their respective
obligations under this Agreement.
9. SUPPORT
During the term of this Agreement, State Street
agrees to provide the support services set out in Attachment D to
this Agreement.
10. TERM OF AGREEMENT
a. Term of Agreement. This Agreement shall become
effective on the date of its execution by State Street and shall
remain in full force and effect until terminated as herein
provided.
b. Termination of Agreement. Either party may
terminate this Agreement (i) for any reason by giving the other
party at least one-hundred and eighty (180) days' prior written
notice in the case of notice of termination by State Street to
the Fund or thirty (30) days' notice in the case of notice from
the Fund to State Street of termination; or (ii) immediately for
failure of the other party to comply with any material term and
condition of the Agreement by giving the other party written
notice of termination. In the event the Fund shall cease doing
business, shall become subject to proceedings under the
bankruptcy laws (other than a petition for reorganization or
similar proceeding) or shall be adjudicated bankrupt, this
Agreement and the rights granted hereunder shall, at the option
of State Street, immediately terminate with notice to the Fund.
This Agreement shall in any event terminate as to any Fund within
ninety (90) days after the termination of the Custodian Contract.
c. Termination of the Right to Use. Upon
termination of this Agreement for any reason, any right to use
the System and access to the Data Access Services shall terminate
and the Fund shall immediately cease use of the System and the
Data Access Services. Immediately upon termination of this
Agreement for any reason, the Fund shall return to State Street
all copies of documentation and other Proprietary Information in
its possession; provided, however, that in the event that either
party terminates this Agreement or the Custodian Contract for any
reason other than the Fund's breach, State Street shall provide
the Data Access Services for a period of time and at a price to
be agreed upon in writing by the parties.
PAGE 158
11. MISCELLANEOUS
a. Assignment; Successors. This Agreement and the
rights and obligations of the Fund and State Street hereunder
shall not be assigned by either party without the prior written
consent of the other party, except that State Street may assign
this Agreement to a successor of all or a substantial portion of
its business, or to a party controlling, controlled by, or under
common control with State Street.
b. Survival. All provisions regarding
indemnification, warranty, liability and limits thereon, and
confidentiality and/or protection of proprietary rights and trade
secrets shall survive the termination of this Agreement.
c. Entire Agreement. This Agreement and the
attachments hereto constitute the entire understanding of the
parties hereto with respect to the Data Access Services and the
use of the System and supersedes any and all prior or
contemporaneous representations or agreements, whether oral or
written, between the parties as such may relate to the Data
Access Services or the System, and cannot be modified or altered
except in a writing duly executed by the parties. This Agreement
is not intended to supersede or modify the duties and liabilities
of the parties hereto under the Custodian Contract or any other
agreement between the parties hereto except to the extent that
any such agreement specifically refers to the Data Access
Services or the System. No single waiver or any right hereunder
shall be deemed to be a continuing waiver.
d. Severability. If any provision or provisions of
this Agreement shall be held to be invalid, unlawful, or
unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or
impaired.
e. Governing Law. This Agreement shall be
interpreted and construed in accordance with the internal laws of
The Commonwealth of Massachusetts without regard to the conflict
of laws provisions thereof.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
<PAGE>
PAGE 159
Signature Page (page 1 of 4)
IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement effective as of September 28, 1987.
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 Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Tax-Free Income Fund, Inc.
T. Rowe Price Tax-Exempt Money Fund, Inc.
T. Rowe Price Tax-Free Short-Intermediate Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
<PAGE>
PAGE 160
Signature Page (page 2 of 4)
T. Rowe Price Tax-Free High Yield Fund, Inc.
T. Rowe Price New America Growth Fund
T. Rowe Price Equity Income Fund
T. Rowe Price GNMA Fund
T. Rowe Price Capital Appreciation Fund
T. Rowe Price State Tax-Free Income Trust
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
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
<PAGE>
PAGE 161
Signature Page (page 3 of 4)
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., now
known as T. Rowe Price Short-Term 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 Personal Strategy Balanced Portfolio
T. Rowe Price International Series, Inc.
T. Rowe Price International Stock Portfolio
<PAGE>
PAGE 162
Signature Page (page 4 of 4)
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
T. Rowe Price Personal Strategy Income Fund
T. Rowe Price Value Fund, Inc.
T. Rowe Price Capital Opportunity Fund, Inc.
T. Rowe Price Corporate Income Fund, Inc.
T. Rowe Price Health Sciences Fund, Inc.
T. Rowe Price Mid-Cap Value Fund, Inc.
Institutional Domestic Equity Funds, Inc.
Mid-Cap Equity Growth Fund
By T. Rowe Price Associates, Inc., as Treasurer
for each of the foregoing
/s/Carmen F. Deyesu
By: ______________________________
Title: ______________________________
STATE STREET BANK AND TRUST COMPANY
/s/Ronald E. Logue
By: ______________________________
Title: Executive Vice President
<PAGE>
PAGE 163
ATTACHMENT A
Multicurrency HORIZONR Accounting System
System Product Description
I. The Multicurrency HORIZONR Accounting System is
designed to provide lot level portfolio and general ledger
accounting for SEC and ERISA type requirements and includes the
following services: 1) recording of general ledger entries; 2)
calculation of daily income and expense; 3) reconciliation of
daily activity with the trial balance, and 4) appropriate
automated feeding mechanisms to (i) domestic and international
settlement systems, (ii) daily, weekly and monthly evaluation
services, (iii) portfolio performance and analytic services, (iv)
customer's internal computing systems and (v) various State
Street provided information services products.
II. GlobalQuestR GlobalQuestR is designed to provide
customer access to the following information maintained on The
Multicurrency HORIZONR Accounting System: 1) cash transactions
and balances; 2) purchases and sales; 3) income receivables; 4)
tax refund; 5) daily priced positions; 6) open trades; 7)
settlement status; 8) foreign exchange transactions; 9) trade
history; and 10) daily, weekly and monthly evaluation services.
III. HORIZONR Gateway. HORIZONR Gateway provides
customers with the ability to (i) generate reports using
information maintained on the Multicurrency HORIZONR Accounting
System which may be viewed or printed at the customer's location;
(ii) extract and download data from the Multicurrency HORIZONR
Accounting System; and (iii) access previous day and historical
data. The following information which may be accessed for these
purposes: 1) holdings; 2) holdings pricing; 3) transactions,
4) open trades; 5) income; 6) general ledger and 7) cash.
IV. State Street Interchange. State Street Interchange
is an open information delivery architecture wherein proprietary
communication products, data formats and workstation tools are
replaced by industry standards and is designed to enable the
connection of State Street's network to customer networks,
thereby facilitating the sharing of information.
<PAGE>
PAGE 164
ATTACHMENT C
Undertaking
(Fund Accountants)
The undersigned understands that in the course of
its employment as Fund Accountant to each fund listed on Appendix
A (as amended from time to time) to that certain Custodian
Contract dated as of September 28, 1987 (the "Fund"), it will
have access to State Street Bank and Trust Company's
Multicurrency HORIZON Accounting System and other information
systems (collectively, the "System").
