<PAGE>
Coregistrants filing on behalf of:
Registration Nos. 033-50319/811-7093
Registration Nos. 033-50321/811-07095
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 7 /X/
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 7 /X/
T. ROWE PRICE SUMMIT FUNDS, INC.
--------------------------------
Exact Name of Registrant as Specified in Charter
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 6 /X/
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 7 /X/
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
------------------------------------------
Exact Name of Registrant as Specified in Charter
100 East Pratt Street, Baltimore, Maryland 21202
------------------------------------------------
Address of Principal Executive Offices
410-345-2000
------------
Registrant's Telephone Number, Including Area Code
Henry H. Hopkins
100 East Pratt Street, Baltimore, Maryland 21202
------------------------------------------------
Name and Address of Agent for Service
Approximate Date of Proposed Public Offering March 1, 1999
-------------
It is proposed that this filing will become effective (check
appropriate box):
<PAGE>
/ / Immediately upon filing pursuant to paragraph (b)
/ / On (date), pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/X/ On March 1, 1999, pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
<PAGE>
PROSPECTUS
March 1, 1999
Summit Income Funds
Money market, corporate bond, and government mortgage funds for investors
seeking income.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
T. Rowe Price Summit Funds, Inc.
Prospectus
March 1, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 ABOUT THE FUNDS
Fund, Market, and Risk Characteristics
---------------------------------------------
Other Information About the Funds
---------------------------------------------
Some Basics of Fixed Income Investing
---------------------------------------------
2 ABOUT YOUR ACCOUNT
Pricing Shares and Receiving
Sale Proceeds
---------------------------------------------
Distributions and Taxes
---------------------------------------------
Transaction Procedures and
Special Requirements
---------------------------------------------
3 MORE ABOUT THE FUNDS
Organization and Management
---------------------------------------------
Understanding Performance Information
---------------------------------------------
Investment Policies and Practices
---------------------------------------------
Financial Highlights
---------------------------------------------
4 INVESTING WITH T. ROWE PRICE
Account Requirements
and Transaction Information
---------------------------------------------
Opening a New Account
---------------------------------------------
Purchasing Additional Shares
---------------------------------------------
Exchanging and Redeeming
---------------------------------------------
Rights Reserved by the Funds
---------------------------------------------
Information About Your Services
---------------------------------------------
Discount Brokerage
---------------------------------------------
Investment Information
---------------------------------------------
</TABLE>
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed over $141 billion for more than six million
individual and institutional investor accounts as of December 31, 1998.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve
Board, or any other government agency, and are subject to investment risks,
including possible loss of the principal amount invested.
<PAGE>
ABOUT THE FUNDS 1
FUND, MARKET, AND RISK CHARACTERISTICS: WHAT TO EXPECT
----------------------------------------------------------
To help you decide whether these funds are appropriate for you, this section
reviews their investment objectives, strategies, and potential risks.
What is each fund's objective?
Cash Reserves Fund The fund seeks preservation of capital and liquidity,
and, consistent with these, the highest possible current income.
Limited-Term Bond Fund The fund seeks a high level of income consistent with
moderate fluctuations in principal value.
GNMA Fund The fund seeks a high level of income and maximum credit
protection by investing at least 65% of total assets in GNMA securities
backed by the full faith and credit of the U.S. government.
What is each fund's principal investment strategy?
Cash Reserves Fund The fund, which is managed to provide a stable share
price of $1.00, invests in high-quality, U.S. dollar-denominated money market
securities. The fund's weighted average maturity will not exceed 90 days, and
its yield will fluctuate with changes in short-term interest rates.
In selecting securities, fund managers may examine the relationships among
yields on various types and maturities of money market securities in the
context of their outlook for interest rates. For example, commercial paper
often offers a yield advantage over Treasury bills. And if rates are expected
to fall, longer-maturities, which typically have higher yields than shorter
maturities, may be purchased to try to preserve the fund's income level.
Conversely, shorter maturities may be favored if rates are expected to rise.
Limited-Term Bond Fund We will invest at least 65% of total assets in short-
and intermediate-term bonds. There are no maturity limitations on individual
securities purchased, but the fund's weighted average effective maturity
(discussed later in this section) will not exceed five years. Targeting
effective maturity provides additional flexibility in portfolio management.
At least 90% of the fund's portfolio will consist of investment-grade
securities rated in the four highest credit categories (AAA, AA, A, BBB) by
at least one national rating agency or, if unrated, have received the T. Rowe
Price equivalent. In an effort to enhance yield, up to 10% of assets can be
invested in below-investment-grade securities, commonly referred to as "junk"
bonds, including those with the lowest rating. The fund's income level should
be higher than the money fund's, but its share price will vary.
<PAGE>
T. ROWE PRICE 2
Within this broad structure, investment decisions reflect the manager's
outlook for interest rates and the economy as well as the prices and yields
of the various securities. For example, if rates are expected to fall, the
manager may seek longer-term securities (within the fund's program) that
would provide higher yields and appreciation potential. And if, for instance,
the economic outlook is positive, the manager may take advantage of the 10%
"basket" for noninvestment-grade bonds.
GNMA Fund We will invest at least 65% of total assets in mortgage-backed
securities issued by the Government National Mortgage Association (GNMA), an
agency of the Department of Housing and Urban Development. These securities
represent "pools" of mortgage loans that are either guaranteed by the Federal
Housing Administration or the Veterans Administration. Mortgage lenders pool
individual home mortgages to back a certificate or bond, which is then sold
to investors. Interest and principal payments from the underlying mortgages
are passed through to investors.
GNMA guarantees the timely payment of interest and principal on its
securities, a guarantee backed by the U.S. Treasury. GNMAs generally offer
higher yields than Treasuries of similar maturity, for reasons explained in
the next section. The GNMA guarantee does not apply in any way to the price
of GNMA securities or the fund's share price, both of which will fluctuate
with market conditions.
Up to 35% of assets can be invested in other types of high-quality securities
(AAA or AA) that are not guaranteed by the U.S. government, such as privately
issued mortgage securities and corporate bonds. The fund's effective maturity
generally will vary between three and 12 years and will be influenced by
principal prepayments of GNMA and other mortgage-backed securities.
In selecting securities, fund managers may weigh the characteristics of
various types of mortgage securities and examine yield relationships in the
context of their outlook for interest rates and the economy. For example, if
rates are expected to fall, mortgage securities that should have
below-average prepayment rates may be purchased and assets may also be
allocated to Treasury notes or bonds, which may appreciate in that
environment.
<TABLE>
Table 1 Differences Among Funds
<CAPTION>
<S> <C> <C> <C> <C> <C>
Credit-Quality Expected Share Expected Average
Fund Categories Income Price Fluctuation Maturity
Cash Reserves Two highest Lowest Stable 90 days or less
------------------------------------------------------------------------
Limited-Term Bond Primarily four highest Moderate Moderate 1 to 5 years
------------------------------------------------------------------------
GNMA Two highest Highest Higher 3 to 12 years
-------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ABOUT THE FUNDS 3
o For details about each fund's investment program, please see the Investment
Policies and Practices section.
What are the main risks of investing in the funds?
Cash Reserves Fund
Since money market funds are managed to maintain a constant $1.00 share
price, they should have little risk of principal loss. However, there is no
assurance the fund will avoid principal losses if fund holdings default or
interest rates rise sharply in an unusually short period. In addition, the
fund's yield will vary; it is not fixed for a specific period like the yield
on a bank certificate of deposit. This should be an advantage when interest
rates are rising but not when rates are falling. An investment in the fund is
not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC)
or any other government agency. Although the fund seeks to preserve the value
of your investment at $1.00 per share, it is possible to lose money by
investing in the fund. Additionally, there is no guarantee that the fund's
return will equal or exceed the rate of inflation.
GNMA and Limited-Term Bond Funds
Interest rate risk This is the decline in bond prices that accompanies a
rise in the overall level of interest rates, as shown in Table 4 in this
section. This is the major source of risk for investors in these funds.
However, because short-term bond funds are less sensitive to interest rate
increases or decreases than longer-term bond funds, price volatility for the
Limited-Term Bond Fund is expected to be relatively modest. However, by
targeting effective maturity, the fund could experience greater volatility
than if it focused on a stated maturity or maturity range. Interest rate risk
will be greater for the GNMA Fund to the extent the portfolio is expanded
through purchases in the forward market.
Credit risk This is the chance that any of the funds' holdings will have its
credit rating downgraded or will default (fail to make scheduled interest or
principal payments), potentially reducing the fund's income level and share
price. While the Limited-Term Bond Fund emphasizes high-quality securities,
its medium-quality securities are more susceptible to adverse economic
conditions. The fund's investments in junk bonds should be regarded as
speculative, and possibly some BBB holdings as well.The GNMA Fund's exposure
to credit risk is significantly less since the fund invests primarily in
GNMAs, which are backed by the full faith and credit of the U.S. government.
The remaining 35% of assets are high quality but not necessarily government
backed.
o The Limited-Term Bond and GNMA Funds may continue to hold a security that
has been downgraded after purchase.
<PAGE>
T. ROWE PRICE 4
. Prepayment risk and extension risk Because each fund can invest extensively
in mortgage-backed securities, it has special risks related to changing
interest rates. These risks should generally be more pronounced for the GNMA
Fund. A mortgage-backed bond, unlike most other bonds, can be hurt when
interest rates fall, because homeowners tend to refinance and prepay
principal. The loss of high-yielding underlying mortgages and the
reinvestment of proceeds at lower interest rates can reduce the bond's
potential price gain in response to falling interest rates, can reduce the
bond's yield, or even cause the bond's price to fall below what an investor
paid for it, resulting in a capital loss. Any of these developments could
cause a decrease in the fund's income, share price, or total return.
Extension risk occurs when rising interest rates decrease prepayments,
causing a fund's average maturity to lengthen unexpectedly. This would
increase the fund's sensitivity to rising rates and its potential for price
declines.
. Derivatives risk Shareholders are also exposed to the possibility that our
investments in these complex and volatile instruments could affect each
fund's share price.
In addition to collateralized mortgage obligations (CMOs) and better-known
instruments such as futures and options, other derivatives used in limited
fashion by the funds include interest-only (IO) and principal-only (PO)
securities known as "strips." The value of these instruments is derived from
underlying securities such as mortgage-backed bonds. All these instruments
can be highly volatile, and their value can fall dramatically in response to
rapid or unexpected changes in the mortgage or interest rate environment.
Cash Reserves and Limited-Term Bond Funds
. Foreign investing risk There are special risks associated with investments
in foreign securities whether denominated in U.S. dollars or foreign
currencies. These risks include potentially adverse political and economic
developments overseas, greater volatility, lower liquidity, and the
possibility that foreign currencies will decline against the dollar, lowering
the value of securities denominated in those currencies and possibly the
fund's share price. Currency risk affects each fund to the extent that it
holds nondollar foreign bonds.
As with any mutual fund, there can be no guarantee the funds will achieve
their objectives.
o Each fund's share price may decline, so when you sell your shares, you may
lose money.
<PAGE>
ABOUT THE FUNDS 5
How can I tell which fund is most appropriate for me?
Consider your investment goals, your time horizon for achieving them, and
your tolerance for risk. These funds may be appropriate for you if you seek
higher yields for the fixed income portion of your portfolio and can meet the
funds' $25,000 initial purchase requirement. Use the table entitled
Differences Among Funds, which summarizes each fund's main characteristics,
to help choose a fund (or funds) for your particular needs. For example, only
the money fund is designed to provide principal stability, which makes it a
good choice for you if the stability and accessibility of your investment are
more important than the opportunity for higher income or total return.
However, if you are investing for the highest possible income and can
tolerate some price fluctuation, you should consider a longer-term bond fund.
The funds may be used for both regular and tax-deferred accounts, such as
IRAs.
o The bond funds should not represent your complete investment program or be
used for short-term trading purposes.
How has each fund performed in the past?
The bar chart shows each fund's actual performance for each of the last 10
calendar years (or since inception for funds lacking 10-year records). This
chart and the average annual total return table indicate risk by illustrating
how much returns can differ from one year to the next. Each fund's past
performance is no guarantee of its future returns.
The funds can also experience short-term performance swings, as shown in the
following tables by the best and worst calendar quarter returns during the
years depicted in the charts.
<TABLE>
SUMMIT Cash Reserves Fund
Calendar Year Total
Returns
<CAPTION>
<S> <C>
1989 0
1990 0
1991 0
1992 0
1993 0
1994 4.02%
1995 5.71
1996 5.17
1997 5.34
1998 ____
--------------------------
</TABLE>
Quarter ended Total return
Best quarter _____ _____
Worst quarter _____ _____
The fund's return for the six months ended December 31, 1998, was ____%.
<PAGE>
T. ROWE PRICE 6
<TABLE>
SUMMIT Limited-Term
Bond Fund Calendar Year
Total Returns
<CAPTION>
<S> <C>
1989 0
1990 0
1991 0
1992 0
1993 0
1994 -3.15%
1995 10.17
1996 3.91
1997 7.16
1998 ____
------------------------
</TABLE>
Quarter ended Total return
Best quarter _____ _____
Worst quarter _____ _____
The fund's return for the six months ended December 31, 1998, was ____%.
<TABLE>
SUMMIT GNMA Fund
Calendar Year Total
Returns
<CAPTION>
<S> <C>
1989 0
1990 0
1991 0
1992 0
1993 0
1994 -2.25%
1995 17.76
1996 3.36
1997 9.77
1998 ____
-------------------------
</TABLE>
Quarter ended Total return
Best quarter _____ _____
Worst quarter _____ _____
The fund's return for the six months ended December 31, 1998, was ____%.
<TABLE>
Table Average Annual Total Returns
<CAPTION>
Periods ended December 31, 1998
1 year 5 years Since inception Inception date
-------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Reserves Fund 10/29/93
Lipper Money Market
Funds Average
--------------------------------------------------
Limited-Term Bond
Fund 10/29/93
Merrill Lynch 1-5
Year Corporate/
Government Index
Lipper
Short-Intermediate
Investment Grade Debt
Funds Average
--------------------------------------------------
GNMA Fund 10/29/93
Salomon GNMA Index
Lipper GNMA Funds
Average
-------------------------------------------------------------------------------
</TABLE>
These figures include changes in principal value, reinvested dividends, and
capital gain distributions, if any.
<PAGE>
ABOUT THE FUNDS 7
What fees or expenses will I pay?
The funds are 100% no load. There are no fees or charges to buy or sell fund
shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
are no 12b-1 fees.
o Expense ratios for the Summit Funds are substantially below their industry
averages.
Each T. Rowe Price Summit Fund has a single, all-inclusive fee covering
investment management and operating expenses. This fee will not fluctuate. In
contrast, most mutual funds have a fixed management fee plus a fee for
operating expenses that varies according to a number of other factors.
<TABLE>
Table 3 Fees and Expenses of the Funds
<CAPTION>
Annual fund operating expenses
(expenses that are deducted from fund assets)
Total annual fund
Management fee /a/ Other expenses operating expenses /a/
<S> <C> <C> <C>
Cash Reserves 0.45% 0.00% 0.45%
Limited-Term Bond 0.55 0.00 0.55
GNMA 0.60 0.00 0.60
---------------------------------------------------------------------------------
</TABLE>
/a/ The management fee includes operating expenses.
Example. The following table gives you a rough idea of how expense ratios
may translate into dollars and helps you to compare the cost of investing in
these funds with the cost of investing in other funds. Although your actual
costs may be higher or lower, the table shows how much you would pay if you
invest $10,000, earn a 5% annual return, and hold the investment for the
following periods:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fund
Cash Reserves $46 $144 $252 $567
Limited-Term Bond 56 176 307 689
GNMA 61 192 335 750
-----------------------------------------------------------
</TABLE>
<PAGE>
T. ROWE PRICE 8
OTHER INFORMATION ABOUT THE FUNDS
----------------------------------------------------------
What are the funds' potential rewards?
. Cash Reserves Fund offers a relatively secure, liquid investment for money
you may need for occasional or unexpected expenses and for money awaiting
investment in longer-term bond or stock funds. In addition to preserving
capital, the fund seeks to provide the highest possible income available from
low-risk, short-term securities.
. Limited-Term Bond Fund's income level should generally be above that of a
money market fund, but less than that of a long-term bond fund. Its share
price should fluctuate less than a longer-term bond fund. The manager seeks
to adjust the fund's weighted average maturity or duration to increase total
returns when interest rates fall and to minimize the effects of rising rates.
. GNMA Fund's emphasis on mortgage-backed bonds is designed to offer higher
income than is available from U.S. Treasury securities without any decrease
in credit quality. In addition, when interest rates rise, GNMAs may have
better overall returns than Treasury and corporate issues, although they may
not do as well when rates decline.
How do the Summit Funds achieve their low-cost advantage?
The advantage reflects their more favorable ratio of expenses to assets. The
$25,000 initial purchase requirement means that the average account balance
in each Summit Fund is high. Since shareholder recordkeeping costs - a
substantial portion of fund expenses - are basically the same for all sizes
of accounts, a fund with larger account balances can spread the expenses over
more investment dollars, achieving a low overall expense ratio. Expenses are
deducted from fund assets before dividends are paid, so lower costs result in
higher dividends for Summit Fund shareholders.
How does the portfolio manager try to reduce risk?
Consistent with each fund's objective, the portfolio manager uses various
tools to try to reduce risk and increase total return, including:
. Diversification of assets to reduce the impact of a single holding on a
fund's net asset value.
. Thorough credit research by our own analysts.
. Adjustment of fund duration to try to reduce the drop in price when interest
rates rise or to benefit from the rise in price when rates fall. Duration is
a measure of a fund's sensitivity to interest rate changes.
Is there other information I can review before making a decision?
Investment Policies and Practices in Section 3 discusses the principal types
of portfolio securities the funds may purchase as well as types of management
practices the funds may use.
<PAGE>
ABOUT THE FUNDS 9
SOME BASICS OF FIXED INCOME INVESTING
----------------------------------------------------------
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 yield the same as 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 yield?
Credit quality refers to a bond issuer's expected ability to make all
required interest and principal payments on time. 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-quality securities.
What is meant by a bond fund's maturity?
Every bond has a stated maturity date when the issuer must repay the bond's
entire principal value to the investor. However, many bonds are "callable,"
meaning their principal can be repaid earlier, 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 that environment, a bond's "effective maturity" is
usually its nearest call date. For example, the rate at which homeowners pay
down their mortgage principal determines the effective maturity of
mortgage-backed bonds.
A bond mutual fund has no real maturity, but it does have a weighted 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 normally use the effective, rather than
stated, maturities of the bonds in the portfolio when computing the average.
This 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.
<PAGE>
T. ROWE PRICE 10
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 this
sensitivity 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
expressed in years - 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 share price by multiplying fund duration 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. (T. Rowe Price bond fund shareholder reports
show duration.)
How is a bond's price affected by changes in interest rates?
When interest rates rise, a bond's price usually falls, and vice versa. In
general, the longer a bond's maturity, the greater the price increase or
decrease in response to a given change in rates, as shown in Table 4.
<TABLE>
Table 4 How Interest Rates May Affect Bond Prices
<CAPTION>
Price per $1,000 of bond face value if interest rates:
Bond maturity Coupon Increase Decrease
1 point 2 points 1 point 2 points
<S> <C> <C> <C> <C> <C>
1 year 5.36% $990 $981 $1,010 $1,020
5 years 5.50 958 918 1,044 1,091
10 years 5.50 927 861 1,080 1,168
30 years 5.72 872 768 1,160 1,360
---------------------------------------------------------------------------------------------------------------
</TABLE>
The table reflects yields on Treasury securities as of July 31, 1998. The table
may not be as representative of price changes for other types of bonds,
including mortgage-backed securities which are subject to prepayments. This is
an illustration and does not represent expected yields or share price changes
of any T. Rowe Price fund.
Since the average effective maturity of bonds held by the Limited-Term Bond
Fund is expected to be no more than five years, the fund's share price, like
the value of the underlying bonds in its portfolio, should fluctuate less
than a fund that holds bonds with longer average effective maturities. If
mortgage prepayments should accelerate in a falling interest rate
environment, GNMA securities may appreciate less than shown in the example
above. The amount of appreciation would depend on the characteristics of the
mortgages, such as their coupon or maturity.
<PAGE>
ABOUT YOUR ACCOUNT 2
PRICING SHARES AND RECEIVING SALE PROCEEDS
----------------------------------------------------------
Here are some procedures you should know when investing in a T. Rowe Price
fund.
How and when shares are priced
Bond and money funds
The share price (also called "net asset value" or NAV per share) for the
funds is calculated at 4 p.m. ET each day the New York Stock Exchange is open
for business. To calculate the NAV, the fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. Current market values are used to price
fund shares. 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
and the information you receive about them may differ for institutional and
employer-sponsored retirement 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.
Fund shares may be purchased through various third-party intermediaries
including banks, brokers, and investment advisers. Where authorized by a
fund, orders will be priced at the NAV next computed after receipt by the
intermediary. Consult your intermediary to determine when your orders will be
priced. The intermediary may charge a fee for its services.
Note: The time at which transactions and shares are priced and the time until
which orders are accepted may be changed in case of an emergency or if the
New York Stock Exchange closes at a time other than 4 p.m. ET.
How you can receive the proceeds from a sale
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
<PAGE>
T. ROWE PRICE 12
sent by ACH transfer should be credited the second day after the sale. ACH is
an automated method of initiating payments from, and receiving payments in,
your financial institution account. The ACH system is supported by over
20,000 banks, savings banks, and credit unions. Proceeds sent by bank wire
should be credited to your account the next business day.
. Exception: Under certain circumstances and when deemed to be in each fund's
best interests, your proceeds may not be sent for up to five business days
after we receive your sale or exchange request. If you are exchanging into
another fund, your purchase order will be priced at that fund's NAV on the
fifth business day after the exchange. 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. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
Income dividends
. 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.
. Dividends are paid on the first business day of each month.
<PAGE>
ABOUT YOUR ACCOUNT 13
. 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.
. Money funds declare income dividends daily to shareholders of record as of
12 noon ET on that day. Wire purchase orders received before 12 noon ET
receive the dividend for that day. Other purchase orders receive the dividend
on the next business day after payment has been received.
Capital gains
o Since money funds are managed to maintain a constant share price, they are
not expected to make capital gain distributions.
. A capital gain or loss is the difference between the purchase and sale price
of a security.
. If a fund has net capital gains for the year (after subtracting any capital
losses), they are usually declared and paid in December to shareholders of
record on a specified date that month. 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.
You need to be aware of the possible tax consequences when:
. You sell fund shares, including an exchange from one fund to another.
. The fund makes a distribution to your account.
Taxes on fund redemptions
When you sell shares in any fund, you may realize a gain or loss. An exchange
from one fund to another is still a sale for tax purposes.
In January, you will be sent Form 1099-B indicating the date and amount of
each sale you made in the fund during the prior year. This information will
also be reported to the IRS. For new accounts or those opened by exchange in
1983 or later, we will provide the gain or loss on the shares you sold during
the year, based on the "average cost," single category method. This
information is not reported to the IRS, and you do not have to use it. You
may calculate the cost basis using other methods acceptable to the IRS, such
as "specific identification."
<PAGE>
T. ROWE PRICE 14
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
o The following summary does not apply to retirement accounts, such as IRAs,
which are not subject to current tax.
In January, you will be sent Form 1099-DIV indicating the tax status of any
dividend and capital gain distributions made to you. This information will
also be reported to the IRS. A fund's distributions are generally taxable to
you for the year in which they were paid. You will be sent any additional
information you need to determine your taxes on fund distributions, such as
the portion of your dividend, if any, that may be exempt from state income
taxes.
The tax treatment of a capital gain distribution is determined by how long
the fund held the portfolio securities, not how long you held shares in the
fund. Short-term (one year or less) capital gain distributions are taxable at
the same rate as ordinary income. Reflecting recent changes in the tax code,
gains on securities held more than 12 months are taxed at a maximum rate of
20%. If you realized a loss on the sale or exchange of fund shares which you
held six months or less, your short-term loss will be reclassified to a
long-term loss to the extent you received a long-term capital gain
distribution during the period you held the shares.
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 wish to find out a fund's record date before
investing. Of course, a fund's share price may, at any time, reflect
undistributed capital gains or income and unrealized appreciation, which may
result in future taxable distributions.
<PAGE>
ABOUT YOUR ACCOUNT 15
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 each fund or transfer agent, and the fund
can redeem shares you own in this or another identically registered T. Rowe
Price fund as reimbursement. Each fund and its agents have the right to
reject or cancel any purchase, exchange, or redemption due to nonpayment.
U.S. dollars
All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
banks.
Sale (Redemption) Conditions
Holds on immediate redemptions
10-day hold
If you sell shares that you just purchased and paid for by check or ACH
transfer, the funds 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 that states you do not want these services. Personal computer
transactions must be authorized separately. T. Rowe Price funds and their
agents use reasonable procedures (including shareholder identity
verification) to confirm that instructions given by telephone or computer are
genuine and they are not liable for acting on these instructions. If these
procedures are not followed, it is the opinion of certain regulatory agencies
that the funds and their agents may be liable for any losses that may result
from acting on the instructions given. A confirmation is sent promptly after
a transaction. All telephone conversations are recorded.
<PAGE>
T. ROWE PRICE 16
Redemptions over $250,000
Large sales can adversely affect a portfolio manager's ability to implement a
fund's investment strategy by causing the premature sale of securities that
would otherwise be held. If, in any 90-day period, you redeem (sell) more
than $250,000, or your sale amounts to more than 1% of fund net assets, the
fund has the right to pay the difference between the redemption amount and
the lesser of the two previously mentioned figures with securities from the
fund.
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.
. Trades placed directly with T. Rowe Price If you trade directly with T.
Rowe Price, you can make one purchase and sale involving the same fund within
any 120-day period. For example, if you are in fund A, you can move
substantial assets from fund A to fund B and, within the next 120 days, sell
your shares in fund B to return to fund A or move to fund C. If you exceed
this limit, you are in violation of our excessive trading policy.
Two types of transactions are exempt from this policy: 1) trades solely in
money market funds (exchanges between a money fund and a nonmoney fund are
not exempt); and 2) systematic purchases or redemptions (see Information
About Your Services).
. Trades placed through intermediaries If you purchase fund shares through an
intermediary including a broker, bank, investment adviser, or other third
party and hold them for less than 60 calendar days, you are in violation of
our excessive trading policy.
. If you violate our excessive trading policy, you may be barred indefinitely
and without further notice from further purchases of T. Rowe Price funds.
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 $10,000. If your balance
is below $10,000 for three months or longer, we have the right to close your
account after giving you 60 days in which to increase your balance.
<PAGE>
ABOUT YOUR ACCOUNT 17
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:
. Written requests 1) to redeem over $100,000, or 2) to wire redemption
proceeds.
. Remitting redemption proceeds to any person, address, or bank account not on
record.
. Transferring redemption proceeds to a T. Rowe Price fund account with a
different registration (name or ownership) from yours.
. Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings institutions,
broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
accept guarantees from notaries public or organizations that do not provide
reimbursement in the case of fraud.
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MORE ABOUT THE FUNDS
3
ORGANIZATION AND MANAGEMENT
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How are the funds organized?
The T. Rowe Price Summit Funds, Inc. (the "corporation") was incorporated in
Maryland in 1993 and is a "diversified, open-end investment company," or
mutual fund. Mutual funds pool money received from shareholders and invest it
to try to achieve specified objectives.
Currently, the corporation consists of three series: the Summit Cash Reserves
Fund, the Summit Limited-Term Bond Fund, and the Summit GNMA Fund, each of
which represents a separate class of shares and has different objectives and
investment policies. Each of the Summit Funds was established in 1993.
o Shareholders benefit from T. Rowe Price's 62 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:
. Receive a proportional interest in a fund's income and capital gain
distributions.
. Cast one vote per share on certain fund matters, including the election of
fund directors, changes in fundamental policies, or approval of changes in
the fund's management contract.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and, to avoid unnecessary
costs to fund shareholders, do not intend to do so except when certain
matters, such as a change in a fund's fundamental policies, must be decided.
In addition, shareholders representing at least 10% of all eligible votes may
call a special meeting, if they wish, for the purpose of voting on the
removal of any fund director or trustee. If a meeting is held and you cannot
attend, you can vote by proxy. Before the meeting, the fund will send you
proxy materials that explain the issues to be decided and include
instructions on voting by mail or telephone, or on the Internet.
<PAGE>
ABOUT YOUR ACCOUNT 19
Who runs the funds?
General Oversight
The corporation is governed by a Board of Directors that meets regularly to
review each fund's investments, performance, expenses, and other business
affairs. The Board elects the corporation's officers. The policy of the
corporation is that a majority of Board members are independent of T. Rowe
Price Associates, Inc. (T. Rowe Price).
o All decisions regarding the purchase and sale of fund investments are made
by T. Rowe Price - specifically by each fund's portfolio managers.
Portfolio Management
Each fund has an Investment Advisory Committee whose chairman has day-to-day
responsibility for managing the fund and works with the committee in
developing and executing the fund's investment program. The Investment
Advisory Committees comprise the following members:
. Cash Reserves Fund Edward A. Wiese, Chairman, Patrice Berchtenbreiter Ely,
Brian E. Burns, Robert P. Campbell, James M. McDonald, Joan R. Potee, Robert
M. Rubino, and Gwendolyn G. Wagner. Mr. Wiese joined T. Rowe Price in 1984
and has been managing investments since 1985.
. Limited-Term Bond Fund Edward A. Wiese, Chairman, Robert P. Campbell,
Christy M. DiPietro, Charles B. Hill, Cheryl A.Mickel, Robert M. Rubino,
Thomas E. Tewksbury, and Gwendolyn G. Wagner. Mr. Wiese joined T. Rowe Price
in 1984 and has been managing investments since 1985.
. GNMA Fund Deborah L. Boyer, Chairman, Connice A. Bavely, Heather R. Landon,
James M. McDonald, Edmund M. Notzon, and Gwendolyn G. Wagner. Ms. Boyer
joined T. Rowe Price in 1996, and from 1993 - 1996 was an assistant vice
president and government bond trader for First Chicago Capital Markets.
The Management Fee
Each fund pays T. Rowe Price an annual all-inclusive fee based on its average
daily net assets. The funds calculate and accrue the fee daily.
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.
<PAGE>
T. ROWE PRICE 20
Total Return
This tells you how much an investment in a fund has changed in value over a
given time period. It reflects any net increase or decrease in the share
price and assumes that all dividends and capital gains (if any) paid during
the period were reinvested in additional shares. Therefore, total return
numbers include the effect of compounding.
Advertisements for a fund may include cumulative or average annual total
return figures, which may be compared with various indices, other performance
measures, or other mutual funds.
Cumulative Total Return
This is the actual return of an investment for a specified period. A
cumulative return does not indicate how much the value of the investment may
have fluctuated during the period. For example, a fund could have a 10-year
positive cumulative return despite experiencing three negative years during
that time.
Average Annual Total Return
This is always hypothetical and should not be confused with actual
year-by-year results. It smooths out all the variations in annual performance
to tell you what constant year-by-year return would have produced the
investment's actual cumulative return. This gives you an idea of an
investment's annual contribution to your portfolio, provided you held it for
the entire period.
Yield
The current or "dividend" yield on a fund or any investment tells you the
relationship between the investment's current level of annual income and its
price on a particular day. The dividend yield reflects the actual income paid
to shareholders for a given period, annualized, and divided by the fund's 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.
For bond funds, the advertised or Securities and Exchange Commission (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.
The money fund may advertise a current yield, reflecting the latest seven-day
income annualized, or an "effective" yield, which assumes the income has been
reinvested in the fund.
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MORE ABOUT THE FUNDS 21
INVESTMENT POLICIES AND PRACTICES
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This section takes a detailed look at some of the types of securities each
fund may hold in its portfolio and the various kinds of investment practices
that may be used in day-to-day portfolio management. The funds' investment
programs are subject to further restrictions and risks described in the
Statement of Additional Information.
Shareholder approval is required to substantively change a fund's objectives
and certain investment restrictions noted in the following section as
"fundamental policies." The managers also follow certain "operating
policies," which can be changed without shareholder approval. However,
significant changes are discussed with shareholders in fund reports. 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.
Each fund's holdings of certain kinds of investments cannot exceed maximum
percentages of total assets, which are set forth in this prospectus. For
instance, the bond funds are not permitted to invest more than 10% of total
assets in hybrid instruments. While these restrictions provide a useful level
of detail about a fund's investment program, investors should not view them
as an accurate gauge of the potential risk of such investments. For example,
in a given period, a 5% investment in hybrid instruments could have
significantly more of an impact on each bond 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 fund's 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 each fund achieve its
objective.
Types of Portfolio Securities
In seeking to meet their investment objectives, the funds may invest in any
type of security or instrument whose investment characteristics are
consistent with the funds' investment programs. For the bond funds, but not
the money fund, these investments may include potentially high-risk
derivatives (described in this section). The following pages describe the
principal types of portfolio securities and investment management practices
of the funds.
Fundamental policy A 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 voting
securities
<PAGE>
T. ROWE PRICE 22
of the issuer would be held by the fund. These limitations do not apply to a
fund's purchases of securities issued or guaranteed by the U.S. government,
its agencies, or instrumentalities.
Operating policy (money fund only) Except as permitted by Rule 2a-7 under
the Investment Company Act of 1940, the money fund will not purchase a
security if, as a result, more than 5% of its total assets would be invested
in securities of a single issuer. Under Rule 2a-7, the 5% limit, among other
things, does not apply to purchases of U.S. government securities or
securities subject to certain types of guarantees. Additionally, the fund may
invest up to 25% of its total assets in the first tier securities (as defined
by Rule 2a-7) of a single issuer for a period of up to three business days.
Bonds
A bond is an interest-bearing security - an IOU - issued by companies or
governmental units. The issuer has a contractual obligation to pay interest
at a stated rate on specific dates and to repay principal (the bond's face
value) on a specified date. An issuer may have the right to redeem or "call"
a bond before maturity, and the investor may have to reinvest the proceeds at
lower market rates.
A bond's annual interest income, set by its coupon rate, is usually fixed for
the life of the bond. Its yield (income as a percent of current price) will
fluctuate to reflect changes in interest rate levels. A bond's price usually
rises when interest rates fall, and vice versa, so its yield stays current.
Bonds may be unsecured (backed by the issuer's general creditworthiness only)
or secured (also backed by specified collateral).
Certain bonds have interest rates that are adjusted periodically. These
interest rate adjustments tend to minimize fluctuations in the bonds'
principal values. The maturity of those securities may be shortened under
certain specified conditions.
Bonds may be designated as senior or subordinated obligations. Senior
obligations generally have the first claim on a corporation's earnings and
assets and, in the event of liquidation, are paid before subordinated debt.
Money Market Securities
The main types of money market securities in which the funds can invest are:
. Commercial paper Unsecured promissory notes that corporations typically
issue to finance current operations and other expenditures.
. Treasury bills Debt obligations sold at discount and repaid at face value by
the U.S. Treasury. Bills mature in one year or less and are backed by the
full faith and credit of the U.S. government.
. Certificates of deposit Receipts for funds deposited at banks that guarantee
a fixed interest rate over a specified time period.
<PAGE>
MORE ABOUT THE FUNDS 23
. Repurchase agreements Contracts, usually involving U.S. government
securities, that require one party to repurchase securities at a fixed price
on a designated date.
. Banker's acceptances Bank-issued commitments to pay for merchandise sold in
the import/export market.
. Agency notes Debt obligations of agencies sponsored by the U.S. government
that are not backed by the full faith and credit of the United States.
. Medium-term notes Unsecured corporate debt obligations that are continuously
offered in a broad range of maturities and structures.
. Bank notes Unsecured obligations of a bank that rank on an equal basis with
other kinds of deposits but do not carry FDIC insurance.
Derivatives
A derivative is a financial instrument whose value is derived from an
underlying security, such as a stock or bond, or from a market benchmark such
as an interest rate index. Many types of investments representing a wide
range of potential risks and rewards are derivatives, including conventional
instruments such as callable bonds, futures, and options, as well as more
exotic investments such as stripped mortgage securities and structured notes.
Investment managers have used derivatives for many years.
We invest in derivatives only if the expected risks and rewards are
consistent with each fund's objective, policies, and overall risk profile
described in this prospectus. We use derivatives in situations where they may
enable each fund to increase yield, hedge against a decline in principal,
invest in other asset classes more efficiently and at a lower cost, or adjust
duration.
The bond funds will not invest in any high-risk, highly leveraged derivative
that we believe would cause the portfolios to be more volatile than 1) an
intermediate-term investment-grade bond for the Limited-Term Bond Fund; or 2)
a long-term investment-grade bond for the GNMA Fund.
Asset-Backed Securities
An underlying pool of assets, such as credit card or automobile trade
receivables or corporate loans or bonds, backs these bonds and provides the
interest and principal payments to investors. On occasion, the pool of assets
may also include a swap obligation, which is used to change the cash flows on
the underlying assets. As an example, a swap may be used to allow floating
rate assets to back a fixed rate obligation. Credit quality depends primarily
on the quality of the underlying assets, the level of credit support, if any,
provided by the issuer, and the credit quality of the swap counterparty, if
any. The underlying assets (i.e., loans) are subject to prepayments, which
can shorten the securities' weighted average life and may lower their return.
The value of these securities also may
<PAGE>
T. ROWE PRICE 24
change because of actual or perceived changes in the creditworthiness of the
originator, the servicing agent, the financial institution providing the
credit support, or the swap counterparty. There is no limit on each fund's
investment in these securities.
Mortgage-Backed Securities (bond funds)
The funds may invest in a variety of mortgage-backed securities. For a
general description of mortgage-backed securities, see Fund, Market, and Risk
Characteristics: What to Expect. Mortgage-related securities in which the
funds may invest include:
. GNMA Certificates GNMA certificates evidence interests in a pool of
underlying mortgages with a maximum life of 15 or 30 years. However, due to
both scheduled and unscheduled principal payments, GNMA certificates have a
shorter average life and, therefore, less principal volatility than a
comparable 30-year bond. Since prepayment rates vary widely, it is not
possible to accurately predict the average life of a particular GNMA pool.
However, it is standard industry practice to treat new issues of GNMA
certificates as 30-year mortgage-backed securities having an average life of
no greater than 12 years. Because the expected average life is a better
indicator of the maturity characteristics of GNMA certificates, principal
volatility and yield may be more comparable to 10-year Treasury bonds.
. GNMA Project Pass-Through Securities These securities are issued by GNMA for
multifamily projects, i.e., low to moderate income housing, nursing homes,
apartment rehabilitation, housing for the elderly or handicapped, and the
like. Unlike GNMA "modified pass-through certificates," these bonds provide
call protection for a term stated in the issue. The project loans can be made
to either private enterprise or nonprofit groups. There are penalties
assessed for prepayments during the call-protected period, creating a
disincentive for early prepayment. These bonds incorporate the same
standardized procedures as single-family pass-through certificates, and full
and timely payment of principal and interest is guaranteed by GNMA.
Operating policy The GNMA Fund will invest at least 65% of its assets in GNMA
mortgage-backed securities.
. Collateralized Mortgage Obligations (CMOs) CMOs are debt securities that are
fully collateralized by a portfolio of mortgages or mortgage-backed
securities. All interest and principal payments from the underlying mortgages
are passed through to the CMOs in such a way as to create, in most cases,
more definite maturities than is the case with the underlying mortgages. CMOs
may pay fixed or variable rates of interest, and certain CMOs have priority
over others with respect to the receipt of prepayments.
Operating policy The Limited-Term Bond and GNMA Funds may invest up to 20%
and 30% of their assets, respectively, in CMOs.
<PAGE>
MORE ABOUT THE FUNDS 25
. Stripped Mortgage Securities Stripped mortgage securities (a type of
potentially high-risk derivative) are created by separating the interest and
principal payments generated by a pool of mortgage-backed securities or a CMO
to create additional classes of securities. Generally, one class receives
only interest payments (IOs), and another receives principal payments (POs).
Unlike with other mortgage-backed securities and POs, the value of IOs tends
to move in the same direction as interest rates. The funds can use IOs as a
hedge against falling prepayment rates (interest rates are rising) and/or a
bear market environment. POs can be used as a hedge against rising prepayment
rates (interest rates are falling) and/or a bull market environment. IOs and
POs are acutely sensitive to interest rate changes and to the rate of
principal prepayments.
A rapid or unexpected increase in prepayments can severely depress the price
of IOs, while a rapid or unexpected decrease in prepayments could have the
same effect on POs. These securities are very volatile in price and may have
lower liquidity than most other mortgage-backed securities. Certain
non-stripped CMOs may also exhibit these qualities, especially those that pay
variable rates of interest that adjust inversely with, and more rapidly than,
short-term interest rates. In addition, if interest rates rise rapidly and
prepayment rates slow more than expected, certain CMOs, in addition to losing
value, can exhibit characteristics of longer-term securities and become more
volatile. There is no guarantee the funds' investments in CMOs, IOs, or POs
will be successful, and the funds' total returns could be adversely affected
as a result.
Operating policy The bond funds may invest up to 10% of their total assets in
stripped mortgage securities.
Hybrid Instruments (bond funds)
These instruments (a type of potentially high-risk derivative) can combine
the characteristics of securities, futures, and options. For example, the
principal amount or interest rate of a hybrid could be tied (positively or
negatively) to the price of some commodity, currency, or securities index or
another interest rate (each a "benchmark"). Hybrids can be used as an
efficient means of pursuing a variety of investment goals, including currency
hedging, duration management, and increased total return. Hybrids may not
bear interest or pay dividends. The value of a hybrid or its interest rate
may be a multiple of a benchmark and, as a result, may be leveraged and move
(up or down) more steeply and rapidly than the benchmark. These benchmarks
may be sensitive to economic and political events, such as commodity
shortages and currency devaluations, which cannot be readily foreseen by the
purchaser of a hybrid. Under certain conditions, the redemption value of a
hybrid could be zero. Thus, an investment in a hybrid may entail significant
market risks that are not associated with a similar investment in a
traditional, U.S. dollar-denominated bond that has a fixed principal amount
and pays a fixed rate or floating rate of interest. The purchase of hybrids
also exposes the funds to the credit risk of the issuer of the hybrid. These
risks may cause significant fluctuations in the net asset value of the funds.
<PAGE>
T. ROWE PRICE 26
o Hybrids can have volatile prices and limited liquidity, and their use by
the funds may not be successful.
Operating policy The bond funds may invest up to 10% of their total assets in
hybrid instruments.
High-Yield, High-Risk Investing (Limited-Term Bond Fund)
The total return and yield of lower-quality (high-yield, high-risk) bonds,
commonly referred to as "junk," can be expected to fluctuate more than the
total return and yield of higher-quality bonds. Junk bonds (those rated below
BBB or in default) are regarded as predominantly speculative with respect to
the issuer's ability to meet principal and interest payments. Successful
investment in lower-medium- and low-quality bonds involves greater investment
risk and is highly dependent on T. Rowe Price's credit analysis. A real or
perceived economic downturn, or rising interest rates, could cause a decline
in high-yield bond prices by lessening the ability of issuers to make
principal and interest payments. These bonds are often thinly traded and can
be more difficult to sell and value accurately than high-quality bonds.
Because objective pricing data may be less available, judgment may play a
greater role in the valuation process.
Operating policy The Limited-Term Bond Fund will not purchase a non-
investment-grade debt security (or junk bond) if immediately after such
purchase the fund would have more than 10% of its total assets invested in
such securities.
Private Placements
These securities are sold directly to a small number of investors, usually
institutions. Unlike public offerings, such securities are not registered
with the SEC. Although certain of these securities may be readily sold, for
example, under Rule 144A, others may be illiquid, and their sale may involve
substantial delays and additional costs.
Operating policy The bond funds may invest up to 15% of their net assets
(10% for the money fund) in illiquid securities.
Foreign Securities (Cash Reserves and Limited-Term Bond Funds)
The Limited-Term Bond Fund may invest in foreign securities, including
nondollar-denominated securities traded outside of the U.S. The Cash Reserves
and Limited-Term Bond Funds may invest without limitation in
dollar-denominated securities of foreign issuers. Such investments increase a
portfolio's diversification and may enhance return, but they also involve
some special risks such as exposure to potentially adverse local political
and economic developments; nationalization and exchange controls; potentially
lower liquidity and higher volatility; possible problems arising from
accounting, disclosure, settlement, and regulatory practices that differ from
U.S. standards; and the chance that fluctua-
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MORE ABOUT THE FUNDS 27
tions in foreign exchange rates will decrease the investment's value
(favorable changes can increase its value). To the extent the funds invest in
developing countries, these risks are increased.
Operating policy The Limited-Term Bond and Cash Reserves Funds may invest
without limitation in U.S. dollar-denominated debt securities of foreign
issuers, foreign branches of U.S. banks, and U.S. branches of foreign banks.
The Limited-Term Bond Fund may invest up to 10% of its total assets
(excluding reserves) in non-U.S. dollar-denominated fixed income securities
principally traded in financial markets outside the U.S.
Types of Management Practices
Reserve Position (bond funds)
Each fund will hold a certain portion of its assets in money market reserves.
Each fund's reserve position can consist of shares of one or more T. Rowe
Price internal money market funds as well as short-term, high-quality U.S.
and foreign dollar-denominated money market securities, including repurchase
agreements. For temporary, defensive purposes, the funds may invest without
limitation in money market reserves. The effect of taking such a position is
that the fund may not achieve its investment objective. The reserve position
provides flexibility in meeting redemptions, expenses, and the timing of new
investments and can serve as a short-term defense during periods of unusual
market volatility.
Borrowing Money and Transferring Assets
Each fund can borrow money from banks and other Price funds as a temporary
measure for emergency purposes, to facilitate redemption requests, or for
other purposes consistent with 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 the
fund's total assets. Each fund may not purchase additional securities when
borrowings exceed 5% of total assets.
Futures and Options (bond funds)
Futures (a type of potentially high-risk derivative) are often used to manage
or hedge risk because they enable the investor to buy or sell an asset in the
future at an agreed-upon price. Options (another type of potentially
high-risk derivative) give the investor the right (where the investor
purchases the option), or the obligation (where the investor writes (sells)
the option), to buy or sell an asset at a predetermined price in the future.
Each fund may buy and sell futures and
<PAGE>
T. ROWE PRICE 28
options contracts for any number of reasons, including: to manage its
exposure to changes in interest rates, bond prices, and foreign currencies;
as an efficient means of adjusting its overall exposure to certain markets;
in an effort to enhance income; to protect the value of portfolio securities;
and to adjust portfolio duration. The funds may purchase, sell, or write call
and put options on securities, financial indices, and foreign currencies.
Futures contracts and options may not always be successful hedges; their
prices can be highly volatile. Using them could lower each fund's total
return, and the potential loss from the use of futures can exceed each fund's
initial investment in such contracts.
Operating policies Futures: Initial margin deposits and premiums on options
used for non-hedging purposes will not equal more than 5% of each fund's net
asset value. Options on securities: The total market value of securities
against which each fund writes call or put options may not exceed 25% of its
total assets. Each fund will not commit more than 5% of its total assets to
premiums when purchasing call or put options.
Interest Rate Swaps (bond funds)
The funds may enter into various interest rate transactions (a type of
potentially high-risk derivative investment), such as interest rate swaps and
the purchase or sale of interest rate caps, collars, and floors, to preserve
a return or spread on a particular investment or portion of its portfolio, to
create synthetic securities, or to structure transactions designed for other
purposes.
Operating policy The bond funds may invest up to 10% of their total assets
in interest rate swaps.
Managing Foreign Currency Risk (Limited-Term Bond Fund)
Investors in foreign securities may "hedge" their exposure to potentially
unfavorable currency changes by purchasing a contract to exchange one
currency for another on some future date at a specified exchange rate. In
certain circumstances, a "proxy currency" may be substituted for the currency
in which the investment is denominated, a strategy known as "proxy hedging."
The fund may also use these contracts to create a synthetic bond - issued by
a U.S. company, for example, but with the dollar component transformed into a
foreign currency. If the fund were to engage in foreign currency
transactions, they would be used primarily to protect the fund's foreign
securities from adverse currency movements relative to the dollar. Such
transactions involve the risk that anticipated currency movements will not
occur, and the fund's total return could be reduced.
Operating policy The Limited-Term Bond Fund will not commit more than 10% of
its total assets to forward currency contracts.
<PAGE>
MORE ABOUT THE FUNDS 29
Lending of Portfolio Securities
Like other mutual funds, each fund may lend securities to broker-dealers,
other institutions, or other persons to earn additional income. The principal
risk is the potential insolvency of the broker-dealer or other borrower. In
this event, each fund could experience delays in recovering its securities
and possibly capital losses.
Fundamental policy The value of loaned securities may not exceed
33 1/3% of total fund assets.