The undersigned acknowledges that the System and
the databases, computer programs, screen formats, report formats,
interactive design techniques, documentation, and other
information made available to the Undersigned by State Street
Bank and Trust Company ("State Street") as part of the Data
Access Services provided to the Fund and through the use of the
System constitute copyrighted, trade secret, or other proprietary
information of substantial value to State Street. Any and all
such information provided by State Street to the Undersigned
shall be deemed proprietary and confidential information of State
Street (hereinafter "Proprietary Information"). The undersigned
agrees that it will hold such Proprietary Information in
confidence and secure and protect it in a manner consistent with
its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or
agreement with its employees who are permitted access to the
Proprietary Information to satisfy its obligations hereunder.
The undersigned will not attempt to intercept data,
gain access to data in transmission, or attempt entry into any
system or files for which it is not authorized. It will not
intentionally adversely affect the integrity of the System
through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any
right to use the System and access to the Data Access Services
shall terminate and the Undersigned shall immediately cease use
of the System and the Data Access Services. Immediately upon
notice by State Street for any reason, the undersigned shall
return to State Street all copies of documentation and other
Proprietary Information in its possession.
<PAGE>
PAGE 165
[The Fund Accountants]
By: /s/David S. Middleton
Title: Vice President
Date: 12/3/96
<PAGE>
PAGE 166
ATTACHMENT C-1
Undertaking
(Auditor)
The undersigned understands that in the course of
its employment as Auditor the funds listed on Appendix A which
are audited by Price Waterhouse LLP (as amended from time to
time) to that certain Custodian Contract dated as of September
28, 1987 (the "Fund") it will have access to State Street Bank
and Trust Company's Multicurrency HORIZON Accounting System and
other information systems (collectively, the "System").
The undersigned acknowledges that the System and
the databases, computer programs, screen formats, report formats,
interactive design techniques, documentation, and other
information made available to the Undersigned by State Street
Bank and Trust Company ("State Street") as part of the Data
Access Services provided to the Fund and through the use of the
System constitute copyrighted, trade secret, or other proprietary
information of substantial value to State Street. Any and all
such information provided by State Street to the Undersigned
shall be deemed proprietary and confidential information of State
Street (hereinafter "Proprietary Information"). The undersigned
agrees that it will hold such Proprietary Information in
confidence and secure and protect it in a manner consistent with
its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or
agreement with its employees who are permitted access to the
Proprietary Information to satisfy its obligations hereunder.
The undersigned will not attempt to intercept data,
gain access to data in transmission, or attempt entry into any
system or files for which it is not authorized. It will not
intentionally adversely affect the integrity of the System
through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any
right to use the System and access to the Data Access Services
shall terminate and the Undersigned shall immediately cease use
of the System and the Data Access Services. Immediately upon
notice by State Street for any reason, the undersigned shall
return to State Street all copies of documentation and other
Proprietary Information in its possession.
<PAGE>
PAGE 167
[The Auditor]
By: /s/D.E. Bender
Title: Partner, Price Waterhouse LLP
Date: 12/11/96
<PAGE>
PAGE 168
Undertaking
(Auditor)
The undersigned understands that in the course of
its engagement as Independent Auditor to T. Rowe Price (the
"Customer") it will have access to State Street Bank and Trust
Company's ("State Street") Multicurrency HORIZON Accounting
System (the "System").
The undersigned acknowledges that the System and
the databases, computer programs, screen formats, report formats,
interactive design techniques, documentation, and other
information made available to the Undersigned by State Street
through the use of the System constitute copyrighted, trade
secret, or other proprietary information of substantial value to
State Street. Any and all such information provided by State
Street to the Undersigned shall be deemed proprietary and
confidential information of State Street (hereinafter
"Proprietary Information"). The Undersigned agrees that it will
hold such Proprietary Information in confidence (although the
Undersigned may share it, as needed, with the Customer) and
secure and protect it in a manner consistent with its own
procedures for the protection of its own confidential information
and to take appropriate action by instruction or agreement with
its employees who are permitted access to the Proprietary
Information to satisfy its obligations hereunder.
The Undersigned will not intentionally and
wrongfully attempt to intercept data, gain access to data in
transmission, or attempt entry into any System files for which it
is not authorized. It will not intentionally adversely affect
the integrity of the System through the introduction of
unauthorized code or data, or through unauthorized deletion.
Upon notice by State Street for any reason, any
right to use the System shall terminate and the Undersigned shall
immediately cease use of the System. Promptly upon notice by
State Street for any reason, the Undersigned shall return to
State Street all copies of Proprietary Information in its
possession, subject to the Undersigned's professional obligation
to retain its workpaper record of its services to the Customer.
<PAGE>
PAGE 169
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
By: /s/J.A. Carrier
Title: Partner
Date: 2/19/97
<PAGE>
PAGE 170
ATTACHMENT D
Support
During the term of this Agreement, State Street
agrees to provide the following on-going support services:
a. Telephone Support. The Fund Designated Persons
may contact State Street's HORIZONR Help Desk and Fund Assistance
Center between the hours of 8 a.m. and 6 p.m. (Eastern time) on
all business days for the purpose of obtaining answers to
questions about the use of the System, or to report apparent
problems with the System. From time to time, the Fund shall
provide to State Street a list of persons who shall be permitted
to contact State Street for assistance (such persons being
referred to as the "Fund Designated Persons").
b. Technical Support. State Street will provide
technical support to assist the Fund in using the System and the
Data Access Services. The total amount of technical support
provided by State Street shall not exceed 10 resource days per
year. State Street shall provide such additional technical
support as is expressly set forth in the fee schedule in effect
from time to time between the parties (the "Fee Schedule").
Technical support, including during installation and testing, is
subject to the fees and other terms set forth in the Fee
Schedule.
c. Maintenance Support. State Street shall use
commercially reasonable efforts to correct system functions that
do not work according to the System Product Description as set
forth on Attachment A in priority order in the next scheduled
delivery release or otherwise as soon as is practicable.
d. System Enhancements. State Street will provide
to the Fund any enhancements to the System developed by State
Street and made a part of the System; provided that State Street
offer the Fund reasonable training on the enhancement. Charges
for system enhancements shall be as provided in the Fee Schedule.
State Street retains the right to charge for related systems or
products that may be developed and separately made available for
use other than through the System.
e. Custom Modifications. In the event the Fund
desires custom modifications in connection with its use of the
System, the Fund shall make a written request to State Street
providing specifications for the desired modification. Any
custom modifications may be undertaken by State Street in its
sole discretion in accordance with the Fee Schedule.
<PAGE>
PAGE 171
f. Limitation on Support. State Street shall have
no obligation to support the Fund's use of the System: (1) for
use on any computer equipment or telecommunication facilities
which does not conform to the Designated Configuration or (ii) in
the event the Fund has modified the System in breach of this
Agreement.