When-Issued Securities (all funds) and Forwards (bond funds)
The funds may purchase securities on a when-issued or delayed delivery basis
or may purchase or sell securities on a forward commitment basis. There is no
limit on each fund's investment in these securities. The price of these
securities is fixed at the time of the commitment to buy, but delivery and
payment can take place a month or more later. During the interim period, the
market value of the securities can fluctuate, and no interest accrues to the
purchaser. At the time of delivery, the value of the securities may be more
or less than the purchase or sale price. To the extent each fund remains
fully or almost fully invested (in securities with a remaining maturity of
more than one year) at the same time it purchases these securities, there
will be greater fluctuations in the fund's net asset value than if the fund
did not purchase them.
Portfolio Turnover (bond funds)
Although the funds will not generally trade for short-term profits,
circumstances may warrant a sale without regard to the length of time a
security was held. A high turnover rate may increase transaction costs and
result in additional taxable gains. The Limited-Term Bond and GNMA Funds'
annualized portfolio turnover rates for the fiscal years ended October 31 are
listed in Table 5.
<TABLE>
Table 5 Portfolio Turnover Rates
<CAPTION>
<S> <C> <C> <C>
Fund
Summit Limited-Term Bond Fund 116.1% 74.5% 52.0%
Summit GNMA Fund 136.1 111.8 83.8
--------------------------------------------------------------
</TABLE>
Bond Ratings and High-Yield Bonds
The credit quality of most bond issues is evaluated by rating agencies such
as Moody's and Standard & Poor's on the basis of 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. Other things being equal,
lower-rated bonds have higher yields due to greater risk. High-yield bonds,
also called "junk" bonds, are those rated below BBB.
<PAGE>
T. ROWE PRICE 30
Table 6 shows the rating scale used by the major rating agencies, and Table 7
provides an explanation of quality ratings. T. Rowe Price considers publicly
available ratings but emphasizes its own credit analysis when selecting
investments.
<TABLE>
Table 6 Ratings of Corporate Debt Securities
<CAPTION>
<S> <S> <C> <S> <S> <S> <S> <S> <S> <S>
Moody's Standard
Investors & Poor's Fitch
Service, Inc. Corporation IBCA, 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
---------------------------------------------------------------------------------------------------
Ba BB BB Speculative
---------------------------------------------------------------------------------------------------
B B B Highly speculative
---------------------------------------------------------------------------------------------------
Caa CCC, CC CCC, CC Vulnerable to default
---------------------------------------------------------------------------------------------------
Ca C C Default is imminent
---------------------------------------------------------------------------------------------------
C D DDD, DD, D Probably in default
Moody's S&P Fitch
Commercial P-1 Superior quality A-1+ Extremely strong quality F-1+ Exceptionally strong quality
Paper A-1 Strong quality F-1 Very strong quality
---------------------------------------------------------------------------------------------------
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
---------------------------------------------------------------------------------------------------
P-3 Acceptable quality A-3 Adequate quality F-3 Fair credit quality
B Speculative quality F-5 Weak credit quality
C Doubtful quality
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Table 7 Explanation of Quality Ratings
<CAPTION>
<S> <S> <S> <S>
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
Corporation to 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
CCC, CC the 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 IBCA, Inc. AAA Highest quality; obligor has exceptionally
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 31
Year 2000 Processing Issue
Many computer programs use two digits rather than four to identify the year.
These programs, if not adapted, will not correctly handle the change from
"99" to "00" on January 1, 2000, and will not be able to perform necessary
functions. The Year 2000 issue affects virtually all companies and
organizations.
T. Rowe Price has implemented steps intended to assure that its major
computer systems and processes are capable of Year 2000 processing. We are
working with third parties to assess the adequacy of their compliance efforts
and are developing contingency plans intended to assure that third-party
noncompliance will not materially affect T. Rowe Price's operations.
Companies, organizations, governmental entities, and markets in which the T.
Rowe Price funds invest will be affected by the Year 2000 issue, but at this
time the funds cannot predict the degree of impact. For funds that invest in
foreign markets, especially emerging markets, it is possible foreign
companies and
<PAGE>
T. ROWE PRICE 32
markets will not be as prepared for Year 2000 as domestic companies and
markets. To the extent the effect of Year 2000 is negative, a fund's returns
could be reduced.
FINANCIAL HIGHLIGHTS
----------------------------------------------------------
Table 8, 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 fund's financial statements, which are
included in its annual report and are incorporated by reference into the
Statement of Additional Information (available upon request). The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in each fund (assuming reinvestment of all dividends
and distributions). The financial statements in the annual report were
audited by the funds' independent accountants, PricewaterhouseCoopers LLP.
<TABLE>
Table 8 Financial Highlights
<CAPTION>
10/29/93
through Year ended October 31
10/31/94
Cash Reserves Fund ------------- 1995 1996 1997 1998
---------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income From
Investment Activities
Net investment income 0.035 0.055 0.051 0.052 0.052
Less Distributions
Dividends
(from net investment income) (0.035) (0.055) (0.051) (0.052) (0.052)
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total return 3.60% 5.68% 5.23% 5.33% 5.35%
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $186,523 $433,464 $741,561 $1,303,120 $1,884,547
Ratio of expenses to average
net assets 0.45% /a/ 0.45% 0.45% 0.45% 0.45%
Ratio of net investment income 4.03%/a/ 5.55% 5.09% 5.18% 5.24%
to average net assets
-----------------------------------------------------------------------------------------------
</TABLE>
/a/ Annualized.
<PAGE>
MORE ABOUT THE FUNDS 33
<TABLE>
Table 8 Financial Highlights (continued)
<CAPTION>
10/29/93
through Year ended October 31
10/31/94
Limited-Term Bond Fund ------------ 1995 1996 1997 1998
-------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 5.00 $ 4.64 $ 4.65 $ 4.60 $ 4.61
Income From
Investment Operations
Net investment income 0.33 0.32 0.30 0.29 0.28
Net gains or losses on
securities (both
realized and
unrealized) (0.36) 0.01 (0.05) 0.01 0.08
Total from investment
operations (0.03) 0.33 0.25 0.30 0.36
Less Distributions
Dividends
(from net investment
income) (0.33) (0.31) (0.29) (0.28) (0.28)
Distributions
(from capital gains) - - - -
Returns of capital (0.01) (0.01) (0.01) -
Total distributions (0.33) (0.32) (0.30) (0.29) (0.28)
Net asset value, end of
period $ 4.64 $ 4.65 $ 4.60 $ 4.61 $ 4.69
Total return (0.71)% 7.36% 5.48% 6.73% 7.97%
Ratios/Supplemental Data
Net assets, end of
period
(in thousands) $21,116 $27,004 $25,984 $29,620 $40,904
Ratio of expenses to
average net assets 0.55% /a/ 0.55% 0.55% 0.55% 0.55%
Ratio of net investment
income to average net
assets 6.98% /a/ 6.85% 6.43% 6.28% 5.96%
Portfolio turnover rate 296.0% /a/ 84.3% 116.1% 74.5% 52.0%
------------------------------------------------------------------------------
</TABLE>
/a/ Annualized.
<PAGE>
T. ROWE PRICE 34
<TABLE>
Table 8 Financial Highlights (continued)
<CAPTION>
10/29/93
through Year ended October 31
10/31/94
GNMA Fund ------------ 1995 1996 1997 1998
-------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.00 $ 9.15 $ 9.81 $ 9.65 $ 9.83
Income From
Investment Operations
Net investment income 0.69 0.70 0.67 0.67 0.64
Net gains or losses on
securities (both
realized and
unrealized) (0.85) 0.66 (0.16) 0.18 0.04
Total from investment
operations (0.16) 1.36 0.51 0.85 0.68
Less Distributions
Dividends
(from net investment
income) (0.69) (0.67) (0.62) (0.64) (0.64)
Distributions
(from capital gains) - - - - -
Returns of capital - (0.03) (0.05) (0.03) -
Total distributions (0.69) (0.70) (0.67) (0.67) (0.64)
Net asset value, end of
period $ 9.15 $ 9.81 $ 9.65 $ 9.83 $ 9.87
Total return (1.67)% 15.43% 5.47% 9.17% 7.10%
Ratios/Supplemental Data
Net assets, end of
period
(in thousands) $17,184 $22,777 $24,718 $29,530 $46,571
Ratio of expenses to
average net assets 0.60% /a/ 0.60% 0.60% 0.60% 0.60%
Ratio of net investment
income to average net
assets 7.31% /a/ 7.40% 6.99% 6.91% 6.47%
Portfolio turnover rate 61.5% /a/ 173.8% 136.1% 111.8% 83.8%
------------------------------------------------------------------------------
</TABLE>
/a/ Annualized.
<PAGE>
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.
Employer-Sponsored Retirement Plans and Institutional Accounts T. Rowe Price
Trust Company 1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.
OPENING A NEW ACCOUNT
----------------------------------------------------------
$25,000 minimum initial investment
Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)
By Mail
Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address in the next paragraph. We do not accept third-party checks
to open new accounts, except for IRA Rollover checks that are properly endorsed.
<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:
Receiving Bank: PNC Bank, N.A. (Pittsburgh) Receiving Bank ABA#: 043000096
Beneficiary: T. Rowe Price [fund name] Beneficiary Account: 1004397951
Originator to Beneficiary Information (OBI): name of owner(s) and account
number
Complete a New Account Form and mail it to one of the appropriate addresses
listed previously.
Note: No services will be established and IRS penalty withholding may occur
until a signed New Account Form is received. Also, retirement plans cannot be
opened by wire.
By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if
preauthorized on the existing account. For limitations on exchanging, see
explanation of Excessive Trading under Transaction Procedures and Special
Requirements.
In Person
Drop off your New Account Form at any location listed on the cover and obtain a
receipt.
<PAGE>
INVESTING WITH T. ROWE PRICE 37
PURCHASING ADDITIONAL SHARES
----------------------------------------------------------
$1,000 minimum purchase; $100 minimum for retirement plans, Automatic Asset
Builder, and gifts or transfers to minors (UGMA/UTMA) accounts
By ACH Transfer
Use Tele*Access or your personal computer or call Investor Services if you have
established electronic transfers using the ACH network.
By Wire
Call Shareholder Services or use the wire address in Opening a New Account.
By Mail
1. Make your check payable to T. Rowe Price Funds (otherwise it may be
returned).
2. Mail the check to us at the following address with either a fund reinvestment
slip or a note indicating the fund you want to buy and your fund account
number.
3. Remember to provide your account number and the fund name on the memo line of
your check.
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
----------------------------------------------------------
Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.) Some of the
T. Rowe Price funds may impose a redemption fee of
<PAGE>
T. ROWE PRICE 38
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.
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 Information About Your
Services.
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. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please mail to the following address:
Regular Mail
For nonretirement and IRA accounts
T. Rowe Price Account Services P.O. Box 89000 Baltimore, MD 21289-02206
For employer-sponsored retirement accounts
T. Rowe Price Trust Company P.O. Box 89000 Baltimore, MD 21289-0300
(For mailgrams, express, registered, or certified mail, see the Opening a New
Account section.)
Redemptions from employer-sponsored retirement accounts must be in writing;
please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in
<PAGE>
INVESTING WITH T. ROWE PRICE 39
writing or by telephone; please call Shareholder Services to obtain an IRA
Distribution Form or an IRA Shareholder Services Form to authorize the telephone
redemption service.
RIGHTS RESERVED BY THE FUNDS
----------------------------------------------------------
Each fund and its agents reserve the following rights: (1) to waive or lower
investment minimums; (2) to accept initial purchases by telephone or mailgram;
(3) to refuse any purchase or exchange order; (4) to cancel or rescind any
purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; or (7) to act on
instructions believed to be genuine. These actions will be taken when, in the
sole discretion of management, they are deemed to be in the best interest of the
fund.
In an effort to protect each fund from the possible adverse effects of a
substantial redemption in a large account, as a matter of general policy no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of the fund, except upon approval of the fund's management.
<PAGE>
T. ROWE PRICE 40
INFORMATION ABOUT YOUR SERVICES
----------------------------------------------------------
Shareholder Services 1-800-225-5132 Investor Services 1-800-638-5660
Many services are available to you as a T. Rowe Price shareholder; some you
receive automatically, and others you must authorize or request on the New
Account Form. By signing up for services on the New Account Form rather than
later on, you avoid having to complete a separate form and obtain a signature
guarantee. This section discusses some of the services currently offered. Our
Services Guide, which we mail to all new shareholders, contains detailed
descriptions of these and other services.
Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. For more
information, call Investor Services.
Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k), and 403(b)(7). For information
on IRAs, call Investor Services. For information on all other retirement plans,
including our no-load variable annuity, please call our Trust Company at
1-800-492-7670.
Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days
Tele*Access
24-hour service via toll-free number enables you to (1) access information on
fund yields, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, duplicate
statements, and tax forms; and (3) initiate purchase, redemption, and exchange
transactions in your accounts (see Electronic Transfers in this section).
Web Address www.troweprice.com
After obtaining proper authorization, account transactions may also be conducted
through our Web site on the Internet. In addition, if you subscribe to America
Online, you can access our Web site via keyword "T. Rowe Price" and conduct
transactions in your account.
<PAGE>
INVESTING WITH T. ROWE PRICE 41
Plan Account Line 1-800-401-3279
Plan Account Line
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.
Electronic Transfers
By ACH
With no charges to pay, you can initiate a purchase or redemption for as little
as $100 or as much as $100,000 between your bank account and fund account using
the ACH network. Enter instructions via Tele*Access or your personal computer,
or call Shareholder Services.
By Wire
Electronic transfers can be conducted via bank wire. There is currently a $5 fee
for wire redemptions under $5,000, and your bank may charge for incoming or
outgoing wire transfers regardless of size.
Checkwriting
(Not available for equity funds, or the High Yield or Emerging Markets Bond
Funds) You may write an unlimited number of free checks on any money market
fund, and most bond funds, with a minimum of $500 per check. Keep in mind,
however, that a check results in a redemption; a check written on a bond fund
will create a taxable event which you and we must report to the IRS.
Automatic Investing
($100 minimum) You can invest automatically in several different ways,
including:
Automatic Asset Builder
You instruct us to move $100 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.
<PAGE>
T. ROWE PRICE 42
T. ROWE PRICE BROKERAGE
----------------------------------------------------------
To open an account 1-800-638-5660 For existing brokerage investors
1-800-225-7720
This service gives you the opportunity to consolidate all of your investments
with one company. Investments available through our brokerage service include
stocks, options, bonds, non-T. Rowe Price mutual funds, and others at
commission savings over full-service brokers. We also provide a wide range of
services, including:
Automated telephone and computer services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Internet-Trader. Any trades executed through Tele-Trader save you an additional
10% on commissions. You will save 20% on commissions for stock trades, and 10%
on option trades, when you use Internet-Trader. All trades are subject to a $35
minimum commission except stock trades placed through Internet-Trader, which are
subject to a $29.95 minimum commission.
Investor information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to on-line research tools can help
you better evaluate economic trends and investment opportunities.
Dividend Reinvestment Service
Virtually all stocks held in customer accounts are eligible for this free
service.
/T. Rowe Price// Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./
<PAGE>
INVESTING WITH T. ROWE PRICE 43
INVESTMENT INFORMATION
----------------------------------------------------------
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety of
information in addition to account statements. Most of this information is also
available on our Web site at www.troweprice.com.
Shareholder Reports
Fund managers' reviews of their strategies and fund 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
A quarterly review of all T. Rowe Price fund results.
Insights
Educational reports on investment strategies and financial markets.
Investment Guides
Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirees Financial Guide, Retirement Planning Kit,
and Tax Considerations for Investors.
<PAGE>
T. ROWE PRICE 44
<PAGE>
To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
For Mutual Fund or T. Rowe Price Brokerage Information
Investor Services
1-800-638-5660
For Existing Accounts
Shareholder Services
1-800-225-5132
For Yields, Prices, Account Information, or to Conduct Transactions
Tele*Access/(R)/
24 hours, 7 days 1-800-638-2587
Internet Address
www.troweprice.com
Plan Account Line
For retirement plan investors 1-800-401-3279
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
4200 West Cypress St. 10th Floor Tampa, FL 33607
Headquarters
100 East Pratt St. Baltimore, MD 21202
This prospectus contains information you should know before investing. Please
keep it for future reference.
A Statement of Additional Information about each fund has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus. Further information about each fund's investments, including a
review of market conditions and the manager's recent strategies and their impact
on performance, is available in the annual and semiannual shareholder reports.
To obtain free copies of any of these documents, or for shareholder inquiries,
call 1-800-638-5660.
Fund reports and Statements of Additional Information are also available from
the Securities and Exchange Commission by calling 1-800-SEC-0330 or by writing
the SEC's Public Reference Section, Washington, D.C. 20549-6009 (you will be
charged a duplicating fee); by visiting the SEC's public reference room; or by
consulting the SEC's web site at www.sec.gov.
1940 Act File No. 811-7093
C09-040 3/1/99
<PAGE>
PROSPECTUS
March 1, 1999
Summit Municipal Funds
Municipal money market and bond funds for investors seeking tax-exempt income.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
T. Rowe Price Summit Municipal Funds, Inc.
Prospectus
March 1, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 ABOUT THE FUNDS
Fund, Market, and Risk Characteristics
---------------------------------------------
Other Information About the Funds
---------------------------------------------
Some Basics of Fixed Income Investing
---------------------------------------------
2 ABOUT YOUR ACCOUNT
Pricing Shares and Receiving
Sale Proceeds
---------------------------------------------
Distributions and Taxes
---------------------------------------------
Transaction Procedures and
Special Requirements
---------------------------------------------
3 MORE ABOUT THE FUNDS
Organization and Management
---------------------------------------------
Understanding Performance Information
---------------------------------------------
Investment Policies and Practices
---------------------------------------------
Financial Highlights
---------------------------------------------
4 INVESTING WITH T. ROWE PRICE
Account Requirements
and Transaction Information
---------------------------------------------
Opening a New Account
---------------------------------------------
Purchasing Additional Shares
---------------------------------------------
Exchanging and Redeeming
---------------------------------------------
Rights Reserved by the Funds
---------------------------------------------
Information About Your Services
---------------------------------------------
Discount Brokerage
---------------------------------------------
Investment Information
---------------------------------------------
</TABLE>
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed over $141 billion for more than six million
individual and institutional investor accounts as of December 31, 1998.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve
Board, or any other government agency, and are subject to investment risks,
including possible loss of the principal amount invested.
<PAGE>
ABOUT THE FUNDS
1
FUND, MARKET, AND RISK CHARACTERISTICS: WHAT TO EXPECT
----------------------------------------------------------
To help you decide whether these funds are appropriate for you, this section
reviews their investment objectives, strategies, and potential risks.
What is each fund's objective?
Municipal Money Market Fund The fund seeks preservation of capital and
liquidity, and consistent with these, the highest possible current income
exempt from federal income taxes.
Municipal Intermediate Fund The fund seeks the highest level of income
exempt from federal income taxes consistent with moderate price fluctuation.
Municipal Income Fund The fund seeks a high level of income exempt from
federal income taxes.
What is each fund's principal investment strategy?
Municipal Money Market Fund The fund, which is managed to provide a stable
share price of $1.00, invests in high-quality municipal securities whose
income is expected to be exempt from federal income taxes. The fund's
weighted average maturity will not exceed 90 days, and its yield will
fluctuate with changes in short-term interest rates.
In selecting securities, fund managers may examine the relationships among
yields on various types and maturities of money market securities in the
context of their outlook for interest rates. For example, if we expect rates
to fall, longer maturities, which typically have higher yields than shorter
maturities, may be purchased to try to preserve the fund's income level.
Conversely, shorter maturities may be favored if rates are expected to rise.
Municipal Intermediate Fund We will invest at least 65% of total assets in
investment-grade tax-exempt securities. There are no maturity limitations on
individual securities, but the fund's weighted average effective maturity
will normally range between five and 10 years. Targeting effective maturity
gives the fund manager additional flexibility. At least 90% of the fund's
portfolio will consist of investment-grade tax-exempt securities rated in the
four highest credit categories (AAA, AA, A, BBB) by at least one national
rating agency or the equivalent from T. Rowe Price when other ratings are not
available. To enhance income, we may invest up to 10% of fund assets in
below-investment-grade bonds, known as "junk" bonds in the taxable market,
including those with the lowest ratings. The fund's income should be higher
than the Money Market Fund's, but its share price will vary.
<PAGE>
T. ROWE PRICE 2
Within this broad structure, investment decisions reflect the manager's
outlook for interest rates and the economy as well as the prices and yields
of various securities. For example, if we expect rates to fall, the manager
may buy longer-term securities to provide higher yield and appreciation
potential. And if, for instance, our economic outlook is positive, the
manager may take advantage of the 10% "basket" for noninvestment-grade bonds.
Municipal Income Fund We will invest at least 65% of assets in long-term,
investment-grade tax-exempt bonds rated from AAA to BBB by at least one
national rating agency or rated the equivalent by T. Rowe Price if other
ratings are not available. To enhance income, we may invest up to 20% of the
fund's total assets in noninvestment-grade "junk" bonds. We may buy
securities of any maturity, and we expect the fund's weighted average
maturity to be 15 years or longer. The fund's income should be higher than
the Intermediate Fund's, but its share price should fluctuate more.
The fund manager decides to buy or sell different types of securities based
on the same criteria that apply to the Intermediate Fund, except that the
average maturities in this fund will be longer, and the component of
noninvestment-grade bonds may go as high as 20%.
<TABLE>
Table 1 Differences Among Funds
<CAPTION>
Credit-Quality Expected Share Expected Average
Fund Categories Income Price Fluctuation Maturity
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Municipal Money Market Two highest Lower Stable 90 days or less
-----------------------------------------------------------------------
Municipal Intermediate Primarily four highest Moderate Moderate 5 to 10 years
-----------------------------------------------------------------------
Municipal Income Primarily four highest Highest Higher 15+ years
-----------------------------------------------------------------------------------------------------
</TABLE>
o For details about each fund's investment program, please see the Investment
Policies and Practices section.
What are the main risks of investing in the funds?
Municipal Money Market Fund Since money market funds are managed to maintain
a constant $1.00 share price, they should have little risk of principal loss.
However, there is no assurance the fund will avoid principal losses if fund
holdings default or interest rates rise sharply in an unusually short period.
In addition, the fund's yield will vary; it is not fixed for a specific
period like the yield on a bank certificate of deposit. This should be an
advantage when interest rates are rising but not when rates are falling. An
investment in the fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation (FDIC) or
<PAGE>
ABOUT THE FUNDS 3
any other government agency. Although the fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing
in the fund.
Municipal Intermediate and Municipal Income Funds
Interest rate risk This is the decline in bond prices that accompanies a
rise in the overall level of interest rates, as shown in Table 5 in this
section. It is the major source of risk for investors in these two funds.
Because shorter-term bond funds are less sensitive to interest rate increases
or decreases than longer-term bond funds, price volatility for the
Intermediate Fund is expected to be lower than for the Income Fund. However,
by targeting effective maturity, the Intermediate Fund could experience
greater volatility than if it focused on a stated maturity or maturity range.
. Credit risk This is the chance that any of the funds' holdings will have
their credit ratings downgraded or will default (fail to make scheduled
interest or principal payments), potentially reducing the fund's income level
and share price. While the funds will focus on investment-grade bonds. any
holdings of medium- and lower-quality securities may be more susceptible to
adverse economic conditions. Investments in junk bonds should be considered
speculative, and possibly some BBB securities as well.
. Political risk This is the risk that a significant restructuring of federal
income tax rates, or even serious discussion of the issue in Congress, could
cause municipal bond prices to fall. The value of tax-exempt income strongly
influences the demand for municipal bonds, and lower tax rates would reduce
their advantage.
As with any mutual fund, there can be no guarantee the funds will achieve
their objectives.
o The bond funds' share prices will fluctuate as interest rates change, so
when you sell your shares, you may lose money.
How can I tell which fund is most appropriate for me?
Consider your investment goals, your time horizon for achieving them, and
your tolerance for risk. The funds can be used to generate income or to
diversify a stock portfolio. The higher your tax bracket, the more likely
tax-exempt securities are appropriate. If a Summit municipal fund's
tax-exempt yield is higher than the after-tax yield on a taxable bond or
money fund, and you can meet the $25,000 minimum for initial purchases, the
funds could be appropriate for you. Use the table entitled Differences Among
Funds, which
<PAGE>
T. ROWE PRICE 4
summarizes each fund's main characteristics, to help choose a fund (or funds)
for your particular needs. For example, only the money fund is designed to
provide principal stability, which makes it a good choice for you if the
stability and accessibility of your investment are more important than the
opportunity for higher income or total return. However, if you are investing
for the highest possible income and can tolerate some price fluctuation, you
should consider a longer-term bond fund. The funds are not appropriate for
tax-deferred accounts, such as IRAs.
o The bond funds should not represent your complete investment program or be
used for short-term trading purposes.
How has each fund performed in the past?
The bar charts show each fund's actual performance for each of the last 10
calendar years (or since inception for funds lacking 10-year records). These
charts and the average annual total return table indicate risk by
illustrating how much returns can differ from one year to the next. Each
fund's past performance is no guarantee of its future returns.
The funds can also experience short-term performance swings, as shown in the
following charts by the best and worst calendar quarter returns during the
years depicted in the charts.
<TABLE>
SUMMIT Municipal Money
Market Fund Calendar Year
Total Returns
<CAPTION>
<S> <C>
1989 0
1990 0
1991 0
1992 0
1993 0
1994 2.58%
1995 3.56
1996 3.22
1997 3.39
1998 ____
--------------------------
</TABLE>
Quarter ended Total return
Best quarter _____ _____
Worst quarter _____ _____
<TABLE>
SUMMIT Municipal
Intermediate Fund
Calendar Year Total
Returns
<CAPTION>
<S> <C>
1989 0
1990 0
1991 0
1992 0
1993 0
1994 -1.67%
1995 13.71
1996 4.68
1997 8.42
1998 ____
------------------------
</TABLE>
<PAGE>
ABOUT THE FUNDS 5
Quarter ended Total return
Best quarter _____ _____
Worst quarter _____ _____
<TABLE>
SUMMIT Municipal Income
Fund Calendar Year Total
Returns
<CAPTION>
<S> <C>
1989 0
1990 0
1991 0
1992 0
1993 0
1994 -4.68%
1995 17.89
1996 5.03
1997 11.64
1998 ____
-------------------------
</TABLE>
Quarter ended Total return
Best quarter _____ _____
Worst quarter _____ _____
<TABLE>
Table 2 Average Annual Total Returns
<CAPTION>
Periods ended December 31, 1998
1 year 5 years Since inception Inception date
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Municipal Money
Market Fund 10/29/93
Lipper Tax-Exempt
Money Market Funds
Average
--------------------------------------------------
Municipal
Intermediate Fund 10/29/93
Lehman 7-Year
Municipal Bond Index
Lipper Intermediate
Municipal Debt Funds
Average
--------------------------------------------------
Municipal Income Fund 10/29/93
Lehman Municipal Bond
Index
Lipper General
Municipal Debt Funds
Average
-------------------------------------------------------------------------------
</TABLE>
These figures include changes in principal value, reinvested dividends, and
capital gain distributions, if any.
What fees or expenses will I pay?
The funds are 100% no load. There are no other fees or charges to buy or sell
fund shares, reinvest dividends, or exchange into other T. Rowe Price funds.
There are no 12b-1 fees.
o Expense ratios for the Summit Funds are substantially below their industry
averages.
<PAGE>
T. ROWE PRICE 6
Each T. Rowe Price Summit Fund has a single, all-inclusive fee covering
investment management and operating expenses. This fee will not fluctuate. In
contrast, most mutual funds have a fixed management fee plus a fee for
operating expenses that varies according to a number of other factors.
<TABLE>
Table 3 Fees and Expenses of the Funds
<CAPTION>
<S> <C> <C> <C>
Annual fund operating expenses
(expenses that are deducted from fund assets)
Total
annual
fund
operating
Management fee expenses
/a/ Other expenses /a/
Municipal Money
Market 0.45% 0.00% 0.45%
Municipal
Intermediate 0.50% 0.00% 0.50%
Municipal Income 0.50% 0.00% 0.50%
-------------------------------------------------------------------------------------
</TABLE>
/a/ The management fee includes operating expenses.
Example. The following table gives you a rough idea of how expense ratios
may translate into dollars and helps you to compare the cost of investing in
these funds with the cost of investing in other funds. Although your actual
costs may be higher or lower, the table shows how much you would pay if you
invest $10,000, earn a 5% annual return, and hold the investment for the
following periods:
<TABLE>
<CAPTION>
Fund 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Municipal Money Market $46 $144 $252 $567
Municipal Intermediate 51 160 280 628
Municipal Income 51 160 280 628
-----------------------------------------------------------------
</TABLE>
OTHER INFORMATION ABOUT THE FUNDS
----------------------------------------------------------
What are the funds' potential rewards?
The regular income dividends you receive from the funds should be exempt from
federal income taxes and your state may not tax that portion of each fund's
income earned on the state's own obligations (if any). Low expenses enable
the funds to pay above-average dividends.
. Municipal Money Market Fund offers a relatively secure, liquid investment
for money you may need for occasional or unexpected expenses and for money
<PAGE>
ABOUT THE FUNDS 7
awaiting investment in longer-term bond or stock funds. In addition to
preserving capital, the fund seeks to provide the highest possible tax-exempt
income available from low-risk, short-term municipal securities.
. Municipal Intermediate Fund's income level should generally be above that
of the money market fund but lower than that of the Municipal Income Fund.
Its share price should fluctuate less than that of a long-term bond fund. By
focusing on investment-grade securities, the fund's credit risk should be
reduced.
. Municipal Income Fund should provide the highest income of the three funds
and also the greatest potential for price appreciation when interest rates
fall. By the same token, however, its price will decline the most if rates
should rise. Investors in the fund should have a relatively long time horizon
to ride out the ups and downs of interest rate cycles.
How do the Summit Funds achieve their low-cost advantage?
The advantage reflects their more favorable ratio of expenses to assets. The
$25,000 initial purchase requirement means that the average account balance
in each Summit Fund is high. Since shareholder recordkeeping costs - a
substantial portion of fund expenses - are basically the same for all sizes
of accounts, a fund with larger account balances can spread the expenses over
more investment dollars, achieving a low overall expense ratio. Expenses are
deducted from fund assets before dividends are paid, so lower costs result in
higher dividends for Summit Fund shareholders.
How does the portfolio manager try to reduce risk?
Consistent with each fund's objective, the portfolio manager uses various
tools to try to reduce risk and increase total return, including:
. Diversification of assets to reduce the impact of a single holding on a
fund's net asset value.
. Thorough credit research by our own analysts.
. Adjustment of fund duration to try to reduce the drop in price when interest
rates rise or to benefit from the rise in price when rates fall. Duration is
a measure of a fund's sensitivity to interest rate changes.
Is there other information I can review before making a decision?
Investment Policies and Practices in Section 3 discusses the principal types
of portfolio securities the funds may purchase as well as types of management
practices the funds may use.
<PAGE>
T. ROWE PRICE 8
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.
What is tax-free about municipal bonds and bond funds?
The regular income dividends you receive from the fund should be exempt from
regular federal income taxes. In addition, your state may not tax that
portion of the fund's income earned on the state's own obligations (if any).
However, capital gains distributed by the funds are taxable to you. (See
Useful Information on Distributions and Taxes for details.)
o Municipal securities are also called "tax-exempts" because the interest
income they provide is usually exempt from federal income taxes.
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. The funds will seek to invest a significant portion
of their assets in municipals subject to the AMT in order to enhance yield.
The portion of income subject to the AMT will be reported annually to
shareholders. (Please see Distributions and Taxes - Taxes on Fund
Distributions.)
Additionally, under highly unusual circumstances, the IRS may determine that
a bond issued as tax-exempt should in fact be taxable. If a fund were to hold
such a bond, the fund could have to distribute taxable income or reclassify
as taxable income previously distributed as tax-free.
o Each fund can invest without limit in securities whose income is subject to
the alternative minimum tax. A significant portion of each fund's assets is
expected to be invested in such securities.
<PAGE>
ABOUT THE FUNDS 9
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.
How can I tell if a tax-free or taxable fund is suitable for me?
The primary factor is your expected federal income tax rate. The higher your
tax bracket, the more likely tax-exempts will be appropriate. If a municipal
fund's tax-exempt yield is higher than the after-tax yield on a taxable bond
or money fund, then your income will be higher in the municipal fund. To find
what a taxable fund would have to yield to equal the yield on a municipal
fund, divide the municipal fund's yield by one minus your tax rate. For quick
reference, the next table shows a range of taxable-equivalent yields.
<TABLE>
Table 4 Taxable-Equivalent Yields
<CAPTION>
If your A tax-free yield of
federal tax 2% 3% 4% 5% 6% 7%
rate is: Equals a taxable yield of:
<S> <C> <C> <C> <C> <C> <C>
28% 2.8% 4.2% 5.6% 6.9% 8.3% 9.7%
31% 2.9 4.3 5.8 7.2 8.7 10.1
36% 3.1 4.7 6.2 7.8 9.4 10.9
39.6% 3.3 5.0 6.6 8.3 9.9 11.6
---------------------------------------------------------
</TABLE>
What are the major differences between money market and bond funds?
. Price Bond funds have fluctuating share prices. Money market funds are
managed to maintain a stable share price.
. 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).
. Income Short- and intermediate-term bond funds typically offer more income
than money market funds and less income than longer-term bond funds.
<PAGE>
T. ROWE PRICE 10
SOME BASICS OF FIXED INCOME INVESTING
----------------------------------------------------------
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 yield the same as 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 yield?
Credit quality refers to a bond issuer's expected ability to make all
required interest and principal payments on time. 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-quality securities.
What is meant by a bond fund's maturity?
Every bond has a stated maturity date when the issuer must repay the bond's
entire principal value to the investor. However, many bonds are "callable,"
meaning their principal can be repaid earlier, 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 that environment, a bond's "effective maturity" is
usually its nearest call date.
A bond mutual fund has no real maturity, but it does have a weighted 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 normally use the effective, rather than
stated, maturities of the bonds in the portfolio when computing the average.
This 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.
<PAGE>
ABOUT THE FUNDS 11
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 this
sensitivity 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
expressed in years - 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 share price by multiplying fund duration 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. (T. Rowe Price bond fund shareholder reports
show duration.)
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 rates, as shown in Table 5.
<TABLE>
Table 5 How Interest Rates May Affect Bond Prices
<CAPTION>
Price per $1,000 of a Municipal Bond if Interest Rates:
Bond maturity Coupon Increase Decrease
1% 2% 1% 2%
<S> <S> <S> <C> <C> <C> <C>
1 year 1999 3.70% $990 $981 $1,010 $1,020
3 years 2001 3.95 972 946 1,029 1,058
5 years 2003 4.10 956 915 1,046 1,094
10 years 2008 4.40 924 854 1,084 1,177
20 years 2018 5.00 884 786 1,137 1,299
30 years 2028 5.05 862 752 1,173 1,391
--------------------------------------------------------------------------------------------
</TABLE>
The table reflects yields on AAA-rated municipals as of December 31, 1998. 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 money market securities
fluctuate, but changes are usually small because of their very short
maturities. Investments are typically held until maturity in a money fund to
help the fund maintain a $1.00 share price.
<PAGE>
ABOUT YOUR ACCOUNT
2
PRICING SHARES AND RECEIVING SALE PROCEEDS
----------------------------------------------------------
Here are some procedures you should know when investing in a T. Rowe Price
fund.
How and when shares are priced
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, the fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. Current market values are used to price
bond fund shares. 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
and the information you receive about them 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.
Fund shares may be purchased through various third-party intermediaries
including banks, brokers, and investment advisers. Where authorized by a
fund, orders will be priced at the NAV next computed after receipt by the
intermediary. Consult your intermediary to determine when your orders will be
priced. The intermediary may charge a fee for its services.
Note: The time at which transactions and shares are priced and the time until
which orders are accepted may be changed in case of an emergency or if the
New York Stock Exchange closes at a time other than 4 p.m. ET.
How you can receive the proceeds from a sale
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
<PAGE>
ABOUT YOUR ACCOUNT 13
automated method of initiating payments from, and receiving payments in, your
financial institution account. The ACH system is supported by over 20,000
banks, savings banks, and credit unions. Proceeds sent by bank wire should be
credited to your account the next business day.
. Exception: Under certain circumstances and when deemed to be in each fund's
best interests, your proceeds may not be sent for up to five business days
after we receive your sale or exchange request. If you are exchanging into
another fund, your purchase order will be priced at that fund's NAV on the
fifth business day after the exchange. In addition, 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. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
Income dividends
. 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.
. Dividends are paid on the first business day of each month.
<PAGE>
T. ROWE PRICE 14
. 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.
. Money funds declare income dividends daily to shareholders of record as of
12 noon ET on that day. Wire purchase orders received before 12 noon ET
receive the dividend for that day. Other purchase orders receive the dividend
on the next business day after payment has been received.
Capital gains
o Since money funds are managed to maintain a constant share price, they are
not expected to make capital gain distributions.
. A capital gain or loss is the difference between the purchase and sale price
of a security.
. If a fund has net capital gains for the year (after subtracting any capital
losses), they are usually declared and paid in December to shareholders of
record on a specified date that month. 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 each fund are
expected to be exempt from federal income taxes, you need to be aware of the
possible tax consequences when:
. You sell fund shares, including an exchange from one fund to another.
. The fund makes a distribution to your account.
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. For shareholders who receive
Social Security benefits, the receipt of tax-exempt interest may increase the
portion of benefits that are subject to tax.
<PAGE>
ABOUT YOUR ACCOUNT 15
If a fund invests 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 that
should be included in your AMT calculation, if any, will be reported to you
in January.
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.
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 new accounts or those opened by exchange in
1983 or later, we will provide the gain or loss on the shares you sold during
the year, based on the "average cost," single category method. This
information is not reported to the IRS, and you do not have to use it. You
may calculate the cost basis using other methods acceptable to the IRS, such
as "specific identification."
To help you maintain accurate records, we send you a confirmation immediately
following each transaction you make (except for systematic purchases and
redemptions) and a year-end statement detailing all your transactions in each
fund account during the year.
Taxes on fund distributions
In January, you will be sent Form 1099-DIV indicating the tax status of any
capital gain distributions made to you. This information will also be
reported to the IRS. A fund's capital gain distributions are generally
taxable to you for the year in which they were paid. Dividends are expected
to be tax-exempt.
The tax treatment of a capital gain distribution is determined by how long
the fund held the portfolio securities, not how long you held shares in the
fund. Short-term (one year or less) capital gain distributions are taxable at
the same rate as ordinary income. Reflecting recent changes in the tax code,
gains on securities held more than 12 months are taxed at a maximum rate of
20%. If you realized a loss on the sale or exchange of fund shares which you
held six months or less, your short-term loss will be reclassified to a
long-term loss to the extent you received a long-term capital gain
distribution during the period you held the shares.
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 each fund invests
in these securities, the likelihood of a taxable gain distribution will be
increased.
<PAGE>
T. ROWE PRICE 16
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 wish to find out a fund's record date before
investing. Of course, a fund's share price may, at any time, reflect
undistributed capital gains or income and unrealized appreciation, which may
result in future taxable distributions.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
----------------------------------------------------------
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 each fund or transfer agent, and the fund
can redeem shares you own in this or another identically registered T. Rowe
Price fund as reimbursement. Each fund and its agents have the right to
reject or cancel any purchase, exchange, or redemption due to nonpayment.
U.S. dollars
All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
banks.
Sale (Redemption) Conditions
Holds on immediate redemptions
10-day hold
If you sell shares that you just purchased and paid for by check or ACH
transfer, the funds 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.)
<PAGE>
ABOUT YOUR ACCOUNT 17
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 that states you do not want these services. Personal computer
transactions must be authorized separately. T. Rowe Price funds and their
agents use reasonable procedures (including shareholder identity
verification) to confirm that instructions given by telephone or computer are
genuine and they are not liable for acting on these instructions. If these
procedures are not followed, it is the opinion of certain regulatory agencies
that the funds and their agents may be liable for any losses that may result
from acting on the instructions given. A confirmation is sent promptly after
a transaction. All telephone conversations are recorded.
Redemptions over $250,000
Large sales can adversely affect a portfolio manager's ability to implement a
fund's investment strategy by causing the premature sale of securities that
would otherwise be held. If, in any 90-day period, you redeem (sell) more
than $250,000, or your sale amounts to more than 1% of fund net assets, the
fund has the right to pay the difference between the redemption amount and
the lesser of the two previously mentioned figures with securities from the
fund.
Excessive Trading
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.
. Trades placed directly with T. Rowe Price If you trade directly with T.
Rowe Price, you can make one purchase and sale involving the same fund within
any 120-day period. For example, if you are in fund A, you can move
substantial assets from fund A to fund B and, within the next 120 days, sell
your shares in fund B to return to fund A or move to fund C. If you exceed
this limit, you are in violation of our excessive trading policy.
Two types of transactions are exempt from this policy: 1) trades solely in
money market funds (exchanges between a money fund and a nonmoney fund are
not exempt); and 2) systematic purchases or redemptions (see Information
About Your Services).
. Trades placed through intermediaries If you purchase fund shares through an
intermediary including a broker, bank, investment adviser, or other third
party and hold them for less than 60 calendar days, you are in violation of
our excessive trading policy.
<PAGE>
T. ROWE PRICE 18
. If you violate our excessive trading policy, you may be barred indefinitely
and without further notice from further purchases of T. Rowe Price funds.
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 $10,000. If your balance
is below $10,000 for three months or longer, we have the right to close your
account after giving you 60 days in which to increase your balance.
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:
. Written requests 1) to redeem over $100,000, or 2) to wire redemption
proceeds.
. Remitting redemption proceeds to any person, address, or bank account not on
record.
. Transferring redemption proceeds to a T. Rowe Price fund account with a
different registration (name or ownership) from yours.
. Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings institutions,
broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
accept guarantees from notaries public or organizations that do not provide
reimbursement in the case of fraud.
<PAGE>
MORE ABOUT THE FUNDS
3
ORGANIZATION AND MANAGEMENT
----------------------------------------------------------
How are the funds organized?
The T. Rowe Price Summit Municipal Funds, Inc. (the "corporation") was
incorporated in Maryland in 1993 and is a "diversified, open-end investment
company," or mutual fund. Mutual funds pool money received from shareholders
and invest it to try to achieve specified objectives.
Currently, the corporation consists of three series: the Summit Municipal
Money Market Fund, the Summit Municipal Intermediate Fund, and the Summit
Municipal Income Fund, each of which represents a separate class of shares
and has different objectives and investment policies. Each of the Summit
Funds was established in 1993.
o Shareholders benefit from T. Rowe Price's 62 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:
. Receive a proportional interest in a fund's income and capital gain
distributions.
. Cast one vote per share on certain fund matters, including the election of
fund directors, changes in fundamental policies, or approval of changes in
the fund's management contract.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and, to avoid unnecessary
costs to fund shareholders, do not intend to do so except when certain
matters, such as a change in a fund's fundamental policies, must be decided.
In addition, shareholders representing at least 10% of all eligible votes may
call a special meeting, if they wish, for the purpose of voting on the
removal of any fund director or trustee. If a meeting is held and you cannot
attend, you can vote by proxy. Before the meeting, the fund will send you
proxy materials that explain the issues to be decided and include
instructions on voting by mail or telephone, or on the Internet.
<PAGE>
T. ROWE PRICE 20
Who runs the funds?
General Oversight
The corporation is governed by a Board of Directors that meets regularly to
review each fund's investments, performance, expenses, and other business
affairs. The Board elects the corporation's officers. The policy of the
corporation is that a majority of Board members are independent of T. Rowe
Price Associates, Inc. (T. Rowe Price).
o All decisions regarding the purchase and sale of fund investments are made
by T. Rowe Price - specifically by each fund's portfolio managers.
Portfolio Management
Each fund has an Investment Advisory Committee whose chairman has day-to-day
responsibility for managing the fund and works with the committee in
developing and executing the fund's investment program. The Investment
Advisory Committees comprise the following members:
. Municipal Money Market Fund Patrice Berchtenbreiter Ely, Chairman, Jeremy
N. Baker, Patricia S. Deford, Joseph K. Lynagh, and Mary J. Miller. Ms.
Berchtenbreiter Ely joined T. Rowe Price in 1972 and has been managing
investments since 1986.
. Municipal Intermediate Fund Charles B. Hill, Chairman, Janet G. Albright,
Patricia S. Deford, Konstantine B. Mallas, Mary J. Miller, Julie A. Salsbery,
and Arthur S. Varnado. Mr. Hill joined T. Rowe Price in 1991 and has been
managing investments since 1986.
. Municipal Income Fund William T. Reynolds, Chairman, Janet G. Albright,
Patricia S. Deford, Charles B. Hill, Alan Levenson, Konstantine B. Mallas,
Hugh D. McGuirk, Mary J. Miller, William F. Snider, Arthur S. Varnado, and C.
Stephen Wolfe II. Mr. Reynolds joined T. Rowe Price in 1981 and has been
managing investments since 1978.
The Management Fee
Each fund pays T. Rowe Price an annual all-inclusive fee based on its average
daily net assets. The funds calculate and accrue the fee daily.
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.
<PAGE>
MORE ABOUT THE FUNDS 21
Total Return
This tells you how much an investment in a fund has changed in value over a
given time period. It reflects any net increase or decrease in the share
price and assumes that all dividends and capital gains (if any) paid during
the period were reinvested in additional shares. Therefore, total return
numbers include the effect of compounding.
Advertisements for a fund may include cumulative or average annual total
return figures, which may be compared with various indices, other performance
measures, or other mutual funds.
Cumulative Total Return
This is the actual return of an investment for a specified period. A
cumulative return does not indicate how much the value of the investment may
have fluctuated during the period. For example, a fund could have a 10-year
positive cumulative return despite experiencing three negative years during
that time.
Average Annual Total Return
This is always hypothetical and should not be confused with actual
year-by-year results. It smooths out all the variations in annual performance
to tell you what constant year-by-year return would have produced the
investment's actual cumulative return. This gives you an idea of an
investment's annual contribution to your portfolio, provided you held it for
the entire period.
Yield
The current or "dividend" yield on a fund or any investment tells you the
relationship between the investment's current level of annual income and its
price on a particular day. The dividend yield reflects the actual income paid
to shareholders for a given period, annualized, and divided by the fund's 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.
For bond funds, the advertised or Securities and Exchange Commission (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.
The money fund may advertise a current yield, reflecting the latest seven-day
income annualized, or an "effective" yield, which assumes the income has been
reinvested in the fund.
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T. ROWE PRICE 22
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 in this prospectus. For
instance, the bond funds are 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 funds' 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 each fund achieve its
objective.
Types of Portfolio Securities
In seeking to meet its investment objective, each fund may invest in any type
of municipal security or instrument whose investment characteristics are
consistent with its investment program. For the bond funds, but not the money
fund, these investments may include potentially high-risk derivatives
(described in this section). 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 if more than 10% of
the outstanding
<PAGE>
MORE ABOUT THE FUNDS 23
voting securities of the issuer would be held by each fund. 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) Except as permitted by Rule 2a-7 under
the Investment Company Act of 1940, the money fund will not purchase a
security if, as a result, more than 5% of its total assets would be invested
in securities of a single issuer. Under Rule 2a-7, the 5% limit, among other
things, does not apply to purchases of U.S. government securities or
securities subject to certain types of guarantees. Additionally, the fund may
invest up to 25% of its total assets in the first tier securities (as defined
by Rule 2a-7) of a single issuer for a period of up to three business days.
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 and Taxable Securities
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.)
Operating policy Each fund may invest without limit in bonds subject to the
AMT.
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 income tax.
<PAGE>
T. ROWE PRICE 24
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.
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 may be forced to hold the
longer-term security, which could experience substantially more volatility.
Securities With Credit Enhancements
. 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.
. 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
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
<PAGE>
MORE ABOUT THE FUNDS 25
rate could strain the insurer's loss reserves and adversely affect its
ability to pay claims to bondholders, such as the funds. The number of
municipal bond insurers is relatively small, and not all of them have the
highest rating.
. 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:
. Residual Interest Bonds (bond funds) (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. 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.
Operating policy Each bond fund may invest up to 10% of its total assets in
residual interest bonds.
. 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.
. 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
<PAGE>
T. ROWE PRICE 26
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 Each bond fund may invest up to 10% of its total assets in
embedded interest rate swaps and caps.
Derivatives
A derivative is a financial instrument whose value is derived from an
underlying security, such as a stock or bond, or from a market benchmark such
as an interest rate index. Many types of investments representing a wide
range of potential risks and rewards are derivatives, including conventional
instruments such as callable bonds, futures, and options, as well as more
exotic investments such as stripped mortgage securities and structured notes.
Investment managers have used derivatives for many years.