<PAGE>
PAGE 172
AMENDMENT NO. 40 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, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, November 2, 1994, January 25, 1995,
September 20, 1995, October 11, 1995, November 1, 1995, December
11, 1995, April 24, 1996, August 2, 1996, and November 12, 1996,
between State Street Bank and Trust Company and each of the
Parties listed on Appendix A thereto is hereby further amended,
as of February 4, 1997, by adding thereto the Reserve Investment
Funds, Inc., on behalf of its two separate portfolios, the
Government Reserve Investment Fund and the Reserve Investment
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 FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
PAGE 173
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
T. Rowe Price Maryland Tax-Free Bond Fund
T. Rowe Price Maryland Short-Term Tax-Free Bond
Fund
T. Rowe Price New York Tax-Free Bond Fund
T. Rowe Price New York Tax-Free Money Fund
T. Rowe Price Virginia Tax-Free Bond Fund
T. Rowe Price Virginia Short-Term Tax-Free Bond
Fund
T. Rowe Price New Jersey Tax-Free Bond Fund
T. Rowe Price Georgia Tax-Free Bond Fund
T. Rowe Price Florida Insured Intermediate Tax-
Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
T. Rowe Price California Tax-Free Bond Fund
T. Rowe Price 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
<PAGE>
PAGE 174
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
T. Rowe Price U.S. Treasury Intermediate Fund
T. Rowe Price U.S. Treasury Long-Term Fund
T. Rowe Price U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
T. Rowe Price Spectrum Growth Fund
T. Rowe Price Spectrum Income Fund
T. Rowe Price Spectrum International Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND,
INC., now known as T. ROWE PRICE SHORT-TERM U.S.
GOVERNMENT FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC., formerly
known as T. ROWE PRICE OTC FUND, INC.
T. Rowe Price Small-Cap Stock Fund, formerly
known as 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
<PAGE>
PAGE 175
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Government Reserve Investment Fund
Reserve Investment Fund
/s/Henry H. Hopkins
By: ______________________________________
Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
By: ______________________________________
Carol C. Ayotte, Vice President
<PAGE>
PAGE 176
AMENDMENT NO. 41 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, April 21, 1994, July 27, 1994, September 21,
1994, November 1, 1994, November 2, 1994, January 25, 1995,
September 20, 1995, October 11, 1995, November 1, 1995, December
11, 1995, April 24, 1996, August 2, 1996, November 12, 1996, and
February 4, 1997 between State Street Bank and Trust Company and
each of the Parties listed on Appendix A thereto is hereby
further amended, as of April 24, 1997 by adding thereto the
T. Rowe Price Tax-Efficient Balanced Fund, Inc. and T. Rowe Price
Diversified Small-Cap 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 Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
PAGE 177
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND,
INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
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 178
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND,
INC., now known as T. ROWE PRICE SHORT-TERM U.S.
GOVERNMENT FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC., formerly
known as T. ROWE PRICE OTC FUND, INC.
T. Rowe Price Small-Cap Stock Fund, formerly
known as 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 Mid-Cap Growth Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
PAGE 179
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Government Reserve Investment Fund
Reserve Investment Fund
/s/Henry H. Hopkins
_____________________________________________
By: Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
_____________________________________________
By: Carol C. Ayotte, Vice President
The Transfer Agency and Service Agreement between T. Rowe
Price Services, Inc. and T. Rowe Price Funds, dated January 1,
1997, 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>
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. Redemptions . . . . . . . . . . . . . . . 4
3. Transfers . . . . . . . . . . . . . . . . 6
4. Confirmations . . . . . . . . . . . . . . 6
5. Returned Checks and ACH Debits. . . . . . 6
6. Redemption of Shares under Ten Day Hold . 7
7. Dividends, Distributions and Other
Corporate Actions . . . . . . . . . . . . 9
8. Unclaimed Payments and Certificates . . . 9
9. Books and Records . . . . . . . . . . . .10
10. Authorized Issued and Outstanding Shares.11
11. Tax Information . . . . . . . . . . . . .12
12. Information to be Furnished to the Fund .12
13. Correspondence. . . . . . . . . . . . . .12
14. Lost or Stolen Securities . . . . . . . .13
15. Telephone Services. . . . . . . . . . . .13
16. Collection of Shareholder Fees. . . . . .13
17. Form N-SAR. . . . . . . . . . . . . . . .13
18. Cooperation With Accountants. . . . . . .14
19. Blue Sky. . . . . . . . . . . . . . . . .14
20. Other Services. . . . . . . . . . . . . .14
21. Fees and Out-of-Pocket Expenses . . . . .14
Article C Representations and Warranties of the Price
Services. . . . . . . . . . . . . . . . . . .16
Article D Representations and Warranties of the Fund. .17
Article E Standard of Care/Indemnification. . . . . . .17
Article F Dual Interests. . . . . . . . . . . . . . . .19
Article G Documentation . . . . . . . . . . . . . . . .19
Article H References to Price Services. . . . . . . . .21
Article I Compliance with Governmental Rules and
Regulations . . . . . . . . . . . . . . . . .21
Article J Ownership of Software and Related Material. .21
PAGE 3
Article K Quality Service Standards . . . . . . . . . .22
Article L As of Transactions. . . . . . . . . . . . . .22
Article M Term and Termination of Agreement . . . . . .25
Article N Notice. . . . . . . . . . . . . . . . . . . .25
Article O Assignment. . . . . . . . . . . . . . . . . .25
Article P Amendment/Interpretive Provisions . . . . . .25
Article Q Further Assurances. . . . . . . . . . . . . .26
Article R Maryland Law to Apply . . . . . . . . . . . .26
Article S Merger of Agreement . . . . . . . . . . . . .26
Article T Counterparts. . . . . . . . . . . . . . . . .26
Article U The Parties . . . . . . . . . . . . . . . . .26
Article V Directors, Trustees, Shareholders and
Massachusetts Business Trust. . . . . . . . .27
Article W Captions. . . . . . . . . . . . . . . . . . .27
<PAGE>
PAGE 4
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the first day of January, 1997, 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, Price Services has the capability of providing
shareholder services on behalf of the Funds for the accounts of
PAGE 5
shareholders in the Funds, including banks and brokers on behalf of
underlying clients;
WHEREAS, certain of the Funds are named investment options
under various tax-sheltered retirement plans including, but not
limited to, individual retirement accounts, Sep-IRA s, SIMPLE
plans, deferred compensation plans, 403(b) plans, and profit
sharing, thrift, and money purchase pension plans for self-employed
individuals and professional partnerships and corporations,
(collectively referred to as "Retirement Plans");
WHEREAS, Price Services also has the capability of providing
special services, on behalf of the Funds, for the accounts of
shareholders participating in these Retirement Plans ("Retirement
Accounts").
WHEREAS, Price Services may subcontract or jointly contract
with other parties, on behalf of the Funds to perform certain of
the functions and services described herein including services to
Retirement Plans and Retirement Accounts;
WHEREAS, Price Services may also enter into, on behalf of the
Funds, certain banking relationships to perform various banking
services including, but not limited to, check deposits, check
disbursements, automated clearing house transactions ("ACH") and
wire transfers.
<PAGE>
PAGE 6
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
A. Terms of Appointment
Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints Price Services to
act, and Price Services agrees to act, as the Fund's transfer
agent, dividend disbursing agent and agent in connection with: (1)
the Fund's authorized and issued shares of its common stock or
shares of beneficial interest (all such stock and shares to be
referred to as "Shares"); (2) any dividend reinvestment or other
services provided to the shareholders of the Fund ("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.