We invest in derivatives only if the expected risks and rewards are
consistent with each fund's objective, policies, and overall risk profile
described in this prospectus. We use derivatives in situations where they may
enable each fund to increase yield, hedge against a decline in principal,
invest in other asset classes more efficiently and at a lower cost, or adjust
duration.
The bond funds will not invest in any high-risk, highly leveraged derivative
that we believe would cause the portfolios to be more volatile than 1) an
intermediate-term investment-grade bond for the Intermediate Fund; or, 2) a
long-term investment-grade bond for the Income Fund.
Municipal Warrants (bond funds)
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 funds 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 Each bond fund may invest up to 2% of its total assets in
municipal warrants.
<PAGE>
MORE ABOUT THE FUNDS 27
Private Placements
Each fund may seek to enhance its 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 Each bond fund may invest up to 15% (10% for the money
fund) of its net assets in illiquid securities, including unmarketable
private placements.
High-Yield, High-Risk Investing (bond funds)
The total return and yield of lower-quality (high-yield, high-risk) bonds,
commonly referred to as "junk," can be expected to fluctuate more than the
total return and yield of higher-quality bonds. Junk bonds (those rated below
BBB or in default) are regarded as predominantly speculative with respect to
the issuer's ability to meet principal and interest payments. Successful
investment in lower-medium- and low-quality bonds involves greater investment
risk and is highly dependent on T. Rowe Price's credit analysis. A real or
perceived economic downturn, or rising interest rates, could cause a decline
in high-yield bond prices by lessening the ability of issuers to make
principal and interest payments. These bonds are often thinly traded and can
be more difficult to sell and value accurately than high-quality bonds.
Because objective pricing data may be less available, judgment may play a
greater role in the valuation process.
Operating policy The Intermediate and Income Funds may invest up to 10% and
20%, respectively, of total assets in below investment-grade bonds, including
those with the lowest rating.
Types of Management Practices
Reserve Position (bond funds)
Each 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 provides
flexibility in meeting redemptions, expenses, and the timing of new
investments; can help in structuring each fund's weighted average maturity;
and serves as a short-term defense during periods of unusual market
volatility. Each fund's reserve position can consist of shares of one or more
T. Rowe Price internal money market funds as well as 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. For temporary, defensive purposes,
each fund may invest without limitation in money market reserves.
<PAGE>
T. ROWE PRICE 28
When-Issued Securities (all funds) and Forwards (bond funds)
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 cash or high-grade marketable securities held by its
custodian equal in value to its commitment for these securities. Each fund
does 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 funds)
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 funds 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 their 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 may equal up to 5% of a bond fund's net asset
value.
Borrowing Money and Transferring Assets
Each fund can borrow money from banks and other Price funds as a temporary
measure for emergency purposes, to facilitate redemption requests, or for
other purposes consistent with 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 the
fund's total assets. Each fund may not purchase additional securities when
borrowings exceed 5% of total assets.
Portfolio Turnover (bond funds)
Each 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 each fund's investment program, a fund's
portfolio turnover rate may exceed 100%. Although the funds do not expect to
generate any
<PAGE>
MORE ABOUT THE FUNDS 29
taxable income, a high turnover rate may increase transaction costs and may
affect taxes paid by shareholders to the extent capital gains are
distributed. The funds' portfolio turnover rates for the previous three
fiscal years are shown in Table 6.
<TABLE>
Table 6 Portfolio Turnover Rates
<CAPTION>
Fund
<S> <C> <C> <C> <C>
Summit Municipal Intermediate 72.9% 53.8% 22.2%
------------------------------
Summit Municipal Income 56.7 35.7 48.1
-------------------------------------------------------------------
</TABLE>
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 may invest up to 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 on the basis of 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. Other things being equal,
lower-rated bonds have higher yields due to greater risk. High-yield bonds,
also called "junk" bonds, are those rated below BBB.
Table 7 shows the rating scale used by the major rating agencies, and Table 8
provides an explanation of quality ratings. T. Rowe Price considers publicly
available ratings but emphasizes its own credit analysis when selecting
investments.
<PAGE>
T. ROWE PRICE 30
<TABLE>
Table 7 Ratings of Municipal Debt Securities
<CAPTION>
<S> <S> <S> <S> <S> <S> <S> <S> <S>
Moody's Standard
Investors & Poor's Fitch
Service, Inc. Corporation IBCA, 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
-------------------------------------------------------------------------------------------------------
Ba BB BB Speculative
-------------------------------------------------------------------------------------------------------
B B B Highly speculative
-------------------------------------------------------------------------------------------------------
Caa CCC, CC CCC, CC Vulnerable to default
-------------------------------------------------------------------------------------------------------
Ca C C Default is imminent
-------------------------------------------------------------------------------------------------------
C D DDD, DD, D Probably in default
Moody's S&P Fitch IBCA
Short Term MIG1/VMIG1 Best quality SP1+ Very strong quality F-1+ Exceptionally strong quality
SP1 Strong grade F-1 Very strong quality
-------------------------------------------------------------------------------------------------------
MIG2/VMIG2 High quality SP2 Satisfactory grade F-2 Good credit quality
-------------------------------------------------------------------------------------------------------
MIG3/VMIG3 Favorable quality F-3 Fair credit quality
-------------------------------------------------------------------------------------------------------
MIG4/VMIG4 Adequate quality
-------------------------------------------------------------------------------------------------------
SG Speculative SP3 Speculative grade F-5 Weak credit quality
quality
-------------------------------------------------------------------------------------------------------
Commercial P-1 Superior quality A-1+ Extremely strong quality F-1+ Exceptionally strong quality
Paper A-1 Strong quality F-1 Very strong quality
-------------------------------------------------------------------------------------------------------
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
-------------------------------------------------------------------------------------------------------
P-3 Acceptable A-3 Adequate quality F-3 Fair credit quality
quality B Speculative quality F-5 Weak credit quality
C Doubtful quality
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Table 8 Explanation of Quality Ratings
<CAPTION>
<S> <S> <S> <S>
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
Corporation to 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
CCC, CC the 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 IBCA, Inc. AAA Highest quality; obligor has exceptionally
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 31
Year 2000 Processing Issue
Many computer programs use two digits rather than four to identify the year.
These programs, if not adapted, will not correctly handle the change from
"99" to "00" on January 1, 2000, and will not be able to perform necessary
functions. The Year 2000 issue affects virtually all companies and
organizations.
T. Rowe Price has implemented steps intended to assure that its major
computer systems and processes are capable of Year 2000 processing. We are
working with third parties to assess the adequacy of their compliance efforts
and are developing contingency plans intended to assure that third-party
noncompliance will not materially affect T. Rowe Price's operations.
Companies, organizations, governmental entities, and markets in which the T.
Rowe Price funds invest will be affected by the Year 2000 issue, but at this
time the funds cannot predict the degree of impact. For funds that invest in
for-
<PAGE>
T. ROWE PRICE 32
eign markets, especially emerging markets, it is possible foreign companies
and markets will not be as prepared for Year 2000 as domestic companies and
markets. To the extent the effect of Year 2000 is negative, a fund's returns
could be reduced.
FINANCIAL HIGHLIGHTS
----------------------------------------------------------
Table 9, 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 fund's financial statements, which are
included in its annual report and are incorporated by reference into the
Statement of Additional Information (available upon request). The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in each fund (assuming reinvestment of all dividends
and distributions). The financial statements in the annual report were
audited by the funds' independent accountants, PricewaterhouseCoopers LLP.
<TABLE>
Table 9 Financial Highlights
<CAPTION>
10/29/93
through Year ended October 31
10/31/94
Municipal Money ------------ 1995 1996 1997 1998
Market ------------------------------------------
------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income From
Investment Activities
Net investment income 0.023 0.035 0.032 0.033 0.032
Less Distributions
Dividends
(from net investment
income) (0.023) (0.035) (0.032) (0.033) (0.032)
Net asset value, end
of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total return 2.35% 3.53% 3.28% 3.37% 3.27%
Ratios/Supplemental Data
Net assets, end of
period
(in thousands) $42,592 $77,958 $96,264 $140,557 $170,924
Ratio of expenses to
average net assets 0.45% /a/ 0.45% 0.45% 0.45% 0.45%
Ratio of net
investment income to 2.56%/a/ 3.48% 3.23% 3.31% 3.23%
average net assets
------------------------------------------------------------------------------
</TABLE>
/a/ Annualized.
<PAGE>
MORE ABOUT THE FUNDS 33
<TABLE>
Table 9 Financial Highlights (continued)
<CAPTION>
10/29/93
through Year ended October 31
10/31/94
Municipal Intermediate ------------ 1995 1996 1997 1998
-------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.00 $ 9.59 $ 10.17 $ 10.22 $ 10.51
Income From
Investment Operations
Net investment income 0.43 0.48 0.48 0.49 0.48
Net gains or losses on
securities (both
realized and
unrealized) (0.41) 0.58 0.05 0.29 0.23
Total from investment
operations 0.02 1.06 0.53 0.78 0.71
Less Distributions
Dividends
(from net investment
income) (0.43) (0.48) (0.48) (0.49) (0.48)
Distributions
(from capital gains) - - - - (0.04)
Returns of capital - - - - -
Total distributions (0.43) (0.48) (0.48) (0.49) (0.52)
Net asset value, end of
period $ 9.59 $ 10.17 $ 10.22 $ 10.51 $ 10.70
Total return 0.18% 11.39% 5.39% 7.78% 6.89%
Ratios/Supplemental Data
Net assets, end of
period
(in thousands) $13,309 $22,145 $29,175 $46,906 $75,928
Ratio of expenses to
average net assets 0.50% /a/ 0.50% 0.50% 0.50% 0.50%
Ratio of net investment
income to average net
assets 4.50% /a/ 4.93% 4.77% 4.67% 4.51%
Portfolio turnover rate 157.5% /a/ 86.1% 72.9% 53.8% 22.2%
------------------------------------------------------------------------------
</TABLE>
/a/ Annualized.
<TABLE>
Table 9 Financial Highlights (continued)
<CAPTION>
10/29/93
through Year ended October 31
10/31/94
Municipal Income ------------ 1995 1996 1997 1998
-------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.00 $ 9.08 $ 9.84 $ 9.97 $ 10.44
Income From
Investment Operations
Net investment income 0.50 0.54 0.54 0.55 0.51
Net gains or losses on
securities (both
realized and
unrealized) (0.92) 0.76 0.13 0.47 0.35
Total from investment
operations (0.42) 1.30 0.67 1.02 0.86
Less Distributions
Dividends
(from net investment
income) (0.50) (0.54) (0.54) (0.55) (0.51)
Distributions
(from capital gains) - - - - -
Returns of capital - - - - -
Total distributions (0.50) (0.54) (0.54) (0.55) (0.51)
Net asset value, end of
period $ 9.08 $ 9.84 $ 9.97 $ 10.44 $ 10.79
Total return (4.38)% 14.68% 7.04% 10.54% 8.44%
Ratios/Supplemental Data
Net assets, end of
period
(in thousands) $6,453 $11,108 $15,909 $29,102 $65,958
Ratio of expenses to
average net assets 0.50% /a/ 0.50% 0.50% 0.50% 0.50%
Ratio of net investment
income to average net
assets 5.23% /a/ 5.68% 5.51% 5.38% 4.82%
Portfolio turnover rate 161.1% /a/ 73.7% 56.7% 35.7% 48.1%
------------------------------------------------------------------------------
</TABLE>
<PAGE>
T. ROWE PRICE 34
/a/ Annualized.
<PAGE>
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 institutional account procedures, please call your designated
account manager or service representative.
OPENING A NEW ACCOUNT
----------------------------------------------------------
$25,000 minimum initial investment
Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)
By Mail
Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address in the next paragraph. We do not accept third-party checks
to open new accounts.
Regular Mail
T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD 21298-9353
<PAGE>
T. ROWE PRICE 36
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:
Receiving Bank: PNC Bank, N.A. (Pittsburgh) Receiving Bank ABA#: 043000096
Beneficiary: T. Rowe Price [fund name] Beneficiary Account: 1004397951
Originator to Beneficiary Information (OBI): name of owner(s) and account
number
Complete a New Account Form and mail it to one of the appropriate addresses
listed previously.
Note: No services will be established and IRS penalty withholding may occur
until a signed New Account Form is received.
By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if
preauthorized on the existing account. For limitations on exchanging, see
explanation of Excessive Trading under Transaction Procedures and Special
Requirements.
In Person
Drop off your New Account Form at any location listed on the cover and obtain a
receipt.
<PAGE>
INVESTING WITH T. ROWE PRICE 37
PURCHASING ADDITIONAL SHARES
----------------------------------------------------------
$1,000 minimum purchase; $100 minimum for Automatic Asset Builder and gifts or
transfers to minors (UGMA/ UTMA) accounts
By ACH Transfer
Use Tele*Access or your personal computer or call Investor Services if you have
established electronic transfers using the ACH network.
By Wire
Call Shareholder Services or use the wire address in Opening a New Account.
By Mail
1. Make your check payable to T. Rowe Price Funds (otherwise it may be
returned).
2. Mail the check to us at the following address with either a fund reinvestment
slip or a note indicating the fund you want to buy and your fund account
number.
3. Remember to provide your account number and the fund name on the memo line of
your check.
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
----------------------------------------------------------
Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.) Some of the
T. Rowe Price funds may impose a redemption fee of
<PAGE>
T. ROWE PRICE 38
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.
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 Information About Your
Services.
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. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please mail to following address:.
Regular Mail
T. Rowe Price Account Services P.O. Box 89000 Baltimore, MD 21289-02206
Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Account Services 10090 Red Run Boulevard Owings Mills, MD 21117
<PAGE>
INVESTING WITH T. ROWE PRICE 39
RIGHTS RESERVED BY THE FUNDS
----------------------------------------------------------
Each fund and its agents reserve the following rights: (1) to waive or lower
investment minimums; (2) to accept initial purchases by telephone or mailgram;
(3) to refuse any purchase or exchange order; (4) to cancel or rescind any
purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; or (7) to act on
instructions believed to be genuine. These actions will be taken when, in the
sole discretion of management, they are deemed to be in the best interest of the
fund.
In an effort to protect each fund from the possible adverse effects of a
substantial redemption in a large account, as a matter of general policy no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of the fund, except upon approval of the fund's management.
INFORMATION ABOUT YOUR SERVICES
----------------------------------------------------------
Shareholder Services 1-800-225-5132 Investor Services 1-800-638-5660
Many services are available to you as a T. Rowe Price shareholder; some you
receive automatically, and others you must authorize or request on the New
Account Form. By signing up for services on the New Account Form rather than
later on, you avoid having to complete a separate form and obtain a signature
guarantee. This section discusses some of the services
<PAGE>
T. ROWE PRICE 40
currently offered. Our Services Guide, which we mail to all new shareholders,
contains detailed descriptions of these and other services.
Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. For more
information, call Investor Services.
Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k), and 403(b)(7). For information
on IRAs, call Investor Services. For information on all other retirement plans,
including our no-load variable annuity, please call our Trust Company at
1-800-492-7670.
Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days
Tele*Access
24-hour service via toll-free number enables you to (1) access information on
fund yields, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, duplicate
statements, and tax forms; and (3) initiate purchase, redemption, and exchange
transactions in your accounts (see Electronic Transfers in this section).
Web Address www.troweprice.com
After obtaining proper authorization, account transactions may also be conducted
through our Web site on the Internet. In addition, if you subscribe to America
Online, you can access our Web site via keyword "T. Rowe Price" and conduct
transactions in your account.
Plan Account Line 1-800-401-3279
Plan Account Line
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.
<PAGE>
INVESTING WITH T. ROWE PRICE 41
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
($100 minimum) You can invest automatically in several different ways,
including:
Automatic Asset Builder
You instruct us to move $100 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.
<PAGE>
T. ROWE PRICE 42
T. ROWE PRICE BROKERAGE
----------------------------------------------------------
To open an account 1-800-638-5660 For existing brokerage investors
1-800-225-7720
This service gives you the opportunity to consolidate all of your investments
with one company. Investments available through our brokerage service include
stocks, options, bonds, non-T. Rowe Price mutual funds, and others at
commission savings over full-service brokers. We also provide a wide range of
services, including:
Automated telephone and computer services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Internet-Trader. Any trades executed through Tele-Trader save you an additional
10% on commissions. You will save 20% on commissions for stock trades, and 10%
on option trades, when you use Internet-Trader. All trades are subject to a $35
minimum commission except stock trades placed through Internet-Trader, which are
subject to a $29.95 minimum commission.
Investor information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to on-line research tools can help
you better evaluate economic trends and investment opportunities.
Dividend Reinvestment Service
Virtually all stocks held in customer accounts are eligible for this free
service.
/T. Rowe Price// Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./
<PAGE>
INVESTING WITH T. ROWE PRICE 43
INVESTMENT INFORMATION
----------------------------------------------------------
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety of
information in addition to account statements. Most of this information is also
available on our Web site at www.troweprice.com.
Shareholder Reports
Fund managers' reviews of their strategies and fund 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
A quarterly review of all T. Rowe Price fund results.
Insights
Educational reports on investment strategies and financial markets.
Investment Guides
Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirees Financial Guide, Retirement Planning Kit,
and Tax Considerations for Investors.
<PAGE>
To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
For Mutual Fund or T. Rowe Price Brokerage Information
Investor Services
1-800-638-5660
For Existing Accounts
Shareholder Services
1-800-225-5132
For Yields, Prices, Account Information, or to Conduct Transactions
Tele*Access/(R)/
24 hours, 7 days 1-800-638-2587
Internet Address
www.troweprice.com
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
4200 West Cypress St. 10th Floor Tampa, FL 33607
Headquarters
100 East Pratt St. Baltimore, MD 21202
This prospectus contains information you should know before investing. Please
keep it for future reference.
A Statement of Additional Information about each fund has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus. Further information about each fund's investments, including a
review of market conditions and the manager's recent strategies and their impact
on performance, is available in the annual and semiannual shareholder reports.
To obtain free copies of any of these documents, or for shareholder inquiries,
call 1-800-638-5660.
Fund reports and Statements of Additional Information are also available from
the Securities and Exchange Commission by calling 1-800-SEC-0330 or by writing
the SEC's Public Reference Section, Washington, D.C. 20549-6009 (you will be
charged a duplicating fee); by visiting the SEC's public reference room; or by
consulting the SEC's web site at www.sec.gov.
1940 Act File No. 811-7095
C10-040 3/1/99
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
The date of this Statement of Additional Information is March 1, 1999.
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-Term Fund
T. Rowe Price Summit Municipal Income Fund
______________________________________________________________________________
Mailing Address:
T. Rowe Price Investment Services, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
1-800-638-5660
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the appropriate Fund prospectus dated March 1, 1999,
which may be obtained from T. Rowe Price Investment Services, Inc.
("Investment Services").
The Fund's financial statements for the year ended October 31, 1998, and the
report of independent accountants are included in each Fund's Annual Report
and incorporated by reference into this Statement of Additional Information.
If you would like a prospectus or an annual or semiannual shareholder report
for a Fund of which you are not a shareholder, please call 1-800-638-5660. A
prospectus with more complete information, including management fees and
expenses, will be sent to you. Please read it carefully.
C09-042 3/1/99
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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Page Page
---- ----
<S> <C> <C> <C> <C>
Capital Stock Portfolio Management Practices
- ---------------------------------- ----------------------------------------
Code of Ethics Portfolio Transactions
- ---------------------------------- ----------------------------------------
Custodian Pricing of Securities
- ---------------------------------- ----------------------------------------
Distributor for the Funds Principal Holders of Securities
- ---------------------------------- ----------------------------------------
Dividends and Ratings of Commercial Paper
Distributions
- ---------------------------------- ----------------------------------------
Federal Registration of Ratings of Corporate Debt
Shares Securities
- ---------------------------------- ----------------------------------------
Independent Accountants Ratings of Municipal Debt
Securities
- ---------------------------------- ----------------------------------------
Investment Management Ratings of Municipal Notes and
Services Variable Rate Securities
- ---------------------------------- ----------------------------------------
Investment Objectives and Risk Factors for Summit Income
Policies Funds
- ---------------------------------- ----------------------------------------
Investment Performance Risk Factors for Summit
Municipal Funds
- ---------------------------------- ----------------------------------------
Investment Program Shareholder Services
- ---------------------------------- ----------------------------------------
Investment Restrictions Tax-Exempt vs. Taxable Yields
- ---------------------------------- ----------------------------------------
Legal Counsel Tax Status
- ---------------------------------- ----------------------------------------
Management of the Funds Yield Information
- ---------------------------------- ----------------------------------------
Net Asset Value Per Share
- ---------------------------------- ----------------------------------------
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
-------------------------------------------------------------------------------
The following information supplements the discussion of each Fund's
investment objectives and policies discussed in the Funds' prospectus.
The Funds will not make a material change in their investment objectives
without obtaining shareholder approval. Unless otherwise specified, the
investment programs and restrictions of the Funds are not fundamental
policies. Each Fund's operating policies are subject to change by each Board
of Directors without shareholder approval. However, shareholders will be
notified of a material change in an operating policy. Each Fund's fundamental
policies may not be changed without the approval of at least a majority of
the outstanding shares of the Fund or, if it is less, 67% of the shares
represented at a meeting of shareholders at which the holders of 50% or more
of the shares are represented. References to the 1940 Act are to the
Investment Company Act of 1940, as amended.
Throughout this Statement of Additional Information, "the Fund" is intended
to refer to each Fund listed on the cover page, unless otherwise indicated.
RISK FACTORS FOR SUMMIT INCOME FUNDS
-------------------------------------------------------------------------------
Reference is also made to the sections entitled "Types of Securities" and
"Portfolio Management Practices" for discussions of the risks associated with
the investments and practices described therein as they apply to the Fund.
<PAGE>
Cash Reserves Fund
The Money Fund will limit its purchases of portfolio instruments to those
U.S. dollar-denominated securities which the Fund's Board of Directors
determines present minimal credit risk, and which are Eligible Securities as
defined in Rule 2a-7 under the 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 (which may include sub-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
Associates, Inc. ("T. Rowe Price") pursuant to written guidelines established
under the supervision of the Fund's Board of Directors. In addition, the Fund
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 Fund will achieve its investment
objectives or be able to maintain its net asset value per share at $1.00. The
price of the Fund is not guaranteed or insured, and its yield is not fixed.
While the Fund invests in high-grade money market instruments, investment in
the Fund is not without risk even if all portfolio instruments are paid in
full at maturity. An increase in interest rates could reduce the value of the
Fund's portfolio investments, and a decline in interest rates could increase
the value.
Limited-Term Bond Fund
Because of its investment policy, the Fund may or may not be suitable or
appropriate for all investors. The Fund is not a money market fund and is not
an appropriate investment for those whose primary objective is principal
stability. There is risk in all investment. The Fund is designed for the
investor who seeks to participate in a diversified portfolio of short- and
intermediate-term investment grade bonds and other debt securities (up to 10%
of which may be below investment grade) which provide a higher rate of income
than a money market fund and less risk of capital fluctuation than a
portfolio of long-term debt securities. The value of the portfolio securities
of the Fund will fluctuate based upon market conditions. Although the Fund
seeks to reduce risk by investing in a diversified portfolio, such
diversification does not eliminate all risk. There can, of course, be no
assurance that the Fund will achieve these results.
GNMA Fund
The Fund may or may not be suitable or appropriate for all investors. The
Fund is designed for investors seeking the highest current income and credit
protection available from investment in securities which are backed by the
full faith and credit of the U.S. government and other securities rated
within the highest two credit categories established by a nationally
recognized public rating agency, or, if unrated, of equivalent quality as
determined by T. Rowe Price. Consistent with a long-term financial investment
approach, investors in the Fund should not rely on the Fund for their
short-term financial needs. The value of the portfolio securities of the Fund
will fluctuate based upon market conditions. Although the Fund seeks to
reduce risk by investing in a diversified portfolio, such diversification
does not eliminate all risk. There can, of course, be no assurance that the
Fund will achieve these results.
Because they consist of underlying mortgages, GNMA securities may not be an
effective means of "locking in" long-term interest rates due to the need for
the Fund to reinvest scheduled and unscheduled principal payments. The
incidence of unscheduled principal prepayments is also likely to increase in
mortgage pools owned by the Fund when prevailing mortgage loan rates fall
below the mortgage rates of the securities underlying the individual pool.
The effect of such prepayments in a falling rate environment is to (1) cause
the Fund to reinvest principal payments at the then lower prevailing interest
rate, and (2) reduce the potential for capital appreciation beyond the face
amount of the security and adversely affect the return to the Fund.
Conversely, in a rising interest rate environment such prepayments can be
reinvested at higher prevailing interest rates which will reduce the
potential effect of capital depreciation to which bonds are subject when
interest rates rise. In addition, prepayments of mortgage securities
purchased at a premium (or discount) will cause such securities to be paid
off at par, resulting in a loss (gain) to the Fund. T. Rowe Price will
actively manage the Fund's portfolio in an attempt to reduce the risk
associated with investment in mortgage-backed securities.
<PAGE>
Debt Obligations
Yields on short-, intermediate-, and long-term securities are dependent on a
variety of factors, including the general conditions of the money and bond
markets, the size of a particular offering, the maturity of the obligation,
and the credit quality and rating of the issue. Debt securities with longer
maturities tend to have higher yields and are generally subject to
potentially greater capital appreciation and depreciation than obligations
with shorter maturities and lower yields. The market prices of debt
securities usually vary, depending upon available yields. An increase in
interest rates will generally reduce the value of portfolio debt securities,
and a decline in interest rates will generally increase the value of
portfolio debt securities. The ability of the Fund to achieve its investment
objective is also dependent on the continuing ability of the issuers of the
debt securities in which the Fund invests to meet their obligations for the
payment of interest and principal when due. Although the Fund seeks to reduce
risk by portfolio diversification, credit analysis, and attention to trends
in the economy, industries and financial markets, such efforts will not
eliminate all risk. There can, of course, be no assurance that the Fund will
achieve its investment objective.
After purchase by the Fund, a debt security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
For the Money Funds, the procedures set forth in Rule 2a-7, under the 1940
Act, may require the prompt sale of any such security. For the other Funds,
neither event will require a sale of such security by the Fund. However, T.
Rowe Price will consider such event in its determination of whether the Fund
should continue to hold the security. To the extent that the ratings given by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P") may change as a result of changes in such organizations or their
rating systems, the Fund will attempt to use comparable ratings as standards
for investments in accordance with the investment policies contained in the
prospectus. When purchasing unrated securities, T. Rowe Price, under the
supervision of the Fund's Board of Directors, determines whether the unrated
security is of a quality comparable to that which the Fund is allowed to
purchase.
Securities backed by the full faith and credit of the United States (for
example, GNMA and U.S. Treasury securities) are generally considered to be
among the most, if not the most, creditworthy investments available. While
the U.S. government has honored its credit obligations continuously for the
last 200 years, political events in 1995 and 1996, at times, called into
question whether the United States would default on its obligations. Such an
event would be unprecedented and there is no way to predict its results on
the securities markets or the Funds. However, it is very likely default by
the U.S. would result in losses to the Funds.
Mortgage Securities--All Funds except Cash Reserves Fund
Mortgage-backed securities differ from conventional bonds in that principal
is paid back over the life of the security rather than at maturity. As a
result, the holder of a mortgage-backed security (i.e., the Fund) receives
monthly scheduled payments of principal and interest, and may receive
unscheduled principal payments representing prepayments on the underlying
mortgages. The incidence of unscheduled principal prepayments is also likely
to increase in mortgage pools owned by the Fund when prevailing mortgage loan
rates fall below the mortgage rates of the securities underlying the
individual pool. The effect of such prepayments in a falling rate environment
is to (1) cause the Fund to reinvest principal payments at the then lower
prevailing interest rate, and (2) reduce the potential for capital
appreciation beyond the face amount of the security. Conversely, the Fund may
realize a gain on prepayments of mortgage pools trading at a discount. Such
prepayments will provide an early return of principal which may then be
reinvested at the then higher prevailing interest rate.
The market value of adjustable rate mortgage securities ("ARMs"), like other
U.S. government securities, will generally vary inversely with changes in
market interest rates, declining when interest rates rise and rising when
interest rates decline. Because of their periodic adjustment feature, ARMs
should be more sensitive to short-term interest rates than long-term rates.
They should also display less volatility than long-term mortgage-backed
securities. Thus, while having less risk of a decline during periods of
rapidly rising rates, ARMs may also have less potential for capital
appreciation than other investments of comparable maturities. Interest rate
caps on mortgages underlying ARM securities may prevent income on the ARM
from increasing to prevailing interest rate levels and cause the securities
to decline in value. In addition, to the extent ARMs are purchased at a
premium, mortgage foreclosures and unscheduled principal prepayments may
result in
<PAGE>
some loss of the holders' principal investment to the extent of the premium
paid. On the other hand, if ARMs are purchased at a discount, both a
scheduled payment of principal and an unscheduled prepayment of principal
will increase current and total returns and will accelerate the recognition
of income which when distributed to shareholders will be taxable as ordinary
income.
Limited-Term Bond Fund
Special Risks of High-Yield Investing The Fund may invest in low-quality
bonds commonly referred to as "junk bonds." Junk bonds are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Because investment in low- and
lower-medium-quality bonds involves greater investment risk, to the extent
the Fund invests in such bonds, achievement of its investment objective will
be more dependent on T. Rowe Price's credit analysis than would be the case
if the Fund 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 the advent of 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 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.
RISK FACTORS FOR SUMMIT MUNICIPAL FUNDS
-------------------------------------------------------------------------------
Reference is also made to the sections entitled "Types of Securities" and
"Portfolio Management Practices" for discussions of the risks associated with
the investments and practices described therein as they apply to the Fund.
Municipal Securities
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.
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 obligations,
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 Securities and Exchange Commission
("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
<PAGE>
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 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.
Municipal Bond Insurance All of the Funds may purchase insured bonds from
time to time. 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
insurance premium based on the bond's principal value, the issuer is able to
obtain a higher credit rating for the bond. Once purchased, municipal bond
insurance cannot be canceled, and the protection it affords continues as long
as the bonds are outstanding and the insurer remains solvent.
The Funds may also purchase bonds that 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 risk that a
municipal bond insurance company may experience 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, 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.
Municipal Money Market Fund
The Money Fund will limit its purchases of portfolio instruments to those
U.S. dollar-denominated securities which the Fund's Board of Directors
determines present minimal credit risk, and which are Eligible Securities as
defined in Rule 2a-7 under the 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 (which may include sub-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 Directors. In addition, the Fund 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 Fund will achieve its investment
objectives or be able to maintain its net asset value per share at $1.00. The
price of the Fund is not guaranteed or insured, and its yield is not fixed.
While the Fund invests in high-grade money market instruments, investment in
the Fund is not without risk
<PAGE>
even if all portfolio instruments are paid in full at maturity. An increase
in interest rates could reduce the value of the Fund's portfolio investments,
and a decline in interest rates could increase the value.
The price stability and liquidity of the Money Fund 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 fund varies: the shorter the average maturity of a portfolio,
the less its price will be impacted by interest rate fluctuations.
Intermediate and Income Funds
Because of their investment policies, the Intermediate and Income Funds may
not be suitable or appropriate for all investors. The Funds are designed for
investors who wish to invest in long-term funds for income, and who would
benefit, because of their tax bracket, from receiving income that is exempt
from federal income taxes. The Intermediate and Income 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 yield from such securities normally exceeds
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 Intermediate and Income 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. These Funds are also not intended to provide a vehicle for
short-term trading purposes.
Debt Obligations
Yields on short-, intermediate-, and long-term securities are dependent on a
variety of factors, including the general conditions of the money and bond
markets, the size of a particular offering, the maturity of the obligation,
and the credit quality and rating of the issue. Debt securities with longer
maturities tend to have higher yields and are generally subject to
potentially greater capital appreciation and depreciation than obligations
with shorter maturities and lower yields. The market prices of debt
securities usually vary, depending upon available yields. An increase in
interest rates will generally reduce the value of portfolio debt securities,
and a decline in interest rates will generally increase the value of
portfolio debt securities. The ability of the Fund to achieve its investment
objective is also dependent on the continuing ability of the issuers of the
debt securities in which the Fund invests to meet their obligations for the
payment of interest and principal when due. Although the Fund seeks to reduce
risk by portfolio diversification, credit analysis, and attention to trends
in the economy, industries and financial markets, such efforts will not
eliminate all risk. There can, of course, be no assurance that the Fund will
achieve its investment objective.
After purchase by the Fund, a debt security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
For the Money Funds, the procedures set forth in Rule 2a-7, under the 1940
Act, may require the prompt sale of any such security. For the other Funds,
neither event will require a sale of such security by the Fund. However, T.
Rowe Price will consider such event in its determination of whether the Fund
should continue to hold the security. To the extent that the ratings given by
Moody's or S&P may change as a result of changes in such organizations or
their rating systems, the Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies
contained in the prospectus. When purchasing unrated securities, T. Rowe
Price, under the supervision of the Fund's Board of Directors, determines
whether the unrated security is of a quality comparable to that which the
Fund is allowed to purchase.
Special Risks of High-Yield Investing The Fund may invest in low-quality
bonds commonly referred to as "junk bonds." Junk bonds are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Because investment in low- and
lower-medium-quality bonds involves greater investment risk, to the extent
the Fund invests in such bonds, achievement of its investment objective will
be more dependent on T. Rowe Price's credit analysis than would be the case
if the Fund were
<PAGE>
investing in higher-quality bonds. High-yield bonds may be more susceptible
to real or perceived adverse economic conditions than investment-grade bonds.
A projection of an economic downturn, or higher interest rates, for example,
could cause a decline in high-yield bond prices because the advent of such
events could lessen the ability of highly 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 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.
INVESTMENT PROGRAM
-------------------------------------------------------------------------------
All Summit Income Funds
Types of Securities
Set forth below is additional information about certain of the investments
described in the Fund's prospectus.
Adjustable Rate Securities
Generally, the maturity of a security is deemed to be the period remaining
until the date (noted on the face of the instrument) on which the principal
amount must be paid, or in the case of an instrument called for redemption,
the date on which the redemption payment must be made. However, certain
securities may be issued with adjustable interest rates that are reset
periodically by predetermined formulas or indexes in order to minimize
movements in the principal value of the investment. In accordance with Rule
2a-7 under the 1940 Act. Such securities may have long-term maturities, but
may be treated as a short-term investment under certain conditions.
Generally, as interest rates decrease or increase, the potential for capital
appreciation or depreciation on these securities is less than for fixed rate
obligations. These securities may take the following forms:
. Variable Rate Securities A variable rate instrument is one whose terms
provide for the adjustment of its interest rate 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 which approximates its
amortized cost. A variable rate instrument, 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 through demand. A variable rate instrument the
principal amount of which is scheduled to be paid in more than 397 calendar
days and which is subject to a demand feature which entitles the purchaser to
receive the principal amount of the underlying security or securities, either
(i) at any time upon notice of no more than 30 days, or (ii) at specified
intervals not exceeding 397 calendar days and upon no more than 30 days'
notice ("Demand Feature"), 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. A government security that is a variable rate security where the
variable rate is readjusted no less frequently than every 762 calendar days
is deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
. Floating Rate Securities A floating rate security provides for the
adjustment of its 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
amortized cost. A floating rate security, the principal amount of which must
unconditionally be paid in 397 calendar days or less is deemed to have a
maturity of one day. 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. A government
security that is a floating rate security is deemed to have a remaining
maturity of one day.
<PAGE>
. 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.
When-Issued Securities and Forward Commitment Contracts
The price of such securities, which may be expressed in yield terms, is fixed
at the time the commitment to purchase is made, but delivery and payment take
place at a later date. Normally, the settlement date occurs within 90 days of
the purchase for When-Issueds, but may be substantially longer for Forwards.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund. The purchase of these
securities will result in a loss if their value declines prior to the
settlement date. This could occur, for example, if interest rates increase
prior to settlement. The longer the period between purchase and settlement,
the greater the risks are. At the time the Fund makes the commitment to
purchase these securities, it will record the transaction and reflect the
value of the security in determining its net asset value. The Fund will cover
these securities by maintaining cash, liquid, high-grade debt securities, or
other suitable cover as permitted by the SEC with its custodian bank equal in
value to commitments for them during the time between the purchase and the
settlement. Therefore, the longer this period, the longer the period during
which alternative investment options are not available to the Fund (to the
extent of the securities used for cover). Such securities either will mature
or, if necessary, be sold on or before the settlement date.
To the extent the Fund remains fully or almost fully invested (in securities
with a remaining maturity of more than one year) at the same time it
purchases these securities, there will be greater fluctuations in the Fund's
net asset value than if the Fund did not purchase them.
Money Market Securities
The money market securities that the Funds may invest in are generally
limited to those described below.
. U.S. Government Obligations Bills, notes, bonds, and other debt securities
issued by the U.S. Treasury. These are direct obligations of the U.S.
government and differ mainly in the length of their maturities.
. U.S. Government Agency Securities Issued or guaranteed by U.S.
government-sponsored enterprises and federal agencies. These include
securities issued by the Federal National Mortgage Association, Government
National Mortgage Association, Federal Home Loan Bank, Federal Land Banks,
Farmers Home Administration, Banks for Cooperatives, Federal Intermediate
Credit Banks, Federal Financing Bank, Farm Credit Banks, the Small Business
Association, and the Tennessee Valley Authority. Some of these securities are
supported by the full faith and credit of the U.S. Treasury; the remainder
are supported only by the credit of the instrumentality, which may or may not
include the right of the issuer to borrow from the Treasury.
. Bank Obligations Certificates of deposit, bankers' acceptances, and other
short-term debt obligations. Certificates of deposit are short-term
obligations of commercial banks. A bankers' acceptance is a time draft drawn
on a commercial bank by a borrower, usually in connection with international
commercial transactions. Certificates of deposit may have fixed or variable
rates. The Fund may invest in U.S. banks, foreign branches of U.S. banks,
U.S. branches of foreign banks, and foreign branches of foreign banks.
. Short-Term Corporate Debt Securities Outstanding nonconvertible corporate
debt securities (e.g., bonds and debentures) which have one year or less
remaining to maturity. Corporate notes may have fixed, variable, or floating
rates.
. Commercial Paper Short-term promissory notes issued by corporations
primarily to finance short-term credit needs. Certain notes may have floating
or variable rates.
. Foreign Government Securities Issued or guaranteed by a foreign government,
province, instrumentality, political subdivision, or similar unit thereof.
However, the Cash Reserves Fund will only purchase these securities if they
are payable in U.S. dollars.
<PAGE>
. Savings and Loan Obligations Negotiable certificates of deposit and other
short-term debt obligations of savings and loan associations.
. Supranational Agencies Securities of certain supranational entities, such as
the International Development Bank.
. Determination of Maturity of Money Market Securities The Money Fund may only
purchase securities which at the time of investment have remaining maturities
of 397 calendar days or less. The other Funds may also purchase money market
securities. In determining the maturity of money market securities, Funds
will follow the provisions of Rule 2a-7 under the 1940 Act.
. First Tier Money Market Securities Defined At least 95% of the Cash Reserves
Fund's total assets will be maintained in first tier money market securities.
First tier money market securities are those which are described as First
Tier Securities under Rule 2a-7 of the 1940 Act. These include any security
with a remaining maturity of 397 days or less that is rated (or that has been
issued by an issuer that is rated with respect to a class of short-term debt
obligations, or any security within that class that is comparable in priority
and security with the security) by any two nationally recognized statistical
rating organizations (NRSROs) (or if only one NRSRO has issued a rating, that
NRSRO) in the highest rating category for short-term debt obligations (within
which there may be sub-categories). First Tier Securities also include
unrated securities comparable in quality to rated securities, as determined
by T. Rowe Price pursuant to written guidelines established in accordance
with Rule 2a-7 under the 1940 Act under the supervision of the Fund's Board
of Directors.
Asset-Backed Securities
Each fund may invest a portion of its assets in debt obligations known as
asset-backed securities.
The credit quality of most asset-backed securities depends primarily on the
credit quality of the assets underlying such securities, how well the entity
issuing the security is insulated from the credit risk of the originator or
any other affiliated entities and the amount and quality of any credit
support provided to the securities. The rate of principal payment on
asset-backed securities generally depends on the rate of principal payments
received on the underlying assets which in turn may be affected by a variety
of economic and other factors. As a result, the yield on any asset-backed
security is difficult to predict with precision and actual yield to maturity
may be more or less than the anticipated yield to maturity. Asset-backed
securities may be classified as pass-through certificates or collateralized
obligations.
Pass-through certificates are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of assets.
Pass-through certificates usually provide for payments of principal and
interest received to be passed through to their holders, usually after
deduction for certain costs and expenses incurred in administering the pool.
Because pass-through certificates represent an ownership interest in the
underlying assets, the holders thereof bear directly the risk of any defaults
by the obligors on the underlying assets not covered by any credit support.
See "Types of Credit Support."
Asset-backed securities issued in the form of debt instruments, also known as
collateralized obligations, are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Such assets are most often trade, credit card or
automobile receivables. The assets collateralizing such asset-backed
securities are pledged to a trustee or custodian for the benefit of the
holders thereof. Such issuers generally hold no assets other than those
underlying the asset-backed securities and any credit support provided. As a
result, although payments on such asset-backed securities are obligations of
the issuers, in the event of defaults on the underlying assets not covered by
any credit support (see "Types of Credit Support"), the issuing entities are
unlikely to have sufficient assets to satisfy their obligations on the
related asset-backed securities.
. Methods of Allocating Cash Flows While many asset-backed securities are
issued with only one class of security, many asset-backed securities are
issued in more than one class, each with different payment terms.
<PAGE>
Multiple class asset-backed securities are issued for two main reasons.
First, multiple classes may be used as a method of providing credit support.
This is accomplished typically through creation of one or more classes whose
right to payments on the asset-backed security is made subordinate to the
right to such payments of the remaining class or classes. See "Types of
Credit Support." Second, multiple classes may permit the issuance of
securities with payment terms, interest rates or other characteristics
differing both from those of each other and from those of the underlying
assets. Examples include so-called "strips" (asset-backed securities
entitling the holder to disproportionate interests with respect to the
allocation of interest and principal of the assets backing the security), and
securities with class or classes having characteristics which mimic the
characteristics of non-asset-backed securities, such as floating interest
rates (i.e., interest rates which adjust as a specified benchmark changes) or
scheduled amortization of principal.
Asset-backed securities in which the payment streams on the underlying assets
are allocated in a manner different than those described above may be issued
in the future. The Fund may invest in such asset-backed securities if such
investment is otherwise consistent with its investment objectives and
policies and with the investment restrictions of the Fund.
. Types of Credit Support Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on underlying assets to make
payments, such securities may contain elements of credit support. Such credit
support falls into two classes: liquidity protection and protection against
ultimate default by an obligor on the underlying assets. Liquidity protection
refers to the provision of advances, generally by the entity administering
the pool of assets, to ensure that scheduled payments on the underlying pool
are made in a timely fashion. Protection against ultimate default ensures
ultimate payment of the obligations on at least a portion of the assets in
the pool. Such protection may be provided through guarantees, insurance
policies or letters of credit obtained from third parties "external credit
enhancement", through various means of structuring the transaction "internal
credit enhancement" or through a combination of such approaches. Examples of
asset-backed securities with credit support arising out of the structure of
the transaction include "senior-subordinated securities" (multiple class
asset-backed securities with certain classes subordinate to other classes as
to the payment of principal thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class)
and asset-backed securities that have "reserve funds" (where cash or
investments, sometimes funded from a portion of the initial payments on the
underlying assets, are held in reserve against future losses) or that have
been "over collateralized" (where the scheduled payments on, or the principal
amount of, the underlying assets substantially exceeds that required to make
payment of the asset-backed securities and pay any servicing or other fees).
The degree of credit support provided on each issue is based generally on
historical information respecting the level of credit risk associated with
such payments. Depending upon the type of assets securitized, historical
information on credit risk and prepayment rates may be limited or even
unavailable. Delinquency or loss in excess of that anticipated could
adversely affect the return on an investment in an asset-backed security.
. Automobile Receivable Securities The Fund may invest in asset-backed
securities which are backed by receivables from motor vehicle installment
sales contracts or installment loans secured by motor vehicles ("Automobile
Receivable Securities"). Since installment sales contracts for motor vehicles
or installment loans related thereto ("Automobile Contracts") typically have
shorter durations and lower incidences of prepayment, Automobile Receivable
Securities generally will exhibit a shorter average life and are less
susceptible to prepayment risk.
Most entities that issue Automobile Receivable Securities create an
enforceable interest in their respective Automobile Contracts only by filing
a financing statement and by having the servicer of the Automobile Contracts,
which is usually the originator of the Automobile Contracts, take custody
thereof. In such circumstances, if the servicer of the Automobile Contracts
were to sell the same Automobile Contracts to another party, in violation of
its obligation not to do so, there is a risk that such party could acquire an
interest in the Automobile Contracts superior to that of the holders of
Automobile Receivable Securities. Also, although most Automobile Contracts
grant a security interest in the motor vehicle being financed, in most states
the security interest in a motor vehicle must be noted on the certificate of
title to create an enforceable
<PAGE>
security interest against competing claims of other parties. Due to the large
number of vehicles involved, however, the certificate of title to each
vehicle financed, pursuant to the Automobile Contracts underlying the
Automobile Receivable Security, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders
of the Automobile Receivable Securities. Therefore, there is the possibility
that recoveries on repossessed collateral may not, in some cases, be
available to support payments on the securities. In addition, various state
and federal securities laws give the motor vehicle owner the right to assert
against the holder of the owner's Automobile Contract certain defenses such
owner would have against the seller of the motor vehicle. The assertion of
such defenses could reduce payments on the Automobile Receivable Securities.
. Credit Card Receivable Securities The Fund may invest in asset-backed
securities backed by receivables from revolving credit card agreements
("Credit Card Receivable Securities"). Credit balances on revolving credit
card agreements ("Accounts") are generally paid down more rapidly than are
Automobile Contracts. Most of the Credit Card Receivable Securities issued
publicly to date have been Pass-Through Certificates. In order to lengthen
the maturity of Credit Card Receivable Securities, most such securities
provide for a fixed period during which only interest payments on the
underlying Accounts are passed through to the security holder and principal
payments received on such Accounts are used to fund the transfer to the pool
of assets supporting the related Credit Card Receivable Securities of
additional credit card charges made on an Account. The initial fixed period
usually may be shortened upon the occurrence of specified events which signal
a potential deterioration in the quality of the assets backing the security,
such as the imposition of a cap on interest rates. The ability of the issuer
to extend the life of an issue of Credit Card Receivable Securities thus
depends upon the continued generation of additional principal amounts in the
underlying account during the initial period and the non-occurrence of
specified events. An acceleration in cardholders' payment rates or any other
event which shortens the period during which additional credit card charges
on an Account may be transferred to the pool of assets supporting the related
Credit Card Receivable Security could shorten the weighted average life and
yield of the Credit Card Receivable Security.
Credit cardholders are entitled to the protection of a number of state and
federal consumer credit laws, many of which give such holder the right to set
off certain amounts against balances owed on the credit card, thereby
reducing amounts paid on Accounts. In addition, unlike most other
asset-backed securities, Accounts are unsecured obligations of the
cardholder.
. Other Assets Asset-backed securities backed by assets other than those
described above, including, but not limited to, small-business loans and
accounts receivable, equipment leases, commercial real estate loans, boat
loans and manufacturing housing loans. The Fund may invest in such securities
in the future if such investment is otherwise consistent with its investment
objective and policies.
There are, of course, other types of securities that are, or may become
available, which are similar to the foregoing and the Funds may invest in
these securities.
Illiquid or Restricted Securities
Restricted securities may be sold only in privately negotiated transactions
or in a public offering with respect to which a registration statement is in
effect under the Securities Act of 1933 (the "1933 Act"). Where registration
is required, the Fund may be obligated to pay all or part of the registration
expenses, and a considerable period may elapse between the time of the
decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable
price than prevailed when it decided to sell. Restricted securities will be
priced at fair value as determined in accordance with procedures prescribed
by the Fund's Board of Directors. If, through the appreciation of illiquid
securities or the depreciation of liquid securities, the Fund should be in a
position where more than 15% (10% for Cash Reserves) of the value of its net
assets is invested in illiquid assets, including restricted securities, the
Fund will take appropriate steps to protect liquidity.