<PAGE>
PAGE 7
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,
Price Services will endorse the check and include the
date of receipt, will process the same for payment, and
deposit the net amount to the parties agreed upon
designated bank account prior to such deposit in the
Custodial account, and will notify the Fund and the
Custodian, respectively, of such deposits (such
notification to be given on a daily basis of the total
amount deposited to said accounts during the prior
business day);
PAGE 8
o Subject to guidelines mutually agreed upon by the Funds
and Price Services, excess balances, if any, resulting
from deposit in these designated bank accounts will be
invested and the income therefrom will be used to offset
fees which would otherwise be charged to the Funds under
this Agreement;
o Ensure that any documentation received from Shareholder
is in "good order" and all appropriate documentation is
received to establish an account.
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;
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
mutually agreed upon by both parties;
<PAGE>
PAGE 9
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");
o Process orders received from recordkeepers and banks and
brokers for omnibus accounts in accordance with internal
policies and procedures established in executed agency
agreements and other agreements negotiated with banks and
brokers; and
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
PAGE 10
designated beneficiaries or for payment of fees due the
Administrator or such other person, including Price Services,
and deliver the appropriate documentation thereof to the
Custodian. Price Services shall receive and stamp with the
date of receipt, all requests for redemptions of Shares
(including all certificates delivered to it for redemption)
and shall process said redemption requests as follows, subject
to the provisions of Section 6 hereof:
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;
o For those Funds that impose redemption fees, calculate
the fee owed on the redemption in accordance with the
guidelines established between the Fund and Price
Services;
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
PAGE 11
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 Instruct custodian to wire redemption proceeds to a
designated bank account of Price Services. Subject to
guidelines mutually agreed upon by the Funds and Price
Services, excess balances, if any, resulting from deposit
in these bank accounts will be invested and the income
therefrom will be used to offset fees which would
otherwise be charged to the Funds under this Agreement;
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 tax laws;
<PAGE>
PAGE 12
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 by Shareholder; 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.
Procedures and requirements for effecting and accepting
redemption orders from investors by telephone, Tele*Access,
computer, or written instructions shall be established by
mutual agreement between Price Services and the Fund
consistent with the Fund's current prospectus.
3. Transfers
Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions and
documentation and examine such instructions for conformance
with appropriate procedures and requirements. In this regard,
Price Services, upon receipt of a proper request for transfer,
including any transfer involving the surrender of certificates
of Shares, is authorized to transfer, on the records of the
PAGE 13
Fund, Shares of the Fund, including cancellation of
surrendered certificates, if any, to credit a like amount of
Shares to the transferee.
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. Returned Checks and ACH Debits
In order to minimize the risk of loss to the Fund by
reason of any check being returned unpaid, Price Services will
promptly identify and follow-up on any check or ACH debit
returned unpaid. For items returned, Price Services may
telephone the investor and/or redeposit the check or debit for
collection or cancel the purchase, as deemed appropriate.
Price Services and the Funds will establish procedures for the
collection of money owed the Fund from investors who have
caused losses due to these returned items.
6. Redemption of Shares under Ten Day Hold
o Uncollected Funds
Shares purchased by personal, corporate, or governmental
check, or by ACH will be considered uncollected until the
PAGE 14
tenth calendar date following the trade date of the trade
("Uncollected Funds");
o Good Funds
Shares purchased by treasurer's, cashier, certified, or
official check, or by wire transfer will be considered
collected immediately ("Good Funds"). Absent information
to the contrary (i.e., notification from the payee
institution), Uncollected Funds will be considered Good
Funds on the tenth calendar day 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 payment is 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 the
PAGE 15
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.
PAGE 16
o All checkwriting redemptions under $10,000 reported
as Uncollected or insufficient funds will be
rejected and the check returned to the Shareholder.
The Funds and Services may agree to contact
shareholders presenting checks under $10,000
reported as insufficient to obtain alternative
instructions for payment.
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
PAGE 17
a conflict arises between Section 2 and this Section 6,
Section 6 will govern.
7. 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.
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 about 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.
<PAGE>
PAGE 18
8. Unclaimed Payments and Certificates
In accordance with procedures agreed upon by both
parties, report abandoned property to appropriate state and
governmental authorities of the Fund. Price Services shall,
90 days prior to the annual reporting of abandoned property to
each of the states, make reasonable attempts to locate
Shareholders for which (a) checks 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
make reasonable attempts to contact shareholders for those
accounts which have significant aged outstanding checks and
those checks meet a specified dollar threshold.
9. 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;
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PAGE 19
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
Shareholder with respect to (i) dividend or
distribution elections, and (ii) elections with
respect to payment options in connection with the
redemption of Shares;
<PAGE>
PAGE 20
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
preserved for the periods and maintained in a manner
PAGE 21
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.
PAGE 22
10. Authorized Issued and Outstanding Shares
Record the issuance of Shares of the Fund and maintain,
pursuant to Rule 17Ad-10(e) of the '34 Act, a record of the
total number of Shares of the Fund which are authorized,
issued and outstanding, based upon data provided to it by the
Fund. Price Services shall also provide the Fund on a regular
basis the total number of Shares which are authorized and
issued and outstanding. Price Services shall have no
obligation, when recording the issuance of Shares, to monitor
the issuance of such Shares or to take cognizance of any laws
relating to the issuance or sale of such Shares.
11. Tax Information
Prepare and file with the Internal Revenue Service and
with other appropriate state agencies and, if required, mail
to investors, those returns for reporting dividends and
distributions paid as required to be so filed and mailed, and
shall withhold such sums required to be withheld under
applicable Federal income tax laws, rules, and regulations.
Additionally, Price Services will file and, as applicable,
mail to investors, any appropriate information returns
required to be filed in connection with Retirement Plan
processing, such as 1099R, 5498, as well as any other
appropriate forms that the Fund or Price Services may deem
PAGE 23
necessary. The Fund and Price Services shall agree to
procedures to be followed with respect to Price Services'
responsibilities in connection with compliance with back-up
withholding and other tax laws.
12. Information to be Furnished to the Fund
Furnish to the Fund such information as may be agreed
upon between the Fund and Price Services including any
information that the Fund and Price Services agree is
necessary to the daily operations of the business.
13. Correspondence
Promptly and fully answer correspondence from
shareholders and Administrators relating to Shareholder
Accounts, Retirement Accounts, transfer agent procedures, and
such other correspondence as may from time to time be mutually
agreed upon with the Funds. Unless otherwise instructed,
copies of all correspondence will be retained by Price
Services in accordance with applicable law and procedures.
14. Lost or Stolen Securities
Pursuant to Rule 17f-1 of the '34 Act, report to the
Securities Information Center and/or the FBI or other
appropriate person on Form X-17-F-1A all lost, stolen, missing
or counterfeit securities. Provide any other services
PAGE 24
relating to lost, stolen or missing securities as may be
mutually agreed upon by both parties.
15. Telephone Services
Maintain a Telephone Servicing Staff of representatives
("Representatives") sufficient to timely respond to all
telephonic inquiries reasonably foreseeable. The
Representatives will also effect telephone purchases,
redemptions, exchanges, and other transactions mutually agreed
upon by both parties, for those Shareholders who have
authorized telephone services. The Representatives shall
require each Shareholder effecting a telephone transaction to
properly identify himself/herself before the transaction is
effected, in accordance with procedures agreed upon between by
both parties. Procedures for processing telephone
transactions will be mutually agreed upon by both parties.