Notwithstanding the above, the Fund may purchase securities which, while
privately placed, are eligible for purchase and sale under Rule 144A under
the 1933 Act. This rule permits certain qualified institutional
<PAGE>
buyers, such as the Fund, to trade in privately placed securities even though
such securities are not registered under the 1933 Act. T. Rowe Price, under
the supervision of the Fund's Board of Directors, will consider whether
securities purchased under Rule 144A are illiquid and thus subject to the
Fund's restriction of investing no more than 15% (10% for Cash Reserves) of
its net assets in illiquid securities. A determination of whether a Rule 144A
security is liquid or not is a question of fact. In making this
determination, T. Rowe Price will consider the trading markets for the
specific security taking into account the unregistered nature of a Rule 144A
security. In addition, T. Rowe Price could consider the (1) frequency of
trades and quotes, (2) number of dealers and potential purchases, (3) dealer
undertakings to make a market, and (4) the nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer). The liquidity of
Rule 144A securities would be monitored and, if as a result of changed
conditions it is determined that a Rule 144A security is no longer liquid,
the Fund's holdings of illiquid securities would be reviewed to determine
what, if any, steps are required to assure that the Fund does not invest more
than 15% (10% for Cash Reserves) of its net assets in illiquid securities.
Investing in Rule 144A securities could have the effect of increasing the
amount of the Fund's assets invested in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.
There are, of course, other types of securities that are, or may become
available, which are similar to the foregoing and the Funds may invest in
these securities.
Mortgage-Related Securities
Limited-Term Bond and GNMA Funds
Mortgage-related securities in which the Fund may invest include, but are not
limited to, those described below.
. Mortgage-Backed Securities Mortgage-backed securities are securities
representing an interest in a pool of mortgages. The mortgages may be of a
variety of types, including adjustable rate, conventional 30-year fixed rate,
graduated payment, and 15-year. Principal and interest payments made on the
mortgages in the underlying mortgage pool are passed through to the Fund.
This is in contrast to traditional bonds where principal is normally paid
back at maturity in a lump sum. Unscheduled prepayments of principal shorten
the securities' weighted average life and may lower their total return. (When
a mortgage in the underlying mortgage pool is prepaid, an unscheduled
principal prepayment is passed through to the Fund. This principal is
returned to the Fund at par. As a result, if a mortgage security were trading
at a premium, its total return would be lowered by prepayments, and if a
mortgage security were trading at a discount, its total return would be
increased by prepayments.) The value of these securities also may change
because of changes in the market's perception of the creditworthiness of the
federal agency that issued them. In addition, the mortgage securities market
in general may be adversely affected by changes in governmental regulation or
tax policies.
. U.S. Government Agency Mortgage-Backed Securities These are obligations
issued or guaranteed by the United States government or one of its agencies
or instrumentalities, such as the Government National Mortgage Association
("Ginnie Mae" or "GNMA"), the Federal National Mortgage Association ("Fannie
Mae" or "FNMA") the Federal Home Loan Mortgage Corporation ("Freddie Mac" or
"FHLMC"), and the Federal Agricultural Mortgage Corporation ("Farmer Mac" or
"FAMC"). FNMA, FHLMC, and FAMC obligations are not backed by the full faith
and credit of the U.S. government as GNMA certificates are, but they are
supported by the instrumentality's right to borrow from the United States
Treasury. U.S. Government Agency Mortgage-Backed Certificates provide for the
pass-through to investors of their pro-rata share of monthly payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans, net of any fees paid to the guarantor of such securities and
the servicer of the underlying mortgage loans. Each of GNMA, FNMA, FHLMC, and
FAMC guarantees timely distributions of interest to certificate holders. GNMA
and FNMA guarantee timely distributions of scheduled principal. FHLMC has in
the past guaranteed only the ultimate collection of principal of the
underlying mortgage loan; however, FHLMC now issues mortgage-backed
securities (FHLMC Gold PCS) which also guarantee timely payment of monthly
principal reductions.
<PAGE>
. Ginnie Mae Certificates Ginnie Mae is a wholly owned corporate
instrumentality of the United States within the Department of Housing and
Urban Development. The National Housing Act of 1934, as amended (the "Housing
Act"), authorizes Ginnie Mae to guarantee the timely payment of the principal
of and interest on certificates that are based on and backed by a pool of
mortgage loans insured by the Federal Housing Administration under the
Housing Act, or Title V of the Housing Act of 1949 ("FHA Loans"), or
guaranteed by the Department of Veterans Affairs under the Servicemen's
Readjustment Act of 1944, as amended ("VA Loans"), or by pools of other
eligible mortgage loans. The Housing Act provides that the full faith and
credit of the United States government is pledged to the payment of all
amounts that may be required to be paid under any guaranty. In order to meet
its obligations under such guaranty, Ginnie Mae is authorized to borrow from
the United States Treasury with no limitations as to amount.
. Fannie Mae Certificates Fannie Mae is a federally chartered and privately
owned corporation organized and existing under the Federal National Mortgage
Association Charter Act of 1938. FNMA Certificates represent a pro-rata
interest in a group of mortgage loans purchased by Fannie Mae. FNMA
guarantees the timely payment of principal and interest on the securities it
issues. The obligations of FNMA are not backed by the full faith and credit
of the U.S. government.
. Freddie Mac Certificates Freddie Mac is a corporate instrumentality of the
United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act"). Freddie Mac Certificates represent a pro-rata
interest in a group of mortgage loans (a "Freddie Mac Certificate") purchased
by Freddie Mac. Freddie Mac guarantees timely payment of interest and
principal on certain securities it issues and timely payment of interest and
eventual payment of principal on other securities it issues. The obligations
of Freddie Mac are obligations solely of Freddie Mac and are not backed by
the full faith and credit of the U.S. government.
. Farmer Mac Certificates Farmer Mac is a federally chartered instrumentality
of the United States established by Title VIII of the Farm Credit Act of
1971, as amended ("Charter Act"). Farmer Mac was chartered primarily to
attract new capital for financing of agricultural real estate by making a
secondary market in certain qualified agricultural real estate loans. Farmer
Mac provides guarantees of timely payment of principal and interest on
securities representing interests in, or obligations backed by, pools of
mortgages secured by first liens on agricultural real estate ("Farmer Mac
Certificates"). Similar to Fannie Mae and Freddie Mac, Farmer Mac
Certificates are not supported by the full faith and credit of the U.S.
government; rather, Farmer Mac may borrow from the U.S. Treasury to meet its
guaranty obligations.
As discussed above, prepayments on the underlying mortgages and their effect
upon the rate of return of a mortgage-backed security, is the principal
investment risk for a purchaser of such securities, like the Fund. Over time,
any pool of mortgages will experience prepayments due to a variety of
factors, including (1) sales of the underlying homes (including
foreclosures), (2) refinancings of the underlying mortgages, and (3)
increased amortization by the mortgagee. These factors, in turn, depend upon
general economic factors, such as level of interest rates and economic
growth. Thus, investors normally expect prepayment rates to increase during
periods of strong economic growth or declining interest rates, and to
decrease in recessions and rising interest rate environments. Accordingly,
the life of the mortgage-backed security is likely to be substantially
shorter than the stated maturity of the mortgages in the underlying pool.
Because of such variation in prepayment rates, it is not possible to predict
the life of a particular mortgage-backed security, but FHA statistics
indicate that 25- to 30-year single family dwelling mortgages have an average
life of approximately 12 years. The majority of Ginnie Mae Certificates are
backed by mortgages of this type, and, accordingly, the generally accepted
practice treats Ginnie Mae Certificates as 30-year securities which prepay in
full in the 12th year. FNMA and Freddie Mac Certificates may have differing
prepayment characteristics.
Fixed rate mortgage-backed securities bear a stated "coupon rate" which
represents the effective mortgage rate at the time of issuance, less certain
fees to GNMA, FNMA and FHLMC for providing the guarantee, and the issuer for
assembling the pool and for passing through monthly payments of interest and
principal.
Payments to holders of mortgage-backed securities consist of the monthly
distributions of interest and principal less the applicable fees. The actual
yield to be earned by a holder of mortgage-backed securities is
<PAGE>
calculated by dividing interest payments by the purchase price paid for the
mortgage-backed securities (which may be at a premium or a discount from the
face value of the certificate).
Monthly distributions of interest, as contrasted to semiannual distributions
which are common for other fixed interest investments, have the effect of
compounding and thereby raising the effective annual yield earned on
mortgage-backed securities. Because of the variation in the life of the pools
of mortgages which back various mortgage-backed securities, and because it is
impossible to anticipate the rate of interest at which future principal
payments may be reinvested, the actual yield earned from a portfolio of
mortgage-backed securities will differ significantly from the yield estimated
by using an assumption of a certain life for each mortgage-backed security
included in such a portfolio as described above.
. Collateralized Mortgage Obligations (CMOs) CMOs are bonds that are
collateralized by whole loan mortgages or mortgage pass-through securities.
The bonds issued in a CMO deal are divided into groups, and each group of
bonds is referred to as a "tranche." Under the traditional CMO structure, the
cash flows generated by the mortgages or mortgage pass-through securities in
the collateral pool are used to first pay interest and then pay principal to
the CMO bondholders. The bonds issued under a CMO structure are retired
sequentially as opposed to the pro-rata return of principal found in
traditional pass-through obligations. Subject to the various provisions of
individual CMO issues, the cash flow generated by the underlying collateral
(to the extent it exceeds the amount required to pay the stated interest) is
used to retire the bonds. Under the CMO structure, the repayment of principal
among the different tranches is prioritized in accordance with the terms of
the particular CMO issuance. The "fastest-pay" tranche of bonds, as specified
in the prospectus for the issuance, would initially receive all principal
payments. When that tranche of bonds is retired, the next tranche, or
tranches, in the sequence, as specified in the prospectus, receive all of the
principal payments until they are retired. The sequential retirement of bond
groups continues until the last tranche, or group of bonds, is retired.
Accordingly, the CMO structure allows the issuer to use cash flows of long
maturity, monthly-pay collateral to formulate securities with short,
intermediate and long final maturities and expected average lives.
In recent years, new types of CMO structures have evolved. These include
floating rate CMOs, planned amortization classes, accrual bonds and CMO
residuals. These newer structures affect the amount and timing of principal
and interest received by each tranche from the underlying collateral. Under
certain of these new structures, given classes of CMOs have priority over
others with respect to the receipt of prepayments on the mortgages.
Therefore, depending on the type of CMOs in which the Fund invests, the
investment may be subject to a greater or lesser risk of prepayment than
other types of mortgage-related securities.
The primary risk of any mortgage security is the uncertainty of the timing of
cash flows. For CMOs, the primary risk results from the rate of prepayments
on the underlying mortgages serving as collateral. An increase or decrease in
prepayment rates (resulting from a decrease or increase in mortgage interest
rates) will affect the yield, average life and price of CMOs. The prices of
certain CMOs, depending on their structure and the rate of prepayments, can
be volatile. Some CMOs may also not be as liquid as other securities.
. U.S. Government Agency Multiclass Pass-Through Securities Unlike CMOs, U.S.
Government Agency Multiclass Pass-Through Securities, which include FNMA
Guaranteed REMIC Pass-Through Certificates and FHLMC Multi-Class Mortgage
Participation Certificates, are ownership interests in a pool of Mortgage
Assets. Unless the context indicates otherwise, all references herein to CMOs
include multiclass pass-through securities.
. Multi-Class Residential Mortgage Securities Such securities represent
interests in pools of mortgage loans to residential home buyers made by
commercial banks, savings and loan associations or other financial
institutions. Unlike GNMA, FNMA and FHLMC securities, the payment of
principal and interest on Multi-Class Residential Mortgage Securities is not
guaranteed by the U.S. government or any of its agencies. Accordingly, yields
on Multi-Class Residential Mortgage Securities have been historically higher
than the yields on U.S. government mortgage securities. However, the risk of
loss due to default on such instruments is higher since they are not
guaranteed by the U.S. government or its agencies. Additionally, pools of
such securities may be divided into senior or subordinated segments. Although
subordinated mortgage securities
<PAGE>
may have a higher yield than senior mortgage securities, the risk of loss of
principal is greater because losses on the underlying mortgage loans must be
borne by persons holding subordinated securities before those holding senior
mortgage securities.
. Privately Issued Mortgage-Backed Certificates These are pass-through
certificates issued by non-governmental issuers. Pools of conventional
residential mortgage loans created by such issuers generally offer a higher
rate of interest than government and government-related pools because there
are no direct or indirect government guarantees of payment. Timely payment of
interest and principal of these pools is, however, generally supported by
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are issued by
government entities, private insurance or the mortgage poolers. Such
insurance and guarantees and the creditworthiness of the issuers thereof will
be considered in determining whether a mortgage-related security meets the
Fund's quality standards. The Fund may buy mortgage-related securities
without insurance or guarantees if through an examination of the loan
experience and practices of the poolers, the investment manager determines
that the securities meet the Fund's quality standards.
. Stripped Mortgage-Backed Securities These instruments are a type of
potentially high-risk derivative. They represent interests in a pool of
mortgages, the cash flow of which has been separated into its interest and
principal components. "IOs" (interest only securities) receive the interest
portion of the cash flow while "POs" (principal only securities) receive the
principal portion. IOs and POs are usually structured as tranches of a CMO.
Stripped Mortgage-Backed Securities may be issued by U.S. government agencies
or by private issuers similar to those described above with respect to CMOs
and privately issued mortgage-backed certificates. As interest rates rise and
fall, the value of IOs tends to move in the same direction as interest rates.
The value of the other mortgage-backed securities described herein, like
other debt instruments, will tend to move in the opposite direction compared
to interest rates. Under the Internal Revenue Code of 1986, as amended (the
"Code"), POs may generate taxable income from the current accrual of original
issue discount, without a corresponding distribution of cash to the Fund.
The cash flows and yields on IO and PO classes are extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
mortgage assets. In the case of IOs, prepayments affect the amount, but not
the timing, of cash flows provided to the investor. In contrast, prepayments
on the mortgage pool affect the timing, but not the amount, of cash flows
received by investors in POs. For example, a rapid or slow rate of principal
payments may have a material adverse effect on the prices of IOs or POs,
respectively. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, an investor may fail to fully recoup
its initial investment in an IO class of a stripped mortgage-backed security,
even if the IO class is rated AAA or Aaa or is derived from a full faith and
credit obligation. Conversely, if the underlying mortgage assets experience
slower than anticipated prepayments of principal, the price on a PO class
will be affected more severely than would be the case with a traditional
mortgage-backed security.
The staff of the SEC has advised the Fund that it believes the Fund should
treat IOs and POs, other than government-issued IOs or POs backed by fixed
rate mortgages, as illiquid securities and, accordingly, limit its
investments in such securities, together with all other illiquid securities,
to 15% of the Fund's net assets. Under the staff's position, the
determination of whether a particular government-issued IO and PO backed by
fixed rate mortgages may be made on a case by case basis under guidelines and
standards established by the Fund's Board of Directors. The Fund's Board of
Directors has delegated to T. Rowe Price the authority to determine the
liquidity of these investments based on the following guidelines: the type of
issuer; type of collateral, including age and prepayment characteristics;
rate of interest on coupon relative to current market rates and the effect of
the rate on the potential for prepayments; complexity of the issue's
structure, including the number of tranches; size of the issue and the number
of dealers who make a market in the IO or PO. The Fund will treat
nongovernment-issued IOs and POs not backed by fixed or adjustable rate
mortgages as illiquid unless and until the SEC staff modifies its position.
. Adjustable Rate Mortgage Securities ARMs, like fixed rate mortgages, have a
specified maturity date, and the principal amount of the mortgage is repaid
over the life of the mortgage. Unlike fixed rate mortgages, the interest rate
on ARMs is adjusted at regular intervals based on a specified, published
interest rate "index" such
<PAGE>
as a Treasury rate index. The new rate is determined by adding a specific
interest amount, the "margin," to the interest rate of the index. Investment
in ARM securities allows the Fund to participate in changing interest rate
levels through regular adjustments in the coupons of the underlying
mortgages, resulting in more variable current income and lower price
volatility than longer-term fixed rate mortgage securities. The ARM
securities in which the Fund expects to invest will generally adjust their
interest rates at regular intervals of one year or less. ARM securities are a
less effective means of locking in long-term rates than fixed rate mortgages
since the income from adjustable rate mortgages will increase during periods
of rising interest rates and decline during periods of falling rates.
. Characteristics of Adjustable Rate Mortgage Securities The interest rates
paid on the mortgages underlying ARM securities are reset at regular
intervals by adding an interest rate margin to a specified interest rate
index. There are three main categories of indices: those based on U.S.
Treasury securities such as the constant maturity treasury rate (CMT); those
derived from a calculated measure such as a cost of funds index (COFI) or a
moving average of mortgage rates; and those based on certain actively traded
or prominent short-term rates such as the LIBOR. Some indices, such as the
one-year constant maturity Treasury rate, closely mirror changes in interest
rate levels. Others, such as COFI, tend to lag behind changes in market rate
levels but reset monthly, thus tending to be somewhat less volatile. Such a
delay in adjusting to changes in interest rates may cause securities owned by
the fund to increase or decrease in value, particularly during periods
between interest adjustment dates.
ARMs will frequently have caps and floors which limit the maximum amount by
which the interest rate to the residential borrower may move up or down,
respectively, each adjustment period and over the life of the loan. Interest
rate caps on ARM securities may cause them to decrease in value in an
increasing interest rate environment. Such caps may also prevent their income
from increasing to levels commensurate with prevailing interest rates.
Conversely, interest rate floors on ARM securities may cause their income to
remain higher than prevailing interest rate levels and result in an increase
in the value of such securities. However, this increase may be tempered by
the acceleration of prepayments.
Mortgage securities generally have a maximum maturity of up to 30 years.
However due to the adjustable rate feature of ARM securities, their prices
are considered to have volatility characteristics which approximate the
average period of time until the next adjustment of the interest rate. As a
result, the principal volatility of ARM securities may be more comparable to
short- and intermediate-term securities than to longer term fixed rate
mortgage securities. Prepayments however, will increase their principal
volatility. See also the discussion of Mortgage-Backed Securities.
. Other Mortgage Related Securities The Fund expects that governmental,
government-related or private entities may create mortgage loan pools
offering pass-through investments in addition to those described above. The
mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage instruments whose principal or interest
payments may vary or whose terms to maturity may differ from customary
long-term fixed rate mortgages. As new types of mortgage-related securities
are developed and offered to investors, the investment manager will,
consistent with the Fund's objective, policies and quality standards,
consider making investments in such new types of securities.
Limited-Term Bond and GNMA Funds
Hybrid Instruments
Hybrid Instruments (a type of potentially high-risk derivative) have been
developed and combine the elements of futures contracts or options with those
of debt, preferred equity, or a depository instrument (hereinafter "Hybrid
Instruments"). Generally, a Hybrid Instrument will be a debt security,
preferred stock, depository share, trust certificate, certificate of deposit,
or other evidence of indebtedness on which a portion of or all interest
payments, and/or the principal or stated amount payable at maturity,
redemption, or retirement, is determined by reference to prices, changes in
prices, or differences between prices, of securities, currencies,
intangibles, goods, articles, or commodities (collectively "Underlying
Assets") or by another objective index, economic factor, or other measure,
such as interest rates, currency exchange rates, commodity indices, and
securities indices (collectively "Benchmarks"). Thus, Hybrid Instruments may
take
<PAGE>
a variety of forms, including, but not limited to, debt instruments with
interest or principal payments or redemption terms determined by reference to
the value of a currency or commodity or securities index at a future point in
time, preferred stock with dividend rates determined by reference to the
value of a currency, or convertible securities with the conversion terms
related to a particular commodity.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing
total return. For example, a Fund may wish to take advantage of expected
declines in interest rates in several European countries, but avoid the
transaction costs associated with buying and currency-hedging the foreign
bond positions. One solution would be to purchase a U.S. dollar-denominated
Hybrid Instrument whose redemption price is linked to the average three-year
interest rate in a designated group of countries. The redemption price
formula would provide for payoffs of greater than par if the average interest
rate was lower than a specified level, and payoffs of less than par if rates
were above the specified level. Furthermore, the Fund could limit the
downside risk of the security by establishing a minimum redemption price so
that the principal paid at maturity could not be below a predetermined
minimum level if interest rates were to rise significantly. The purpose of
this arrangement, known as a structured security with an embedded put option,
would be to give the Fund the desired European bond exposure while avoiding
currency risk, limiting downside market risk, and lowering transactions
costs. Of course, there is no guarantee that the strategy will be successful,
and the Fund could lose money if, for example, interest rates do not move as
anticipated or credit problems develop with the issuer of the Hybrid.
The risks of investing in Hybrid Instruments reflect a combination of the
risks of investing in securities, options, futures and currencies. Thus, an
investment in a Hybrid Instrument may entail significant risks that are not
associated with a similar investment in a traditional debt instrument that
has a fixed principal amount, is denominated in U.S. dollars, or bears
interest either at a fixed rate or a floating rate determined by reference to
a common, nationally published benchmark. The risks of a particular Hybrid
Instrument will, of course, depend upon the terms of the instrument, but may
include, without limitation, the possibility of significant changes in the
Benchmarks or the prices of Underlying Assets to which the instrument is
linked. Such risks generally depend upon factors which are unrelated to the
operations or credit quality of the issuer of the Hybrid Instrument and which
may not be readily foreseen by the purchaser, such as economic and political
events, the supply and demand for the Underlying Assets, and interest rate
movements. In recent years, various Benchmarks and prices for Underlying
Assets have been highly volatile, and such volatility may be expected in the
future. Reference is also made to the discussion of futures, options, and
forward contracts herein for a discussion of the risks associated with such
investments.
Hybrid Instruments are potentially more volatile and carry greater market
risks than traditional debt instruments. Depending on the structure of the
particular Hybrid Instrument, changes in a Benchmark may be magnified by the
terms of the Hybrid Instrument and have an even more dramatic and substantial
effect upon the value of the Hybrid Instrument. Also, the prices of the
Hybrid Instrument and the Benchmark or Underlying Asset may not move in the
same direction or at the same time.
Hybrid Instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, Hybrid Instruments
may bear interest at above market rates but bear an increased risk of
principal loss (or gain). The latter scenario may result if "leverage" is
used to structure the Hybrid Instrument. Leverage risk occurs when the Hybrid
Instrument is structured so that a given change in a Benchmark or Underlying
Asset is multiplied to produce a greater value change in the Hybrid
Instrument, thereby magnifying the risk of loss as well as the potential for
gain.
Hybrid Instruments may also carry liquidity risk since the instruments are
often "customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are willing and able to buy such
instruments in the secondary market may be smaller than that for more
traditional debt securities. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market without the
guarantee of a central clearing organization or in a transaction between the
Fund and the issuer of the Hybrid Instrument, the creditworthiness of the
counter party of issuer of the Hybrid Instrument would be an additional risk
factor which the Fund would have to consider and monitor. Hybrid Instruments
also may not be subject to regulation of the Commodities Futures Trading
Commission ("CFTC"), which
<PAGE>
generally regulates the trading of commodity futures by U.S. persons, the
SEC, which regulates the offer and sale of securities by and to U.S. persons,
or any other governmental regulatory authority.
The various risks discussed above, particularly the market risk of such
instruments, may in turn cause significant fluctuations in the net asset
value of the Fund. Accordingly, the Fund will limit its investments in Hybrid
Instruments to 10% of total assets. However, because of their volatility, it
is possible that the Fund's investment in Hybrid Instruments will account for
more than 10% of the Fund's return (positive or negative).
All Summit Municipal Funds
Types of Securities
Municipal Securities
Subject to the investment objectives and programs described in the prospectus
and the additional investment restrictions described in this Statement of
Additional Information, each Fund's portfolio may consist of any combination
of the various types of municipal securities described below or other types
of municipal securities 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 income tax. In determining the tax-exempt status of a municipal
security, the Fund relies 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 Fund from
such a security might not be exempt from federal income tax.
Municipal securities are classified by maturity as notes, bonds, or
adjustable rate securities.
Municipal Notes
Municipal notes generally are used to provide 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
need 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 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.
<PAGE>
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 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 Fund's Board determines such securities are illiquid,
they will be subject to the Fund's limit on illiquid securities. 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 SEC 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.
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
<PAGE>
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
Generally, the maturity of a security is deemed to be the period remaining
until the date (noted on the face of the instrument) on which the principal
amount must be paid, or in the case of an instrument called for redemption,
the date on which the redemption payment must be made. However, certain
securities may be issued with adjustable interest rates that are reset
periodically by predetermined formulas or indexes in order to minimize
movements in the principal value of the investment. In accordance with Rule
2a-7 under the 1940 Act. Such securities may have long-term maturities, but
may be treated as a short-term investment under certain conditions.
Generally, as interest rates decrease or increase, the potential for capital
appreciation or depreciation on these securities is less than for fixed rate
obligations. These securities may take the following forms:
. Variable Rate Securities A variable rate instrument is one whose terms
provide for the adjustment of its interest rate 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 which approximates its
amortized cost. A variable rate instrument, 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 through demand. A variable rate instrument the
principal amount of which is scheduled to be paid in more than 397 calendar
days and which is subject to a demand feature which entitles the purchaser to
receive the principal amount of the underlying security or securities, either
(i) at any time upon notice of no more than 30 days, or (ii) at specified
intervals not exceeding 397 calendar days and upon no more than 30 days'
notice ("Demand Feature"), 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. A government security that is a variable rate security where the
variable rate is readjusted no less frequently than every 762 calendar days
is deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
. Floating Rate Securities A floating rate security provides for the
adjustment of its 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
amortized cost. A floating rate security, the principal amount of which must
unconditionally be paid in 397 calendar days or less is deemed to have a
maturity of one day. 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. A government
security that is a floating rate security is deemed to have a remaining
maturity of one day.
. 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.
. 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.
<PAGE>
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 income tax to the Funds.
However, there is no guarantee the IRS would treat such interest income as
tax-exempt.
When-Issued Securities
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 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 maintain cash, high-grade marketable debt securities
or other suitable cover with its custodian bank equal in value to commitments
for when-issued securities. Such 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 fully invested
or almost 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 Fund, this could increase the possibility that the
market value of the 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 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.
Investment in Taxable Money Market Securities
Although the Funds expect to be solely invested in municipal securities, for
temporary defensive purposes they may elect to invest in the taxable money
market securities listed below (without limitation) when such action is
deemed to be in the best interests of shareholders. The interest earned on
these money market securities is not exempt from federal income tax and may
be taxable to shareholders as ordinary income.
. U.S. Government Obligations Bills, notes, bonds, and other debt securities
issued by the U.S. Treasury. These are direct obligations of the U.S.
government and differ mainly in the length of their maturities.
. U.S. Government Agency Securities Issued or guaranteed by U.S.
government-sponsored enterprises and federal agencies. These include
securities issued by the Federal National Mortgage Association, Government
National Mortgage Association, Federal Home Loan Bank, Federal Land Banks,
Farmers Home Administration, Banks for Cooperatives, Federal Intermediate
Credit Banks, Federal Financing Bank, Farm Credit Banks, the Small Business
Association, and the Tennessee Valley Authority. Some of these securities are
supported by the full faith and credit of the U.S. Treasury; the remainder
are supported only by the credit of the instrumentality, which may or may not
include the right of the issuer to borrow from the Treasury.
. Bank Obligations Certificates of deposit, bankers' acceptances, and other
short-term debt obligations. Certificates of deposit are short-term
obligations of commercial banks. A bankers' acceptance is a time draft drawn
on a commercial bank by a borrower, usually in connection with international
commercial transactions. Certificates of deposit may have fixed or variable
rates. The Fund may invest in U.S. banks, foreign branches of U.S. banks,
U.S. branches of foreign banks, and foreign branches of foreign banks.
. Short-Term Corporate Debt Securities Outstanding nonconvertible corporate
debt securities (e.g., bonds and debentures) which have one year or less
remaining to maturity. Corporate notes may have fixed, variable, or floating
rates.
<PAGE>
. Commercial Paper Short-term promissory notes issued by corporations
primarily to finance short-term credit needs. Certain notes may have floating
or variable rates.
. Foreign Government Securities Issued or guaranteed by a foreign government,
province, instrumentality, political subdivision, or similar unit thereof.
. Savings and Loan Obligations Negotiable certificates of deposit and other
short-term debt obligations of savings and loan associations.
. Supranational Agencies Securities of certain supranational entities, such as
the International Development Bank.
. Determination of Maturity of Money Market Securities The Money Fund may only
purchase securities which at the time of investment have remaining maturities
of 397 calendar days or less. The other Funds may also purchase money market
securities. In determining the maturity of money market securities, Funds
will follow the provisions of Rule 2a-7 under the 1940 Act.
Intermediate and Income Funds
. Residual Interest Bonds are a type of high-risk derivative. The Funds may
purchase municipal bond issues that are structured as two-part, residual
interest bond and variable rate 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 index or auction process
held approximately every seven to 35 days while the bondholders 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, seven- to 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.
. Embedded Interest Rate Swaps and Caps 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 the Fund's total return. Each Fund will not invest
more than 5% of its total assets in these instruments.
The Funds may invest in other types of derivative instruments as they become
available.
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.
<PAGE>
There are, of course, other types of securities that are, or may become
available, which are similar to the foregoing and the Funds may invest in
these securities.
Intermediate and Income Funds
Forwards
The Funds 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 to sell the escrow receipts during the
when-issued period.
PORTFOLIO MANAGEMENT PRACTICES
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All Funds
Lending of Portfolio Securities
Securities loans are made to broker-dealers or institutional investors or
other persons, pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value
of the securities lent, marked to market on a daily basis. The collateral
received will consist of cash, U.S. government securities, letters of credit
or such other collateral as may be permitted under its investment program.
While the securities are being lent, the Fund will continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities,
as well as interest on the investment of the collateral or a fee from the
borrower. The Fund has a right to call each loan and obtain the securities,
within such period of time which coincides with the normal settlement period
for purchases and sales of such securities in the respective markets. The
Fund will not have the right to vote on securities while they are being lent,
but it will call a loan in anticipation of any important vote. The risks in
lending portfolio securities, as with other extensions of secured credit,
consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will only be made to firms deemed
by T. Rowe Price to be of good standing and will not be made unless, in the
judgment of T. Rowe Price, the consideration to be earned from such loans
would justify the risk.
Interfund Borrowing and Lending
The Funds are parties to an exemptive order received from the SEC on December
8, 1998, that permits them to borrow money from and/or lend money to other
funds in the T. Rowe Price complex ("Price Funds"). All loans are set at an
interest rate between the rate charged on overnight repurchase agreements and
short-term bank loans. All loans are subject to numerous conditions designed
to ensure fair and equitable treatment of all participating funds. The
program is subject to the oversight and periodic review of the Boards of
Directors of the Price Funds.
Repurchase Agreements
Each Fund may enter into repurchase agreements through which investors (such
as the Fund) purchases a security (the "underlying security") from a
well-established securities dealer or a bank which is a member of the Federal
Reserve System. Any such dealer or bank will be on T. Rowe Price's approved
list. At that time, the bank or securities dealer agrees to repurchase the
underlying security at the same price, plus specified interest. Repurchase
agreements are generally for a short period of time, often less than a week.
Repurchase agreements which do not provide for payment within seven days will
be treated as illiquid securities. Each
<PAGE>
Fund will only enter into repurchase agreements where (i) (A) Cash Reserves
-------------
Fund--the underlying securities are either U.S. government securities or
----
securities that, at the time the repurchase agreement is entered into, are
rated in the highest rating category by the requisite number of NRSROs (as
required by Rule 2a-7 under the 1940 Act) and otherwise are of the type
(excluding maturity limitations) which the Fund's investment guidelines would
allow it to purchase directly (however, the underlying securities will either
be U.S. government securities or securities which, at the time the repurchase
agreement is entered into, are rated in the highest rating category by public
rating agencies), (B) Limited-Term and GNMA Funds--the underlying securities
---------------------------
are of the type (excluding maturity limitations) which each Fund's investment
guidelines would allow it to purchase directly, (ii) the market value of the
underlying security, including interest accrued, will be at all times equal
to or exceed the value of the repurchase agreement, and (iii) payment for the
underlying security is made only upon physical delivery or evidence of
book-entry transfer to the account of the custodian or a bank acting as
agent. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, a Fund could experience both delays in liquidating the
underlying security and losses, including: (a) possible decline in the value
of the underlying security during the period while the Fund seeks to enforce
its rights thereto; (b) possible subnormal levels of income and lack of
access to income during this period; and (c) expenses of enforcing its
rights.
Reverse Repurchase Agreements
Although the Fund has no current intention of engaging in reverse repurchase
agreements, the Fund reserves the right to do so. Reverse repurchase
agreements are ordinary repurchase agreements in which a Fund is the seller
of, rather than the investor in, securities, and agrees to repurchase them at
an agreed upon time and price. Use of a reverse repurchase agreement may be
preferable to a regular sale and later repurchase of the securities because
it avoids certain market risks and transaction costs. A reverse repurchase
agreement may be viewed as a type of borrowing by the Fund, subject to
Investment Restriction (1). (See "Investment Restrictions.")
Limited-Term Bond and GNMA Funds
Money Market Reserves
It is expected that the Fund will invest its cash reserves primarily in one
or more money market funds established for the exclusive use of the T. Rowe
Price family of mutual funds and other clients of T. Rowe Price and
Price-Fleming. Currently, two such money market funds are in
operation-Reserve Investment Fund ("RIF") and Government Reserve Investment
Fund ("GRF"), each a series of the Reserve Investment Funds, Inc. Additional
series may be created in the future. These funds were created and operate
under an Exemptive Order issued by the SEC (Investment Company Act Release
No. IC-22770, July 29, 1997).
Both funds must comply with the requirements of Rule 2a-7 under the 1940 Act
governing money market funds. The RIF invests at least 95% of its total
assets in prime money market instruments receiving the highest credit rating.
The GRF invests primarily in a portfolio of U.S. government-backed
securities, primarily U.S. Treasuries, and repurchase agreements thereon.
The RIF and GRF provide a very efficient means of managing the cash reserves
of the Fund. While neither RIF or GRF pay an advisory fee to the Investment
Manager, they will incur other expenses. However, the RIF and GRF are
expected by T. Rowe Price to operate at very low expense ratios. The Fund
will only invest in RIF or GRF to the extent it is consistent with its
objective and program.
Neither fund is insured or guaranteed by the U.S. government, and there is no
assurance they will maintain a stable net asset value of $1.00 per share.
<PAGE>
Options
Options are a type of potentially high-risk derivative.
Limited-Term Bond and GNMA Funds
Writing Covered Call Options
The Fund may write (sell) American or European style "covered" call options
and purchase options to close out options previously written by the Fund. In
writing covered call options, the Fund expects to generate additional premium
income which should serve to enhance the Fund's total return and reduce the
effect of any price decline of the security or currency involved in the
option. Covered call options will generally be written on securities or
currencies which, in T. Rowe Price's opinion, are not expected to have any
major price increases or moves in the near future but which, over the long
term, are deemed to be attractive investments for the Fund.
A call option gives the holder (buyer) the "right to purchase" a security or
currency at a specified price (the exercise price) at expiration of the
option (European style) or at any time until a certain date (the expiration
date) (American style). So long as the obligation of the writer of a call
option continues, he may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring him to deliver the underlying
security or currency against payment of the exercise price. This obligation
terminates upon the expiration of the call option, or such earlier time at
which the writer effects a closing purchase transaction by repurchasing an
option identical to that previously sold. To secure his obligation to deliver
the underlying security or currency in the case of a call option, a writer is
required to deposit in escrow the underlying security or currency or other
assets in accordance with the rules of a clearing corporation.
The Fund will write only covered call options. This means that the Fund will
own the security or currency subject to the option or an option to purchase
the same underlying security or currency, having an exercise price equal to
or less than the exercise price of the "covered" option, or will establish
and maintain with its custodian for the term of the option, an account
consisting of cash, U.S. government securities, other liquid high-grade debt
obligations, or other suitable cover as permitted by the SEC having a value
equal to the fluctuating market value of the optioned securities or
currencies.
Portfolio securities or currencies on which call options may be written will
be purchased solely on the basis of investment considerations consistent with
the Fund's investment objective. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk
(in contrast to the writing of naked or uncovered options, which the Fund
will not do), but capable of enhancing the Fund's total return. When writing
a covered call option, a Fund, in return for the premium, gives up the
opportunity for profit from a price increase in the underlying security or
currency above the exercise price, but conversely retains the risk of loss
should the price of the security or currency decline. Unlike one who owns
securities or currencies not subject to an option, the Fund has no control
over when it may be required to sell the underlying securities or currencies,
since it may be assigned an exercise notice at any time prior to the
expiration of its obligation as a writer. If a call option which the Fund has
written expires, the Fund will realize a gain in the amount of the premium;
however, such gain may be offset by a decline in the market value of the
underlying security or currency during the option period. If the call option
is exercised, the Fund will realize a gain or loss from the sale of the
underlying security or currency. The Fund does not consider a security or
currency covered by a call to be "pledged" as that term is used in the Fund's
policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the Fund
will receive from writing a call option will reflect, among other things, the
current market price of the underlying security or currency, the relationship
of the exercise price to such market price, the historical price volatility
of the underlying security or currency, and the length of the option period.
Once the decision to write a call option has been made, T. Rowe Price, in
determining whether a particular call option should be written on a
particular security or currency, will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will
exist for those options. The premium received by the Fund for writing covered
call options will be recorded as a liability of the Fund. This liability will
be adjusted daily to the option's
<PAGE>
current market value, which will be the latest sale price at the time at
which the net asset value per share of the Fund is computed (close of the New
York Stock Exchange), or, in the absence of such sale, the latest asked
price. The option will be terminated upon expiration of the option, the
purchase of an identical option in a closing transaction, or delivery of the
underlying security or currency upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or, to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund desires to
sell a particular security or currency from its portfolio on which it has
written a call option, or purchased a put option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the security
or currency. There is, of course, no assurance that the Fund will be able to
effect such closing transactions at favorable prices. If the Fund cannot
enter into such a transaction, it may be required to hold a security or
currency that it might otherwise have sold. When the Fund writes a covered
call option, it runs the risk of not being able to participate in the
appreciation of the underlying securities or currencies above the exercise
price, as well as the risk of being required to hold on to securities or
currencies that are depreciating in value. This could result in higher
transaction costs. The Fund will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by the Fund will normally have expiration dates of less
than nine months from the date written. The exercise price of the options may
be below, equal to, or above the current market values of the underlying
securities or currencies at the time the options are written. From time to
time, the Fund may purchase an underlying security or currency for delivery
in accordance with an exercise notice of a call option assigned to it, rather
than delivering such security or currency from its portfolio. In such cases,
additional costs may be incurred.
The Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more than the premium received from
the writing of the option. Because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security or currency, any loss resulting from the repurchase of a call option
is likely to be offset in whole or in part by appreciation of the underlying
security or currency owned by the Fund.
The Fund will not write a covered call option if, as a result, the aggregate
market value of all portfolio securities or currencies covering written call
or put options exceeds 25% of the market value of the Fund's net assets. In
calculating the 25% limit, the Fund will offset, against the value of assets
covering written calls and puts, the value of purchased calls and puts on
identical securities or currencies with identical maturity dates.
Writing Covered Put Options
The Fund may write American or European style covered put options and
purchase options to close out options previously written by the Fund. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) has the obligation to buy, the underlying security or currency at
the exercise price during the option period (American style) or at the
expiration of the option (European style). So long as the obligation of the
writer continues, he may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring him to make payment to the
exercise price against delivery of the underlying security or currency. The
operation of put options in other respects, including their related risks and
rewards, is substantially identical to that of call options.
The Fund would write put options only on a covered basis, which means that
the Fund would maintain in a segregated account cash, U.S. government
securities, other liquid high-grade debt obligations, or other suitable cover
as determined by the SEC, in an amount not less than the exercise price or
the Fund will own an option to sell the underlying security or currency
subject to the option having an exercise price equal to or greater than the
exercise price of the "covered" option at all times while the put option is
outstanding. (The rules of a clearing corporation currently require that such
assets be deposited in escrow to secure payment of the exercise price.)
<PAGE>
The Fund would generally write covered put options in circumstances where T.
Rowe Price wishes to purchase the underlying security or currency for the
Fund's portfolio at a price lower than the current market price of the
security or currency. In such event the Fund would write a put option at an
exercise price which, reduced by the premium received on the option, reflects
the lower price it is willing to pay. Since the Fund would also receive
interest on debt securities or currencies maintained to cover the exercise
price of the option, this technique could be used to enhance current return
during periods of market uncertainty. The risk in such a transaction would be
that the market price of the underlying security or currency would decline
below the exercise price less the premiums received. Such a decline could be
substantial and result in a significant loss to the Fund. In addition, the
Fund, because it does not own the specific securities or currencies which it
may be required to purchase in exercise of the put, cannot benefit from
appreciation, if any, with respect to such specific securities or currencies.
The Fund will not write a covered put option if, as a result, the aggregate
market value of all portfolio securities or currencies covering put or call
options exceeds 25% of the market value of the Fund's net assets. In
calculating the 25% limit, the Fund will offset, against the value of assets
covering written puts and calls, the value of purchased puts and calls on
identical securities or currencies with identical maturity dates.
Purchasing Put Options
The Fund may purchase American or European style put options. As the holder
of a put option, the Fund has the right to sell the underlying security or
currency at the exercise price at any time during the option period (American
style) or at the expiration of the option (European style). The Fund may
enter into closing sale transactions with respect to such options, exercise
them or permit them to expire. The Fund may purchase put options for
defensive purposes in order to protect against an anticipated decline in the
value of its securities or currencies. An example of such use of put options
is provided next.
The Fund may purchase a put option on an underlying security or currency (a
"protective put") owned by the Fund as a defensive technique in order to
protect against an anticipated decline in the value of the security or
currency. Such hedge protection is provided only during the life of the put
option when the Fund, as the holder of the put option, is able to sell the
underlying security or currency at the put exercise price regardless of any
decline in the underlying security's market price or currency's exchange
value. For example, a put option may be purchased in order to protect
unrealized appreciation of a security or currency where T. Rowe Price deems
it desirable to continue to hold the security or currency because of tax
considerations. The premium paid for the put option and any transaction costs
would reduce any capital gain otherwise available for distribution when the
security or currency is eventually sold.
The Fund may also purchase put options at a time when the Fund does not own
the underlying security or currency. By purchasing put options on a security
or currency it does not own, the Fund seeks to benefit from a decline in the
market price of the underlying security or currency. If the put option is not
sold when it has remaining value, and if the market price of the underlying
security or currency remains equal to or greater than the exercise price
during the life of the put option, the Fund will lose its entire investment
in the put option. In order for the purchase of a put option to be
profitable, the market price of the underlying security or currency must
decline sufficiently below the exercise price to cover the premium and
transaction costs, unless the put option is sold in a closing sale
transaction.
The Fund will not commit more than 5% of its assets to premiums when
purchasing put and call options. The premium paid by the Fund when purchasing
a put option will be recorded as an asset of the Fund. This asset will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Fund is
computed (close of New York Stock Exchange), or, in the absence of such sale,
the latest bid price. This asset will be terminated upon expiration of the
option, the selling (writing) of an identical option in a closing
transaction, or the delivery of the underlying security or currency upon the
exercise of the option.
Purchasing Call Options
The Fund may purchase American or European style call options. As the holder
of a call option, the Fund has the right to purchase the underlying security
or currency at the exercise price at any time during the option
<PAGE>
period (American style) or at the expiration of the option (European style).
The Fund may enter into closing sale transactions with respect to such
options, exercise them or permit them to expire. The Fund may purchase call
options for the purpose of increasing its current return or avoiding tax
consequences which could reduce its current return. The Fund may also
purchase call options in order to acquire the underlying securities or
currencies. Examples of such uses of call options are provided next.
Call options may be purchased by the Fund for the purpose of acquiring the
underlying securities or currencies for its portfolio. Utilized in this
fashion, the purchase of call options enables the Fund to acquire the
securities or currencies at the exercise price of the call option plus the
premium paid. At times the net cost of acquiring securities or currencies in
this manner may be less than the cost of acquiring the securities or
currencies directly. This technique may also be useful to the Fund in
purchasing a large block of securities or currencies that would be more
difficult to acquire by direct market purchases. So long as it holds such a
call option rather than the underlying security or currency itself, the Fund
is partially protected from any unexpected decline in the market price of the
underlying security or currency and in such event could allow the call option
to expire, incurring a loss only to the extent of the premium paid for the
option.
The Fund will not commit more than 5% of its assets to premiums when
purchasing call and put options. The Fund may also purchase call options on
underlying securities or currencies it owns in order to protect unrealized
gains on call options previously written by it. A call option would be
purchased for this purpose where tax considerations make it inadvisable to
realize such gains through a closing purchase transaction. Call options may
also be purchased at times to avoid realizing losses.
Dealer (Over-the-Counter) Options
The Fund may engage in transactions involving dealer options. Certain risks
are specific to dealer options. While the Fund would look to a clearing
corporation to exercise exchange-traded options, if the Fund were to purchase
a dealer option, it would rely on the dealer from whom it purchased the
option to perform if the option were exercised. Failure by the dealer to do
so would result in the loss of the premium paid by the Fund as well as loss
of the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while
dealer options have none. Consequently, the Fund will generally be able to
realize the value of a dealer option it has purchased only by exercising it
or reselling it to the dealer who issued it. Similarly, when the Fund writes
a dealer option, it generally will be able to close out the option prior to
its expiration only by entering into a closing purchase transaction with the
dealer to which the Fund originally wrote the option. While the Fund will
seek to enter into dealer options only with dealers who will agree to and
which are expected to be capable of entering into closing transactions with
the Fund, there can be no assurance that the Fund will be able to liquidate a
dealer option at a favorable price at any time prior to expiration. Until the
Fund, as a covered dealer call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) or currencies used as cover until the option expires or is exercised.
In the event of insolvency of the contra party, the Fund may be unable to
liquidate a dealer option. With respect to options written by the Fund, the
inability to enter into a closing transaction may result in material losses
to the Fund. For example, since the Fund must maintain a secured position
with respect to any call option on a security it writes, the Fund may not
sell the assets which it has segregated to secure the position while it is
obligated under the option. This requirement may impair a Fund's ability to
sell portfolio securities or currencies at a time when such sale might be
advantageous.
The Staff of the SEC has taken the position that purchased dealer options and
the assets used to secure the written dealer options are illiquid securities.
The Fund may treat the cover used for written OTC options as liquid if the
dealer agrees that the Fund may repurchase the OTC option it has written for
a maximum price to be calculated by a predetermined formula. In such cases,
the OTC option would be considered illiquid only to the extent the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
<PAGE>
Intermediate and Income 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.
Interest Rate Transactions
Limited-Term Bond and GNMA Funds
The Funds may enter into various interest rate transactions such as interest
rate swaps and the purchase or sale of interest rate caps and floors, to
preserve a return or spread on a particular investment or portion of its
portfolio, to create synthetic securities, or to structure transactions
designed for other non-speculative purposes.
Interest rate swaps involve the exchange by the Funds with third parties of
its respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds
a predetermined interest rate, to receive payments of interest on a
contractually based principal amount from the party selling the interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually based principal amount from
the party selling the interest rate floor. In circumstances in which T. Rowe
Price anticipates that interest rates will decline, the Funds might, for
example, enter into an interest rate swap as the floating rate payor. In the
case where the Funds purchase such an interest rate swap, if the floating
rate payments fell below the level of the fixed rate payment set in the swap
agreement, the Funds counterparties would pay the Funds' amounts equal to
interest computed at the difference between the fixed and floating rates over
the national principal amount. Such payments would offset or partially offset
the decrease in the payments the Funds would receive in respect of floating
rate assets being hedged. In the case of purchasing an interest rate floor,
if interest rates declined below the floor rate, the Funds would receive
payments from the counterparties which would wholly or partially offset the
decrease in the payments they would receive in respect of the financial
instruments being hedged.
The Funds will usually enter into interest rate swaps on a net basis, i.e.,
the two payment streams are netted out, with the Funds receiving or paying,
as the case may be, only the net amount of the two payments. The net amount
of the excess, if any, of the Funds' obligations over its entitlements with
respect to each interest rate swap will be accrued on a daily basis and an
amount of cash or high-quality liquid securities having an aggregate net
asset value at least equal to the accrued excess will be maintained in an
account by the Funds' custodian. If the Funds enter into an interest rate
swap on other than a net basis, the Funds would maintain an account in the
full amount accrued on a daily basis of the Funds' obligations with respect
to the swap. To the extent the Funds sells (i.e., writes) caps and floors, it
will maintain in an account cash or high-quality liquid debt securities
having an aggregate net asset value at least equal to the full amount,
accrued on a daily basis, of the Funds' obligations with respect to any caps
or floors. The Funds will not enter into any interest rate swap, cap or floor
transaction unless the unsecured senior debt or the claims paying ability of
the counterparty thereto is rated at least A by S&P. T. Rowe Price will
monitor the creditworthiness of counterparties on an ongoing basis. If there
is a default by the other parties to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. T. Rowe Price has determined that,
as a result, the swap market has become relative liquid. The Funds may enter
into interest rate swaps only with respect to positions held in its
portfolio. Interest rate swaps do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with
respect to interest rate swaps is limited to the net amount of interest
payments that the Funds are contractually obligated to make. If the other
parties to interest rate swaps default, the Funds' risk of loss consists of
the net amount of interest payments that the Funds are contractually entitled
to receive. Since interest rate swaps are individually negotiated, the Funds
expects to achieve an acceptable degree of correlation between its right to
<PAGE>
receive interest on loan interests and its right and obligation to receive
and pay interest pursuant to interest rate swaps.