Price Services will also be responsible for providing
Tele*Access, 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.
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PAGE 25
16. Collection of Shareholder Fees
Calculate and notify shareholders of any fees owed the
Fund, its affiliates or its agents. Such fees include the
small account fee IRA custodial fee and wire fee.
17. Form N-SAR
Maintain such records, if any, as shall enable the Fund
to fulfill the requirements of Form N-SAR.
18. Cooperation With Accountants
Cooperate with each Fund's independent public accountants
and take all reasonable action in the performance of its
obligations under the Agreement to assure that the necessary
information is made available to such accountants for the
expression of their opinion without any qualification as to
the scope of their examination, including, but not limited to,
their opinion included in each such Fund's annual report on
Form N-SAR and annual amendment to Form N-1A.
19. Blue Sky
Provide to the Fund or its agent, on a daily, weekly,
monthly and quarterly basis, and for each state in which the
Fund's Shares are sold, sales reports and other materials for
blue sky compliance purposes as shall be agreed upon by the
parties.
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PAGE 26
20. Other Services
Provide such other services as may be mutually agreed
upon between Price Services and the Fund.
21. 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
of returned proxies and the certification of the
vote to the Fund.
PAGE 27
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 28
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:
PAGE 29
1. It is a corporation duly organized and existing and in
good standing under the laws of Maryland;
2. It is duly qualified to carry on its business in
Maryland, California and Florida;
3. It is empowered under applicable laws and by its charter
and by-laws to enter into and perform this Agreement;
4. All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
5. It is registered with the Securities and Exchange
Commission as a Transfer Agent pursuant to Section 17A of the
'34 Act; and
6. It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
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;
<PAGE>
PAGE 30
3. All proceedings required by said Articles of
Incorporation or Declaration of Trust, as the case may be, and
By-Laws have been taken to authorize it to enter into and
perform this Agreement;
4. It is an investment company registered under the Act; and
5. A registration statement under the Securities Act of 1933
("the '33 Act") is currently effective and will remain
effective, and appropriate state securities law filings have
been made and will continue to be made, with respect to all
Shares of the Fund being offered for sale.
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
PAGE 31
omission by Price Services or its agents or subcontractors in
the performance of their duties hereunder; (ii) Price Services
acting upon instructions believed by it to have been executed
by a duly authorized officer of the Fund; or (iii) Price
Services acting upon information provided by the Fund in form
and under policies agreed to by Price Services and the Fund.
Price Services shall not be entitled to such indemnification
in respect of actions or omissions constituting negligence or
willful misconduct of Price Services or where 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.
PAGE 32
4. In determining Price Services' liability, an isolated
error or omission will normally not be deemed to constitute
negligence when it is determined that:
o Price Services had in place "appropriate procedures;"
o the employee(s) responsible for the error or omission had
been reasonably trained and were being appropriately
monitored; and
o the error or omission did not result from wanton or
reckless conduct on the part of the employee(s).
It is understood that Price Services is not obligated to have
in place separate procedures to prevent each and every
conceivable type of error or omission. The term "appropriate
procedures" shall mean procedures reasonably designed to
prevent and detect errors and omissions. In determining the
reasonableness of such procedures, weight will be given to
such factors as are appropriate, including the prior
occurrence of any similar errors or omissions when such
procedures were in place and transfer agent industry standards
in place at the time of the occurrence.
5. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts
of God, strikes or other causes reasonably beyond its control,
such party shall not be liable to the other party for any
PAGE 33
loss, cost, damage, claim, action or expense resulting from
such failure to perform or otherwise from such causes.
6. In order that the indemnification provisions contained in
this Article E shall apply, upon the assertion of a claim for
which either party may be required to indemnify the other, the
party seeking indemnification shall promptly notify the other
party of such assertion, and shall keep the other party
advised with respect to all developments concerning such
claim. The party who may be required to indemnify shall have
the option to participate with the party seeking
indemnification in the defense of such claim, or to defend
against said claim in its own name or in the name of the other
party. The party seeking indemnification shall in no case
confess any claim or make any compromise in any case in which
the other party may be required to indemnify it except with
the other party's prior written consent.
7. Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of
this Agreement.
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
PAGE 34
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;
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 As applicable, specimens of all forms of
outstanding and new stock/share certificates in the
forms approved by the Board of Directors/Trustees
of the Fund with a certificate of the Secretary of
the Fund as to such approval;
o All account application forms and other documents
relating to Shareholders' accounts;
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PAGE 35
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;
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;
<PAGE>
PAGE 36
o Certified copies of each vote of the Board of
Directors/Trustees authorizing officers to give
instructions to the Transfer Agent;
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 approval
of Price Services, excepting solely such printed matter that merely
identifies Price Services as agent of the Fund. The Fund will
submit printed matter requiring approval to Price Services in draft
form, allowing sufficient time for review by Price Services and its
legal counsel prior to any deadline for printing.
<PAGE>
PAGE 37
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.
L. As Of Transactions
For purposes of this Article L, the term "Transaction" shall
mean any single or "related transaction" (as defined below)
PAGE 38
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>
PAGE 39
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.
<PAGE>
PAGE 40
2. Where a transaction causes dilution to a Fund
greater than $25,000 and less than $100,000 ("Significant
Transaction"), Price Services will review with Counsel to
the Fund the circumstances surrounding the underlying
transaction to determine whether the transaction was
caused by or occurred as a result of a negligent act or
omission by Price Services. If it is determined that the
dilution is the result of a negligent action or omission
by Price Services, Price Services and outside counsel for
the Fund will negotiate settlement. All such Significant
Transactions will be reported to the Audit Committee at
its annual meeting (unless the settlement fully
compensates the Fund for any dilution). Any "as of"
transaction, however, causing dilution in excess of the
lesser of $100,000 or a penny per share will be promptly
reported to the Board and resolved at the next scheduled
Board Meeting. Settlement for "as of" transactions
causing dilution of $100,000 or more will not be entered
into 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:
<PAGE>
PAGE 41
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;
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.
3. In determining Price Services' liability with respect to
a Significant Transaction, an isolated error or omission
will normally not be deemed to constitute negligence when
it is determined that:
o Price Services had in place "appropriate
procedures".
<PAGE>
PAGE 42
o the employee(s) responsible for the error or
omission had been reasonably trained and were being
appropriately monitored; and
o the error or omission did not result from wanton or
reckless conduct on the part of the employee(s).
It is understood that Price Services is not obligated to
have in place separate procedures to prevent each and
every conceivable type of error or omission. The term
"appropriate procedures" shall mean procedures reasonably
designed to prevent and detect errors and omissions. In
determining the reasonableness of such procedures, weight
will be given to such factors as are appropriate,
including the prior occurrence of any similar errors or
omissions when such procedures were in place and transfer
agent industry standards in place at the time of the
occurrence.
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.
<PAGE>
PAGE 43
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 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.
<PAGE>
PAGE 44
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.
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.
PAGE 45
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 of the
Fund shall be personally liable hereunder.
<PAGE>
PAGE 46
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>
PAGE 47
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf under
their seals by and through their duly authorized officers.