The aggregate purchase price of caps and floor held by the Funds may not
exceed 10% of the Funds' total assets. The Funds may sell (i.e., write) caps
and floors without limitation, subject to the account coverage requirement
described above.
Futures Contracts
Futures contracts are a type of potentially high-risk derivative.
Transactions in Futures
The Fund may enter into futures contracts including stock index, interest
rate, and currency futures ("futures" or "futures contracts").
Limited-Term Bond and GNMA Funds
Interest rate or currency futures contracts may be used as a hedge against
changes in prevailing levels of interest rates or currency exchange rates in
order to establish more definitely the effective return on securities or
currencies held or intended to be acquired by the Fund. In this regard, the
Fund could sell interest rate or currency futures as an offset against the
effect of expected increases in interest rates or currency exchange rates and
purchase such futures as an offset against the effect of expected declines in
interest rates or currency exchange rates.
The Fund will enter into futures contracts which are traded on national or
foreign futures exchanges, and are standardized as to maturity date and
underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the CFTC. Although
techniques other than the sale and purchase of futures contracts could be
used for the above-referenced purposes, futures contracts offer an effective
and relatively low cost means of implementing the Fund's objectives in these
areas.
Intermediate and Income Funds
The Fund may enter into 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 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.
All Funds (other than the Money Funds)
Regulatory Limitations
If the Fund purchases or sells futures contracts or related options which do
not qualify as bona fide hedging under applicable CFTC rules, the aggregate
initial margin deposits and premium required to establish those positions
cannot exceed 5% of the liquidation value of the Fund after taking into
account unrealized profits and unrealized losses on any such contracts it has
entered into; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded
in calculating the 5% limitation. For purposes of this policy, options on
futures contracts and foreign currency options traded on a commodities
exchange will be considered "related options." This policy may be modified by
the
<PAGE>
Board of Directors without a shareholder vote and does not limit the
percentage of the Fund's assets at risk to 5%.
In instances involving the purchase of futures contracts or the writing of
call or put options thereon by the Fund, an amount of cash, liquid assets, or
other suitable cover as permitted by the SEC, equal to the market value of
the futures contracts and options thereon (less any related margin deposits),
will be identified by the Fund to cover the position, or alternative cover
(such as owning an offsetting position) will be employed. Assets used as
cover or held in an identified account cannot be sold while the position in
the corresponding option or future is open, unless they are replaced with
similar assets. As a result, the commitment of a large portion of a Fund's
assets to cover or identified accounts could impede portfolio management or
the Fund's ability to meet redemption requests or other current obligations.
If the CFTC or other regulatory authorities adopt different (including less
stringent) or additional restrictions, the Fund would comply with such new
restrictions.
Trading in Futures Contracts
A futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (e.g.,
units of a stock index) for a specified price, date, time and place
designated at the time the contract is made. Brokerage fees are incurred when
a futures contract is bought or sold and margin deposits must be maintained.
Entering into a contract to buy is commonly referred to as buying or
purchasing a contract or holding a long position. Entering into a contract to
sell is commonly referred to as selling a contract or holding a short
position.
Unlike when the Fund purchases or sells a security, no price would be paid or
received by the Fund upon the purchase or sale of a futures contract. Upon
entering into a futures contract, and to maintain the Fund's open positions
in futures contracts, the Fund would be required to deposit with its
custodian in a segregated account in the name of the futures broker an amount
of cash, or liquid assets known as "initial margin." The margin required for
a particular futures contract is set by the exchange on which the contract is
traded, and may be significantly modified from time to time by the exchange
during the term of the contract. Futures contracts are customarily purchased
and sold on margins that may range upward from less than 5% of the value of
the contract being traded.
If the price of an open futures contract changes (by increase in the case of
a sale or by decrease in the case of a purchase) so that the loss on the
futures contract reaches a point at which the margin on deposit does not
satisfy margin requirements, the broker will require an increase in the
margin. However, if the value of a position increases because of favorable
price changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to the Fund.
These subsequent payments, called "variation margin," to and from the futures
broker, are made on a daily basis as the price of the underlying assets
fluctuate, making the long and short positions in the futures contract more
or less valuable, a process known as "marking to market."
Although certain futures contracts, by their terms, require actual future
delivery of and payment for the underlying instruments, in practice most
futures contracts are usually closed out before the delivery date. Closing
out an open futures contract purchase or sale is effected by entering into an
offsetting futures contract sale or purchase, respectively, for the same
aggregate amount of the identical securities and the same delivery date. If
the offsetting purchase price is less than the original sale price, the Fund
realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction
costs must also be included in these calculations. There can be no assurance,
however, that the Fund will be able to enter into an offsetting transaction
with respect to a particular futures contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits on the futures
contract.
As an example of an offsetting transaction in which the underlying instrument
is not delivered, the contractual obligations arising from the sale of one
contract of September Treasury bills on an exchange may
<PAGE>
be fulfilled at any time before delivery of the contract is required (i.e.,
on a specified date in September, the "delivery month") by the purchase of
one contract of September Treasury bills on the same exchange. In such
instance, the difference between the price at which the futures contract was
sold and the price paid for the offsetting purchase, after allowance for
transaction costs, represents the profit or loss to the Fund.
Intermediate and Income Funds
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 the 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.
All Funds (other than the Money Funds)
Special Risks of Transactions in Futures Contracts
. Volatility and Leverage The prices of futures contracts are volatile and are
influenced, among other things, by actual and anticipated changes in the
market and interest rates, which in turn are affected by fiscal and monetary
policies and national and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of
a trading session. Once the daily limit has been reached in a particular type
of futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular
trading day and therefore does not limit potential losses, because the limit
may prevent the liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders to substantial losses.
Margin deposits required on futures trading are low. As a result, a
relatively small price movement in a futures contract may result in immediate
and substantial loss, as well as gain, to the investor. For example, if at
the time of purchase, 10% of the value of the futures contract is deposited
as margin, a subsequent 10% decrease in the value of the futures contract
would result in a total loss of the margin deposit, before any deduction for
the transaction costs, if the account were then closed out. A 15% decrease
would result in a loss equal to 150% of the original margin deposit, if the
contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
. Liquidity The Fund may elect to close some or all of its futures positions
at any time prior to their expiration. The Fund would do so to reduce
exposure represented by long futures positions or short futures positions.
The Fund may close its positions by taking opposite positions which would
operate to terminate the Fund's position in the futures contracts. Final
determinations of variation margin would then be made, additional cash would
be required to be paid by or released to the Fund, and the Fund would realize
a loss or a gain.
Futures contracts may be closed out only on the exchange or board of trade
where the contracts were initially traded. Although the Fund intends to
purchase or sell futures contracts only on exchanges or boards of trade where
there appears to be an active market, there is no assurance that a liquid
market on an exchange or board of trade will exist for any particular
contract at any particular time. In such event, it might not be possible to
close a futures contract, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin. However, in the event futures contracts have been used to hedge the
underlying instruments, the Fund would continue to hold the underlying
instruments
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subject to the hedge until the futures contracts could be terminated. In such
circumstances, an increase in the price of underlying instruments, if any,
might partially or completely offset losses on the futures contract. However,
as described next, there is no guarantee that the price of the underlying
instruments will, in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.
. Hedging Risk A decision of whether, when, and how to hedge involves skill
and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of unexpected market behavior, market or interest rate trends.
There are several risks in connection with the use by the Fund of futures
contracts as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the futures contracts and
movements in the prices of the underlying instruments which are the subject
of the hedge. T. Rowe Price will, however, attempt to reduce this risk by
entering into futures contracts whose movements, in its judgment, will have a
significant correlation with movements in the prices of the Fund's underlying
instruments sought to be hedged.
Successful use of futures contracts by the Fund for hedging purposes is also
subject to T. Rowe Price's ability to correctly predict movements in the
direction of the market. It is possible that, when the Fund has sold futures
to hedge its portfolio against a decline in the market, the index, indices,
or instruments underlying futures might advance and the value of the
underlying instruments held in the Fund's portfolio might decline. If this
were to occur, the Fund would lose money on the futures and also would
experience a decline in value in its underlying instruments. However, while
this might occur to a certain degree, T. Rowe Price believes that over time
the value of the Fund's portfolio will tend to move in the same direction as
the market indices used to hedge the portfolio. It is also possible that, if
the Fund were to hedge against the possibility of a decline in the market
(adversely affecting the underlying instruments held in its portfolio) and
prices instead increased, the Fund would lose part or all of the benefit of
increased value of those underlying instruments that it has hedged, because
it would have offsetting losses in its futures positions. In addition, in
such situations, if the Fund had insufficient cash, it might have to sell
underlying instruments to meet daily variation margin requirements. Such
sales of underlying instruments might be, but would not necessarily be, at
increased prices (which would reflect the rising market). The Fund might have
to sell underlying instruments at a time when it would be disadvantageous to
do so.
In addition to the possibility that there might be an imperfect correlation,
or no correlation at all, between price movements in the futures contracts
and the portion of the portfolio being hedged, the price movements of futures
contracts might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors might close futures contracts through offsetting
transactions, which could distort the normal relationship between the
underlying instruments and futures markets. Second, the margin requirements
in the futures market are less onerous than margin requirements in the
securities markets and, as a result, the futures market might attract more
speculators than the securities markets do. Increased participation by
speculators in the futures market might also cause temporary price
distortions. Due to the possibility of price distortion in the futures market
and also because of imperfect correlation between price movements in the
underlying instruments and movements in the prices of futures contracts, even
a correct forecast of general market trends by T. Rowe Price might not result
in a successful hedging transaction over a very short time period.
Limited-Term Bond and GNMA Funds
Options on Futures Contracts
The Fund may purchase and sell options on the same types of futures in which
it may invest.
Options (another type of potentially high-risk derivative) on futures are
similar to options on underlying instruments except that options on futures
give the purchaser the right, in return for the premium paid, to assume a
position in a futures contract (a long position if the option is a call and a
short position if the option is a put), rather than to purchase or sell the
futures contract, at a specified exercise price at any time during the period
of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the
<PAGE>
option to the holder of the option will be accompanied by the delivery of the
accumulated balance in the writer's futures margin account which represents
the amount by which the market price of the futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the futures contract. Purchasers of options
who fail to exercise their options prior to the exercise date suffer a loss
of the premium paid.
As an alternative to writing or purchasing call and put options on stock
index futures, the Fund may write or purchase call and put options on
financial indices. Such options would be used in a manner similar to the use
of options on futures contracts. From time to time, a single order to
purchase or sell futures contracts (or options thereon) may be made on behalf
of the Fund and other T. Rowe Price Funds. Such aggregated orders would be
allocated among the Funds and the other T. Rowe Price Funds in a fair and
nondiscriminatory manner.
Intermediate and Income Funds
Options on Futures Contracts
The Fund might trade in municipal bond index option futures or similar
options on futures developed in the future. In 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 may 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 (another type of potentially high-risk derivative) on futures are
similar to options on underlying instruments except that options on futures
give the purchaser the right, in return for the premium paid, to assume a
position in a futures contract (a long position if the option is a call and a
short position if the option is a put), rather than to purchase or sell the
futures contract, at a specified exercise price at any time during the period
of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by the delivery of the accumulated balance in the writer's
futures margin account which represents the amount by which the market price
of the futures 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.
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.
<PAGE>
All Funds (other than the Money Funds)
Special Risks of Transactions in Options on Futures Contracts
The risks described under "Special Risks in Transactions on Futures
Contracts" are substantially the same as the risks of using options on
futures. If the Fund were to write an option on a futures contract, it would
be required to deposit and maintain initial and variation margin in the same
manner as a regular futures contract. In addition, where the Fund seeks to
close out an option position by writing or buying an offsetting option
covering the same index, underlying instrument or contract and having the
same exercise price and expiration date, its ability to establish and close
out positions on such options will be subject to the maintenance of a liquid
secondary market. Reasons for the absence of a liquid secondary market on an
exchange include the following: (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 significantly increased when an option on a
U.S. government securities future or an option on some type of index future
is used as a proxy for hedging a portfolio consisting of other types of
securities. Another risk is that the movements in the price of options on
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.
<PAGE>
Additional Futures and Options Contracts
Although the Fund has no current intention of engaging in futures or options
transactions other than those described above, it reserves the right to do
so. Such futures and options trading might involve risks which differ from
those involved in the futures and options described above.
Foreign Futures and Options
Limited-Term Bond Fund
Participation in foreign futures and foreign options transactions involves
the execution and clearing of trades on or subject to the rules of a foreign
board of trade. Neither the National Futures Association nor any domestic
exchange regulates activities of any foreign boards of trade, including the
execution, delivery and clearing of transactions, or has the power to compel
enforcement of the rules of a foreign board of trade or any applicable
foreign law. This is true even if the exchange is formally linked to a
domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or foreign
options transaction occurs. For these reasons, when the Fund trades foreign
futures or foreign options contracts, it may not be afforded certain of the
protective measures provided by the Commodity Exchange Act, the CFTC's
regulations and the rules of the National Futures Association and any
domestic exchange, including the right to use reparations proceedings before
the CFTC and arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. In particular, funds received
from the Fund for foreign futures or foreign options transactions may not be
provided the same protections as funds received in respect of transactions on
United States futures exchanges. In addition, the price of any foreign
futures or foreign options contract and, therefore, the potential profit and
loss thereon may be affected by any variance in the foreign exchange rate
between the time the Fund's order is placed and the time it is liquidated,
offset or exercised.
Limited-Term Bond Fund
Foreign Currency Transactions
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are principally traded
in the interbank market conducted directly between currency traders (usually
large, commercial banks) and their customers. A forward contract generally
has no deposit requirement, and no commissions are charged at any stage for
trades.
The Fund may enter into forward contracts for a variety of purposes in
connection with the management of the foreign securities portion of its
portfolio. The Fund's use of such contracts would include, but not be limited
to, the following:
First, when the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying security transactions, the Fund will be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, when T. Rowe Price believes that one currency may experience a
substantial movement against another currency, including the U.S. dollar, it
may enter into a forward contract to sell or buy the amount of the former
foreign currency, approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. Alternatively,
where appropriate, the Fund may hedge all or part of its foreign currency
exposure through the use of a basket of currencies or a proxy currency where
such currency or currencies act as an effective proxy for other currencies.
In such a case, the Fund may enter into a forward contract where the amount
of the foreign currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging technique may be
more efficient and economical than
<PAGE>
entering into separate forward contracts for each currency held in the Fund.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of
short-term currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.
Under normal circumstances, consideration of the prospect for currency
parties will be incorporated into the longer term investment decisions made
with regard to overall diversification strategies. However, T. Rowe Price
believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the Fund will
be served.
Third, the Fund may use forward contracts when the Fund wishes to hedge out
of the dollar into a foreign currency in order to create a synthetic bond or
money market instrument-the security would be issued in U.S. dollars but the
dollar component would be transformed into a foreign currency through a
forward contract.
The Fund may enter into forward contacts for any other purpose consistent
with the Fund's investment objective and program. However, the Fund will not
enter into a forward contract, or maintain exposure to any such contract(s),
if the amount of foreign currency required to be delivered thereunder would
exceed the Fund's holdings of liquid, high-grade debt securities, currency
available for cover of the forward contract(s) or other suitable cover as
permitted by the SEC. In determining the amount to be delivered under a
contract, the Fund may net offsetting positions.
At the maturity of a forward contract, the Fund may sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and either extend the maturity of the forward contract (by "rolling"
that contract forward) or may initiate a new forward contract.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If the Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between the Fund's entering into a forward contract for the
sale of a foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices increase, the
Fund will suffer a loss to the extent of the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange contracts will
generally be limited to the transactions described above. However, the Fund
reserves the right to enter into forward foreign currency contracts for
different purposes and under different circumstances. Of course, the Fund is
not required to enter into forward contracts with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate
by T. Rowe Price. It also should be realized that this method of hedging
against a decline in the value of a currency does not eliminate fluctuations
in the underlying prices of the securities. It simply establishes a rate of
exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result from an increase in the value of that currency.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on
a daily basis. It will do so from time to time, and investors should be aware
of the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to
the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer.
<PAGE>
Federal Tax Treatment of Options, Futures Contracts, and Forward Foreign
Exchange Contracts
Limited-Term Bond and GNMA Funds
The discussion herein may refer to transactions in which the GNMA Fund does
not engage. The Fund's prospectus sets forth the types of transactions
permissible for the Fund.
The Fund may enter into certain options, futures, and forward foreign
exchange contracts, including options and futures on currencies, which will
be treated as Section 1256 contracts or straddles.
Transactions that are considered Section 1256 contracts will be considered to
have been closed at the end of the Fund's fiscal year and any gains or losses
will be recognized for tax purposes at that time. Such gains or losses from
the normal closing or settlement of such transactions will be characterized
as 60% long-term capital gain (taxable at a maximum rate of 20%) or loss and
40% short-term capital gain or loss regardless of the holding period of the
instrument (ordinary income or loss for foreign exchange contracts). The Fund
will be required to distribute net gains on such transactions to shareholders
even though it may not have closed the transaction and received cash to pay
such distributions.
Options, futures and forward foreign exchange contracts, including options
and futures on currencies, which offset a foreign dollar denominated bond or
currency position may be considered straddles for tax purposes, in which case
a loss on any position in a straddle will be subject to deferral to the
extent of unrealized gain in an offsetting position. The holding period of
the securities or currencies comprising the straddle will be deemed not to
begin until the straddle is terminated. The holding period of the security
offsetting an "in-the-money qualified covered call" option on an equity
security will not include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities, excluding
certain "qualified covered call" options on equity securities, may be
long-term capital losses, if the security covering the option was held for
more than 12 months prior to the writing of the option.
In order for the Fund to continue to qualify for federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a
taxable year must be derived from qualifying income, i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or currencies. Tax regulations could be issued limiting the extent
that net gain realized from option, futures or foreign forward exchange
contracts on currencies is qualifying income for purposes of the 90%
requirement.
As a result of the "Taxpayer Relief Act of 1997," entering into certain
options, futures contracts, or forward contracts may result in the
"constructive sale" of offsetting stocks or debt securities of the Fund.
Intermediate and Income Funds
Federal Tax of Futures Contracts
Although the Fund invests almost exclusively in securities that generate
income that is exempt from federal income taxes, the Fund may enter into
certain option, futures, and foreign exchange contracts, including options
and futures on currencies, which will be treated as Section 1256 contracts or
straddles that are not exempt from such taxes. Therefore, use of the
investment techniques described above could result in taxable income to
shareholders of the Fund.
Transactions which are considered Section 1256 contracts will be considered
to have been closed at the end of the Fund's fiscal year and any gains or
losses will be recognized for tax purposes at that time. Gains or losses
recognized from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain or loss and 40% short-term
capital gain or loss, without regard to the holding period of the contract.
The Fund will be required to distribute net gains on such transactions to
shareholders even though it may not have closed the transaction and received
cash to pay such distributions.
Options, futures and forward foreign exchange contracts, including options
and futures on currencies, which offset a foreign dollar denominated bond or
currency position may be considered straddles for tax purposes, in which case
a loss on any position in a straddle will be subject to deferral to the
extent of unrealized gain in
<PAGE>
an offsetting position. The holding period of the securities or currencies
comprising the straddle will be deemed not to begin until the straddle is
terminated. The holding period of the security offsetting an "in-the-money
qualified covered call" option on an equity security will not include the
period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities, excluding
certain "qualified covered call" options on equity securities, may be
long-term capital losses, if the security covering the option was held for
more than 12 months prior to the writing of the option.
In order for the Fund to continue to qualify for federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a
taxable year must be derived from qualifying income, i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or currencies. Tax regulations could be issued limiting the extent
that net gain realized from option, futures or foreign forward exchange
contracts on currencies is qualifying income for purposes of the 90%
requirement.
As a result of the "Taxpayer Relief Act of 1997," entering into certain
options, futures contracts, or forward contracts may result in the
"constructive sale" of offsetting stocks or debt securities of the Fund.
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.
All Funds
INVESTMENT RESTRICTIONS
-------------------------------------------------------------------------------
Fundamental policies may not be changed without the approval of the lesser of
(1) 67% of the Fund's shares present at a meeting of shareholders if the
holders of more than 50% of the outstanding shares are present in person or
by proxy or (2) more than 50% of a Fund's outstanding shares. Other
restrictions in the form of operating policies are subject to change by the
Fund's Board of Directors without shareholder approval. Any investment
restriction which involves a maximum percentage of securities or assets shall
not be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition of securities or assets
of, or borrowings by, the Fund. Calculation of the Fund's total assets for
compliance with any of the following fundamental or operating policies or any
other investment restrictions set forth in the Fund's prospectus or Statement
of Additional Information will not include cash collateral held in connection
with securities lending activities.
Fundamental Policies
As a matter of fundamental policy, the Fund may not:
(1) Borrowing Borrow money except that the Fund may (i) borrow for
non-leveraging, temporary or emergency purposes; and (ii) engage in
reverse repurchase agreements and make other investments or engage in
other transactions, which may involve a borrowing, in a manner consistent
with the Fund's investment objective and program, provided that the
combination of (i) and (ii) shall not exceed 33/1//\\/3/\\% of the value
of the Fund's total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage permitted by
law. Any borrowings which come to exceed this amount will be reduced in
accordance with applicable law. The Fund may borrow from banks, other
Price Funds, or other persons to the extent permitted by applicable law;
(2) Commodities Purchase or sell physical commodities; except that the Funds
(other than the Municipal Money Market and Cash Reserves Money Funds) may
enter into futures contracts and options thereon;
<PAGE>
(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;
(4) Loans Make loans, although the Fund may (i) lend portfolio securities and
participate in an interfund lending program with other Price Funds
provided that no such loan may be made if, as a result, the aggregate of
such loans would exceed 33/1//\\/3/\\% of the value of the Fund's total
assets; (ii) purchase money market securities and enter into repurchase
agreements; and (iii) acquire publicly distributed or privately placed
debt securities and purchase debt;
(5) Percent Limit on Assets Invested in Any One Issuer Purchase a security
if, as a result, with respect to 75% of the value of its total assets,
more than 5% of the value of the Fund's total assets would be invested in
the securities of a single issuer, except securities issued or guaranteed
by the U.S. government or any of its agencies or instrumentalities;
(6) Percent Limit on Share Ownership of Any One Issuer Purchase a security
if, as a result, with respect to 75% of the value of the Fund's total
assets, more than 10% of the outstanding voting securities of any issuer
would be held by the Fund (other than obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities);
(7) Real Estate Purchase or sell real estate, including limited partnership
interests therein, unless acquired as a result of ownership of securities
or other instruments (but this shall not prevent the Fund from investing
in securities or other instruments backed by real estate or securities of
companies engaged in the real estate business);
(8) Senior Securities Issue senior securities except in compliance with the
1940 Act;
(9) Underwriting Underwrite securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter within the
meaning of the 1933 Act in connection with the purchase and sale of its
portfolio securities in the ordinary course of pursuing its investment
program; or
All Summit Municipal Funds
(10) Equity Securities Purchase equity securities, or securities convertible
into equity securities.
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 borrow
from or lend to other Price Funds (defined as any other mutual fund
managed by or for which T. Rowe Price or Price-Fleming acts as adviser)
only consistent with an exemptive order issued by the SEC on December 8,
1998.
With respect to investment restriction (1), the Cash Reserves and the
Municipal Money Market Funds have no current intention of engaging in any
borrowing transactions.
With respect to investment restriction (2), the Fund does not consider
currency contracts or hybrid investments to be commodities.
For purposes of investment restriction (3), U.S., state or local
governments, or related agencies or instrumentalities, are not considered
an industry. Industries are determined by reference to the
classifications of industries set forth in the Fund's semiannual and
annual reports. It is the position of the Staff of the SEC that foreign
governments are industries for purposes of this restriction.
All Summit Municipal Funds
For purposes of investment restriction (5), the Fund will treat bonds
which are refunded with escrowed U.S. government securities as U.S.
government securities.
All Funds
<PAGE>
Operating Policies
As a matter of operating policy, the Fund may not:
(1) Borrowing Purchase additional securities when money borrowed exceeds 5%
of its total assets;
(2) Control of Portfolio Companies Invest in companies for the purpose of
exercising management or control;
(3) Futures Contracts Purchase a futures contract or an option thereon, if,
with respect to positions in futures or options on futures which do not
represent bona fide hedging, the aggregate initial margin and premiums on
such options would exceed 5% of the Fund's net asset value;
(4) Illiquid Securities Purchase illiquid securities if, as a result, more
than 15% (10% for Cash Reserves and Municipal Money Market Funds) of its
net assets would be invested in such securities;
(5) Investment Companies Purchase securities of open-end or closed-end
investment companies except (i) in compliance with the 1940 Act; (ii)
securities of the Reserve Investment or Government Reserve Investment
Funds; or (iii) in the case of the Money Funds, only securities of other
money market funds;
(6) Margin Purchase securities on margin, except (i) for use of short-term
credit necessary for clearance of purchases of portfolio securities and
(ii) it may make margin deposits in connection with futures contracts or
other permissible investments;
(7) Mortgaging Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by 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;
(8) Oil and Gas Programs Purchase participations or other direct interests
in, or enter into leases with respect to oil, gas, or other mineral
exploration or development programs if, as a result thereof, more than 5%
of the value of the total assets of the Fund would be invested in such
programs;
(9) Options, etc. Invest in puts, calls, straddles, spreads, or any
combination thereof, except to the extent permitted by the prospectus and
Statement of Additional Information;
(10) Short Sales Effect short sales of securities; or
(11) Warrants Invest in warrants if, as a result thereof, more than 10% (for
the Summit Income Funds) or 2% (for the Summit Municipal Funds) of the
value of the net assets of the Fund would be invested in warrants.
NOTES
With respect to investment restriction (5), the Funds have no current
intention of purchasing the securities of other investment companies.
Duplicate fees could result from any such purchases.
All Funds
Notwithstanding anything in the above fundamental and operating restrictions
to the contrary, the Fund may invest all of its assets in a single investment
company or a series thereof in connection with a "master-feeder" arrangement.
Such an investment would be made where the Fund (a "Feeder"), and one or more
other Funds with the same investment objective and program as the Fund,
sought to accomplish its investment objective and program by investing all of
its assets in the shares of another investment company (the "Master"). The
Master would, in turn, have the same investment objective and program as the
Fund. The Fund would invest in this manner in an effort to achieve the
economies of scale associated with having a Master fund make investments in
portfolio companies on behalf of a number of Feeder funds.
<PAGE>
MANAGEMENT OF THE FUNDS
-------------------------------------------------------------------------------
The officers and directors of the Fund are listed below. Unless otherwise
noted, the address of each is 100 East Pratt Street, Baltimore, Maryland
21202. Except as indicated, each has been an employee of T. Rowe Pricefor
more than five years. In the list below, the Fund's directors who are
considered "interested persons" of T. Rowe Price as defined under Section
2(a)(19) of the 1940 Act are noted with an asterisk (*). These directors are
referred to as inside directors by virtue of their officership, directorship,
and/or employment with T. Rowe Price.
All Funds
Independent Directors
CALVIN W. BURNETT, PH.D., 3/16/32, President, Coppin State College; Director,
Maryland Chamber of Commerce and Provident Bank of Maryland; Former
President, Baltimore Area Council Boy Scouts of America; Vice President,
Board of Directors, The Walters Art Gallery; Address: 2500 West North Avenue,
Baltimore, Maryland 21216
ANTHONY W. DEERING, 1/28/45, Director, Chairman of the Board, President and
Chief Operating Officer, The Rouse Company, real estate developers, Columbia,
Maryland; Advisory Director, Kleinwort, Benson (North America) Corporation, a
registered broker-dealer; Address: 10275 Little Patuxent Parkway, Columbia,
Maryland 21044
F. PIERCE LINAWEAVER, 8/22/34, President, F. Pierce Linaweaver & Associates,
Inc.; Consulting Environmental & Civil Engineer(s); formerly Executive Vice
President, EA Engineering, Science, and Technology, Inc., and President, EA
Engineering, Inc., Baltimore, Maryland; Address: Green Spring Station, 2360
West Joppa Road, Suite 224, Lutherville, Maryland 21093
JOHN G. SCHREIBER, 10/21/46, President, Schreiber Investments, Inc., a real
estate investment company; Director, AMLI Residential Properties Trust and
Urban Shopping Centers, Inc.; Partner, Blackstone Real Estate Partners, L.P.;
Director and formerly Executive Vice President, JMB Realty Corporation, a
national real estate investment manager and developer; Address: 1115 East
Illinois Road, Lake Forest, Illinois 60045
Inside Directors/Officers
* WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board -Managing Director, T.
Rowe Price; Chartered Financial Analyst
* JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the
Board and Managing Director, T. Rowe Price; Chairman of the Board, T. Rowe
Price Investment Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price
Retirement Plan Services, Inc., and T. Rowe Price Trust Company; Director,
Price-Fleming and General Re Corporation
* M. DAVID TESTA, 4/22/44, Director -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
HENRY H. HOPKINS, Vice President-Vice President, Price-Fleming and T. Rowe
Price Retirement Plan Services, Inc.; Director and Managing Director, T. Rowe
Price; Vice President and Director, T. Rowe Price Investment Services, Inc.,
T. Rowe Price Services, Inc. and T. Rowe Price Trust Company
PATRICIA S. LIPPERT, 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
<PAGE>
INGRID I. VORDEMBERGE, Assistant Vice President-Employee, T. Rowe Price
All Summit Income Funds
CONNICE A. BAVELY, Executive Vice President -Vice President and Senior
Portfolio Manager, T. Rowe Price; formerly founding partner and Senior Vice
President of Atlantic Asset Management Partners, LLC; Special Partner and
Portfolio Manager at Weiss Peck and Greer
PATRICE BERCHTENBREITER ELY, Vice President -Vice President, T. Rowe Price
DEBORAH L. BOYER, Vice President -Assistant Vice President, T. Rowe Price;
formerly Assistant Vice President and Government Bond Trader for First
Chicago NBD Corporation
STEVEN G. BROOKS, Vice President -Vice President, T. Rowe Price; Chartered
Financial Analyst
BRIAN E. BURNS, Vice President -Assistant Vice President, T. Rowe Price
ROBERT P. CAMPBELL, Vice President -Vice President, T. Rowe Price and
Price-Fleming
PATRICK S. CASSIDY, Vice President -Vice President, T. Rowe Price; Chartered
Financial Analyst
DEBRA R. DIES, Vice President -Credit Analyst, T. Rowe Price; formerly
employed at J.P. Morgan Securities
CHARLES B. HILL, Vice President -Vice President, T. Rowe Price
HEATHER R. LANDON, Vice President -Vice President, T. Rowe Price and T. Rowe
Price Trust Company
JAMES M. MCDONALD, Vice President -Vice President, T. Rowe Price
CHERYL A. MICKEL, Vice President -Assistant Vice President, T. Rowe Price
EDMUND M. NOTZON, Vice President -Managing Director, T. Rowe Price; Vice
President, T. Rowe Price Trust Company; Chartered Financial Analyst
JOAN R. POTEE, Vice President -Vice President, T. Rowe Price
THEODORE E. ROBSON, Vice President -Assistant Vice President, T. Rowe Price
ROBERT M. RUBINO, Vice President -Vice President, T. Rowe Price
EDWARD T. SCHNEIDER, Vice President -Vice President, T. Rowe Price
CHARLES P. SMITH, Vice President -Managing Director, T. Rowe Price; Vice
President, Price-Fleming
VIRGINIA A. STIRLING, Vice President -Vice President, T. Rowe Price
SUSAN G. TROLL, Vice President -Vice President and Analyst, T. Rowe Price;
formerly Vice President at Merrill Lynch Asset Management; Certified Public
Accountant
MARK J. VASELKIV, Vice President -Vice President, T. Rowe Price
GWENDOLYN G. WAGNER, Vice President -Vice President and Economist, T. Rowe
Price; Chartered Financial Analyst
EDWARD A. WIESE, Vice President -Vice President, T. Rowe Price,
Price-Fleming, and T. Rowe Price Trust Company
All Summit Municipal Funds
MARY J. MILLER, President -Managing Director, T. Rowe Price
PATRICE BERCHTENBREITER ELY, Executive Vice President -Vice President, T.
Rowe Price
CHARLES B. HILL, Executive Vice President -Vice President, T. Rowe Price
JANET G. ALBRIGHT, Vice President -Vice President, T. Rowe Price
<PAGE>
JEREMY N. BAKER, Vice President -Employee, T. Rowe Price
PATRICIA S. DEFORD, Vice President -Vice President, T. Rowe Price
JOSEPH K. LYNAGH, Vice President -Assistant Vice President, T. Rowe Price
KONSTANTINE B. MALLAS, Vice President -Assistant Vice President, T. Rowe
Price
HUGH D. MCGUIRK, Vice President -Assistant Vice President, T. Rowe Price
EDWARD T. SCHNEIDER, Vice President -Vice President, T. Rowe Price
WILLIAM F. SNIDER, Vice President -Vice President, T. Rowe Price
C. STEPHEN WOLFE II, Vice President -Vice President, T. Rowe Price
JULIE A. SALSBERY, Assistant Vice President -Fixed Income Trader, T. Rowe
Price; (1997) formerly assistant portfolio manager/trader at Wainwright Asset
Management
Compensation Table
The Funds do not pay pension or retirement benefits to their officers or
directors. Also, any director of a Fund who is an officer or employee of T.
Rowe Price or Price-Fleming does not receive any remuneration from the Fund.
<TABLE>
<CAPTION>
Name of Person, Aggregate Compensation from Fund(a) Total Compensation from Fund and
Position ------- Fund Complex Paid to Directors(b)
- -------------------------------------- ---------------------------------
------------------------------------
<S> <C> <C>
Cash Reserves Fund
$
Robert P. Black, Director 1,486 $65,000
Calvin W. Burnett, Ph.D., Director 3,050 65,000
Anthony W. Deering, Director 1,871 81,000
F. Pierce Linaweaver, Director 3,050 66,000
John G. Schreiber, Director 3,050 65,000
- -------------------------------------------------------------------------------------------------------------------------
Limited-Term Bond Fund
Robert P. Black, Director $600 $65,000
Calvin W. Burnett, Ph.D., Director 1,169 65,000
Anthony W. Deering, Director 1,145 81,000
F. Pierce Linaweaver, Director 1,169 66,000
John G. Schreiber, Director 1,169 65,000
- -------------------------------------------------------------------------------------------------------------------------
GNMA Fund
Robert P. Black, Director $602 $65,000
Calvin W. Burnett, Ph.D., Director 1,174 65,000
Anthony W. Deering, Director 1,144 81,000
F. Pierce Linaweaver, Director 1,174 66,000
John G. Schreiber, Director 1,174 65,000
- -------------------------------------------------------------------------------------------------------------------------
Municipal Money Market Fund
Robert P. Black, Director $708 $65,000
Calvin W. Burnett, Ph.D., Director 1,324 65,000
Anthony W. Deering, Director 1,210 81,000
F. Pierce Linaweaver, Director 1,324 66,000
John G. Schreiber, Director 1,324 65,000
- -------------------------------------------------------------------------------------------------------------------------
Municipal Intermediate-Term Fund
Robert P. Black, Director $624 $65,000
Calvin W. Burnett, Ph.D., Director 1,206 65,000
Anthony W. Deering, Director 1,157 81,000
F. Pierce Linaweaver, Director 1,206 66,000
John G. Schreiber, Director 1,206 65,000
- -------------------------------------------------------------------------------------------------------------------------
Municipal Income Fund
Robert P. Black, Director $609 $65,000
Calvin W. Burnett, Ph.D., Director 1,186 65,000
Anthony W. Deering, Director 1,149 81,000
F. Pierce Linaweaver, Director 1,186 66,000
John G. Schreiber, Director 1,186 65,000
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(a) Amounts in this column are based on accrued compensation from November
1, 1997 to October 31, 1998.
(b) Amounts in this column are based on compensation received from January
1, 1997, to December 31, 1997. The T. Rowe Price complex included 84 funds
as of December 31, 1997.
(c) Mr. Black retired from his position with the Funds in April 1998.
All Funds
The Fund's Executive Committee, consisting of the Fund's interested
directors, has been authorized by its respective Board of Directors 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.
PRINCIPAL HOLDERS OF SECURITIES
-------------------------------------------------------------------------------
As of the date of the prospectus, the officers and directors of the Fund, as
a group, owned less than 1% of the outstanding shares of the Fund.
As of February 1, 1999, no shareholder beneficially owned more than 5% of the
outstanding shares of the Fund.
INVESTMENT MANAGEMENT SERVICES
-------------------------------------------------------------------------------
Services
Under the Management Agreement, T. Rowe Price provides the Fund with
discretionary investment services. Specifically, T. Rowe Price is responsible
for supervising and directing the investments of the Fund in accordance with
the Fund's investment objectives, program, and restrictions as provided in
its prospectus and this Statement of Additional Information. T. Rowe Price is
also responsible for effecting all security transactions on behalf of the
Fund, including the negotiation of commissions and the allocation of
principal business and portfolio brokerage. In addition to these services, T.
Rowe Price provides the Fund with certain corporate administrative services,
including: maintaining the Fund's corporate existence and corporate records;
registering and qualifying Fund shares under federal laws; monitoring the
financial, accounting, and administrative functions of the Fund; maintaining
liaison with the agents employed by the Fund such as the Fund's custodian and
transfer agent; assisting the Fund in the coordination of such agents'
activities; and
<PAGE>
permitting T. Rowe Price's employees to serve as officers, directors, and
committee members of the Fund without cost to the Fund.
The Management Agreement also provides that T. Rowe Price, its directors,
officers, employees, and certain other persons performing specific functions
for the Fund will only be liable to the Fund for losses resulting from
willful misfeasance, bad faith, gross negligence, or reckless disregard of
duty.
Management Fee
Each Fund pays T. Rowe Price an annual all-inclusive fee (the "Fee") as
follows:
<TABLE>
<CAPTION>
<S> <C>
Cash Reserves 0.45%
Limited-Term Bond 0.55
GNMA 0.60
Municipal Money Market 0.45
Municipal Intermediate 0.50
Municipal Income 0.50
</TABLE>
The Fee is paid monthly to T. Rowe Price on the first business day of the
next succeeding calendar month and is the sum of the Daily Fee accruals for
each month. The Daily 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 appropriate Fee and multiplying this product by the net assets of
the Fund for that day, as determined in accordance with the Funds' prospectus
as of the close of business on the previous business day on which the Fund
was open for business.
The Management Agreement between each Fund and T. Rowe Price provides that T.
Rowe Price will pay all expenses of each Fund's operations, except interest,
taxes, brokerage commissions, and other charges incident to the purchase,
sale or lending of the Fund's portfolio securities, directors' fees and
expenses (including counsel fees and expenses) and such non-recurring or
extraordinary expenses that may arise, including the costs of actions, suits
or proceedings to which the Fund is a party and the expenses the Fund may
incur as a result of its obligation to provide indemnification to its
officers, directors and agents. However, the Board of Directors for the Funds
reserves the right to impose additional fees against shareholder accounts to
defray expenses which would otherwise be paid by T. Rowe Price under the
management agreement. The Board does not anticipate levying such charges;
such a fee, if charged, may be retained by the Fund or paid to T. Rowe Price.
The following chart sets forth the total management fees, if any, paid to T.
Rowe Price by each Fund during the last three years:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Cash Reserves $6,801,000 $4,707,000 $2,670,000
Limited-Term Bond 191,000 149,000 144,000
GNMA 231,000 161,000 138,000
Municipal Money Market 695,000 520,000 379,000
Municipal Intermediate 318,000 185,000 127,000
Municipal Income 247,000 103,000 68,000
</TABLE>
DISTRIBUTOR FOR THE FUNDS
-------------------------------------------------------------------------------
Investment Services, a Maryland corporation formed in 1980 as a wholly owned
subsidiary of T. Rowe Price, serves as the Fund's distributor. Investment
Services is registered as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc. The offering of the Fund's shares is continuous.
<PAGE>
Investment Services is located at the same address as the Fund and T. Rowe
Price-100 East Pratt Street, Baltimore, Maryland 21202.
Investment Services serves as distributor to the Fund pursuant to an
Underwriting Agreement ("Underwriting Agreement"), which provides that the
Fund will pay all fees and expenses in connection with: necessary state
filings; preparing, setting in type, printing, and mailing its prospectuses
and reports to shareholders; and issuing its shares, including expenses of
confirming purchase orders.
The Underwriting Agreement provides that Investment Services will pay all
fees and expenses in connection with: printing and distributing prospectuses
and reports for use in offering and selling Fund shares; preparing, setting
in type, printing, and mailing all sales literature and advertising;
Investment Services' federal and state registrations as a broker-dealer; and
offering and selling Fund shares, except for those fees and expenses
specifically assumed by the Fund. Investment Services' expenses are paid by
T. Rowe Price.
Investment Services acts as the agent of the Fund in connection with the sale
of its shares in the various states in which Investment Services is qualified
as a broker-dealer. Under the Underwriting Agreement, Investment Services
accepts orders for Fund shares at net asset value. No sales charges are paid
by investors or the Fund.
CUSTODIAN
-------------------------------------------------------------------------------
State Street Bank and Trust Company is the custodian for the Fund's
securities and cash, but it does not participate in the Fund's investment
decisions. Portfolio securities purchased in the U.S. are maintained in the
custody of the Bank and may be entered into the Federal Reserve Book Entry
System, or the security depository system of the Depository Trust
Corporation, or any central depository system allowed by federal law. In
addition, the Summit Municipal Funds are authorized to maintain certain of
its securities, in particular, variable rate demand note, in uncertificated
form, in the proprietary deposit systems of various dealers in municipal
securities. State Street Bank and the Limited-Term Fund have entered into a
Custodian Agreement with The Chase Manhattan Bank, N.A., London, pursuant to
which portfolio securities which are purchased outside the United States are
maintained in the custody of various foreign branches of The Chase Manhattan
Bank and such other custodians, including foreign banks and foreign
securities depositories as are approved by the Fund's Board of Directors in
accordance with regulations under the 1940 Act. The Bank's main office is at
225 Franklin Street, Boston, Massachusetts 02110. The address for The Chase
Manhattan Bank, N.A., London is Woolgate House, Coleman Street, London, EC2P
2HD, England.
All Funds
SHAREHOLDER SERVICES
-------------------------------------------------------------------------------
T. Rowe Price Services, Inc., another wholly owned subsidiary, acts as the
Fund's transfer and dividend disbursing agent and provides shareholder and
administrative services. Services for certain types of retirement plans are
provided by T. Rowe Price Retirement Plan Services, Inc., also a wholly owned
subsidiary. The address for each is 100 East Pratt St., Baltimore, MD 21202
and they are paid fees.
The Fund from time to time may enter into agreements with outside parties
through which shareholders hold Fund shares. The shares would be held by such
parties in omnibus accounts. The agreements would provide for payments by the
Fund to the outside party for shareholder services provided to shareholders
in the omnibus accounts.
CODE OF ETHICS
-------------------------------------------------------------------------------
The Fund's investment adviser (T. Rowe Price) has a written Code of Ethics
which requires all employees to obtain prior clearance before engaging in
personal securities transactions. In addition, all employees must
<PAGE>
report their personal securities transactions within 10 days of their
execution. Employees will not be permitted to effect transactions in a
security: if there are pending client orders in the security; the security
has been purchased or sold by a client within seven calendar days; the
security is being considered for purchase for a client; 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 fixed income portfolio securities are
normally done on a principal basis and do not involve the payment of a
commission although they may involve the designation of selling concessions.
That part of the discussion below relating solely to brokerage commissions
would not normally apply to the Fund. However, it is included because T. Rowe
Price does manage a significant number of common stock portfolios which do
engage in agency transactions and pay commissions and because some research
and services resulting from the payment of such commissions may benefit the
Fund.
How Brokers and Dealers Are Selected
Fixed Income Securities
Fixed income securities are generally purchased from the issuer or a primary
market-maker acting as principal for the securities on a net basis, with no
brokerage commission being paid by the client although the price usually
includes an undisclosed compensation. Transactions placed through dealers
serving as primary market-makers reflect the spread between the bid and asked
prices. Securities may also be purchased from underwriters at prices which
include underwriting fees.
With respect to equity and fixed income securities, T. Rowe Price may effect
principal transactions on behalf of the Fund with a broker or dealer who
furnishes brokerage and/or research services, designate any such broker or
dealer to receive selling concessions, discounts or other allowances, or
otherwise deal with any such broker or dealer in connection with the
acquisition of securities in underwritings. T. Rowe Price may receive
research services in connection with brokerage transactions, including
designations in a fixed price offerings.
How Evaluations Are Made of the Overall Reasonableness of Brokerage Commissions
Paid
On a continuing basis, T. Rowe Price seeks to determine what levels of
commission rates are reasonable in the marketplace for transactions executed
on behalf of the Fund. In evaluating the reasonableness of commission rates,
T. Rowe Price considers: (a) historical commission rates, 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.
Descriptions of Research Services Received From Brokers and Dealers
T. Rowe Price receives a wide range of research services from brokers and
dealers. These services include information on the economy, industries,
groups of securities, individual companies, statistical information,
accounting and tax law interpretations, political developments, legal
developments affecting portfolio securities, technical market action, pricing
and appraisal services, credit analysis, risk measurement analysis,
performance analysis and analysis of corporate responsibility issues. These
services provide both domestic and international perspective. Research
services are received primarily in the form of written reports,
<PAGE>
computer generated services, telephone contacts and personal meetings with
security analysts. In addition, such services may be provided in the form of
meetings arranged with corporate and industry spokespersons, economists,
academicians and government representatives. In some cases, research services
are generated by third parties but are provided to T. Rowe Price by or
through broker-dealers.
Research services received from brokers and dealers are supplemental to T.
Rowe Price's own research effort and, when utilized, are subject to internal
analysis before being incorporated by T. Rowe Price into its investment
process. As a practical matter, it would not be possible for T. Rowe Price's
Equity Research Division to generate all of the information presently
provided by brokers and dealers. T. Rowe Price pays cash for certain research
services received from external sources. T. Rowe Price also allocates
brokerage for research services which are available for cash. While receipt
of research services from brokerage firms has not reduced T. Rowe Price's
normal research activities, the expenses of T. Rowe Price could be materially
increased if it attempted to generate such additional information through its
own staff. To the extent that research services of value are provided by
brokers or dealers, T. Rowe Price may be relieved of expenses which it might
otherwise bear.
T. Rowe Price has a policy of not allocating brokerage business in return for
products or services other than brokerage or research services. In accordance
with the provisions of Section 28(e) of the Securities Exchange Act of 1934,
T. Rowe Price may from time to time receive services and products which serve
both research and non-research functions. In such event, T. Rowe Price makes
a good faith determination of the anticipated research and non-research use
of the product or service and allocates brokerage only with respect to the
research component.
Commissions to Brokers Who Furnish Research Services
Certain brokers and dealers who provide quality brokerage and execution
services also furnish research services to T. Rowe Price. With regard to the
payment of brokerage commissions, T. Rowe Price has adopted a brokerage
allocation policy embodying the concepts of Section 28(e) of the Securities
Exchange Act of 1934, which permits an investment adviser to cause an account
to pay commission rates in excess of those another broker or dealer would
have charged for effecting the same transaction, if the adviser determines in
good faith that the commission paid is reasonable in relation to the value of
the brokerage and research services provided. The determination may be viewed
in terms of either the particular transaction involved or the overall
responsibilities of the adviser with respect to the accounts over which it
exercises investment discretion. Accordingly, while T. Rowe Price cannot
readily determine the extent to which commission rates or net prices charged
by broker-dealers reflect the value of their research services, T. Rowe Price
would expect to assess the reasonableness of commissions in light of the
total brokerage and research services provided by each particular broker. T.
Rowe Price may receive research, as defined in Section 28(e), in connection
with selling concessions and designations in fixed price offerings in which
the Funds participate.
Internal Allocation Procedures
T. Rowe Price has a policy of not precommitting a specific amount of business
to any broker or dealer over any specific time period. Historically, the
majority of brokerage placement has been determined by the needs of a
specific transaction such as market-making, availability of a buyer or seller
of a particular security, or specialized execution skills. However, T. Rowe
Price does have an internal brokerage allocation procedure for that portion
of its discretionary client brokerage business where special needs do not
exist, or where the business may be allocated among several brokers or
dealers which are able to meet the needs of the transaction.
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
<PAGE>
does, exceed the suggestions, because the total business is allocated on the
basis of all the considerations described above. In no case is a broker or
dealer excluded from receiving business from T. Rowe Price because it has not
been identified as providing research services.