T. ROWE PRICE SERVICES, INC. T. ROWE PRICE FUNDS
/s/James S. Riepe /s/Carmen F. Deyesu
BY: ________________________ BY: ________________________
DATED: _____________________ DATED: _____________________
<PAGE>
PAGE 48
APPENDIX A
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND
T. ROWE PRICE CALIFORNIA TAX-FREE
INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
<PAGE>
PAGE 49
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
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 SHORT-TERM U.S. GOVERNMENT FUND, INC.
PAGE 50
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-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
T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of the:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. on behalf of the:
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
<PAGE>
PAGE 51
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, 1997,
between T. Rowe Price Services, Inc., and each of the Parties
listed on Appendix A thereto is hereby amended, as of February 4,
1997, by adding thereto Reserve Investment Funds, Inc., on behalf
of Government Reserve Investment Fund and Reserve Investment Fund.
RESERVE INVESTMENT FUNDS, INC.
Government Reserve Investment Fund
Reserve Investment Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
PAGE 52
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
PAGE 53
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE OTC FUND, INC., now known as T.
ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. Rowe Price OTC Fund, now known as T. Rowe
Price Small-Cap Stock Fund
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 SHORT-TERM U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-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.
<PAGE>
PAGE 54
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
T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of
the:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. on
behalf of the:
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
Attest:
/s/Patricia S. Butcher /s/Carmen F. Deyesu
______________________ ______________________________
Patricia S. Butcher, By: Carmen F. Deyesu
Assistant Secretary Treasurer
Attest: T. ROWE PRICE SERVICES, INC.
/s/Barbara A. Van Horn /s/Henry H. Hopkins
______________________ ______________________________
Barbara A. Van Horn, By: Henry H. Hopkins,
Assistant Secretary Vice President
<PAGE>
PAGE 55
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, 1997,
as amended February 4, 1997, between T. Rowe Price Services, Inc.
and each of the Parties listed on Appendix A thereto is hereby
further amended, as of April 24, 1997, by adding thereto the
T. Rowe Price Tax-Efficient Balanced Fund, Inc. and T. Rowe Price
Diversified Small-Cap Growth Fund, Inc.
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME
TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH
FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
<PAGE>
PAGE 56
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced
Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
PAGE 57
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
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 SHORT-TERM U.S. GOVERNMENT
FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EFFICIENT BALANCED FUND,
INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
PAGE 58
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
T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of
the:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. on
behalf of the:
T. Rowe Price Summit Municipal Money Market
Fund
T. Rowe Price Summit Municipal Intermediate
Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
Attest:
/s/Patricia S. Butcher /s/Carmen F. Deyesu
______________________ ______________________________
Patricia S. Butcher, By: Carmen F. Deyesu
Assistant Secretary Treasurer
Attest: T. ROWE PRICE SERVICES, INC.
/s/Barbara A. Van Horn /s/Henry H. Hopkins
______________________ ______________________________
Barbara A. Van Horn, By: Henry H. Hopkins,
Assistant Secretary Vice President
The Agreement between T. Rowe Price Associates, Inc. and
T. Rowe Price Funds for Fund Accounting Services, dated January
1, 1997, 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>
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
Associates . . . . . . . . . . . . . . . . . . . . . . .3
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 . . . . . . . . . . . . . . . . . .6
Article I Documentation. . . . . . . . . . . . . . . . . . .6
Article J Recordkeeping/Confidentiality. . . . . . . . . . .6
Article K Compliance with Governmental Rules and
Regulations. . . . . . . . . . . . . . . . . . . . . . .7
Article L Terms and Termination of Agreement . . . . . . . .7
Article M Notice . . . . . . . . . . . . . . . . . . . . . .7
Article N Assignment . . . . . . . . . . . . . . . . . . . .7
Article O Amendment/Interpretive Provisions. . . . . . . . .8
Article P Further Assurances . . . . . . . . . . . . . . . .8
Article Q Maryland Law to Apply. . . . . . . . . . . . . . .8
Article R Merger of Agreement. . . . . . . . . . . . . . . .8
Article S Counterparts . . . . . . . . . . . . . . . . . . .8
Article T The Parties. . . . . . . . . . . . . . . . . . . .8
Article U Directors, Trustee and Shareholders and
Massachusetts Business Trust . . . . . . . . . . . . . .9
PAGE 3
Article V Captions . . . . . . . . . . . . . . . . . . . . .9
<PAGE>
PAGE 4
AGREEMENT made as of the first day of January, 1997, by and
between T. ROWE PRICE ASSOCIATES, INC., a Maryland corporation
having its principal office and place of business at 100 East Pratt
Street, Baltimore, Maryland 21202 ("Price Associates"), and each
Fund which is listed on Appendix A (as such Appendix may be amended
from time to time) and which evidences its agreement to be bound
hereby by executing a copy of this Agreement (each such Fund
individually hereinafter referred to as "the Fund", whose
definition may be found in Article T);
WHEREAS, Price Associates has the capability of providing the
Funds with certain accounting services ("Accounting Services");
WHEREAS, the Fund desires to appoint Price Associates to
provide these Accounting Services and Price Associates desires to
accept such appointment;
WHEREAS, the Board of Directors of the Fund has authorized the
Fund to utilize various pricing services for the purpose of
providing to Price Associates securities prices for the calculation
of the Fund's net asset value.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:<PAGE>
PAGE 5
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;
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<PAGE>
PAGE 6
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. Authorize the payment of Fund expenses, either through
instruction of custodial bank or utilization of
custodian's automated transfer system;
g. Prepare for each Fund such financial information that is
reasonably necessary for shareholder reports, reports to
the Board of Directors and to the officers of the Fund,
and reports to the Securities and Exchange Commission,
the Internal Revenue Service and other Federal and state
regulatory agencies;
h. 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;
i. 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
j. Cooperate with each Fund's independent public accountants
and take all reasonable action in the performance of its
PAGE 7
obligations under the Agreement to assure that the
necessary information is made available to such
accountants for the expression of their opinion without
any qualification as to the scope of their examination
including, but not limited to, their opinion included in
each such Fund's annual report on Form N-SAR and annual
amendment to Form N-1A.
B. Fees and Out-of-Pocket Expenses
Each Fund shall pay to Price Associates for its Accounting
Services hereunder, fees as set forth in the Schedule attached
hereto. In addition, each Fund will reimburse Price Associates for
out-of-pocket expenses such as postage, printed forms, voice and
data transmissions, record retention, disaster recovery, third
party vendors, equipment leases and other similar items as may be
agreed upon between Price Associates and the Fund. Some invoices
will contain costs for both the Funds and other funds 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.
PAGE 8
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.