Miscellaneous
T. Rowe Price's brokerage allocation policy is consistently applied to all
its fully discretionary accounts, which represent a substantial majority of
all assets under management. Research services furnished by brokers or
dealers through which T. Rowe Price effects securities transactions may be
used in servicing all accounts (including non-Fund accounts) managed by T.
Rowe Price. Conversely, research services received from brokers or dealers
which execute transactions for the Fund are not necessarily used by T. Rowe
Price exclusively in connection with the management of the Fund.
From time to time, orders for clients may be placed through a computerized
transaction network.
The Fund does not allocate business to any broker-dealer on the basis of its
sales of the Fund's shares. However, this does not mean that broker-dealers
who purchase Fund shares for their clients will not receive business from the
Fund.
Some of T. Rowe Price's other clients have investment objectives and programs
similar to those of the Fund. T. Rowe Price may occasionally make
recommendations to other clients which result in their purchasing or selling
securities simultaneously with the Fund. As a result, the demand for
securities being purchased or the supply of securities being sold may
increase, and this could have an adverse effect on the price of those
securities. It is T. Rowe Price's policy not to favor one client over another
in making recommendations or in placing orders. T. Rowe Price frequently
follows the practice of grouping orders of various clients for execution
which generally results in lower commission rates being attained. In certain
cases, where the aggregate order is executed in a series of transactions at
various prices on a given day, each participating client's proportionate
share of such order reflects the average price paid or received with respect
to the total order. T. Rowe Price has established a general investment policy
that it will ordinarily not make additional purchases of a common stock of a
company for its clients (including the T. Rowe Price Funds) if, as a result
of such purchases, 10% or more of the outstanding common stock of such
company would be held by its clients in the aggregate.
At the present time, T. Rowe Price does not recapture commissions or
underwriting discounts or selling group concessions in connection with
taxable securities acquired in underwritten offerings. T. Rowe Price does,
however, attempt to negotiate elimination of all or a portion of the
selling-group concession or underwriting discount when purchasing tax-exempt
municipal securities on behalf of its clients in underwritten offerings.
Limited-Term Bond Fund
Transactions With Related Brokers and Dealers
As provided in the Investment Management Agreement between the Fund and T.
Rowe Price, T. Rowe Price is responsible not only for making decisions with
respect to the purchase and sale of the Fund's portfolio securities, but also
for implementing these decisions, including the negotiation of commissions
and the allocation of portfolio brokerage and principal business. It is
expected that T. Rowe Price will often place orders for the Fund's portfolio
transactions with broker-dealers through the trading desks of certain
affiliates of Robert Fleming Holdings Limited ("Robert Fleming"), an
affiliate of Price-Fleming. Robert Fleming, through Copthall Overseas
Limited, a wholly owned subsidiary, owns 25% of the common stock of
Price-Fleming. Fifty percent of the common stock of Price-Fleming is owned by
TRP Finance, Inc., a wholly owned subsidiary of T. Rowe Price, and the
remaining 25% is owned by Jardine Fleming Holdings Limited, a subsidiary of
Jardine Fleming Group Limited ("JFG"). JFG is 50% owned by Robert Fleming and
50% owned by Jardine Matheson Holdings Limited. The affiliates through whose
trading desks such orders may be placed include Fleming Investment Management
Limited ("FIM"), Fleming International Fixed Interest Management Limited
("FIFIM"), and Robert Fleming & Co. Limited ("RF&Co."). FIM, FIFIM, and
RF&Co. are wholly owned subsidiaries of Robert Fleming. These trading desks
will operate under strict instructions from the
<PAGE>
Fund's portfolio manager with respect to the terms of such transactions.
Neither Robert Fleming, JFG, nor their affiliates will receive any
commission, fee, or other remuneration for the use of their trading desks,
although orders for a Fund's portfolio transactions may be placed with
affiliates of Robert Fleming and JFG who may receive a commission.
The Board of Directors of the Fund has authorized T. Rowe Price to utilize
certain affiliates of Robert Fleming and JFG in the capacity of broker in
connection with the execution of the Fund's portfolio transactions. Other
affiliates of Robert Fleming Holding and JFG also may be used. Although it
does not believe that the Fund's use of these brokers would be subject to
Section 17(e) of the 1940 Act, the Board of Directors of the Fund has agreed
that the procedures set forth in Rule 17e-1 under that Act will be followed
when using such brokers.
The above-referenced authorization was made in accordance with Section 17(e)
of the 1940 Act and Rule 17e-1 thereunder which require the Funds'
independent Directors to approve the procedures under which brokerage
allocation to affiliates is to be made and to monitor such allocations on a
continuing basis. It is not expected that any portion of the commissions,
fees, brokerage, or similar payments received by the affiliates of Robert
Fleming in such transactions will be recaptured by the Funds. The Directors
have reviewed and from time to time may continue to review whether other
recapture opportunities are legally permissible and available and, if they
appear to be, determine whether it would be advisable for a Fund to seek to
take advantage of them.
Other
The Funds engaged in portfolio transactions involving broker-dealers in the
following amounts for the fiscal years ended October 31, 1998, 1997, and 1996
are:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
$
Cash Reserves 13,039,528,000 $10,202,905,000 $8,713,465,000
Limited-Term Bond 40,310,000 226,508,000 316,943,000
GNMA 76,167,000 194,894,000 132,397,000
Municipal Money Market 758,579,000 549,381,000 462,623,000
Municipal Intermediate 142,492,000 126,762,000 93,274,000
Municipal Income 176,797,000 61,353,000 45,122,000
</TABLE>
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 October 31, 1998, 1997, and 1996
are:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
$
Cash Reserves 13,039,528,000 $10,202,905,000 $8,713,465,000
Limited-Term Bond 37,838,000 225,918,000 316,368,000
GNMA 76,167,000 194,894,000 132,397,000
Municipal Money Market 750,702,000 549,381,000 462,623,000
Municipal Intermediate 128,977,000 114,808,000 86,347,000
Municipal Income 142,293,000 50,664,000 37,486,000
</TABLE>
<PAGE>
The following amounts involved trades with brokers acting as agents or
underwriters for the fiscal years ended October 31, 1998, 1997, and 1996 are:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Cash Reserves -- -- --
Limited-Term Bond $2,472,000 $ 590,000 $ 575,000
GNMA -- -- --
Municipal Money Market 7,877,000 -- --
Municipal Intermediate 13,515,000 11,954,000 6,927,000
Municipal Income 34,504,000 10,689,000 7,636,000
</TABLE>
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 October 31, 1998, 1997, and 1996 are:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Cash Reserves -- -- --
Limited-Term Bond $12,000 $ 2,000 $ 3,000
GNMA -- --
Municipal Money Market -- -- --
Municipal Intermediate 87,000 29,000 40,000
Municipal Income 199,000 50,000 51,000
</TABLE>
The percentage of total portfolio transactions placed with firms which
provided research, statistical, or other services to T. Rowe Price in
connection with the management of the Fund, or in some cases, to the Fund for
the fiscal years ended October 31, 1998, 1997, and 1996 are:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
87
Cash Reserves % 83% 95%
Limited-Term Bond 88 59 78
GNMA 98 65 84
Municipal Money Market -- -- --
Municipal Intermediate -- -- --
Municipal Income -- -- --
</TABLE>
The portfolio turnover rates for the Fund (if applicable) for the fiscal
years ended October 31, 1998, 1997, and 1996 were:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Limited-Term Bond 52.0% 74.5% 116.1%
GNMA 83.8 111.8 136.1
Municipal Intermediate 22.2 53.8 72.9
Municipal Income 48.1 35.7 56.7
</TABLE>
<PAGE>
PRICING OF SECURITIES
-------------------------------------------------------------------------------
All Funds except Cash Reserves and Municipal Money Market Funds
Fixed income securities are generally traded in the over-the-counter market.
Investments in securities with remaining maturities of one year or more 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. Investments in mutual funds are valued at the closing net asset
value per share of the mutual fund on the day of valuation. (For the
Limited-Term and GNMA Funds) Domestic securities with remaining maturities
less than one year are stated at fair value which is determined by using a
matrix system that establishes a value for each security based on bid-side
money market yields.
There are a number of pricing services available, and the Board of Directors,
on the basis of an ongoing evaluation of these services, may use or may
discontinue the use of any pricing service in whole or part.
Securities or other assets for which the above valuation procedures are
deemed not to reflect fair value will be appraised at prices deemed best to
reflect their fair value. Such determinations will be made in good faith by
or under the supervision of officers of each Fund as authorized by the Board
of Directors.
Limited-Term Bond Fund
For the purposes of determining the Fund's net asset value per share, the
U.S. dollar value of all assets and liabilities initially expressed in
foreign currencies is determined by using the mean of the bid and offer
prices of such currencies against U.S. dollars quoted by a major bank.
Cash Reserves and Municipal Money Market Funds
Securities are valued at amortized cost.
Maintenance of Money Fund's Net Asset Value Per Share at $1.00
It is the policy of the Fund to attempt to maintain a net asset value of
$1.00 per share by using the amortized cost method of valuation permitted by
Rule 2a-7 under the 1940 Act. Under this method, securities are valued by
reference to the Fund's acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than by reference to their market
value. Under Rule 2a-7:
(a) The Board of Directors must establish written procedures reasonably
designed, taking into account current market conditions and the Fund's
investment objectives, to stabilize the Fund's net asset value per share,
as computed for the purpose of distribution, redemption and repurchase,
at a single value;
(b) The Fund must (i) maintain a dollar-weighted average portfolio maturity
appropriate to its objective of maintaining a stable price per share,
(ii) not purchase any instrument with a remaining maturity greater than
397 days, and (iii) maintain a dollar-weighted average portfolio maturity
of 90 days or less;
(c) The Fund must limit its purchase of portfolio instruments, including
repurchase agreements, to those U.S. dollar-denominated instruments which
the Fund's Board of Directors determines present minimal credit risks,
and which are eligible securities as defined by Rule 2a-7; and
(d) The Board of Directors must determine that (i) it is in the best interest
of the Fund and its shareholders to maintain a stable net asset value per
share under the amortized cost method; and (ii) the Fund will continue to
use the amortized cost method only so long as the Board of Directors
believes that it fairly reflects the market based net asset value per
share.
Although the Fund believes that it will be able to maintain its net asset
value at $1.00 per share under most conditions, there can be no absolute
assurance that it will be able to do so on a continuous basis. If the Fund's
net asset value per share declined, or was expected to decline, below $1.00
(rounded to the nearest one cent), the Board of Directors of the Fund might
temporarily reduce or suspend dividend payments in an effort to maintain the
net asset value at $1.00 per share. As a result of such reduction or
suspension of dividends, an
<PAGE>
investor would receive less income during a given period than if such a
reduction or suspension had not taken place. Such action could result in an
investor receiving no dividend for the period during which he holds his
shares and in his receiving, upon redemption, a price per share lower than
that which he paid. On the other hand, if the Fund's net asset value per
share were to increase, or were anticipated to increase above $1.00 (rounded
to the nearest one cent), the Board of Directors of the Fund might supplement
dividends in an effort to maintain the net asset value at $1.00 per share.
NET ASSET VALUE PER SHARE
-------------------------------------------------------------------------------
The purchase and redemption price of the Fund's shares is equal to the Fund's
net asset value per share or share price. The Fund determines its net asset
value per share by subtracting its liabilities (including accrued expenses
and dividends payable) from its total assets (the market value of the
securities the Fund holds plus cash and other assets, including income
accrued but not yet received) and dividing the result by the total number of
shares outstanding. The net asset value per share of the Fund is normally
calculated as of the close of trading on the New York Stock Exchange ("NYSE")
every day the NYSE is open for trading. The NYSE is closed on the following
days: New Year's Day, Dr. Martin Luther King, Jr. Holiday, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
Determination of net asset value (and the offering, sale redemption and
repurchase of shares) for the Fund may be suspended at times (a) during which
the NYSE is closed, other than customary weekend and holiday closings, (b)
during which trading on the NYSE is restricted, (c) during which an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (d) during which a
governmental body having jurisdiction over the Fund may by order permit such
a suspension for the protection of the Fund's shareholders; provided that
applicable rules and regulations of the SEC (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (b), (c),
or (d) exist.
DIVIDENDS AND DISTRIBUTIONS
-------------------------------------------------------------------------------
Unless you elect otherwise, dividends and capital gain distributions, if any,
will be reinvested on the reinvestment date using the NAV per share of that
date. The reinvestment date normally precedes the payment date by about 10
days, although the exact timing is subject to change.
TAX STATUS
-------------------------------------------------------------------------------
The Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Code.
All Summit Income Funds
A portion of the dividends paid by the Fund may be eligible for the
dividends-received deduction for corporate shareholders. For tax purposes, it
does not make any difference whether dividends and capital gain distributions
are paid in cash or in additional shares. The Fund must declare dividends by
December 31 of each year equal to at least 98% of ordinary income (as of
December 31) and capital gains (as of October 31) in order to avoid a federal
excise tax and distribute within 12 months 100% of ordinary income and
capital gains as of December 31 to avoid a federal income tax.
All Summit Municipal Funds
Generally, dividends paid by the Funds are not eligible for the
dividends-received deduction applicable to corporate shareholders. For tax
purposes, it does not make any difference whether dividends and capital gain
<PAGE>
distributions are paid in cash or in additional shares. Each Fund must
declare dividends equal to at least 90% of net tax-exempt income (as of its
year-end) to permit pass-through of tax-exempt income to shareholders, and
98% of capital gains (as of October 31) in order to avoid a federal excise
tax, and 100% of capital gains (as of its tax year-end) to avoid federal
income tax.
All Funds
At the time of your purchase, the Fund's net asset value may reflect
undistributed capital gains or net unrealized appreciation of securities held
by the Fund. A subsequent distribution to you of such amounts, although
constituting a return of your investment, would be taxable as a capital gain
distribution. For federal income tax purposes, the Fund is permitted to carry
forward its net realized capital losses, if any, for eight years and realize
net capital gains up to the amount of such losses without being required to
pay taxes on, or distribute, such gains.
If, in any taxable year, the Fund should not qualify as a regulated
investment company under the code: (i) the Fund would be taxed at normal
corporate rates on the entire amount of its taxable income, if any, without
deduction for dividends or other distributions to shareholders; and (ii) the
Fund's distributions to the extent made out of the Fund's current or
accumulated earnings and profits would be taxable to shareholders as ordinary
dividends (regardless of whether they would otherwise have been considered
capital gain dividends).
Taxation of Foreign Shareholders
The Code provides that dividends from net income will be subject to U.S. tax.
For shareholders who are not engaged in a business in the U.S., this tax
would be imposed at the rate of 30% upon the gross amount of the dividends in
the absence of a Tax Treaty providing for a reduced rate or exemption from
U.S. taxation. Distributions of net long-term capital gains realized by the
Fund are not subject to tax unless the foreign shareholder is a nonresident
alien individual who was physically present in the U.S. during the tax year
for more than 182 days.
Limited-Term Bond Fund
Foreign Currency Gains and Losses
Foreign currency gains and losses, including the portion of gain or loss on
the sale of debt securities attributable to foreign exchange rate
fluctuations, are taxable as ordinary income. If the net effect of these
transactions is a gain, the ordinary income dividend paid by the Fund will be
increased. If the result is a loss, the income dividend paid by the Fund will
be decreased, or to the extent such dividend has already been paid, it may be
classified as a return of capital. Adjustments to reflect these gains and
losses will be made at the end of the Fund's taxable year.
To the extent the Limited-Term Bond Fund invests in foreign securities, the
following would apply:
Passive Foreign Investment Companies
The Fund may purchase the securities of certain foreign investment funds or
trusts called passive foreign investment companies. Such trusts have been the
only or primary way to invest in certain countries. Capital gains on the sale
of such holdings will be deemed to be ordinary income regardless of how long
the Fund holds its investment. In addition to bearing their proportionate
share of the fund's expenses (management fees and operating expenses),
shareholders will also indirectly bear similar expenses of such funds. In
addition, the Fund may be subject to corporate income tax and an interest
charge on certain dividends and capital gains earned from these investments,
regardless of whether such income and gains were distributed to shareholders.
To avoid such tax and interest, the Fund intends to treat these securities as
sold on the last day of the Fund's fiscal year and recognize any gains for
tax purposes at that time; deductions for losses are allowable only to the
extent of any gains resulting from these deemed sales for prior taxable
years. Such gains and losses will be treated as ordinary income for tax
purposes. The Fund will be required to distribute any resulting income even
though it has not sold the security and received cash to pay such
distributions.
<PAGE>
YIELD INFORMATION
-------------------------------------------------------------------------------
Cash Reserves and Municipal Money Market Funds
The Fund's current and historical yield for a period is calculated by
dividing the net change in value of an account (including all dividends
accrued and dividends reinvested in additional shares) by the account value
at the beginning of the period to obtain the base period return. This base
period return is divided by the number of days in the period than multiplied
by 365 to arrive at the annualized yield for that period. The Fund's
annualized compound yield for such period is compounded by dividing the base
period return by the number of days in the period, and compounding that
figure over 365 days.
Limited-Term Bond, Municipal Intermediate-Term, and Municipal Income Funds
An income factor is calculated for each security in the portfolio based upon
the security's market value at the beginning of the period and yield as
determined in conformity with regulations of the SEC. The income factors are
then totaled for all securities in the portfolio. Next, expenses of the Fund
for the period, net of expected reimbursements, are deducted from the income
to arrive at net income, which is then converted to a per share amount by
dividing net income by the average number of shares outstanding during the
period. The net income per share is divided by the net asset value on the
last day of the period to produce a monthly yield which is then annualized.
If applicable, a taxable-equivalent yield is calculated by dividing this
yield by one minus the effective federal, state, and/or city or local income
tax rates. Quoted yield factors are for comparison purposes only, and are not
intended to indicate future performance or forecast the dividend per share of
the Fund.
GNMA Fund
In conformity with regulations of the SEC, an income factor is calculated for
each security in the portfolio based upon the security's coupon rate. The
income factors are then adjusted for any gains or losses which have resulted
from prepayments of principal during the period. The income factors are then
totalled for all securities in the portfolio. Next, expenses of the Fund for
the period, net of expected reimbursements, are deducted from the income to
arrive at net income, which is then converted to a per-share amount by
dividing net income by the average number of shares outstanding during the
period. The net income per share is divided by the net asset value on the
last day of the period to produce a monthly yield which is then annualized.
Quoted yield factors are for comparison purposes only, and are not intended
to indicate future performance or forecast the dividend per share of the
Fund.
The yield of each Fund calculated under the above-described methods for the
month ended October 31, 1998, was:
<TABLE>
<CAPTION>
Fund Yield
---- -----
<S> <C>
Cash Reserves 5.16% (7-day yield)
Limited-Term Bond 5.31
GNMA 5.83
Municipal Money Market 2.93 (7-day yield)
Municipal Intermediate 3.92
Municipal Income 4.41
</TABLE>
<PAGE>
The taxable equivalent yields for the municipal Funds for the same period
based on federal income tax brackets of 28% and 31% are shown below:
<TABLE>
<CAPTION>
Federal Income Tax Bracket
Fund -28%-------------------31%
---- --- ---
<S> <C> <C>
Municipal Money Market 4.07% 4.25%
Municipal Intermediate 5.44 5.68
Municipal Income 6.13 6.39
</TABLE>
All Summit Municipal Funds
TAX-EXEMPT VS. TAXABLE YIELDS
-------------------------------------------------------------------------------
From time to time, a Fund may also illustrate the effect of tax-equivalent
yields using information such as that set forth below:
<TABLE>
<CAPTION>
Your Taxable Income(1999)(a) A Tax-Exempt Yield Of:(c)
2% 3% 4% 5% 6%
Federal Tax Is Equivalent to a
Joint Return Single Return Rates(b) Taxable Yield of:
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$
25,351
-$
$42,351-$102,300 61,400 28.0% 2.78 4.17 5.56 6.94 8.33
61,401
-
102,301-155,950 128,100 31.0 2.90 4.35 5.80 7.25 8.70
128,101
-
155,951-278,450 278,450 36.0 3.13 4.69 6.25 7.81 9.38
278,451
278,451 and above and above 39.6 3.31 4.97 6.62 8.28 9.93
Your Taxable Income(1999)(a) A Tax-Exempt Yield Of:(c)
7% 8% 9% 10%
Joint Return Single Return Federal Tax Is Equivalent to a
Rates(b) Taxable Yield of:
- -----------------------------------------------------------------------------------------------
$
25,351
-$
$42,351-$102,300 61,400 28.0% 9.72 11.11 12.50 13.89
61,401
-
102,301-155,950 128,100 31.0 10.14 11.59 13.04 14.49
128,101
-
155,951-278,450 278,450 36.0 10.94 12.50 14.06 15.63
278,451 and above 278,451 39.6 11.59 13.25 14.90 16.56
and above
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) Net amount subject to federal income tax after deductions and
exemptions.
(b) Marginal rates may vary depending on family size and nature and amount of
itemized deductions.
(c) Combined marginal rate assumes the deduction of state income taxes on the
federal return.
INVESTMENT PERFORMANCE
-------------------------------------------------------------------------------
Total Return Performance
The Fund's calculation of total return performance includes the reinvestment
of all capital gain distributions and income dividends for the period or
periods indicated, without regard to tax consequences to a shareholder in the
Fund. Total return is calculated as the percentage change between the
beginning value of a static account in the Fund and the ending value of that
account measured by the then current net asset value, including all shares
acquired through reinvestment of income and capital gain dividends. The
results shown are historical and should not be considered indicative of the
future performance of the Fund. Each average annual compound rate of return
is derived from the cumulative performance of the Fund over the time period
<PAGE>
specified. The annual compound rate of return for the Fund over any other
period of time will vary from the average.
<TABLE>
<CAPTION>
Cumulative Performance Percentage Change
Fund 1 Yr. Ended 3 Yrs. Ended % Since Inception Date
---- ----------- ------------ ------- --------------
10/31/98 10/31/98 Inception
-------- -------- ---------
10/31/98
--------
<S> <C> <C> <C> <S>
5.35
Cash Reserves % 16.76% 27.84 10/29/93
Limited-Term Bond 7.97 21.56 29.57 10/29/93
GNMA 7.10 23.32 39.97 10/29/93
Municipal Money Market 3.27 10.26 16.84 10/29/93
Municipal Intermediate 6.89 21.42 35.50 10/29/93
Municipal Income 8.44 28.31 40.71 10/29/93
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Average Annual Compound Rates of Return
Fund 1 Yr. Ended 3 Yrs. Ended % Since Inception Date
---- ----------- ------------ ------- --------------
10/31/98 10/31/98 Inception
-------- -------- ---------
10/31/98
--------
<S> <C> <C> <C> <S>
Cash Reserves 5.35% 5.30% 5.03% 10/29/93
Limited-Term Bond 7.97 6.72 5.31 10/29/93
GNMA 7.10 7.24 6.95 10/29/93
Municipal Money Market 3.27 3.31 3.16 10/29/93
Municipal Intermediate 6.89 6.68 6.26 10/29/93
Municipal Income 8. 8.66 7.06 10/29/93
44
- -----------------------------------------------------------------------------------
</TABLE>
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
broadbased 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 securities comparable to those in which the
Fund invests; (2) the Consumer Price Index (or any other measure for
inflation, government statistics, such as GNP may be used to illustrate
investment attributes of the Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (3) various
financial, economic and market statistics developed by brokers, dealers and
other persons may be used to illustrate aspects of the Fund's performance;
(4) the effect of tax-deferred compounding on the Fund's investment returns,
or on returns in general in both qualified and nonqualified retirement plans
or any other tax advantage product, may be illustrated by graphs, charts,
etc.; and (5) the sectors or industries in which the Fund invests may be
compared to relevant indices or surveys in order to evaluate the Fund's
historical performance or current or potential value with respect to the
particular industry or sector.
Other Publications
From time to time, in newsletters and other publications issued by Investment
Services, T. Rowe Price mutual fund portfolio managers may discuss economic,
financial and political developments in the U.S. and abroad and how these
conditions have affected or may affect securities prices or the Fund;
individual securities within the Fund's portfolio; and their philosophy
regarding the selection of individual stocks, including why specific stocks
have been added, removed or excluded from the Fund's portfolio.
<PAGE>
Other Features and Benefits
The Fund is a member of the T. Rowe Price family of Funds and may help
investors achieve various long-term investment goals, which include, but are
not limited to, investing money for retirement, saving for a down payment on
a home, or paying college costs. To explain how the Fund could be used to
assist investors in planning for these goals and to illustrate basic
principles of investing, various worksheets and guides prepared by T. Rowe
Price and/or Investment Services are 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 Fund is a no-load fund which imposes 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 Fund, brokerage fees could be incurred by the
shareholder in a subsequent sale of such securities.
Issuance of Fund Shares for Securities
Transactions involving issuance of Fund shares for securities or assets other
than cash will be limited to (1) bona fide reorganizations; (2) statutory
mergers; or (3) other acquisitions of portfolio securities that: (a) meet the
investment objective and policies of the Fund; (b) are acquired for
investment and not for resale except in accordance with applicable law; (c)
have a value that is readily ascertainable via listing on or trading in a
recognized United States or international exchange or market; and (d) are not
illiquid.
CAPITAL STOCK
-------------------------------------------------------------------------------
The Fund's Charter authorizes the Board of Directors to classify and
reclassify any and all shares which are then unissued, including unissued
shares of capital stock into any number of classes or series, each class or
series consisting of such number of shares and having such designations, such
powers, preferences, rights, qualifications, limitations, and restrictions,
as shall be determined by the Board subject to the Investment Company Act and
other applicable law. The shares of any such additional classes or series
might therefore differ from the shares of the present class and series of
capital stock and from each other as to preferences, conversions or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption, subject to applicable
law, and might thus be superior or inferior to the capital stock or to other
classes or series in various characteristics. The Board of Directors may
increase or decrease the aggregate number of shares of stock or the number of
shares of stock of any class or series that the Fund has authorized to issue
without shareholder approval.
Except to the extent that the Fund's Board of Directors might provide by
resolution that holders of shares of a particular class are entitled to vote
as a class on specified matters presented for a vote of the holders of all
shares entitled to vote on such matters, there would be no right of class
vote unless and to the extent that such a right might be construed to exist
under Maryland law. The Charter contains no provision entitling the holders
of the present class of capital stock to a vote as a class on any matter.
Accordingly, the preferences, rights, and other characteristics attaching to
any class of shares, including the present class of capital stock,
<PAGE>
might be altered or eliminated, or the class might be combined with another
class or classes, by action approved by the vote of the holders of a majority
of all the shares of all classes entitled to be voted on the proposal,
without any additional right to vote as a class by the holders of the capital
stock or of another affected class or classes.
Shareholders are entitled to one vote for each full share held (and
fractional votes for fractional shares held) and will vote in the election of
or removal of directors (to the extent hereinafter provided) and on other
matters submitted to the vote of shareholders. There will normally be no
meetings of shareholders for the purpose of electing directors unless and
until such time as less than a majority of the directors holding office have
been elected by shareholders, at which time the directors then in office will
call a shareholders' meeting for the election of directors. Except as set
forth above, the directors shall continue to hold office and may appoint
successor directors. Voting rights are not cumulative, so that the holders of
more than 50% of the shares voting in the election of directors can, if they
choose to do so, elect all the directors of the Fund, in which event the
holders of the remaining shares will be unable to elect any person as a
director. As set forth in the By-Laws of the Fund, a special meeting of
shareholders of the Fund shall be called by the Secretary of the Fund on the
written request of shareholders entitled to cast at least 10% of all the
votes of the Fund entitled to be cast at such meeting. Shareholders
requesting such a meeting must pay to the Fund the reasonably estimated costs
of preparing and mailing the notice of the meeting. The Fund, however, will
otherwise assist the shareholders seeking to hold the special meeting in
communicating to the other shareholders of the Fund to the extent required by
Section 16(c) of the 1940 Act.
FEDERAL REGISTRATION OF SHARES
-------------------------------------------------------------------------------
The Fund's shares are registered for sale under the 1933 Act. Registration of
the Fund's shares is not required under any state law, but the Fund is
required to make certain filings with and pay fees to the states in order to
sell its shares in the states.
LEGAL COUNSEL
-------------------------------------------------------------------------------
Swidler Berlin Shereff Friedman, LLP, whose address is 919 Third Avenue, New
York, New York 10022-9998, is legal counsel to the Fund.
INDEPENDENT ACCOUNTANTS
-------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 250 West Pratt Street, 21st Floor, Baltimore,
Maryland 21201, are the independent accountants to the Funds.
The financial statements of the Funds for the year ended October 31, 1998,
and the report of independent accountants are included in each Fund's Annual
Report for the year ended October 31, 1998. A copy of each Annual Report
accompanies this Statement of Additional Information. The following financial
statements and the report of independent accountants appearing in each Annual
Report for the year ended October 31, 1998, are incorporated into this
Statement of Additional Information by reference:
<PAGE>
<TABLE>
<CAPTION>
ANNUAL REPORT REFERENCES:
CASH GNMA LIMITED-TERM
RESERVES ---- ----
-------- BOND
----
<S> <C> <C> <C>
Report of Independent Accountants
Statement of Net Assets, October 31, 1998
Statement of Operations, year ended
October 31, 1998
Statement of Changes in Net Assets, years
ended
October 31, 1998 and October 31, 1997
Notes to Financial Statements, October
31, 1998
Financial Highlights
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET INTERMEDIATE INCOME
------------ ------------ ------
<S> <C> <C> <C>
Report of Independent Accountants
Statement of Net Assets, October 31,
1998
Statement of Operations, year ended
October 31, 1998
Statement of Changes in Net Assets,
years ended
October 31, 1998 and October 31, 1997
Notes to Financial Statements, October
31, 1998
Financial Highlights
</TABLE>
RATINGS OF COMMERCIAL PAPER
-------------------------------------------------------------------------------
All Summit Income Funds
Moody's Investors Service, Inc. The rating of Prime-1 is the highest
commercial paper rating assigned by Moody's. Among the factors considered by
Moody's in assigning rating are the following: valuation of the management of
the issuer; economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas;
evaluation of the issuer's products in relation to competition and customer
acceptance; liquidity; amount and quality of long-term debt; trend of
earnings over a period of 10 years; financial strength of the parent company
and the relationships which exist with the issuer; and recognition by the
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is
rated P1, P2, or P3.
Standard & Poor's Corporation Commercial paper rated A (highest quality) by
S&P has the following characteristics: liquidity ratios are adequate to meet
cash requirements; long-term senior debt is rated "A" or better, although in
some cases "BBB" credits may be allowed. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are
unquestioned. The relative strength or weakness of the above factors
determines whether the issuer's commercial paper is rated A1, A2, or A3.
Fitch IBCA, Inc. Fitch 1-Highest grade Commercial paper assigned this rating
is regarded as having the strongest degree of assurance for timely payment.
Fitch 2-Very good grade Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
<PAGE>
All Summit Municipal Funds
Moody's Investors Services, 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 IBCA, 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.
All Summit Income Funds
RATINGS OF CORPORATE DEBT SECURITIES
-------------------------------------------------------------------------------
Moody's Investors Services, Inc.
Aaa-Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge."
Aa-Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally know as high-grade bonds.
A-Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium-grade obligations.
Baa-Bonds rated Baa are considered as medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba-Bonds rated Ba are judged to have speculative elements: their futures
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterize bonds in this class.
B-Bonds rated B generally lack the characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa-Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or
interest.
Ca-Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C-Bonds rated C represent the lowest-rated, and have extremely poor prospects
of attaining investment standing.
Standard & Poor's Corporation
AAA-This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
<PAGE>
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, B, CCC, CC, C-Bonds rated BB, B, CCC, and CC are regarded on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal. BB indicates the lowest degree of speculation
and CC the highest degree of speculation. While such bonds will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
D-In default.
Fitch IBCA, Inc.
AAA-High grade, broadly marketable, suitable for investment by trustees and
fiduciary institutions, and liable to but slight market fluctuation other
than through changes in the money rate. The prime feature of a "AAA" bond is
the showing of earnings several times or many times interest requirements for
such stability of applicable interest that safety is beyond reasonable
question whenever changes occur in conditions. Other features may enter, such
as wide margin of protection through collateral, security or direct lien on
specific property. Sinking funds or voluntary reduction of debt by call or
purchase or often factors, while guarantee or assumption by parties other
than the original debtor may influence their rating.
AA-Of safety virtually beyond question and readily salable. Their merits are
not greatly unlike those of "AAA" class but a bond so rated may be junior
though of strong lien, or the margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured, but
influenced as to rating by the lesser financial power of the enterprise and
more local type of market.
A-Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB-Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions ad
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB, B, CCC, CC, and C are regarded on balance as predominantly speculative
with respect to the issuer's capacity to repay interest and repay principal
in accordance with the terms of the obligation for bond issues not in
default. BB indicates the lowest degree of speculation and C the highest
degree of speculation. The rating takes into consideration special features
of the issue, its relationship to other obligations of the issuer, and the
current and prospective financial condition and operating performance of the
issuer.
<PAGE>
All Summit Municipal Funds
RATINGS OF MUNICIPAL DEBT SECURITIES
-------------------------------------------------------------------------------
Moody's Investors Services, Inc.
Aaa-Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge."
Aa-Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally know as high-grade bonds.
A-Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium-grade obligations.
Baa-Bonds rated Baa are considered as medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba-Bonds rated Ba are judged to have speculative elements: their futures
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterize bonds in this class.
B-Bonds rated B generally lack the characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa-Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or
interest.
Ca-Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C-Bonds rated C represent the lowest-rated, and have extremely poor prospects
of attaining investment standing.
Standard & Poor's Corporation
AAA-This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA-Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong.
A-Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category.
BB, B, CCC, CC, C-Bonds rated BB, B, CCC, and CC are regarded on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal. BB indicates the lowest degree of speculation
and CC the highest degree of speculation. While such bonds will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
D-In default.
<PAGE>
Fitch IBCA, Inc.
AAA-High grade, broadly marketable, suitable for investment by trustees and
fiduciary institutions, and liable to but slight market fluctuation other
than through changes in the money rate. The prime feature of a "AAA" bond is
the showing of earnings several times or many times interest requirements for
such stability of applicable interest that safety is beyond reasonable
question whenever changes occur in conditions. Other features may enter, such
as wide margin of protection through collateral, security or direct lien on
specific property. Sinking funds or voluntary reduction of debt by call or
purchase or often factors, while guarantee or assumption by parties other
than the original debtor may influence their rating.
AA-Of safety virtually beyond question and readily salable. Their merits are
not greatly unlike those of "AAA" class but a bond so rated may be junior
though of strong lien, or the margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured, but
influenced as to rating by the lesser financial power of the enterprise and
more local type of market.
A-Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB-Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions ad
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB, B, CCC, CC, and C are regarded on balance as predominantly speculative
with respect to the issuer's capacity to repay interest and repay principal
in accordance with the terms of the obligation for bond issues not in
default. BB indicates the lowest degree of speculation and C the highest
degree of speculation. The rating takes into consideration special features
of the issue, its relationship to other obligations of the issuer, and the
current and prospective financial condition and operating performance of the
issuer.
RATINGS OF MUNICIPAL NOTES AND VARIABLE RATE SECURITIES
-------------------------------------------------------------------------------
Moody's Investors Service, Inc. VMIG1/MIG-1 the best quality. VMIG2/MIG-2
high quality, with margins of protection ample though not so large as in the
preceding group. VMIG3/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. VMIG4/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 interest and principal. SP-3 speculative
capacity to pay principal and interest.
Fitch IBCA, 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.
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
SUMMIT INCOME FUNDS, INC.
(1)(a) Articles of Incorporation of Registrant, dated September 14, 1993
(electronically filed with initial Registration Statement dated
September 17, 1993)
(1)(b) Articles of Amendment, dated October 21, 1993 (electronically filed
with Amendment No. 1 dated October 25, 1993)
(2) By-Laws of Registrant (electronically filed with initial Registration
Statement dated September 17, 1993)
(3) See Article SIXTH, Capital Stock, Paragraphs (b)-(g) of the Articles of
Incorporation, Article II, Shareholders, Sections 2.01-2.11 and Article
VIII, Capital Stock, Sections 8.01-8.07 of the Bylaws filed as Exhibits
to this Registration Statement.
(4)(a) Investment Management Agreement between Registrant, on behalf of T.
Rowe Price Summit Cash Reserves Fund, and T. Rowe Price Associates,
Inc., dated September 16, 1993 (electronically filed with Amendment No.
1 dated October 25, 1993)
(4)(b) Investment Management Agreement between Registrant, on behalf of T.
Rowe Price Summit Limited-Term Bond Fund, and T. Rowe Price Associates,
Inc., dated September 16, 1993 (electronically filed with Amendment No.
1 dated October 25, 1993)
(4)(c) Investment Management Agreement between Registrant, on behalf of T.
Rowe Price Summit GNMA Fund, and T. Rowe Price Associates, Inc., dated
September 16, 1993 (electronically filed with Amendment No. 1 dated
October 25, 1993)
(5) Underwriting Agreement between Registrant and T. Rowe Price Investment
Services, Inc., dated September 16, 1993 (electronically filed with
Amendment No. 1 dated October 25, 1993)
SUMMIT MUNICIPAL FUNDS, INC.
(1)(a) Articles of Incorporation of Registrant, dated September 14, 1993
(electronically filed with initial Registration Statement dated
September 17, 1993)
<PAGE>
(1)(b) Articles of Amendment, dated October 21, 1993 (electronically filed
with Amendment No. 1 dated October 25, 1993)
(2) By-Laws of Registrant (electronically filed with initial Registration
Statement dated September 17, 1993)
(3) See Article SIXTH, Capital Stock, Paragraphs (b)-(g) of the Articles of
Incorporation, Article II, Shareholders, Sections 2.01-2.11 and Article
VIII, Capital Stock, Sections 8.01-8.07 of the Bylaws filed as Exhibits
to this Registration Statement.
(4)(a) Investment Management Agreement between Registrant, on behalf of T.
Rowe Price Summit Municipal Money Market Fund, and T. Rowe Price
Associates, Inc., dated September 16, 1993 (electronically filed with
Amendment No. 1 dated October 25, 1993)
(4)(b) Investment Management Agreement between Registrant, on behalf of T.
Rowe Price Summit Municipal Intermediate Fund, and T. Rowe Price
Associates,
Inc., dated September 16, 1993 (electronically filed with Amendment No.
1 dated October 25, 1993)
(4)(c) Investment Management Agreement between Registrant, on behalf of T.
Rowe Price Summit Municipal Income Fund, and T. Rowe Price Associates,
Inc., dated September 16, 1993 (electronically filed with Amendment No.
1 dated October 25, 1993)
(5) Underwriting Agreement between Registrant and T. Rowe Price Investment
Services, Inc., dated September 16, 1993 (electronically filed with
Amendment No. 1 dated October 25, 1993)
ALL FUNDS
(6) Inapplicable
(7) Custody Agreements
(7)(a) Custodian Agreement between T. Rowe Price Funds and State Street Bank
and Trust Company, dated January 28, 1998
SUMMIT INCOME FUNDS, INC.
(7)(b) Global Custody Agreement between The Chase Manhattan Bank, N.A., and T.
Rowe Price Funds, dated January 3, 1994, as amended April 18, 1994,
August 15, 1994, November 28, 1994, May 31, 1995, November 1, 1995,
July
<PAGE>
31, 1996, July 23, 1997, September 3, 1997, and October 29, 1997
(8) Other Agreements
ALL FUNDS
(8)(a) Transfer Agency and Service Agreement between T. Rowe Price Services,
Inc. and T. Rowe Price Funds, dated January 1, 1998, as amended January
21, 1998
(8)(b) Agreement between T. Rowe Price Associates, Inc. and T. Rowe Price
Funds for Fund Accounting Services, dated January 1, 1998, as amended
January 21, 1998
SUMMIT INCOME FUNDS, INC.
(8)(c) Agreement between T. Rowe Price Retirement Plan Services, Inc. and the
Taxable Funds, dated January 1, 1998, as amended January 21, 1998
ALL FUNDS
(9) Inapplicable
(10) Consent of Independent Accountants
(11) Inapplicable
(12) Inapplicable
(13) Inapplicable
(14) Financial Data Schedules
(15) Inapplicable
(16) Other Exhibits
(a)Power of Attorney
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH COREGISTRANTS
None
ITEM 25. INDEMNIFICATION
The Coregistrants maintain comprehensive Errors and Omissions and
Officers and Directors insurance policies written by the Evanston Insurance
Company and ICI Mutual. These policies provide coverage for T. Rowe Price
Associates, Inc. ("Manager"), and its subsidiaries and affiliates as listed in
Item 26 of this Registration Statement (with the exception of the T. Rowe Price
Associates Foundation, Inc.), and fifty other investment
<PAGE>
companies, all of which are mutual funds in the T. Rowe Price family of funds.
In addition to the corporate insureds, the policies also cover the officers,
directors, and employees of the Manager, its subsidiaries, and affiliates. The
premium is allocated among the named corporate insureds in accordance with the
provisions of Rule 17d-1(d)(7) under the Investment Company Act of 1940.
GENERAL. The Charter of the Corporation provides that to the fullest extent
permitted by Maryland or federal law, no director or officer of the Corporation
shall be personally liable to the Corporation or the holders of Shares for money
damages and each director and officer shall be indemnified by the Corporation;
PROVIDED, HOWEVER, that nothing therein shall be deemed to protect any director
or officer of the Corporation against any liability to the Corporation of the
holders of Shares to which such director or officer would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Article X, Section 10.01 of the Coregistrants' By-Laws provides as
follows:
SECTION 10.01. INDEMNIFICATION AND PAYMENT OF EXPENSES IN ADVANCE. The
Corporation shall indemnify any individual ("Indemnitee") who is a present or
former director, officer, employee, or agent of the Corporation, or who is or
has been serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise, who, by reason of his position was, is, or is threatened to be
made, a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter collectively referred to as a "Proceeding") against any judgments,
penalties, fines, settlements, and reasonable expenses (including attorneys'
fees) incurred by such Indemnitee in connection with any Proceeding, to the
fullest extent that such indemnification may be lawful under applicable Maryland
law, as from time to time amended. The Corporation shall pay any reasonable
expenses so incurred by such Indemnitee in defending a Proceeding in advance of
the final disposition thereof to the fullest extent that such advance payment
may be lawful under applicable Maryland Law, as from time to time amended.
Subject to any applicable limitations and requirements set forth in the
Corporation's Articles of Incorporation and in these By-Laws, any payment of
indemnification or advance of expenses shall be made in accordance with the
procedures set forth in applicable Maryland law, as from time to time amended.
Notwithstanding the foregoing, nothing herein shall protect or purport
to protect any Indemnitee against any liability
<PAGE>
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office ("Disabling Conduct").
Anything in this Article X to the contrary notwithstanding, no
indemnification shall be made by the Corporation to any Indemnitee unless:
(a) there is a final decision on the merits by a court or other body before
whom the Proceeding was brought that the Indemnitee was not liable by
reason of Disabling Conduct; or
(b) in the absence of such a decision, there is a reasonable determination,
based upon a review of the facts, that the Indemnitee was not liable by
reason of Disabling Conduct, which determination shall be made by:
(i) the vote of a majority of a quorum of directors who are neither
"interested persons" of the Corporation, as defined in Section 2(a)(19)
of the Investment Company Act of 1940, nor parties to the Proceeding;
or
(ii) an independent legal counsel in a written opinion.
Anything in this Article X to the contrary notwithstanding, any advance
of expenses by the Corporation to any Indemnitee shall be made only upon the
undertaking by such Indemnitee to repay the advance unless it is ultimately
determined that such Indemnitee is entitled to indemnification as above
provided, and only if one of the following conditions is met:
(a) the Indemnitee provides a security for his undertaking; or
(b) the Corporation shall be insured against losses arising by reason of
any lawful advances; or
(c) there is a determination, based on a review of readily available facts,
that there is reason to believe that the Indemnitee will ultimately be
found entitled to indemnification, which determination shall be made
by:
(i) a majority of a quorum of directors who are neither "interested
persons" of the Corporation as defined in Section 2(a)(19) of the
Investment Company Act of 1940, nor parties to the Proceeding; or
(ii) an independent legal counsel in a written opinion.
<PAGE>
Section 10.02 of the Coregistrants' By-Laws provides as follows:
SECTION 10.02. INSURANCE OF OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS.
To the fullest extent permitted by applicable Maryland law and by Section 17(h)
of the Investment Company Act of 1940, as from time to time amended, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, or agent of the Corporation, or who is or
was serving at the request of the Corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise, against any liability asserted against him and incurred by him in or
arising out of his position, whether or not the Corporation would have the power
to indemnify him against such liability.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER
Rowe Price-Fleming International, Inc. ("PRICE-FLEMING"), a Maryland
corporation, is a corporate joint venture 50% owned by TRP Finance, Inc., a
wholly owned subsidiary of the Manager. Price-Fleming was incorporated in
Maryland in 1979 to provide investment counsel service with respect to foreign
securities for institutional investors in the United States. In addition to
managing private counsel client accounts, Price-Fleming also sponsors registered
investment companies which invest in foreign securities, serves as general
partner of RPFI International Partners, Limited Partnership, and provides
investment advice to the T. Rowe Price Trust Company, trustee of the
International Common Trust Fund.
<PAGE>
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 and T. Rowe Price Retirement Plan Services.
T. Rowe Price Associates Foundation, Inc. (the "FOUNDATION"), was
incorporated in 1981 (and is not a subsidiary of the Manager). The Foundation's
overall objective emphasizes various community needs by giving to a broad range
of educational, civic, cultural, and health-related institutions. The Foundation
has a very generous matching gift program whereby employee gifts designated to
qualifying institutions are matched according to established guidelines.
T. Rowe Price Services, Inc. ("PRICE SERVICES"), a wholly owned
subsidiary of the Manager, was incorporated in Maryland in 1982 and is
registered as a transfer agent under the Securities Exchange Act of 1934. Price
Services provides transfer agent, dividend disbursing, and certain other
services, including shareholder services, to the Price Funds.
T. Rowe Price Retirement Plan Services, Inc. ("RPS"), a wholly owned
subsidiary of the Manager, was incorporated in Maryland in 1991 and is
registered as a transfer agent under the Securities Exchange Act of 1934. RPS
provides administrative, recordkeeping, and subaccounting services to
administrators of employee benefit plans.
T. Rowe Price Trust Company ("TRUST COMPANY"), a wholly owned
subsidiary of the Manager, is a Maryland-chartered limited-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
<PAGE>
the Manager and affiliated companies and provides technology services to them.
TRPH Corporation, a wholly owned subsidiary of the Manager, was
organized in 1997 to acquire an interest in a UK-based corporate finance
advisory firm.
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.
RPFI International Partners, L.P., is a Delaware limited partnership
organized in 1985 for the purpose of investing in a diversified group of small
and medium-sized non-U.S. companies. Price-Fleming is the general partner of
this partnership, and certain institutional investors, including advisory
clients of Price-Fleming, are its limited partners.
T. Rowe Price Stable Asset Management, Inc. ("STABLE ASSET
MANAGEMENT"), was incorporated in Maryland in 1988 as a wholly owned subsidiary
of the Manager. Stable Asset Management is registered as an investment adviser
under the Investment Advisers Act of 1940, and specializes in the management of
investment portfolios which seek stable and consistent investment returns
through the use of guaranteed investment contracts, bank investment contracts,
structured investment contracts, 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 General Partner of T. Rowe Price Recovery Fund, L.P., a Delaware
limited partnership which invests in financially distressed companies.
T. Rowe Price Recovery Fund II Associates, L.L.C., is a Maryland
limited liability company organized in 1996. Wholly owned by the Manager and the
Trust Company, it serves as General Partner of T. Rowe Price Recovery Fund II,
L.P., a Delaware
<PAGE>
limited partnership which also invests in financially distressed companies.
T. Rowe Price (Canada), Inc. ("TRP CANADA") is a Maryland corporation
organized in 1988 as a wholly owned subsidiary of the Manager. This entity is
registered as an investment adviser under the Investment Advisers Act of 1940
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 L.P. and T. Rowe Price Strategic
Partners Fund II, L.P. ("STRATEGIC PARTNERS FUNDS") are Delaware limited
partnerships organized in 1990 and 1992, respectively, for the purpose of
investing in small public and private companies seeking capital for expansion or
undergoing a restructuring of ownership. The general partner of T. Rowe Price
Strategic Partners Fund, L.P. is T. Rowe Price Strategic Partners, L.P., 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. The general partner of T. Rowe Price Strategic
Partners Fund II, L.P. is T. Rowe Price Strategic Partners II, L.P., a Delaware
limited partnership whose general partner is also T. Rowe Price Strategic
Partners Associates, Inc.