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:
PAGE 9
1. Where a Pricing Error results in loss or dilution to a
Fund of less than $10,000, the determination of liability for the
error will be made by Price Associates. Where a Pricing Error
results in loss or dilution to a Fund of $10,000 or more but less
than $100,000, liability for the error will be resolved through
negotiations between Fund Counsel and Price Associates. Where a
Pricing Error results in loss or dilution to a Fund of the lesser
of 1/2 of 1% of NAV or $100,000 or more, the error will be promptly
reported to the Board of Directors of the Fund (unless the Fund is
fully compensated for the loss or dilution), provided that final
settlement with respect to such errors will not be made until
approved by the Board of Directors of the Fund. A summary of all
Pricing Errors and their effect on the Funds will be reported to
the Funds Audit Committee on an annual basis. In determining the
liability of Price Associates for a Pricing Error, an error or
omission will not be deemed to constitute negligence when it is
determined that:
o Price Associates had in place "appropriate procedures and
an adequate system of internal controls;"
o the employee responsible for the error or omission had
been reasonably trained and was being appropriately
monitored; and
o the error or omission did not result from wanton or
reckless conduct on the part of the employee.
It is understood that Price Associates is not obligated to
have in place separate procedures to prevent each and every
conceivable type of error or omission. The term "appropriate
procedures and adequate system of internal controls" shall
PAGE 10
mean procedures and controls reasonably designed to prevent
and detect errors and omissions. In determining the
reasonableness of such procedures and controls, weight will be
given to such factors as are appropriate, including the prior
occurrence of any similar errors or omissions, when such
procedures and controls were in place and fund accounting
industry standards in place at the time of the error.
2. The Fund shall indemnify and hold Price Associates
harmless from and against all losses, costs, damages, claims,
actions, and expenses, including reasonable expenses for legal
counsel, incurred by Price Associates resulting from: (i) any
action or omission by Price Associates or its agents or
subcontractors in the performance of their duties hereunder; (ii)
Price Associates acting upon instructions believed by it to have
been executed by a duly authorized officer of the Fund; or (iii)
Price Associates acting upon information provided by the Fund in
form and under policies 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
PAGE 11
exercise reasonable care in selecting or monitoring the performance
of its agents or subcontractors. The Fund shall not be entitled to
such indemnification with respect to actions or omissions
constituting negligence or willful misconduct of such Fund or its
agents or subcontractors; unless such negligence or misconduct is
attributable to Price Associates.
4. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of
God, strikes or other causes reasonably beyond its control, such
party shall not be liable to the other party for any loss, cost,
damage, claim, action or expense resulting from such failure to
perform or otherwise from such causes.
5. In order that the indemnification provisions contained in
this Article G shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party
seeking indemnification shall promptly notify the other party of
such assertion, and shall keep the other party advised with respect
to all developments concerning such claim. The party who may be
required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim, or to
defend against said claim in its own name or in the name of the
other party. The party seeking indemnification shall in no case
confess any claim or make any compromise in any case in which the
other party may be required to indemnify it except with the other
party's prior written consent.
6. Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this
Agreement.
PAGE 12
H. Dual Interests
It is understood that some person or persons may be directors,
officers, or shareholders of both the Fund and Price Associates
(including Price Associates' affiliates), and that the existence of
any such dual interest shall not affect the validity of this
Agreement or of any transactions hereunder except as otherwise
provided by a specific provision of applicable law.
I. Documentation
As requested by Price Associates, the Fund shall promptly
furnish to Price Associates such documents as it may reasonably
request and as are necessary for Price Associates to carry out its
responsibilities hereunder.
J. Recordkeeping/Confidentiality
1. Price Associates shall keep records relating to the
services to be performed hereunder, in the form and manner as it
may deem advisable, provided that Price Associates shall keep all
records in such form and in such manner as required by applicable
law, including the Investment Company Act of 1940 ("the Act") and
the Securities Exchange Act of 1934 ("the '34 Act").
2. Price Associates and the Fund agree that all books,
records, information and data pertaining to the business of the
other party which are exchanged or received pursuant to the
negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other
person, except: (a) after prior notification to and approval in
writing by the other party hereto, which approval shall not be
unreasonably withheld and may not be withheld where Price
Associates or Fund may be exposed to civil or criminal contempt
PAGE 13
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.
K. Compliance With Governmental Rules and Regulations
Except as otherwise provided in the Agreement and except for
the accuracy of information furnished to the Funds by Price
Associates, each Fund assumes full responsibility for the
preparation, contents and distribution of its prospectuses, and for
complying with all applicable requirements of the Act, the '34 Act,
the Securities Act of 1933 (the "33 Act"), and any laws, rules and
regulations of governmental authorities having jurisdiction over
the Funds.
L. Term and Termination of Agreement
1. This Agreement shall run for a period of one (1) year
from the date first written above and will be renewed from year to
year thereafter unless terminated by either party as provided
hereunder.
2. This Agreement may be terminated by the Fund upon sixty
(60) days' written notice to Price Associates; and by Price
Associates, upon three hundred sixty-five (365) days' writing
notice to the Fund.
3. Upon termination hereof, the Fund shall pay to Price
Associates such compensation as may be due as of the date of such
termination, and shall likewise reimburse for out-of-pocket
expenses related to its services hereunder.
M. Notice
Any notice as required by this Agreement shall be sufficiently
given (i) when sent to an authorized person of the other party at
PAGE 14
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>
PAGE 15
P. Further Assurances
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes
hereof.
Q. Maryland Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of Maryland.
R. Merger of Agreement
This Agreement, including the attached Appendix and Schedule
supersedes any prior agreement with respect to the subject hereof,
whether oral or written.
S. Counterparts
This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instruments.
T. The Parties
All references herein to "the Fund" are to each of the Funds
listed on Appendix A individually, as if this Agreement were
between such individual Fund and Price Associates. In the case of
a series Fund or trust, all references to "the Fund" are to the
individual series or portfolio of such Fund or trust, or to such
Fund or trust on behalf of the individual series or portfolio, as
appropriate. The "Fund" also includes any T. Rowe Price Funds
which may be established after the execution of this Agreement.
Any reference in this Agreement to "the parties" shall mean Price
PAGE 16
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>
PAGE 17
V. Captions
The captions in the Agreement are included for convenience of
reference only and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf under
their seals by and through their duly authorized officers.
T. ROWE PRICE ASSOCIATES, INC. T. ROWE PRICE FUNDS
/s/Alvin M. Younger /s/Carmen F. Deyesu
BY:_____________________ BY:_____________________
DATED:__________________ DATED:__________________
<PAGE>
PAGE 18
APPENDIX A
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE
INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
<PAGE>
PAGE 19
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
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 SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
<PAGE>
PAGE 20
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-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
T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of the:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. on
behalf of the:
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
<PAGE>
PAGE 21
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, 1997,
between T. Rowe Price Associates, Inc. and each of the Parties
listed on Appendix A thereto is hereby amended, as of February 4,
1997, by adding thereto Reserve Investment Funds, Inc., on behalf
of Government Reserve Investment Fund and Reserve Investment Fund.
RESERVE INVESTMENT FUNDS, INC.
Government Reserve Investment Fund
Reserve Investment Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
PAGE 22
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE OTC FUND, INC., now known as T. ROWE
PRICE SMALL-CAP STOCK FUND, INC.
T. Rowe Price OTC Fund, now known as T. Rowe Price
Small-Cap Stock Fund
<PAGE>
PAGE 23
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 SHORT-TERM U.S. GOVERNMENT FUND,
INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-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
T. ROWE PRICE SUMMIT FUNDS, INC., on behalf of
the:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
PAGE 24
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC., on
behalf of the:
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
Attest:
/s/Patricia S. Butcher /s/Carmen F. Deyesu
________________________ ___________________________________
Patricia S. Butcher, By: Carmen F. Deyesu
Assistant Secretary Treasurer
Attest: T. ROWE PRICE ASSOCIATES, INC.