<PAGE>
Listed below are the directors and executive officers of the Manager
who have other substantial businesses, professions, vocations, or employment
aside from that of Director of the Manager:
JAMES E. HALBKAT, JR., Director of the Manager. Mr. Halbkat is President of U.S.
Monitor Corporation, a provider of public response systems. Mr. Halbkat's
address is: P.O. Box 23109, Hilton Head Island, South Carolina 29925.
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: 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, Richmond, Virginia 23173. Mr.
Rosenblum resigned from the T. Rowe Price Board effective October 15, 1998.
ROBERT L. STRICKLAND, Director of the Manager. Mr. Strickland retired as
Chairman of Lowe's Companies, Inc., as of January 31, 1998. He is a Director of
Lowe's Companies, Inc., a retailer of specialty home supplies and 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 retired mining industry
executive. Mr. Walsh's address is: Pleasant Valley, Peapack, New Jersey 07977.
ANNE MARIE WHITTEMORE, Director of the Manager. Mrs. Whittemore is a partner of
the law firm of McGuire, Woods, Battle & Boothe L.L.P. and is a director of
Owens & Minor, Inc.; USF&G Corporation; Fort James Corporation of Virginia; and
Albemarle Corporation. Mrs. Whittemore's address is One James Center, Richmond,
Virginia 23219.
With the exception of Messrs. Halbkat, Menschel, Rosenblum, Strickland, and
Walsh, and Mrs. Whittemore, all of the following directors of the Manager are
employees of the Manager.
GEORGE A. ROCHE, who is Chairman of the Board, President, and Managing Director
of the Manager is also Chairman of the Board and Director of TRP Finance, Inc.;
a Director of Price-Fleming, T. Rowe Price Retirement Plan Services, Inc., T.
Rowe Price
<PAGE>
Strategic Partners Associates, Inc., and TRP Suburban, Inc., T. Rowe Price
Threshold Fund Associates, Inc., and TRP Suburban Second, Inc.
JAMES S. RIEPE, who is a Vice-Chairman of the Board, Director, and Managing
Director of the Manager, is also Chairman of the Board and Director of T. Rowe
Price (Canada), Inc., T. Rowe Price Investment Services, Inc., T. Rowe Price
Investment Technologies, Inc., T. Rowe Price Retirement Plan Services, Inc., and
T. Rowe Price Services, Inc.; President, Chairman of the Board, and a Director
of T. Rowe Price Trust Company; President and a Director of T. Rowe Price Real
Estate Group, Inc., TRP Suburban, Inc., and TRP Suburban Second, Inc.; President
of TRP Distribution, Inc.; and a Director of Price-Fleming, T. Rowe Price
Insurance Agency, Inc., T. Rowe Price Stable Asset Management, Inc., TRPH
Corporation, Inc., and General Re Corporation, a holding company for global
reinsurance and related risk management.
M. DAVID TESTA, who is a Vice-Chairman of the Board, Chief Investment Officer,
Director, and Managing Director of the Manager, is also Chairman of the Board
and Director of Price-Fleming; President and Director of T. Rowe Price (Canada),
Inc.; a Director of T. Rowe Price Trust Company, TRPH Corporation, Jardine
Fleming International Management, Inc., and T. Rowe Price Real Estate Group,
Inc.
HENRY H. HOPKINS, who is a Director and Managing Director of the Manager is also
a Director of T. Rowe Price Trust Company, T. Rowe Price Insurance Agency, Inc.,
T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., T. Rowe
Price Threshold Fund Associates, Inc., TRP Distribution, Inc., T. Rowe Price
Recovery Fund Associates, Inc., T. Rowe Price (Canada), Inc., and TRPH
Corporation; and a Vice President of Price-Fleming.
JAMES A. C. KENNEDY III, who is a Director and Managing Director of the Manager
is also President and Director of T. Rowe Price Strategic Partners Associates,
Inc., and a Director and Vice President of T. Rowe Price Threshold Fund
Associates, Inc.
WILLIAM T. REYNOLDS, who is a Director and Managing Director of the Manager is
also Chairman of the Board and Director of T. Rowe Price Stable Asset
Management; and a Director of TRP Finance, Inc. and T. Rowe Price Recovery Fund
Associates, Inc.
JOHN H. LAPORTE, JR., and BRIAN C. ROGERS are Directors and Managing Directors
of the Manager.
EDWARD C. BERNARD is a Managing Director of the Manager and President and a
Director of T. Rowe Price Insurance Agency, Inc. and T. Rowe Price Investment
Services, Inc.; and a Director of T. Rowe Price Services, Inc.
<PAGE>
MICHAEL A. GOFF is a Managing Director of the Manager and President and a
Director of T. Rowe Price Investment Technologies, Inc.
GEORGE A. MURNAGHAN is a Managing Director of the Manager and an Executive Vice
President of Price-Fleming.
WAYNE D. O'MELIA, Managing Director of the Manager, is the President and a
Director of T. Rowe Price Services, Inc.
JOHN R. (RICK) ROCKWELL, Managing Director of the Manager, is a Director and
Senior Vice President of T. Rowe Price Retirement Plan Services, Inc.; and
Director of T. Rowe Price Stable Asset Management, Inc. and T. Rowe Price Trust
Company.
R. TODD RUPPERT is a Managing Director of the Manager; President and a Director
of TRPH Corporation.
CHARLES E. VIETH is a Managing Director of the Manager and President and a
Director of T. Rowe Price Retirement Plan Services, Inc.; Director of T. Rowe
Price Services, Inc. and T. Rowe Price Investment Services, Inc.
ALVIN M. YOUNGER, JR., who is Chief Financial Officer, Managing Director,
Secretary, and Treasurer of the Manager is also Secretary and Treasurer for
Price-Fleming, T. Rowe Price (Canada), Inc., T. Rowe Price Insurance Agency,
Inc., T. Rowe Price Investment Services, Inc., T. Rowe Price Investment
Technologies, Inc., T. Rowe Price Recovery Fund Associates, Inc., T. Rowe Price
Retirement Plan Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price
Stable Asset Management, Inc., T. Rowe Price Strategic Partners Associates,
Inc., T. Rowe Price Trust Company, TRP Distribution, Inc., T. Rowe Price
Threshold Fund Associates, Inc., T. Rowe Price Real Estate Group, Inc., and TRPH
Corporation; and Treasurer and Clerk of T. Rowe Price Insurance Agency of
Massachusetts, Inc.; and Director, Treasurer, and Secretary of TRP Suburban,
Inc., and TRP Suburban Second, Inc.; and Director of TRP Finance, Inc.
PRESTON G. ATHEY, BRIAN W. H. BERGHUIS, STEPHEN W. BOESEL, GREGORY A.
McCRICKARD, MARY J. MILLER, CHARLES A. MORRIS, EDMUND M. NOTZON, LARRY J.
PUGLIA, CHARLES P. SMITH, ROBERT W. SMITH, WILLIAM J. STROMBERG, PETER VAN DYKE,
and RICHARD T. WHITNEY are Managing Directors of the Manager.
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.
<PAGE>
See also "Management of Fund," in Coregistrants' Statement of
Additional Information.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) The principal underwriter for the Coregistrant is Investment Services.
Investment Services acts as the principal underwriter for eighty-six
mutual funds, including the following investment companies: T. Rowe
Price Growth Stock Fund, Inc., T. Rowe Price New Horizons Fund, Inc.,
T. Rowe Price New Era Fund, Inc., T. Rowe Price New Income Fund, Inc.,
T. Rowe Price Prime Reserve Fund, Inc., T. Rowe Price Tax-Free Income
Fund, Inc., T. Rowe Price Tax-Exempt Money Fund, Inc., T. Rowe Price
International Funds, Inc., T. Rowe Price Growth & Income Fund, Inc., T.
Rowe Price Tax-Free Short-Intermediate Fund, Inc., T. Rowe Price
Short-Term Bond Fund, Inc., T. Rowe Price High Yield Fund, Inc., T.
Rowe Price Tax-Free High Yield Fund, Inc., T. Rowe Price New America
Growth Fund, T. Rowe Price Equity Income Fund, T. Rowe Price GNMA Fund,
T. Rowe Price Capital Appreciation Fund, T. Rowe Price California
Tax-Free Income Trust, T. Rowe Price State Tax-Free Income Trust, T.
Rowe Price Science & Technology Fund, Inc., T. Rowe Price Small-Cap
Value Fund, Inc., Institutional International Funds, Inc., T. Rowe
Price U.S. Treasury Funds, Inc., T. Rowe Price Index Trust, Inc., T.
Rowe Price Spectrum Fund, Inc., T. Rowe Price Balanced Fund, Inc., T.
Rowe Price Short-Term U.S. Government Fund, Inc., T. Rowe Price Mid-Cap
Growth Fund, Inc., T. Rowe Price Small-Cap Stock Fund, Inc., T. Rowe
Price Tax-Free Intermediate Bond Fund, Inc., T. Rowe Price Dividend
Growth Fund, Inc., T. Rowe Price Blue Chip Growth Fund, Inc., T. Rowe
Price Summit Funds, Inc., T. Rowe Price Summit Municipal Funds, Inc.,
T. Rowe Price Equity Series, Inc., T. Rowe Price International Series,
Inc., T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Personal
Strategy Funds, Inc., T. Rowe Price Value Fund, Inc., T. Rowe Price
Capital Opportunity Fund, Inc., T. Rowe Price Corporate Income Fund,
Inc., T. Rowe Price Health Sciences Fund, Inc., T. Rowe Price Mid-Cap
Value Fund, Inc., Institutional Equity Funds, Inc., T. Rowe Price
Financial Services Fund, Inc., T. Rowe Price Diversified Small-Cap
Growth Fund, Inc., T. Rowe Price Tax-Efficient Balanced Fund, Inc.,
Reserve Investment Funds, Inc., T. Rowe Price Media &
Telecommunications Fund, Inc., and T. Rowe Price Real Estate Fund, Inc.
Investment Services is a wholly owned subsidiary of the Manager, is
registered as a broker-dealer under the Securities Exchange Act of 1934
and is a member of the National Association of Securities Dealers, Inc.
<PAGE>
Investment Services has been formed for the limited purpose of
distributing the shares of the Price Funds and will not engage in a
general securities business, although it does operate a discount
brokerage. Since the Price Funds are sold on a no-load basis,
Investment Services will not receive any commissions or other
compensation for acting as principal underwriter.
(b) The address of each of the directors and officers of Investment
Services listed below is 100 East Pratt Street, Baltimore, Maryland
21202.
<TABLE>
<CAPTION>
NAME POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
UNDERWRITER COREGISTRANTS
- --------------------------------------------------------------------------------------------------------------------
<S> <S> <S>
James S. Riepe Chairman of the Board Director and Vice
and Director President
Edward C. Bernard President and Director None
Henry H. Hopkins Vice President and Director Vice President
Charles E. Vieth Vice President and Director None
Patricia M. Archer Vice President None
Joseph C. Bonasorte Vice President None
Darrell N. Braman Vice President None
Ronae M. Brock Vice President None
Meredith C. Callanan Vice President None
Ann R. Campbell Vice President None
Christine M. Carolan Vice President None
Joseph A. Carrier Vice President None
Sarah H. Carroll Vice President None
Laura H. Chasney Vice President None
Renee M. Christoff Vice President None
Christopher W. Dyer Vice President None
Christine S. Fahlund Vice President None
Forrest R. Foss Vice President None
Thomas A. Gannon Vice President None
Andrea G. Griffin Vice President None
Douglas E. Harrison Vice President None
David J. Healy Vice President None
Joseph P. Healy Vice President None
Walter J. Helmlinger Vice President None
Valerie King-Calloway Vice President None
Eric G. Knauss Vice President None
Sharon R. Krieger Vice President None
Jeanette M. LeBlanc Vice President None
Keith W. Lewis Vice President None
Kim Lewis-Collins Vice President None
Sarah McCafferty Vice President None
Maurice A. Minerbi Vice President None
Mark J. Mitchell Vice President None
Nancy M. Morris Vice President None
George A. Murnaghan Vice President None
Steven E. Norwitz Vice President None
Kathleen M. O'Brien Vice President None
Barbara A. O'Connor Vice President None
- --------------------------------------------------------------------------------------------------------------------
David Oestreicher Vice President None
Robert Petrow Vice President None
Pamela D. Preston Vice President None
George D. Riedel Vice President None
Lucy B. Robins Vice President None
John R. Rockwell Vice President None
Kenneth J. Rutherford Vice President None
Kristin E. Seeberger Vice President None
Donna B. Singer Vice President None
Charles E. Vieth Vice President None
William F. Wendler II Vice President None
Jane F. White Vice President None
Thomas R. Woolley Vice President None
Alvin M. Younger, Jr. Secretary and Treasurer None
Barbara A. O'Connor Controller None
Richard J. Barna Assistant Vice President None
Catherine L.Berkenkemper Assistant Vice President None
Edwin J. Brooks Assistant Vice President None
Charles R. Dicken Assistant Vice President None
Cheryl L. Emory Assistant Vice President None
John A. Galateria Assistant Vice President None
Susanne L. Gigliotti Assistant Vice President None
Edward F. Giltenan Assistant Vice President None
Janelyn A. Healey Assistant Vice President None
Sandra J. Kiefler Assistant Vice President None
Steven A. Larson Assistant Vice President None
Patricia S. Lippert Assistant Vice President Secretary
C. Lillian Matthews Assistant Vice President None
Janice D. McCrory Assistant Vice President None
Quinn C. McDonald Assistant Vice President None
Danielle N. Nicholson Assistant Vice President None
JeanneMarie B. Patella Assistant Vice President None
David A. Roscum Assistant Vice President None
Jerome Tuccille Assistant Vice President None
Nolan L. North Assistant Treasurer None
Barbara A. Van Horn Assistant Secretary None
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(c) Not applicable. Investment Services will not receive any compensation
with respect to its activities as underwriter for the Price Funds since
the Price Funds are sold on a no-load basis.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and other documents required to be maintained by
the Coregistrants under Section 31(a) of the Investment Company Act of 1940 and
the rules thereunder will be maintained by the Coregistrants at their offices at
100 East Pratt Street, Baltimore, Maryland 21202. Transfer, dividend disbursing,
and shareholder service activities are performed by T. Rowe Price
<PAGE>
Services, Inc., at 10090 Red Run Blvd., Owings Mills, Maryland 21117. Custodian
activities for the Coregistrants are performed at State Street Bank and Trust
Company's Service Center (State Street South), 1776 Heritage Drive, Quincy,
Massachusetts 02171.
SUMMIT INCOME FUNDS, INC.
Custody of Coregistrant's portfolio securities which are purchased
outside the United States is maintained by The Chase Manhattan Bank, N.A.,
London, in its foreign branches or with other U.S. banks. The Chase Manhattan
Bank, N.A., London, is located at Woolgate House, Coleman Street, London EC2P
2HD England.
ITEM 29. MANAGEMENT SERVICES
Coregistrants are not party to any management-related service contract,
other than as set forth in the Prospectus or Statement of Additional
Information.
ITEM 30. UNDERTAKINGS
(a) Not applicable
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Coregistrants have duly
caused this Registration Statement to be signed on their behalf by the
undersigned, duly authorized, in the City of Baltimore, State of Maryland, this
December 18, 1998.
T. Rowe Price Summit Funds, Inc.
T. Rowe Price Summit Muncipal Funds, Inc.
/s/William T. Reynolds
By: William T. Reynolds
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/William T. Reynolds Chairman of the Board December 18, 1998
William T. Reynolds (Chief Executive Officer)
/s/Carmen F. Deyesu Treasurer December 18, 1998
Carmen F. Deyesu (Chief Financial Officer)
*
Calvin W. Burnett Director December 18, 1998
*
Anthony W. Deering Director December 18, 1998
*
F. Pierce Linaweaver Director December 18, 1998
/s/James S. Riepe Director and December 18, 1998
James S. Riepe Vice President
*
John G. Schreiber Director December 18, 1998
/s/Henry H. Hopkins Attorney-In-Fact December 18, 1998
Henry H. Hopkins
<PAGE>
The Custodian Agreement dated January 28, 1998, between State Street Bank
and Trust Company and T. Rowe Price Funds.
L:\Trpprod\Edg\Agmts.edg\98Custod.edg
<PAGE>
CUSTODIAN AGREEMENT
THIS AGREEMENT is made as of January 28, 1998 by and between each entity
set forth on Appendix A hereto (as such Appendix A may be amended from time to
time) which executes a copy of this Agreement (each referred to herein as the
"FUND"), and State Street Bank and Trust Company, a Massachusetts trust company
with its principal place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "CUSTODIAN").
WITNESSETH:
WHEREAS, each Fund desires to retain the Custodian to act as custodian of
certain of the assets of the Fund, and the Custodian is willing to provide such
services to each Fund, upon the terms and conditions hereinafter set forth; and
WHEREAS, except as otherwise set forth herein, this Agreement is intended
to supersede that certain custodian contract among the parties hereto dated
September 28, 1987, as amended; and
WHEREAS, the Funds have retained CHASE MANHATTAN BANK, N.A. to act as the
Funds' custodian with respect to the assets of each such Fund to be held outside
of the United States of America (except as otherwise set forth in this
Agreement) pursuant to a written custodian agreement (the "FOREIGN CUSTODIAN
AGREEMENT"),
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, each of the parties hereto agrees as follows:
SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT.
Each Fund hereby employs the Custodian as the custodian of certain of its
assets, including those securities it desires to be held within the United
States of America ("DOMESTIC SECURITIES") and those securities it desires to be
held outside the United States of America (the "UNITED STATES") which are (i)
not held on the Funds' behalf by CHASE MANHATTAN BANK, N.A. pursuant to the
Foreign Custodian Agreement and (ii) described with greater particularity in
Section 3 hereof (such securities shall be referred to herein as "FOREIGN
SECURITIES"). Each Fund agrees to deliver to the Custodian all domestic
securities, foreign securities and cash owned by it from time to time, and all
payments of income, payments of principal or capital distributions received by
it with respect to
<PAGE>
securities held by it hereunder, and the cash consideration received by it for
such new or treasury shares of capital stock of each Fund as may be issued or
sold from time to time ("SHARES"). The Custodian shall not be responsible for
any property of any Fund held or received by such Fund (i) not delivered to the
Custodian, or (ii) held in the custody of CHASE MANHATTAN BANK N.A.
The Custodian is authorized to employ one or more sub-custodians located
within the United States, provided that the Custodian shall have obtained the
written acknowledgment of the Fund with respect to such employment. The
Custodian is authorized to employ sub-custodians located outside the United
States as noted on Schedule A attached hereto (as such Schedule A may be amended
from time to time). The Custodian shall have no more or less responsibility or
liability to any Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian and
shall not release any sub-custodian from any responsibility or liability unless
so agreed in writing by the Custodian and the applicable Fund. With the
exception of State Street Bank and Trust Company (London branch), the Custodian
shall not be liable for losses arising from the bankruptcy, insolvency or
receivership of any sub-custodian located outside the United States.
SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUNDS HELD
BY THE CUSTODIAN IN THE UNITED STATES.
SECTION 2.1
HOLDING SECURITIES. The Custodian shall hold and physically segregate for the
account of each Fund all non-cash property to be held by it in the United
States, including all domestic securities owned by the Fund other than (a)
securities which are maintained pursuant to Section 2.9 in a clearing agency
which acts as a securities depository or in a book-entry system authorized by
the United States Department of the Treasury and certain federal agencies (each,
a "U.S. SECURITIES SYSTEM") and (b) commercial paper of an issuer for which the
Custodian acts as issuing and paying agent ("DIRECT PAPER") which is deposited
and/or maintained in the Direct Paper system of the Custodian (the "DIRECT PAPER
SYSTEM") pursuant to Section 2.10.
SECTION 2.2
DELIVERY OF INVESTMENTS. The Custodian shall release and deliver domestic
investments owned by a Fund held by the Custodian or in a U.S. Securities System
account of the Custodian or in the Custodian's Direct Paper System account
("DIRECT PAPER SYSTEM ACCOUNT") only upon receipt of Proper Instructions, which
<PAGE>
may be continuing instructions when agreed to by the parties, and only in the
following cases:
1)Upon sale of such investments for the account of the Fund and
receipt of payment therefor;
2)Upon the receipt of payment in connection with any repurchase
agreement related to such investments entered into by the Fund;
3)
In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.9 hereof;
4)
To the depository agent in connection with tender or other similar
offers for portfolio investments of the Fund;
5)
To the issuer thereof or its agent when such investments are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6)
To the issuer thereof, or its agent, for transfer into the name of
the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.8 or into the name or nominee name of any
sub-custodian appointed pursuant to Section 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7)
Upon the sale of such investments for the account of the Fund, to
the broker or its clearing agent, against a receipt, for examination
in accordance with usual "street delivery" custom; provided that in
any such case the Custodian shall have no responsibility or
liability for any loss arising from the delivery of such investments
prior to receiving payment for such investments except as may arise
from the Custodian's own negligence or willful misconduct;
<PAGE>
8)For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the investments of the issuer of such investments, or pursuant to
provisions for conversion contained in such investments, or pursuant
to any deposit agreement; provided that, in any such case, the new
investments and cash, if any, are to be delivered to the Custodian;
9)In the case of warrants, rights or similar investments, the
surrender thereof in the exercise of such warrants, rights or
similar investments or the surrender of interim receipts or
temporary investments for definitive investments; provided that, in
any such case, the new investments and cash, if any, are to be
delivered to the Custodian or against a receipt;
10)
For delivery in connection with any loans of investments made on
behalf of the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Fund or its duly-appointed
agent (which may be in the form of cash or obligations issued by the
United States government, its agencies or instrumentalities, or such
other property as the Fund may agree), except that in connection
with any loans for which collateral is to be credited to the
Custodian's account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will not be held liable or
responsible for the delivery of investments owned by the Fund prior
to the receipt of such collateral in the absence of the Custodian's
negligence or willful misconduct;
11)
For delivery as security in connection with any borrowing by the
Fund requiring a pledge of assets by the Fund, but only against
receipt of amounts borrowed, except where additional collateral is
required to secure a borrowing already made, subject to Proper
Instructions, further securities may be released and delivered for
that purpose;
12)
For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and a
member of The National Association of Securities Dealers, Inc.
("NASD"),
<PAGE>
relating to compliance with the rules of The Options Clearing
Corporation, the rules of any registered national securities
exchange or of any similar organization or organizations, or under
the Investment Company Act of 1940, as amended from time to time
(the "1940 ACT"), regarding escrow or other arrangements in
connection with transactions by the Fund;
13)
For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or
any Contract Market, or any similar organization or organizations,
or under the 1940 Act, regarding account deposits in connection with
transactions by the Fund;
14)
Upon receipt of instructions from the transfer agent for the Fund
(the "TRANSFER AGENT"), for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind, as
may be described from time to time in the Fund's currently effective
prospectus, statement of additional information or other offering
documents (all, as amended, supplemented or revised from time to
time, the "PROSPECTUS"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15)
For any other purpose, but only upon receipt of Proper Instructions
specifying (a) the investments to be delivered, (b) setting forth
the purpose for which such delivery is to be made, and (c) naming
the person or persons to whom delivery of such investments shall be
made.
SECTION 2.3
REGISTRATION OF INVESTMENTS. Domestic investments held by the Custodian (other
than bearer securities) shall be registered in the name of the Fund or in the
name of any nominee of the Fund or of any nominee of the Custodian which nominee
shall be assigned exclusively to the Fund, unless the Fund has authorized in
writing the appointment of a nominee to be used in common with other registered
investment companies having the same investment adviser as the Fund, or in the
name or nominee name of any agent appointed pursuant to Section 2.8 or in the
name or nominee name of any sub-custodian appointed pursuant to Section 1. All
securities accepted by the Custodian on behalf of the Fund under the terms of
<PAGE>
this Agreement shall be in good deliverable form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund of relevant corporate actions including,
without limitation, pendency of calls, maturities, tender or exchange offers.
SECTION 2.4
BANK ACCOUNTS. The Custodian shall open and maintain a separate bank account or
accounts in the United States in the name of the Fund, subject only to draft or
order by the Custodian acting pursuant to the terms of this Agreement, and shall
hold in such account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of the Fund, other than cash maintained
by the Fund in a bank account established and used in accordance with Rule 17f-3
under the 1940 Act. Monies held by the Custodian for the Fund may be deposited
by the Custodian to its credit as custodian in the banking department of the
Custodian or in such other banks or trust companies as it may in its discretion
deem necessary or desirable in the performance of its duties hereunder;
provided, however, that every such bank or trust company shall be qualified to
act as a custodian under the 1940 Act, and that each such bank or trust company
and the funds to be deposited with each such bank or trust company shall be
approved by vote of a majority of the board of directors or the board of
trustees of the applicable Fund (as appropriate and in each case, the "BOARD").
Such funds shall be deposited by the Custodian in its capacity as custodian and
shall be withdrawable by the Custodian only in that capacity.
SECTION 2.5
COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the Custodian
shall collect on a timely basis all income and other payments with respect to
United States registered investments held hereunder to which the Fund shall be
entitled either by law or pursuant to custom in the investments business, and
shall collect on a timely basis all income and other payments with respect to
United States bearer investments if, on the date of payment by the issuer, such
investments are held by the Custodian or its agent thereof and shall credit such
income, as collected, to the Fund's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for payment
all coupons and other income items requiring presentation as and when they
become due, collect interest when due on investments held hereunder, and receive
and collect all stock dividends, rights and other items of like nature as and
when they become due and payable. With respect to income due the Fund on United
States investments of the Fund loaned (pursuant to the provisions of Section 2.2
(10))
<PAGE>
in accordance with a separate agreement between the Fund and the Custodian in
its capacity as lending agent, collection thereof shall be in accordance with
the terms of such agreement. Except as otherwise set forth in the immediately
preceding sentence, income due the Fund on United States investments of the Fund
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund; the Custodian will have no duty or responsibility in
connection therewith other than to provide the Fund with such information or
data as may be necessary to assist the Fund in arranging for the timely delivery
to the Custodian of the income to which the Fund is properly entitled.
SECTION 2.6
PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be
continuing instructions when agreed to by the parties, the Custodian shall, from
monies of the Fund held by the Custodian, pay out such monies in the following
cases only:
1)Upon the purchase of domestic investments, options, futures
contracts or options on futures contracts for the account of the
Fund but only (a) against the delivery of such investments, or
evidence of title to such options, futures contracts or options on
futures contracts, to the Custodian (or any bank, banking firm or
trust company doing business in the United States or abroad which is
qualified under the 1940 Act to act as a custodian and has been
designated by the Custodian as its agent for this purpose in
accordance with Section 2.8) registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a purchase
effected through a U.S. Securities System, in accordance with the
conditions set forth in Section 2.9 hereof; (c) in the case of a
purchase involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10 hereof; or (d) for transfer to
a time deposit account of the Fund in any bank, whether domestic or
foreign, such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant to
Proper Instructions;
2)
In connection with conversion, exchange or surrender of investments
owned by the Fund as set forth in Section 2.2 hereof;
<PAGE>
3)
For the redemption or repurchase of Shares as set forth in Section 4
hereof;
4)
For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account
of the Fund: interest, taxes, management fees, accounting fees,
transfer agent fees, legal fees, and operating expenses of the Fund
(whether or not such expenses are to be in whole or part capitalized
or treated as deferred expenses);
5) For the payment of any dividends declared by the Board;
6)For payment of the amount of dividends received in respect of
investments sold short;
7)
For repayment of a loan upon redelivery of pledged securities and
upon surrender of the note(s), if any, evidencing the loan; or
8)
In connection with any repurchase agreement entered into by the Fund
with respect to which the collateral is held by the Custodian, the
Custodian shall act as the Fund's "securities intermediary"( as that
term is defined in Part 5 of Article 8 of the Massachusetts Uniform
Commercial Code, as amended), and, as securities intermediary, the
Custodian shall take the following steps on behalf of the Fund: (a)
provide the Fund with notification of the receipt of the purchased
securities, and (b), by book-entry identify on the books of the
Custodian as belonging to the Fund uncertificated securities
registered in the name of the Fund and held in the Custodian's
account at the Federal Reserve Bank. In connection with any
repurchase agreement entered into by the Fund with respect to which
the collateral is not held by the Custodian, the Custodian shall (a)
provide the Fund with such notification as it may receive with
respect to such collateral, and (b), by book-entry or otherwise,
identify as belonging to the Fund securities as shown in the
Custodian's account on the books of the entity appointed by the Fund
to hold such collateral.
9)
For any other purpose, but only upon receipt of Proper Instructions
specifying (a) the amount of such payment,
<PAGE>
(b) setting forth the purpose for which such payment is to be made,
and (c) naming the person or persons to whom such payment is to be
made.
SECTION 2.7
LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. In any
and every case where payment for purchase of domestic securities for the
account of the Fund is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from the
Fund to so pay in advance, the Custodian shall be absolutely liable to the Fund
for such securities to the same extent as if the securities had been received by
the Custodian.
SECTION 2.8
APPOINTMENT OF AGENTS. The Custodian may at any time or times in its discretion
appoint (and may at any time remove) any other bank or trust company, which is
itself qualified under the 1940 Act to act as a custodian, as its agent to carry
out such of the provisions of this Section 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any such agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
SECTION 2.9
DEPOSIT OF INVESTMENTS IN U.S. SECURITIES SYSTEMS. The Custodian may deposit
and/or maintain domestic investments owned by the Fund in a U.S. Securities
System in accordance with applicable Federal Reserve Board and United States
Securities and Exchange Commission ("SEC") rules and regulations, if any,
subject to the following provisions:
1)
The Custodian may keep domestic investments of the Fund in a U.S.
Securities System provided that such investments are represented in
an account of the Custodian in the U.S. Securities System
("ACCOUNT") which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise for
customers;
2)
The records of the Custodian with respect to domestic investments of
the Fund which are maintained in a U.S. Securities System shall
identify by book-entry those investments belonging to the Fund;
3)
The Custodian shall pay for domestic investments purchased for the
account of the Fund upon (i) receipt of advice from the U.S.
Securities System that such investments have been transferred to the
Account, and
<PAGE>
(ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Fund. The
Custodian shall transfer domestic investments sold for the account
of the Fund upon (i) receipt of advice from the U.S. Securities
System that payment for such investments has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the U.S. Securities System of
transfers of domestic investments for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Custodian and
be provided to the Fund at its request. Upon request, the Custodian
shall furnish the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or notice and
shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities System for
the account of the Fund;
4)
The Custodian shall provide the Fund with any report obtained by the
Custodian on the U.S. Securities System's accounting system,
internal accounting control and procedures for safeguarding domestic
investments deposited in the U.S. Securities System;
5)
The Custodian shall have received from the Fund the initial or
annual certificate, as the case may be, described in Section 10
hereof; and
6)
Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the U.S. Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any of
its agents or of any of its or their employees, or from failure of
the Custodian or any such agent to enforce effectively such rights
as it may have against the U.S. Securities System. At the election
of the Fund, the Fund shall be entitled to be subrogated to the
rights of the Custodian with respect to any claim against the U.S.
Securities System or any other person which the Custodian may have
as a consequence of any such loss, expense or damage if and to the
extent that
<PAGE>
the Fund has not been made whole for any such loss, expense or
damage.
SECTION 2.10
FUND ASSETS HELD IN THE DIRECT PAPER SYSTEM. The Custodian may deposit and/or
maintain investments owned by the Fund in the Direct Paper System subject to the
following provisions:
1)
No transaction relating to investments in the Direct Paper System
will be effected in the absence of Proper Instructions;
2)
The Custodian may keep investments of the Fund in the Direct Paper
System only if such investments are represented in the Direct Paper
System Account, which account shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
3)
The records of the Custodian with respect to investments of the Fund
which are maintained in the Direct Paper System shall identify by
book-entry those investments belonging to the Fund;
4)
The Custodian shall pay for investments purchased for the account of
the Fund upon the making of an entry on the records of the Custodian
to reflect such payment and transfer of investments to the account
of the Fund. The Custodian shall transfer investments sold for the
account of the Fund upon the making of an entry on the records of
the Custodian to reflect such transfer and receipt of payment for
the account of the Fund;
5)
The Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund, in the form of a written advice
or notice, of Direct Paper on the next business day following such
transfer and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transaction in the Direct Paper System
for the account of the Fund; and
6)
The Custodian shall provide the Fund with any report on its system
of internal accounting control as the Fund may reasonably request
from time to time.
SECTION 2.11
SEGREGATED ACCOUNT. The Custodian shall, upon receipt of Proper Instructions,
establish and maintain a segregated
<PAGE>
account or accounts for and on behalf of the Fund, into which account or
accounts may be transferred cash and/or investments, including investments
maintained in an account by the Custodian pursuant to Section 2.10 hereof, (i)
in accordance with the provisions of any agreement among the Fund, the Custodian
and a broker-dealer registered under the Exchange Act and a member of the NASD
(or any futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or government investments in connection with options purchased, sold or written
by the Fund or commodity futures contracts or options thereon purchased or sold
by the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by 1940 Act Release No. 10666, or any other procedures
subsequently required under the 1940 Act relating to the maintenance of
segregated accounts by registered investment companies, and (iv) for other
purposes, but only, in the case of clause (iv) upon receipt of Proper
Instructions specifying (a) the investments to be delivered, (b) setting forth
the purpose for which such delivery is to be made, and (c) naming the person or
persons to whom delivery of such investments shall be made.
SECTION 2.12
OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute ownership
and other certificates and affidavits for all United States federal and state
tax purposes in connection with receipt of income or other payments with respect
to domestic investments of the Fund held by it hereunder and in connection with
transfers of such investments.
SECTION 2.13
PROXIES. The Custodian shall, with respect to the domestic investments held
hereunder, cause to be promptly executed by the registered holder of such
investments, if the investments are registered otherwise than in the name of the
Fund or a nominee of the Fund, all proxies without indication of the manner in
which such proxies are to be voted, and shall promptly deliver to the Fund such
proxies, all proxy soliciting materials received by the Custodian and all
notices received relating to such investments.
SECTION 2.14
COMMUNICATIONS RELATING TO FUND INVESTMENTS. Subject to the provisions of
Section 2.3, the Custodian shall transmit promptly to the Fund all written
information (including, without limitation, pendency of calls and maturities of
domestic investments and expirations of rights in connection therewith and
notices of
<PAGE>
exercise of call and put options written by the Fund and the maturity of futures
contracts purchased or sold by the Fund) received by the Custodian in connection
with the domestic investments being held for the Fund pursuant to this
Agreement. With respect to tender or exchange offers, the Custodian shall
transmit to the Fund all written information received by the Custodian, any
agent appointed pursuant to Section 2.8 hereof, or any sub-custodian appointed
pursuant to Section 1 hereof, from issuers of the domestic investments whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Fund desires to take action with respect to
any tender offer, exchange offer or any other similar transaction, the Fund
shall notify the Custodian at least two (2) New York Stock Exchange business
days prior to the time such action must be taken under the terms of the tender,
exchange offer or other similar transaction, and it will be the responsibility
of the Custodian to timely transmit to the appropriate person(s) such notice.
Where the Fund provides the Custodian with less than two (2) New York Stock
Exchange business days notice of its desired action, the Custodian shall use its
best efforts to timely transmit the Fund's notice to the appropriate person. It
is expressly noted that the parties may agree to alternative procedures with
respect to such two (2) New York Stock Exchange business days notice period on a
selective and individual basis.
SECTION 2.15
REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. The Custodian shall provide
the Fund, at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding investments, futures contracts and
options on futures contracts, including domestic investments deposited and/or
maintained in a U.S. Securities System, relating to the services provided by the
Custodian under this Agreement. Such reports shall be of sufficient scope and
detail, as may reasonably be required by the Fund, to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and if there are no such inadequacies the reports shall so state.
SECTION 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO CERTAIN PROPERTY OF THE
FUNDS HELD OUTSIDE OF THE UNITED STATES
SECTION 3.1
DEFINITIONS. The following capitalized terms shall have the respective following
meanings:
"FOREIGN SECURITIES SYSTEM" means a clearing agency or a securities depository
listed on Schedule A hereto.
<PAGE>
"FOREIGN SUB-CUSTODIAN" means a foreign banking institution set forth on
Schedule A hereto.
SECTION 3.2
HOLDING SECURITIES. The Custodian shall identify on its books as belonging to
the Funds the foreign securities held by each Foreign Sub-Custodian or Foreign
Securities System. The Custodian may hold foreign securities for all of its
customers, including the Funds, with any Foreign Sub-Custodian in an account
that is identified as belonging to the Custodian for the benefit of its
customers, provided however, that (i) the records of the Custodian with respect
to foreign securities of the Funds which are maintained in such account shall
identify those securities as belonging to the Funds and (ii) the Custodian shall
require that securities so held by the Foreign Sub-Custodian be held separately
from any assets of such Foreign Sub-Custodian or of other customers of such
Foreign Sub-Custodian.
SECTION 3.3
FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a Foreign
Securities System in a designated country only through arrangements implemented
by the Foreign Sub-Custodian in such country pursuant to the terms of this
Agreement.
SECTION 3.4 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
3.4.1.
Delivery of Foreign Securities. The Custodian or a Foreign Sub-Custodian shall
- -------- -- ------- -----------
release and deliver foreign securities of the Funds held by such Foreign
Sub-Custodian, or in a Foreign Securities System account, only upon receipt of
Proper Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(i)
upon the sale of such foreign securities for the Funds in accordance
with reasonable market practice in the country where such foreign
securities are held or traded, including, without limitation: (A)
delivery against expectation of receiving later payment; or (B) in
the case of a sale effected through a Foreign Securities System in
accordance with the rules governing the operation of the Foreign
Securities System;
(ii)
in connection with any repurchase agreement related to foreign
securities;
<PAGE>
(iii)
to the depository agent in connection with tender or other similar
offers for foreign securities of the Funds;
(iv)
to the issuer thereof or its agent when such foreign securities are
called, redeemed, retired or otherwise become payable;
(v)
to the issuer thereof, or its agent, for transfer into the name of
the Custodian (or the name of the respective Foreign Sub-Custodian
or of any nominee of the Custodian or such Foreign Sub-Custodian)
or for exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or number
of units;
(vi)
to brokers, clearing banks or other clearing agents for examination
or trade execution in accordance with market custom; provided that
in any such case the Foreign Sub-Custodian shall have no
responsibility or liability for any loss arising from the delivery
of such securities prior to receiving payment for such securities
except as may arise from the Foreign Sub-Custodian's own negligence
or willful misconduct;
(vii)for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement;
(viii)
in the case of warrants, rights or similar foreign securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or temporary
securities for definitive securities;
(ix)
or delivery as security in connection with any borrowing by the
Funds requiring a pledge of assets by the Funds;
(x)in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
<PAGE>
(xi) in connection with the lending of foreign securities; and
(xii)
for any other proper purpose, but only upon receipt of Proper
Instructions specifying the foreign securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper Fund purpose, and naming the
person or persons to whom delivery of such securities shall be made.
3.4.2.
Payment of Fund Monies. Upon receipt of Proper Instructions, which may be
- ------- -- ---- -------
continuing instructions when deemed appropriate by the parties, the Custodian
shall pay out, or direct the respective Foreign Sub-Custodian or the respective
Foreign Securities System to pay out, monies of a Fund in the following cases
only:
(i)upon the purchase of foreign securities for the Fund, unless
otherwise directed by Proper Instructions, by (A) delivering money
to the seller thereof or to a dealer therefor (or an agent for such
seller or dealer) against expectation of receiving later delivery of
such foreign securities; or (B) in the case of a purchase effected
through a Foreign Securities System, in accordance with the rules
governing the operation of such Foreign Securities System;
(ii)
in connection with the conversion, exchange or surrender of foreign
securities of the Fund;
(iii)
for the payment of any expense or liability of the Fund, including
but not limited to the following payments: interest, taxes,
investment advisory fees, transfer agency fees, fees under this
Agreement, legal fees, accounting fees, and other operating
expenses;
(iv)
for the purchase or sale of foreign exchange or foreign exchange
contracts for the Fund, including transactions executed with or
through the Custodian or its Foreign Sub-Custodians;
(v)in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
<PAGE>
(vii)
in connection with the borrowing or lending of foreign securities;
and
(viii)
for any other proper Fund purpose, but only upon receipt of Proper
Instructions specifying the amount of such payment, setting forth
the purpose for which such payment is to be made, declaring such
purpose to be a proper Fund purpose, and naming the person or
persons to whom such payment is to be made.
3.4.3.
Market Conditions. Notwithstanding any provision of this Agreement to the
- ------ -----------
contrary, settlement and payment for foreign securities received for the account
of the Funds and delivery of foreign securities maintained for the account of
the Funds may be effected in accordance with the customary established
securities trading or processing practices and procedures in the country or
market in which the transaction occurs, including, without limitation,
delivering foreign securities to the purchaser thereof or to a dealer therefor
(or an agent for such purchaser or dealer) with the expectation of receiving
later payment for such foreign securities from such purchaser or dealer.
SECTION 3.5
REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained in the
custody of a Foreign Custodian (other than bearer securities) shall be
registered in the name of the applicable Fund or in the name of the Custodian or
in the name of any Foreign Sub-Custodian or in the name of any nominee of the
foregoing, and the Fund agrees to hold any such nominee harmless from any
liability as a holder of record of such foreign securities. The Custodian or a
Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a
Fund under the terms of this Agreement unless the form of such securities and
the manner in which they are delivered are in accordance with reasonable market
practice.
SECTION 3.6
BANK ACCOUNTS. A bank account or bank accounts opened and maintained outside
the United States on behalf of a Fund with a Foreign Sub-Custodian shall be
subject only to draft or order by the Custodian or such Foreign Sub-Custodian,
acting pursuant to the terms of this Agreement to hold cash received by or from
or for the account of the Fund.
SECTION 3.7
COLLECTION OF INCOME. The Custodian shall use reasonable commercial efforts to
collect all income and other payments with respect to the foreign securities
held hereunder to which the Funds shall be entitled and shall credit such
income, as
<PAGE>
collected, to the applicable Fund. In the event that extraordinary measures are
required to collect such income, the Fund and the Custodian shall consult as to
such measures and as to the compensation and expenses of the Custodian relating
to such measures.
SECTION 3.8
PROXIES. With respect to the foreign securities held under this Section 3, the
Custodian will use reasonable commercial efforts to facilitate the exercise of
voting and other shareholder proxy rights, subject always to the laws,
regulations and practical constraints that may exist in the country where such
securities are issued. The Fund acknowledges that local conditions, including
lack of regulation, onerous procedural obligations, lack of notice and other
factors may have the effect of severely limiting the ability of the Fund to
exercise shareholder rights.
SECTION 3.9
COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall transmit
promptly to the Fund written information (including, without limitation,
pendency of calls and maturities of foreign securities and expirations of rights
in connection therewith) received by the Custodian in connection with the
foreign securities being held for the account of the Fund. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the Fund
written information so received by the Custodian in connection with the foreign
securities whose tender or exchange is sought or from the party (or its agents)
making the tender or exchange offer.
SECTION 3.10
LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS. Each
agreement pursuant to which the Custodian employs as a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible, to
indemnify, and hold harmless, the Custodian from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with the
Foreign Sub-Custodian's performance of such obligations. At the Fund's
election, the Funds shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that the Funds have not been made whole for any such loss, damage,
cost, expense, liability or claim.
SECTION 3.11
TAX LAW. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as custodian
of the Funds by
<PAGE>
the tax law of the United States or of any state or political subdivision
thereof. It shall be the responsibility of the Fund to notify the Custodian of
the obligations imposed on the Fund or the Custodian as custodian of the Funds
by the tax law of countries set forth on Schedule A hereto, including
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any claim for exemption or
refund under the tax law of countries for which the Fund has provided such
information.
SECTION 4. PAYMENTS FOR REPURCHASES OR REDEMPTIONS AND SALES OF SHARES.
From such funds as may be available for the purpose, the Custodian shall,
upon receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares which have delivered to the Transfer Agent a
request for redemption or repurchase of their Shares. In connection with the
redemption or repurchase of Shares, the Custodian is authorized upon receipt of,
and in accordance with, instructions from the Transfer Agent to wire funds to or
through a commercial bank designated by the redeeming shareholders. In
connection with the redemption or repurchase of Shares, the Custodian shall
honor checks drawn on the Custodian by a holder of Shares, which checks have
been furnished by the Fund to the holder of Shares, when presented to the
Custodian in accordance with such written procedures and controls as may be
mutually agreed upon from time to time between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent and deposit to the account of the Fund such payments as are
received by the distributor or the Transfer Agent, as the case may be, for
Shares issued or sold from time to time. The Custodian will notify the Fund and
the Transfer Agent of any payments for Shares received by it from time to time.
SECTION 5. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board to keep the books of account of the
Fund and/or compute the net asset value per Share of the outstanding Shares or,
if directed in writing
<PAGE>
to do so by the Fund, shall itself keep such books of account and/ or compute
such net asset value per Share. If so directed, the Custodian shall also (i)
calculate daily the net income of the Fund as described in the Prospectus and
shall advise the Fund and the Transfer Agent daily of the total amounts of such
net income, and/ or (ii) advise the Transfer Agent periodically of the division
of such net income among its various components. The calculations of the net
asset value per share and the daily income of the Fund shall be made at the time
or times described from time to time in the Prospectus.
SECTION 6. PROPER INSTRUCTIONS.
"Proper Instructions," as such term is used throughout this Agreement,
means either (i) a writing, including a facsimile transmission, signed by one or
more persons as set forth on, and in accordance with, an "Authorized Persons
List," as such term is defined herein (each such instruction a "Written Proper
Instruction"), (ii) a "Client Originated Electronic Financial Instruction," as
such term is defined in the Data Access Services Addendum hereto, given in
accordance with the terms of such Addendum, or (iii) instructions received by
the Custodian from a third party in accordance with any three-party agreement
which requires a segregated asset account in accordance with Section 2.11.
Each Written Proper Instruction shall set forth a brief description of the
type of transaction involved (choosing from among the types of transactions set
forth on the Authorized Persons List), including a specific statement of the
purpose for which such action is requested, and any modification to a Written
Proper Instruction must itself be a Written Proper Instruction and subject to
all the provisions herein relating to Written Proper Instructions. The Fund
will provide the Custodian with an "Authorized Persons List," which list shall
set forth (a) the names of the individuals (each an "Authorized Person") who are
authorized by the Board to give Written Proper Instructions with respect to the
transactions described therein, and (b) the number of Authorized Persons whose
signature or approval, as the case may be, is necessary for the Custodian to be
able to act in accordance with such Written Proper Instructions with respect to
a particular type of transaction. The Custodian may accept oral instructions or
instructions delivered via electronic mail as Proper Instructions if the
Custodian reasonably believes such instructions to have been given by an
Authorized Person or Persons (as appropriate to the type of transaction);
provided, however, that in no event will instructions delivered orally or via
electronic mail be considered Proper
<PAGE>
Instructions with respect to transactions involving the movement of cash,
securities or other assets of a Fund. The Custodian shall be entitled to rely
upon instructions given in accordance with an Authorized Persons List until it
actually receives written notice from the Board of the applicable Fund to the
contrary.
SECTION 7. EVIDENCE OF AUTHORITY.
Subject to Section 9 hereof, the Custodian shall be protected in acting
upon any instructions, notice, request, consent, certificate or other instrument
or paper reasonably and in good faith believed by it to be genuine and to have
been properly executed by or on behalf of the Fund. The Custodian may receive
and accept a copy of a vote of the Board, certified by the secretary or an
assistant secretary of the applicable Fund, as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board described in such vote, and such
vote may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
SECTION 8. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY.
The Custodian may in its discretion and without express authority from the
Fund:
1)
make payments to itself or others for minor expenses of handling
investments or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to
the Fund;
2) surrender investments in temporary form for investments in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other
dealings with the investments and property of the Fund except as
otherwise directed by the Board.
SECTION 9. RESPONSIBILITY OF CUSTODIAN.