/s/Barbara A. Van Horn /s/Henry H. Hopkins
________________________ ___________________________________
Barbara A. Van Horn, By: Henry H. Hopkins,
Assistant Secretary Managing Director
<PAGE>
PAGE 25
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, 1997,
as amended February 4, 1997, between T. Rowe Price Associates, Inc.
and each of the Parties listed on Appendix A thereto is hereby
further amended, as of April 24, 1997, by adding thereto the T.
Rowe Price Tax-Efficient Balanced Fund, Inc. and T. Rowe Price
Diversified Small-Cap Growth Fund, Inc.
RESERVE INVESTMENT FUNDS, INC.
Government Reserve Investment Fund
Reserve Investment Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND,
INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
PAGE 26
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE OTC FUND, INC.
T. Rowe Price OTC Fund
PAGE 27
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 SHORT-TERM U.S. GOVERNMENT FUND,
INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.
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>
PAGE 28
T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of the:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. on
behalf of the:
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
Attest:
/s/Patricia S. Butcher /s/Carmen F. Deyesu
________________________ ___________________________________
Patricia S. Butcher, By: Carmen F. Deyesu
Assistant Secretary Treasurer
Attest: T. ROWE PRICE ASSOCIATES, INC.
/s/Barbara A. Van Horn /s/Henry H. Hopkins
________________________ ___________________________________
Barbara A. Van Horn, By: Henry H. Hopkins,
Assistant Secretary Managing Director
June 19, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: T. Rowe Price California Tax-Free Income Trust
("Registrant")--consisting of two separate series
California Tax-Free Bond Fund ("Bond Fund")
California Tax-Free Money Fund ("Money Fund")
File Nos.: 33-08093/811-4525
Commissioners:
We are counsel to the above-referenced registrant which
proposes to file, pursuant to paragraph (b) of Rule 485 (the
"Rule"), Post-Effective Amendment No. 19 (the "Amendment") to its
registration statement under the Securities Act of 1933, as
amended.
Pursuant to paragraph (b)(4) of the Rule, we represent that
the Amendment does not contain disclosures which would render it
ineligible to become effective pursuant to paragraph (b) of the
Rule.
Very truly yours,
/s/Shereff, Friedman, Hoffman & Goodman, LLP
Shereff, Friedman, Hoffman & Goodman, LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
T. Rowe Price California Tax-Free Income Trust
We consent to the incorporation by reference in Post-
Effective Amendment No. 19 to the Registration Statement of
T. Rowe Price California Tax-Free Income Trust (the "Trust") on
Form N-1A (File No. 33-08093O) of our report dated March 19,
1997, on our audits of the financial statements and financial
highlights of the California Tax-Free Money Fund and California
Tax-Free Bond Fund (two of the portfolios included in the Trust),
which report is included in the Annual Report to Shareholders for
the year ended February 28, 1997, which is incorporated by
reference in the Registration Statement. We also consent to the
reference to our Firm under the captions "Financial Highlights"
in the Prospectus and "Independent Accountants" in the Statement
of Additional Information.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
June 18, 1997
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<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 149922
<INVESTMENTS-AT-VALUE> 158722
<RECEIVABLES> 2457
<ASSETS-OTHER> 51
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 161230
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 417
<TOTAL-LIABILITIES> 417
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<SHARES-COMMON-STOCK> 15364
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<OVERDISTRIBUTION-GAINS> 1168
<ACCUM-APPREC-OR-DEPREC> 8800
<NET-ASSETS> 160813
<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 924
<NET-INVESTMENT-INCOME> 7940
<REALIZED-GAINS-CURRENT> 39
<APPREC-INCREASE-CURRENT> 323
<NET-CHANGE-FROM-OPS> 8302
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7940
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3166
<NUMBER-OF-SHARES-REDEEMED> 2328
<SHARES-REINVESTED> 535
<NET-CHANGE-IN-ASSETS> 14619
<ACCUMULATED-NII-PRIOR> 5
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1200
<GROSS-ADVISORY-FEES> 644
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<GROSS-EXPENSE> 924
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<PER-SHARE-NAV-BEGIN> 10.45
<PER-SHARE-NII> 0.55
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<NAME> T ROWE PRICE CALIFORNIA TAX-FREE MONEY FUND
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PAGE 1
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
POWER OF ATTORNEY
RESOLVED, that the Trust and each of its trustees do hereby
constitute and authorize, William T. Reynolds, Joel H. Goldberg,
and Henry H. Hopkins, and each of them individually, their true
and lawful attorneys and agents to take any and all action and
execute any and all instruments which said attorneys and agents
may deem necessary or advisable to enable the Trust to comply
with the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and any rules, regulations,
orders or other requirements of the United States Securities and
Exchange Commission thereunder, in connection with the
registration under the Securities Act of 1933, as amended, of
shares of the Trust, to be offered by the Trust, and the
registration of the Trust under the Investment Company Act of
1940, as amended, including specifically, but without limitation
of the foregoing, power and authority to sign the name of the
Trust on its behalf, and to sign the names of each of such
trustees and officers on his behalf as such trustee or officer to
any amendment or supplement (including Post-Effective Amendments)
to the Registration Statement on Form N-1A of the Trust filed
with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, and the Registration Statement on Form
N-1A of the Trust under the Investment Company Act of 1940, as
amended, and to any instruments or documents filed or to be filed
as a part of or in connection with such Registration Statement.
PAGE 2
IN WITNESS WHEREOF, the Trust has caused these presents to
be signed by its Chairman of the Board and the same attested by
its Secretary, each thereunto duly authorized by its Board of
Trustees, and each of the undersigned has hereunto set his hand
and seal as of the day set opposite his name.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
/s/William T. Reynolds
By:______________________________
William T. Reynolds, Chairman
of the Board
April 24, 1997
Attest:
/s/Lenora V. Hornung
____________________________
Lenora V. Hornung, Secretary
(Signatures Continued)
PAGE 3
/s/William T. Reynolds Chairman of the
_________________________ Board (Principal April 24, 1997
William T. Reynolds Executive Officer)
/s/Mary J. Miller
_________________________ President April 24, 1997
Mary J. Miller
/s/Carmen F. Deyesu Treasurer (Principal
_________________________ Financial Officer) April 24, 1997
Carmen F. Deyesu
/s/Robert P. Black
_________________________ Trustee April 24, 1997
Robert P. Black
/s/Calvin W. Burnett
_________________________ Trustee April 24, 1997
Calvin W. Burnett
/s/Anthony W. Deering
_________________________ Trustee April 24, 1997
Anthony W. Deering
/s/F. Pierce Linaweaver
_________________________ Trustee April 24, 1997
F. Pierce Linaweaver
/s/James S. Riepe
_________________________ Vice President April 24, 1997
James S. Riepe and Trustee
/s/John G. Schreiber
_________________________ Trustee April 24, 1997
John G. Schreiber
/s/M. David Testa
_________________________ Trustee April 24, 1997
M. David Testa