<PAGE>
The Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. Notwithstanding anything to the
contrary herein, the Custodian shall be held to the exercise of reasonable care
in carrying out the provisions of this Agreement, and it shall be kept
indemnified by and shall be without liability to the Fund for any action taken
or omitted by it in good faith without negligence. In order for the
indemnification provision contained in this Section to apply, it is understood
that if in any case the Fund may be asked by the Custodian to indemnify or hold
the Custodian harmless, the Fund shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Custodian will use reasonable care to identify, and notify
the Fund promptly concerning, any situation which presents or appears likely to
present the probability of such a claim for indemnification. The Fund shall
have the option to defend the Custodian against any claim which may be the
subject of a claim for indemnification hereunder, and in the event that the Fund
so elects, it will notify the Custodian thereof and, thereupon, (i) the Fund
shall take over complete defense of the claim and (ii) the Custodian shall
initiate no further legal or other expenses with respect to such claim. The
Custodian shall in no case confess any claim or make any compromise with respect
to any claim for which it will seek indemnity from the Fund except with the
Fund's prior written consent. Nothing herein shall be construed to limit any
right or cause of action on the part of the Custodian under this Agreement which
is independent of any right or cause of action on the part of the Fund. The
Custodian shall be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Fund or other such counsel as agreed to by the parties)
on all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice. The Custodian shall be entitled to rely
upon, and shall have no duty of inquiry with respect to, the accuracy of any
representation or warranty given to it by the Fund or any duly-authorized
employee or agent thereof, and shall be without liability for any action
reasonably taken or omitted by it in reliance thereon. Regardless of whether
assets held pursuant to this Agreement are maintained in the custody of a
foreign banking institution, a foreign securities depository, or a branch or
affiliate of a U.S. bank, the Custodian shall not be liable for any loss,
damage, cost, expense, liability
<PAGE>
The Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. Notwithstanding anything to the
contrary herein, the Custodian shall be held to the exercise of reasonable care
in carrying out the provisions of this Agreement, and it shall be kept
indemnified by and shall be without liability to the Fund for any action taken
or omitted by it in good faith without negligence. In order for the
indemnification provision contained in this Section to apply, it is understood
that if in any case the Fund may be asked by the Custodian to indemnify or hold
the Custodian harmless, the Fund shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Custodian will use reasonable care to identify, and notify
the Fund promptly concerning, any situation which presents or appears likely to
present the probability of such a claim for indemnification. The Fund shall
have the option to defend the Custodian against any claim which may be the
subject of a claim for indemnification hereunder, and in the event that the Fund
so elects, it will notify the Custodian thereof and, thereupon, (i) the Fund
shall take over complete defense of the claim and (ii) the Custodian shall
initiate no further legal or other expenses with respect to such claim. The
Custodian shall in no case confess any claim or make any compromise with respect
to any claim for which it will seek indemnity from the Fund except with the
Fund's prior written consent. Nothing herein shall be construed to limit any
right or cause of action on the part of the Custodian under this Agreement which
is independent of any right or cause of action on the part of the Fund. The
Custodian shall be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Fund or other such counsel as agreed to by the parties)
on all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice. The Custodian shall be entitled to rely
upon, and shall have no duty of inquiry with respect to, the accuracy of any
representation or warranty given to it by the Fund or any duly-authorized
employee or agent thereof, and shall be without liability for any action
reasonably taken or omitted by it in reliance thereon. Regardless of whether
assets held pursuant to this Agreement are maintained in the custody of a
foreign banking institution, a foreign securities depository, or a branch or
affiliate of a U.S. bank, the Custodian shall not be liable for any loss,
damage, cost, expense, liability
<PAGE>
If the Fund requires the Custodian to take any action with respect to
investments, which action involves the payment of money or which action may, in
the reasonable opinion of the Custodian, result in the Custodian or its nominee
assigned to the Fund being liable for the payment of money or incurring
liability of some other form, the Fund, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the Custodian in an
amount and form satisfactory to it.
If the Custodian, or any of its affiliates, subsidiaries or agents,
advances cash or investments to the Fund for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement), or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor, and should the Fund fail to repay the Custodian promptly the
Custodian shall be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement, provided that the
Custodian gives the Fund reasonable notice to repay such cash or securities
advanced, and provided further that such notice requirement shall not preclude
the Custodian's right to assert and execute on such lien.
Except as may arise from the Custodian's own negligence or willful
misconduct, or the negligence or willful misconduct of a subcustodian or agent
appointed by the Custodian, the Fund agrees to indemnify and hold the Custodian
harmless from and against any and all costs, expenses, losses, damages, charges,
reasonable counsel fees, payments and liabilities which may be asserted against
the Custodian (i) acting in accordance with any Proper Instruction, or (ii) for
any acts or omissions of CHASE MANHATTAN BANK N.A.
Notwithstanding any provision herein to the contrary, to the extent the
Custodian is found to be liable hereunder for any loss, liability, claim,
expense or damage, the Custodian shall be liable only for such loss, liability,
claim, expense or damage which was reasonably foreseeable.
<PAGE>
SECTION 10. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT.
This Agreement shall become effective as of the date of its execution,
shall continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties hereto,
and may be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing in the
case of a termination by the Fund, and not sooner than one hundred eighty (180)
days after the date of such delivery or mailing in the case of termination by
the Custodian; provided, however that the Custodian shall not act under Section
2.9 hereof in the absence of receipt of an initial certificate of a Fund's
secretary, or an assistant secretary thereof, that the Board has approved the
initial use of a particular U.S. Securities System, as required by the 1940 Act
or any applicable Rule thereunder, and that the Custodian shall not act under
Section 2.10 hereof in the absence of receipt of an initial certificate of a
Fund's secretary, or an assistant secretary thereof, that the Board has approved
the initial use of the Direct Paper System; provided further, however, that the
Fund shall not amend or terminate this Agreement in contravention of any
applicable federal or state regulations, or any provision of the Fund's articles
of incorporation, agreement of trust, by-laws and/or registration statement (as
applicable, the "GOVERNING DOCUMENTS"); and further provided that the Fund may
at any time by action of its Board (i) substitute another bank or trust company
for the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by the United States Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Agreement, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its reasonable costs, expenses and disbursements,
provided that the Custodian shall not incur any costs, expenses or disbursements
specifically in connection with such termination unless it has received prior
approval from the Fund, such approval not to be unreasonably withheld.
<PAGE>
SECTION 11. SUCCESSOR CUSTODIAN.
If a successor custodian shall be appointed by the Board, the Custodian
shall, upon termination, deliver to such successor custodian at the offices of
the Custodian, duly endorsed and in the form for transfer, all investments and
other properties then held by it hereunder, and shall transfer to an account of
the successor custodian all of the Fund's investments held in a Securities
System. If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a copy of a vote of the Board, certified by the
secretary or an assistant secretary of the applicable Fund, deliver at the
offices of the Custodian and transfer such investments, funds and other
properties in accordance with such vote. In the event that no written order
designating a successor custodian or certified copy of a vote of the Board shall
have been delivered to the Custodian on or before the date when such termination
shall become effective, then the Custodian shall have the right to deliver to a
bank or trust company, which is a "bank" as defined in the 1940 Act, doing
business in Boston, Massachusetts, or New York, New York, of its own selection
and having an aggregate capital, surplus, and undivided profits, as shown by its
last published report, of not less than $100,000,000, all property held by the
Custodian under this Agreement and to transfer to an account of such successor
custodian all of the Fund's investments held in any Securities System;
thereafter, such bank or trust company shall be the successor of the Custodian
under this Agreement.
In the event that any property held pursuant to this Agreement remains in
the possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board to appoint a successor custodian, the Custodian shall be entitled to
fair compensation for its services during such period as the Custodian retains
possession of such property, and the provisions of this Agreement relating to
the duties and obligations of the Custodian shall remain in full force and
effect.
SECTION 12. GENERAL.
SECTION 12.1
COMPENSATION OF CUSTODIAN. The Custodian shall be entitled to compensation for
its services and reimbursement of its expenses as Custodian as agreed upon from
time to time between the Fund and the Custodian.
<PAGE>
SECTION 12.2
MASSACHUSETTS LAW TO APPLY. This Agreement shall be construed and the
provisions thereof interpreted under and in accordance with laws of The
Commonwealth of Massachusetts.
SECTION 12.3
RECORDS. The Custodian shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund under the 1940 Act, with particular attention to Section
31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the SEC. The Custodian shall, at
the Fund's request, supply the Fund with a tabulation of investments owned by
the Fund and held by the Custodian hereunder, and shall, when requested to do so
by an officer of the Fund, and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
SECTION 12.4
OPINION OF FUND'S INDEPENDENT ACCOUNTANT. The Custodian shall take all
reasonable action as the Fund may from time to time request to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, the preparation of the Fund's Form N-SAR, the preparation of any
other annual reports to the SEC with respect to the Fund, and with respect to
any other requirements of the SEC.
SECTION 12.5
INTERPRETIVE AND ADDITIONAL PROVISIONS. In connection with the operation of
this Agreement, the Custodian and the Fund may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Agreement as
may in their joint opinion be consistent with the general tenor of this
Agreement. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Governing Documents. No interpretive
or additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Agreement.
SECTION 12.6
BOND. The Custodian shall at all times maintain a bond in such form and amount
as is acceptable to the Fund, which shall be issued by a reputable fidelity
insurance company authorized to do business in the place where such bond is
issued, against larceny and embezzlement, covering each officer and employee of
<PAGE>
the Custodian who may, singly or jointly with others, have access to securities
or funds of the Fund, either directly or through authority to receive and carry
out any certificate instruction, order request, note or other instrument
required or permitted by this Agreement. The Custodian agrees that it shall not
cancel, terminate or modify such bond insofar as it adversely affects the Fund
except after written notice given to the Fund not less than 10 days prior to the
effective date of such cancellation, termination or modification. The Custodian
shall, upon request, furnish to the Fund a copy of each such bond and each
amendment thereto.
SECTION 12.7
CONFIDENTIALITY. The Custodian agrees to treat all records and other
information relative to the Fund and its prior, present or future shareholders
as confidential, and the Custodian, on behalf of itself and its employees,
agrees to keep confidential all such information except, after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where the Custodian may be exposed
to civil or criminal contempt proceedings for failure to comply when requested
to divulge such information by duly constituted authorities, or when so
requested by the Fund.
SECTION 12.8
EXEMPTION FROM LIEN. Except as set forth in Section 9 hereof, the securities
and other assets held by the Custodian hereunder shall not be subject to lien or
charge of any kind in favor of the Custodian or any person claiming through the
Custodian. Nothing herein shall be deemed to deprive the Custodian of its right
to invoke any and all remedies available at law or equity to collect amounts due
it under this Agreement.
SECTION 12.9
ASSIGNMENT. This Agreement may not be assigned by either party without the
written consent of the other, except that either party may assign its rights and
obligations hereunder to a party controlling, controlled by, or under common
control with such party.
SECTION 12.10 PRIOR AGREEMENTS. Without derogating the rights established
thereunder prior to the date of this Agreement, this Agreement supersedes and
terminates, as of the date hereof, all prior agreements between the Fund and the
Custodian relating to the custody of Fund assets.
SECTION 12.11 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all such
counterparts taken together shall constitute but one and the same Agreement.
<PAGE>
SECTION 12.12 NOTICES. Any notice, instruction or other instrument
required to be given hereunder may be delivered in person to the offices of the
parties as set forth herein during normal business hours or delivered prepaid
registered mail or by telex, cable or telecopy to the parties at the following
addresses or such other addresses as may be notified by any party from time to
time.
To any Fund: c/o T. ROWE PRICE ASSOCIATES, INC.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Carmen Deyesu
Telephone: 410-345-6658
Telecopy: 410-685-8827/8830
To the Custodian: STATE STREET BANK AND TRUST COMPANY
1776 Heritage Drive
North Quincy, Massachusetts 02171, U.S.A.
Attention: Carol C. Ayotte
Telephone: 617-985-6894
Telecopy: 617-537-6321
Such notice, instruction or other instrument shall be deemed to have been
served in the case of a registered letter at the expiration of five business
days after posting, in the case of cable twenty-four hours after dispatch and,
in the case of telex, immediately on dispatch and if delivered outside normal
business hours it shall be deemed to have been received at the next time after
delivery when normal business hours commence and in the case of cable, telex or
telecopy on the business day after the receipt thereof. Evidence that the
notice was properly addressed, stamped and put into the post shall be conclusive
evidence of posting.
SECTION 12.13 ENTIRE AGREEMENT. This Agreement (including all schedules,
appendices, exhibits and attachments hereto) constitutes the entire Agreement
between the parties with respect to the subject matter hereof.
SECTION 12.14 HEADINGS NOT CONTROLLING. Headings used in this Agreement
are for reference purposes only and shall not be deemed a part of this
Agreement.
SECTION 12.15 SURVIVAL. All provisions regarding indemnification,
confidentiality, warranty, liability and limits thereon shall survive following
the expiration or termination of this Agreement.
<PAGE>
SECTION 12.16 SEVERABILITY. In the event any provision of this Agreement
is held illegal, void or unenforceable, the balance shall remain in effect.
SECTION 12.17 THE PARTIES. All references herein to the "Fund" are to each
of the funds listed on Appendix A hereto individually, as if this Agreement were
between such individual Fund and the Custodian. In the case of a series fund or
trust, all references to the "Fund" are to the individual series or portfolio of
such fund or trust, or to such fund or trust on behalf of the individual series
or portfolio, as appropriate. Any reference in this Agreement to "the parties"
shall mean the Custodian and such other individual Fund as to which the matter
pertains. Each Fund hereby represents and warranties that (i) it has the
requisite power and authority under applicable laws and its Governing Documents
to enter into and perform this Agreement, (ii) all requisite proceedings have
been taken to authorize it to enter into and perform this Agreement, and (iii)
its entrance into this Agreement shall not cause a material breach or be in
material conflict with any other agreement or obligation of the Fund or any law
or regulation applicable to it.
SECTION 12.18 DIRECTORS AND TRUSTEES. It is understood and is expressly
stipulated that neither the holders of Shares nor any member of the Board be
personally liable hereunder. Whenever reference is made herein to an action
required to be taken by the Board, such action may also be taken by the Board's
executive committee.
SECTION 12.19 MASSACHUSETTS BUSINESS TRUST. With respect to any Fund which
is a party to this Agreement and which is organized as a Massachusetts business
trust, the term "Fund" means and refers to the trustees from time to time
serving under the applicable trust agreement of such trust, as the same may be
amended from time to time (the "DECLARATION OF TRUST"). It is expressly agreed
that the obligations of any such Fund hereunder shall not be binding upon any of
the trustees, shareholders, nominees, officers, agents or employees of the Fund
personally, but bind only the trust property of the Fund as set forth in the
applicable Declaration of Trust. In the case of each Fund which is a
Massachusetts business trust (in each case, a "TRUST"), the execution and
delivery of this Agreement on behalf of the Trust has been authorized by the
trustees, and signed by an authorized officer, of the Trust, in each case acting
in such capacity and not individually, and neither such authorization by the
trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them
<PAGE>
individually, but shall bind only the trust property of the Trust as provided in
its Declaration of Trust.
SECTION 12.20 REPRODUCTION OF DOCUMENTS. This Agreement and all schedules,
exhibits, attachments and amendments hereto may be reproduced by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process. The parties hereto all/each agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
SECTION 12.21 SHAREHOLDER COMMUNICATIONS ELECTION. SEC Rule 14b-2 requires
banks which hold securities for the account of customers to respond to requests
by issuers of securities for the names, addresses and holdings of beneficial
owners of securities of that issuer held by the bank unless the beneficial owner
has expressly objected to disclosure of this information. In order to comply
with the rule, the Custodian needs the Fund to indicate whether it authorizes
the Custodian to provide the Fund's name, address, and share position to
requesting companies whose securities the Fund owns. If the Fund tells the
Custodian "no", the Custodian will not provide this information to requesting
companies. If the Fund tells the Custodian "yes" or does not check either "yes"
or "no" below, the Custodian is required by the rule to treat the Fund as
consenting to disclosure of this information for all securities owned by the
Fund or any funds or accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company from using the Fund's name
and address for any purpose other than corporate communications. Please
indicate below whether the Fund consents or objects by checking one of the
alternatives below.
YES [ ]
The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [X]
The Custodian is not authorized to release the Fund's name,
address, and share positions.
<PAGE>
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT
Addendum to the Custodian Agreement (as defined below) between each fund
listed on Appendix A to the Custodian Agreement, as such Appendix A is amended
from time to time (each such fund listed on Appendix A shall be individually
referred to herein as the "FUND"), and State Street Bank and Trust Company
("STATE STREET").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain assets of
the Fund pursuant to a certain Custodian Agreement (the "CUSTODIAN AGREEMENT")
dated as of January 28, 1998, and amended thereafter from time to time;
WHEREAS, State Street has developed and utilizes proprietary accounting and
other systems, including State Street's proprietary Multicurrency HORIZON/R/
Accounting System, in its role as custodian of the Fund, and maintains certain
Fund-related data ("FUND DATA") in databases under the control and ownership of
State Street (the "DATA ACCESS SERVICES"); and
WHEREAS, State Street makes available to the Fund (and certain of the
Fund's agents as set forth herein) certain Data Access Services solely for the
benefit of the Fund, and intends to provide additional services, consistent with
the terms and conditions of this Addendum.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the parties
agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a.
System. Subject to the terms and conditions of this Addendum and solely for the
- ------
purpose of providing access to Fund Data as set forth herein, State Street
hereby agrees to provide the Fund, or certain third parties approved by State
Street that serve as the Fund's investment advisors, investment managers or fund
accountants (the "FUND ACCOUNTANTS") or as the Fund's independent auditors (the
"AUDITOR"), with access to State Street's Multicurrency HORIZON/R/ Accounting
System and the other information systems described in Attachment A
(collectively, the "SYSTEM") on a remote basis solely on the computer hardware,
system software and telecommunication links described in Attachment B (the
"DESIGNATED
<PAGE>
CONFIGURATION") or on any designated substitute or back-up equipment
configuration consented to in writing by State Street, such consent not to be
unreasonably withheld.
b.
Data Access Services. State Street agrees to make available to the Fund the
- ---- ------ --------
Data Access Services subject to the terms and conditions of this Addendum and
such data access operating standards and procedures as may be issued by State
Street from time to time. The Fund shall be able to access the System to (i)
originate electronic instructions to State Street in order to (a) effect the
transfer or movement of cash or securities held under custody by State Street or
(b) transmit accounting or other information (the transactions described in
(i)(a) and (i)(b) above are referred to herein as "CLIENT ORIGINATED ELECTRONIC
FINANCIAL INSTRUCTIONS"), and (ii) access data for the purpose of reporting and
analysis, which shall all be deemed to be Data Access Services for purposes of
this Addendum.
c.
Additional Services. State Street may from time to time agree to make available
- ---------- --------
to the Fund additional Systems that are not described in the attachments to this
Addendum. In the absence of any other written agreement concerning such
additional systems, the term "SYSTEM" shall include, and this Addendum shall
govern, the Fund's access to and use of any additional System made available by
State Street and/or accessed by the Fund.
2. NO USE OF THIRD PARTY SYSTEMS-LEVEL SOFTWARE
State Street and the Fund acknowledge that in connection with the Data
Access Services provided under this Addendum, the Fund will have access, through
the Data Access Services, to Fund Data and to functions of State Street's
proprietary systems; provided, however that in no event will the Fund have
direct access to any third party systems-level software that retrieves data for,
stores data from, or otherwise supports the System.
3. LIMITATION ON SCOPE OF USE
a.
Designated Equipment; Designated Locations. The System and the Data Access
- ---------- ---------- ---------- ---------
Services shall be used and accessed solely on and through the Designated
Configuration at the offices of the Fund or the Fund Accountants in Baltimore,
Maryland or Owings Mills, Maryland ("DESIGNATED LOCATIONS").
b.
Designated Configuration; Trained Personnel. State Street and the Fund shall
- ---------- -------------- ------- ---------
be responsible for supplying, installing
<PAGE>
and maintaining the Designated Configuration at the Designated Locations. State
Street and the Fund agree that each will engage or retain the services of
trained personnel to enable both parties to perform their respective obligations
under this Addendum. State Street agrees to use commercially reasonable efforts
to maintain the System so that it remains serviceable, provided, however, that
State Street does not guarantee or assure uninterrupted remote access use of the
System.
c.
Scope of Use. The Fund will use the System and the Data Access Services only
- ----- -- ---
for the processing of securities transactions, the keeping of books of account
for the Fund and accessing data for purposes of reporting and analysis. The
Fund shall not, and shall cause its employees and agents not to (i) permit any
unauthorized third party to use the System or the Data Access Services, (ii)
sell, rent, license or otherwise use the System or the Data Access Services in
the operation of a service bureau or for any purpose other than as expressly
authorized under this Addendum, (iii) use the System or the Data Access Services
for any fund, trust or other investment vehicle), other than as set forth
herein, without the prior written consent of State Street, (iv) allow access to
the System or the Data Access Services through terminals or any other computer
or telecommunications facilities located outside the Designated Locations, (v)
allow or cause any information (other than portfolio holdings, valuations of
portfolio holdings, and other information reasonably necessary for the
management or distribution of the assets of the Fund) transmitted from State
Street's databases, including data from third party sources, available through
use of the System or the Data Access Services to be redistributed or
retransmitted to another computer, terminal or other device for other than use
for or on behalf of the Fund or (vi) modify the System in any way, including
without limitation developing any software for or attaching any devices or
computer programs to any equipment, system, software or database which forms a
part of or is resident on the Designated Configuration.
d.
Other Locations. Except in the event of an emergency or of a planned System
- ----- ---------
shutdown, the Fund's access to services performed by the System or to Data
Access Services at the Designated Locations may be transferred to a different
location only upon the prior written consent of State Street. In the event of
an emergency or System shutdown, the Fund may use any back-up site included in
the Designated Configuration or any other back-up site agreed to by State
Street, which agreement will not be unreasonably withheld. The Fund may secure
from State Street the right to access the System or the Data Access Services
through computer and telecommunications
<PAGE>
facilities or devices complying with the Designated Configuration at additional
locations only upon the prior written consent of State Street and on terms to be
mutually agreed upon by the parties.
e.
Title. Title and all ownership and proprietary rights to the System, including
- -----
any enhancements or modifications thereto, whether or not made by State Street,
are and shall remain with State Street.
f.
No Modification. Without the prior written consent of State Street, the Fund
- -- ------------
shall not modify, enhance or otherwise create derivative works based upon the
System, nor shall the Fund reverse engineer, decompile or otherwise attempt to
secure the source code for all or any part of the System.
g.
Security Procedures. The Fund shall comply with data access operating standards
- -------- ----------
and procedures and with user identification or other password control
requirements and other security procedures as may be issued from time to time by
State Street for use of the System on a remote basis and to access the Data
Access Services. The Fund shall have access only to the Fund Data and
authorized transactions agreed upon from time to time by State Street and, upon
notice from State Street, the Fund shall discontinue remote use of the System
and access to Data Access Services for any security reasons cited by State
Street; provided, that, in such event, State Street shall, for a period not less
than 180 days (or such other shorter period specified by the Fund) after such
discontinuance, assume responsibility to provide accounting services under the
terms of the Custodian Agreement.
h.
Inspections. State Street shall have the right to inspect the use of the System
- -----------
and the Data Access Services by the Fund, the Fund Accountants and the Auditor
to ensure compliance with this Addendum. The on-site inspections shall be upon
prior written notice to Fund, the Fund Accountants and the Auditor and at
reasonably convenient times and frequencies so as not to result in an
unreasonable disruption of the Fund's or the Fund Accountants' or the Auditor
respective businesses.
4. PROPRIETARY INFORMATION
a.
Proprietary Information. The Fund acknowledges and State Street represents that
- ----------- -----------
the System and the databases, computer programs, screen formats, report formats,
interactive design techniques, documentation and other information made
available to the Fund by State Street as part of the Data Access Services and
<PAGE>
through the use of the System constitute copyrighted, trade secret, or other
proprietary information of substantial value to State Street. Any and all such
information provided by State Street to the Fund shall be deemed proprietary and
confidential information of State Street (hereinafter "PROPRIETARY
INFORMATION"). The Fund agrees that it will hold such Proprietary Information
in the strictest confidence and secure and protect it in a manner consistent
with its own procedures for the protection of its own confidential information
and to take appropriate action by instruction or agreement with its employees or
agents who are permitted access to the Proprietary Information to satisfy its
obligations hereunder. The Fund further acknowledges that State Street shall
not be required to provide the Fund Accountants or the Auditor with access to
the System unless it has first received from the Fund Accountants and the
Auditor an undertaking with respect to State Street's Proprietary Information in
the form of Attachment C and/or Attachment C-1 to this Addendum. The Fund shall
use all commercially reasonable efforts to assist State Street in identifying
and preventing any unauthorized use, copying or disclosure of the Proprietary
Information or any portions thereof or any of the logic, formats or designs
contained therein.
b.
Cooperation. Without limitation of the foregoing, the Fund shall advise State
- -----------
Street immediately in the event the Fund learns or has reason to believe that
any person to whom the Fund has given access to the Proprietary Information, or
any portion thereof, has violated or intends to violate the terms of this
Addendum, and the Fund will, at its reasonable expense, cooperate with State
Street in seeking injunctive or other equitable relief in the name of the Fund
or State Street against any such person.
c.
Injunctive Relief. The Fund acknowledges that the disclosure of any Proprietary
- ---------- ------
Information, or of any information which at law or equity ought to remain
confidential, will immediately give rise to continuing irreparable injury to
State Street inadequately compensable in damages at law. In addition, State
Street shall be entitled to obtain immediate injunctive relief against the
breach or threatened breach of any of the foregoing undertakings, in addition to
any other legal remedies which may be available.
d.
Survival. The provisions of this Section 4 shall survive the termination of
- --------
this Addendum.
<PAGE>
5. LIMITATION ON LIABILITY
a.
Standard of Care and Limitation on Amount and Time for Bringing Action. State
- -------- -- ---- --- ---------- -- ------ --- ---- --- -------- ------
Street shall be held to a standard of reasonable care with respect to all of its
duties and obligations under this Addendum. The Fund agrees that any liability
of State Street to the Fund or any third party arising with respect to the
System or State Street's provision of Data Access Services under this Data
Access Services Addendum shall be limited to the amount paid by the Fund for the
preceding 24 months for such services. The foregoing limitation shall relate
solely to State Street's provision of the Data Access Services pursuant to this
Addendum and is not intended to limit State Street's responsibility to perform
in accordance with the Custodian Agreement, including its duty to act in
accordance with Proper Instructions. In no event shall State Street be liable
to the Fund or any other party pursuant to this Addendum for any special,
indirect, punitive or consequential damages even if advised of the possibility
of such damages. No action, regardless of form, arising out of the terms of
this Addendum may be brought by the Fund more than two years after the Fund has
knowledge that the cause of action has arisen.
b.
Limited Warranties. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING,
- ------- ----------
WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ARE MADE BY STATE STREET.
c.
Third-Party Data. Organizations from which State Street may obtain certain data
- ----------- ----
included in the System or the Data Access Services are solely responsible for
the contents of such data, and State Street shall have no liability for claims
arising out of the contents of such third-party data, including, but not limited
to, the accuracy thereof.
d.
Regulatory Requirements. As between State Street and the Fund, the Fund shall
- ---------- ------------
be solely responsible for the accuracy of any accounting statements or reports
produced using the Data Access Services and the System and the conformity
thereof with any requirements of law.
e.
Force Majeure. Neither party shall be liable for any costs or damages due to
- ----- -------
delay or nonperformance under this Data Access Services Addendum arising out of
any cause or event beyond such party's control, including, without limitation,
cessation of services hereunder or any damages resulting therefrom to the other
party as a result of work stoppage, power or other mechanical
<PAGE>
failure, computer virus, natural disaster, governmental action, or communication
disruption.
6. INDEMNIFICATION
The Fund agrees to indemnify and hold State Street harmless from any loss,
damage or expense including reasonable attorney's fees, (a "loss") suffered by
State Street arising from (i) the negligence or willful misconduct in the use by
the Fund of the Data Access Services or the System, including any loss incurred
by State Street resulting from a security breach at the Designated Locations or
committed by the Fund's employees or agents or the Fund Accountants or the and
Auditor, and (ii) any loss resulting from incorrect Client Originated Electronic
Financial Instructions. State Street shall be entitled to rely on the validity
and authenticity of Client Originated Electronic Financial Instructions without
undertaking any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by State Street from time to
time.
7. FEES
Fees and charges for the use of the System and the Data Access Services and
related payment terms shall be as set forth in the custody fee schedule in
effect from time to time between the parties (the "FEE SCHEDULE"). Any tariffs,
duties or taxes imposed or levied by any government or governmental agency by
reason of the transactions contemplated by this Addendum, including, without
limitation, federal, state and local taxes, use, value added and personal
property taxes (other than income, franchise or similar taxes which may be
imposed or assessed against State Street) shall be borne by the Fund. Any
claimed exemption from such tariffs, duties or taxes shall be supported by
proper documentary evidence delivered to State Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a.
Training. State Street agrees to provide training, at a designated State Street
- --------
training facility or at the Designated Locations, to the Fund's personnel in
connection with the use of the System on the Designated Configuration. The Fund
agrees that it will set aside, during regular business hours or at other times
agreed upon by both parties, sufficient time to enable all operators of the
System and the Data Access Services, designated by the Fund, to receive the
training offered by State Street pursuant to this Addendum.
<PAGE>
b.
Installation and Conversion. State Street and the Fund shall be responsible for
- ------------ --- ----------
the technical installation and conversion ("INSTALLATION AND CONVERSION") of the
Designated Configuration. The Fund shall have the following responsibilities in
connection with Installation and Conversion of the System:
(i)
The Fund shall be solely responsible for the timely acquisition and
maintenance of the hardware and software that attach to the Designated
Configuration in order to use the Data Access Services at the
Designated Locations, and
(ii)
State Street and the Fund each agree that they will assign qualified
personnel to actively participate during the Installation and
Conversion phase of the System implementation to enable both parties
to perform their respective obligations under this Addendum.
9. SUPPORT
During the term of this Addendum, State Street agrees to provide the
support services set out in Attachment D to this Addendum.
10. TERM
a.
Term. This Addendum shall become effective on the date of its execution by
- ----
State Street and shall remain in full force and effect until terminated as
herein provided.
b.
Termination. Either party may terminate this Addendum (i) for any reason by
- -----------
giving the other party at least one-hundred and eighty (180) days' prior written
notice in the case of notice of termination by State Street to the Fund or
thirty (30) days' notice in the case of notice from the Fund to State Street of
termination; or (ii) immediately for failure of the other party to comply with
any material term and condition of the Addendum by giving the other party
written notice of termination. In the event the Fund shall cease doing
business, shall become subject to proceedings under the bankruptcy laws (other
than a petition for reorganization or similar proceeding) or shall be
adjudicated bankrupt, this Addendum and the rights granted hereunder shall, at
the option of State Street, immediately terminate with notice to the Fund. This
Addendum shall in any event terminate as to any Fund within ninety (90) days
after the termination of the Custodian Agreement.
<PAGE>
c.
Termination of the Right to Use. Upon termination of this Addendum for any
- ----------- -- --- ----- -- ---
reason, any right to use the System and access to the Data Access Services shall
terminate and the Fund shall immediately cease use of the System and the Data
Access Services. Immediately upon termination of this Addendum for any reason,
the Fund shall return to State Street all copies of documentation and other
Proprietary Information in its possession; provided, however, that in the event
that either party terminates this Addendum or the Custodian Agreement for any
reason other than the Fund's breach, State Street shall provide the Data Access
Services for a period of time and at a price to be agreed upon in writing by the
parties.
11. MISCELLANEOUS
a.Year 2000. State Street will take all steps necessary to ensure that its
---- ----
products (and those of its third-party suppliers) reflect the available state of
the art technology to offer products that are Year 2000 compliant, including,
but not limited to, century recognition of dates, calculations that correctly
compute same century and multi-century formulas and date values, and interface
values that reflect the date issues arising between now and the next one-hundred
years. If any changes are required, State Street will make the changes to its
products at no cost to the Fund and in a commercially reasonable time frame and
will require third-party suppliers to do likewise.
b.
Assignment; Successors. This Addendum and the rights and obligations of the
- ----------- ----------
Fund and State Street hereunder shall not be assigned by either party without
the prior written consent of the other party, except that State Street may
assign this Addendum to a successor of all or a substantial portion of its
business, or to a party controlling, controlled by, or under common control with
State Street.
c.
Survival. All provisions regarding indemnification, warranty, liability and
- --------
limits thereon, and confidentiality and/or protection of proprietary rights and
trade secrets shall survive the termination of this Addendum.
d.
Entire Agreement. This Addendum and the attachments hereto constitute the
- ------ ---------
entire understanding of the parties hereto with respect to the Data Access
Services and the use of the System and supersedes any and all prior or
contemporaneous representations or agreements, whether oral or written, between
the parties as such may relate to the Data Access Services or the System, and
cannot
<PAGE>
be modified or altered except in a writing duly executed by the parties. This
Addendum is not intended to supersede or modify the duties and liabilities of
the parties hereto under the Custodian Agreement or any other agreement between
the parties hereto except to the extent that any such agreement specifically
refers to the Data Access Services or the System. No single waiver or any right
hereunder shall be deemed to be a continuing waiver.
e. Severability.
------------
If any provision or provisions of this Addendum shall be held to be invalid,
unlawful, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired.
f.
Governing Law. This Addendum shall be interpreted and construed in accordance
- --------- ---
with the internal laws of The Commonwealth of Massachusetts without regard to
the conflict of laws provisions thereof.
<PAGE>
ATTACHMENT A
MULTICURRENCY HORIZON/R/ ACCOUNTING SYSTEM
SYSTEM PRODUCT DESCRIPTION
I. The Multicurrency HORIZON/R/ Accounting System is designed to provide lot
level portfolio and general ledger accounting for SEC and ERISA type
requirements and includes the following services: 1) recording of general ledger
entries; 2) calculation of daily income and expense; 3) reconciliation of daily
activity with the trial balance, and 4) appropriate automated feeding mechanisms
to (i) domestic and international settlement systems, (ii) daily, weekly and
monthly evaluation services, (iii) portfolio performance and analytic services,
(iv) customer's internal computing systems and (v) various State Street provided
information services products.
II. GlobalQuest/R/ GlobalQuest/R/ is designed to provide customer access to
the following information maintained on The Multicurrency HORIZON/R/ Accounting
System: 1) cash transactions and balances; 2) purchases and sales; 3) income
receivables; 4) tax refund; 5) daily priced positions; 6) open trades; 7)
settlement status; 8) foreign exchange transactions; 9) trade history; and 10)
daily, weekly and monthly evaluation services.
III. HORIZON/R/ Gateway. HORIZON/R/ Gateway provides customers with the
ability to (i) generate reports using information maintained on the
Multicurrency HORIZON/R/ Accounting System which may be viewed or printed at the
customer's location; (ii) extract and download data from the Multicurrency
HORIZONR Accounting System; and (iii) access previous day and historical data.
The following information which may be accessed for these purposes: 1)
holdings; 2) holdings pricing; 3) transactions, 4) open trades; 5) income;
6) general ledger and 7) cash.
IV. State Street Interchange. State Street Interchange is an open
------------------------
information delivery architecture wherein proprietary communication products,
data formats and workstation tools are replaced by industry standards and is
designed to enable the connection of State Street's network to customer
networks, thereby facilitating the sharing of information.
ATTACHMENT C
UNDERTAKING
(FUND ACCOUNTANTS)
<PAGE>
The undersigned understands that in the course of its employment as Fund
Accountant to each fund listed on Appendix A (as amended from time to time) to
that certain Custodian Agreement dated as of January 28, 1998 (the "FUND"), it
will have access to State Street Bank and Trust Company's Multicurrency HORIZON
Accounting System and other information systems (collectively, the "SYSTEM").
The undersigned acknowledges that the System and the databases, computer
programs, screen formats, report formats, interactive design techniques,
documentation, and other information made available to the Undersigned by State
Street Bank and Trust Company ("STATE STREET") as part of the Data Access
Services provided to the Fund and through the use of the System constitute
copyrighted, trade secret, or other proprietary information of substantial value
to State Street. Any and all such information provided by State Street to the
Undersigned shall be deemed proprietary and confidential information of State
Street (hereinafter "PROPRIETARY INFORMATION"). The undersigned agrees that it
will hold such Proprietary Information in confidence and secure and protect it
in a manner consistent with its own procedures for the protection of its own
confidential information and to take appropriate action by instruction or
agreement with its employees who are permitted access to the Proprietary
Information to satisfy its obligations hereunder.
The undersigned will not attempt to intercept data, gain access to data in
transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System and
access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
<PAGE>
[The Fund Accountants]
By: ______________________________
Title: ______________________________
Date: ______________________________
<PAGE>
ATTACHMENT C-1
UNDERTAKING
(AUDITOR)
The undersigned understands that in the course of its employment as Auditor
to each fund listed on Appendix A (as amended from time to time) to that certain
Custodian Agreement dated as of January 28, 1998 (the "FUND") it will have
access to State Street Bank and Trust Company's Multicurrency HORIZON Accounting
System and other information systems (collectively, the "SYSTEM").
The undersigned acknowledges that the System and the databases, computer
programs, screen formats, report formats, interactive design techniques,
documentation, and other information made available to the Undersigned by State
Street Bank and Trust Company ("STATE STREET") as part of the Data Access
Services provided to the Fund and through the use of the System constitute
copyrighted, trade secret, or other proprietary information of substantial value
to State Street. Any and all such information provided by State Street to the
Undersigned shall be deemed proprietary and confidential information of State
Street (hereinafter "PROPRIETARY INFORMATION"). The undersigned agrees that it
will hold such Proprietary Information in confidence and secure and protect it
in a manner consistent with its own procedures for the protection of its own
confidential information and to take appropriate action by instruction or
agreement with its employees who are permitted access to the Proprietary
Information to satisfy its obligations hereunder.
The undersigned will not attempt to intercept data, gain access to data in
transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System and
access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
<PAGE>
[The Auditor]
By: ______________________________
Title: ______________________________
Date: ______________________________
<PAGE>
ATTACHMENT D
SUPPORT
During the term of this Addendum, State Street agrees to provide the
following on-going support services:
a.
Telephone Support. The Fund Designated Persons may contact State Street's
HORIZON/R/ Help Desk and Fund Assistance Center between the hours of 8 a.m. and
6 p.m. (Eastern time) on all business days for the purpose of obtaining answers
to questions about the use of the System, or to report apparent problems with
the System. From time to time, the Fund shall provide to State Street a list of
persons who shall be permitted to contact State Street for assistance (such
persons being referred to as the "FUND DESIGNATED PERSONS").
b.
Technical Support. State Street will provide technical support to assist the
- --------- -------
Fund in using the System and the Data Access Services. The total amount of
technical support provided by State Street shall not exceed 10 resource days per
year. State Street shall provide such additional technical support as is
expressly set forth in the fee schedule in effect from time to time between the
parties (the "FEE SCHEDULE"). Technical support, including during installation
and testing, is subject to the fees and other terms set forth in the Fee
Schedule.
c. Maintenance Support. State Street shall use commercially reasonable
-------------------
efforts to correct system functions that do not work according to the System
Product Description as set forth on Attachment A in priority order in the next
scheduled delivery release or otherwise as soon as is practicable.
d.
System Enhancements. State Street will provide to the Fund any enhancements to
- ------ ------------
the System developed by State Street and made a part of the System; provided
that State Street offer the Fund reasonable training on the enhancement.
Charges for system enhancements shall be as provided in the Fee Schedule.
State Street retains the right to charge for related systems or products that
may be developed and separately made available for use other than through the
System.
e.
Custom Modifications. In the event the Fund desires custom modifications in
- ------ -------------
connection with its use of the System, the Fund shall make a written request to
State Street providing specifications for the desired modification. Any custom
<PAGE>
modifications may be undertaken by State Street in its sole discretion in
accordance with the Fee Schedule.
f.
Limitation on Support. State Street shall have no obligation to support the
- ---------- -- -------
Fund's use of the System: (1) for use on any computer equipment or
telecommunication facilities which does not conform to the Designated
Configuration or (ii) in the event the Fund has modified the System in breach of
this Addendum.
In WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and on its behalf by its duly authorized representative as
of the date and year first written above.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
<PAGE>
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
<PAGE>
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
T. ROWE PRICE SMALL CAP STOCK FUND, INC.
T. Rowe Price Small Cap Stock Fund
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE TAX EFFICIENT BALANCED FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Government Reserve Investment Fund
Reserve Investment Fund
<PAGE>
SIGNATURE ATTESTED TO: EXECUTED ON BEHALF OF EACH FUND:
/s/Suzanne E. Fraunhoffer /s/Carmen Deyesu
By: _____________________ By:____________________
Name: Suzanne E. Fraunhoffer Name: Carmen Deyesu
Title: Legal Assistant Title: Treasurer for
each of the foregoing
SIGNATURE ATTESTED TO:
STATE STREET BANK AND TRUST COMPANY
/s/Glenn Ciotti /s/Ronald E. Logue
By: _____________________ By:____________________
Name: Glenn Ciotti Name: Ronald E. Logue
Title: VP & Assoc. Counsel Title: Executive Vice
President
<PAGE>
SCHEDULE A
COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
United Kingdom State Street Bank None;
and Trust Company The Bank of England,
The Central Gilts Office (CGO);
The Central Moneymarkets Office (CMO)
Euroclear (The Euroclear System)/ State Street London Limited
<PAGE>
APPENDIX A
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
Georgia Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
<PAGE>
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
<PAGE>
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
T. ROWE PRICE SMALL CAP STOCK FUND, INC.
T. Rowe Price Small Cap Stock Fund
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE TAX EFFICIENT BALANCED FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Government Reserve Investment Fund
Reserve Investment Fund
<PAGE>
AMENDMENT NO. 1
TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS
The Custodian Contract of January 28, 1998, between State Street Bank and Trust
Company and each of the Parties listed on Appendix A thereto is hereby further
amended, as of November 4, 1998, by adding thereto T. Rowe Price Index Trust,
Inc., on behalf of T. Rowe Price International Funds, Inc., on behalf of T. Rowe
Price International Growth & Income Fund.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
<PAGE>
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Growth & Income Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
<PAGE>
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.
<PAGE>
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
/s/Henry H. Hopkins
By: _____________________________________
Henry H. Hopkins, Vice President
STATE STREET BANK AND TRUST COMPANY
/s/Carol C. Ayotte
By: _____________________________________
Carol C. Ayotte, Vice President
The Global Custody Agreement dated January 3, 1994, as amended, between
The Chase Manhattan Bank, N.A. and T. Rowe Price Funds.
PAGE 1
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective January 3, 1994, and is between
THE CHASE MANHATTAN BANK, N.A. (the "Bank") and EACH OF THE
ENTITIES LISTED ON SCHEDULE A HERETO, Individually and Separately
(each individually, the "Customer").
1. Customer Accounts.
The Bank agrees to establish and maintain the following
accounts ("Accounts"):
(a) A custody account in the name of the Customer
("Custody Account") for any and all stocks, shares, bonds,
debentures, notes, mortgages or other obligations for the payment
of money, bullion, coin and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase or
subscribe for the same or evidencing or representing any other
rights or interests therein and other similar property whether
certificated or uncertificated as may be received by the Bank or
its Subcustodian (as defined in Section 3) for the account of the
Customer ("Securities"); and
(b) A deposit account in the name of the Customer ("Deposit
Account") for any and all cash in any currency received by the
Bank or its Subcustodian for the account of the Customer, which
cash shall not be subject to withdrawal by draft or check.
The Customer warrants its authority to: 1) deposit the cash
and Securities ("Assets") received in the Accounts and 2) give
Instructions (as defined in Section 11) concerning the Accounts.
The Bank may deliver securities of the same class in place of
those deposited in the Custody Account.
Upon written agreement between the Bank and the Customer,
additional Accounts may be established and separately accounted
for as additional Accounts under the terms of this Agreement.
2. Maintenance of Securities and Cash at Bank and Subcustodian
Locations.
Unless Instructions specifically require another location
acceptable to the Bank:
(a) Securities will be held in the country or other
jurisdiction in which the principal trading market for such
Securities is located, where such Securities are to be presented
for payment or where such Securities are acquired; and
PAGE 2
(b) Cash will be credited to an account in a country or
other jurisdiction in which such cash may be legally deposited or
is the legal currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest
or non-interest bearing accounts as may be available for the
particular currency. To the extent Instructions are issued and
the Bank can comply with such Instructions, the Bank is
authorized to maintain cash balances on deposit for the Customer
with itself or one of its affiliates at such reasonable rates of
interest as may from time to time be paid on such accounts, or in
non-interest bearing accounts as the Customer may direct, if
acceptable to the Bank.
If the Customer wishes to have any of its Assets held in the
custody of an institution other than the established
Subcustodians as defined in Section 3 (or their securities
depositories), such arrangement must be authorized by a written
agreement, signed by the Bank and the Customer.
3. Subcustodians and Securities Depositories.
The Bank may act under this Agreement through the
subcustodians listed in Schedule B of this Agreement with which
the Bank has entered into subcustodial agreements
("Subcustodians"). The Customer authorizes the Bank to hold
Assets in the Accounts in accounts which the Bank has established
with one or more of its branches or Subcustodians. The Bank and
Subcustodians are authorized to hold any of the Securities in
their account with any securities depository in which they
participate.
The Bank reserves the right to add new, replace or remove
Subcustodians. The Customer will be given reasonable notice by
the Bank of any amendment to Schedule B. Upon request by the
Customer, the Bank will identify the name, address and principal
place of business of any Subcustodian of the Customer's Assets
and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such
Subcustodian.
4. Use of Subcustodian.
(a) The Bank will identify such Assets on its books as
belonging to the Customer.
(b) A Subcustodian will hold such Assets together with
assets belonging to other customers of the Bank in accounts
identified on such Subcustodian's books as special custody
accounts for the exclusive benefit of customers of the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will
be subject only to the instructions of the Bank or its agent.
PAGE 3
Any Securities held in a securities depository for the account of
a Subcustodian will be subject only to the instructions of such
Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian
for holding its customer's assets shall provide that such assets
will not be subject to any right, charge, security interest, lien
or claim of any kind in favor of such Subcustodian or its
creditors except for a claim for payment for safe custody or
administration, and that the beneficial ownership of such assets
will be freely transferable without the payment of money or value
other than for safe custody or administration. The foregoing
shall not apply to the extent of any special agreement or
arrangement made by the Customer with any particular
Subcustodian.
5. Deposit Account Transactions.
(a) The Bank or its Subcustodians will make payments from
the Deposit Account upon receipt of Instructions which include
all information required by the Bank.
(b) In the event that any payment to be made under this
Section 5 exceeds the funds available in the Deposit Account, the
Bank, in its discretion, may advance the Customer such excess
amount which shall be deemed a loan payable on demand, bearing
interest at the rate customarily charged by the Bank on similar
loans.
(c) If the Bank credits the Deposit Account on a payable
date, or at any time prior to actual collection and
reconciliation to the Deposit Account, with interest, dividends,
redemptions or any other amount due, the Customer will promptly
return any such amount upon oral or written notification: (i)
that such amount has not been received in the ordinary course of
business or (ii) that such amount was incorrectly credited. If
the Customer does not promptly return any amount upon such
notification, the Bank shall be entitled, upon oral or written
notification to the Customer, to reverse such credit by debiting
the Deposit Account for the amount previously credited. The Bank
or its Subcustodian shall have no duty or obligation to institute
legal proceedings, file a claim or a proof of claim in any
insolvency proceeding or take any other action with respect to
the collection of such amount, but may act for the Customer upon
Instructions after consultation with the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered
by the Bank or its Subcustodian upon receipt by the Bank of
Instructions which include all information required by the Bank.
Settlement and payment for Securities received for, and delivery
of Securities out of, the Custody Account may be made in
PAGE 4
accordance with the customary or established securities trading
or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs,
including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the
expectation of receiving later payment and free delivery.
Delivery of Securities out of the Custody Account may also be
made in any manner specifically required by Instructions
acceptable to the Bank.
(b) The Bank, in its discretion, may credit or debit the
Accounts on a contractual settlement date with cash or Securities
with respect to any sale, exchange or purchase of Securities.
Otherwise, such transactions will be credited or debited to the
Accounts on the date cash or Securities are actually received by
the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the
Accounts in its discretion if the related transaction
fails to settle within a reasonable period, determined
by the Bank in its discretion, after the contractual
settlement date for the related transaction.
(ii) If any Securities delivered pursuant to this
Section 6 are returned by the recipient thereof, the
Bank may reverse the credits and debits of the
particular transaction at any time.
7. Actions of the Bank.
The Bank shall follow Instructions received regarding assets
held in the Accounts. However, until it receives Instructions to
the contrary, the Bank will:
(a) Present for payment any Securities which are called,
redeemed or retired or otherwise become payable and all coupons
and other income items which call for payment upon presentation,
to the extent that the Bank or Subcustodian is actually aware of
such opportunities.
(b) Execute in the name of the Customer such ownership and
other certificates as may be required to obtain payments in
respect of Securities.
(c) Exchange interim receipts or temporary Securities for
definitive Securities.
(d) Appoint brokers and agents for any transaction
involving the Securities, including, without limitation,
affiliates of the Bank or any Subcustodian.
(e) Issue statements to the Customer, at times mutually
agreed upon, identifying the Assets in the Accounts.
PAGE 5
The Bank will send the Customer an advice or notification of
any transfers of Assets to or from the Accounts. Such
statements, advices or notifications shall indicate the identity
of the entity having custody of the Assets. Unless the Customer
sends the Bank a written exception or objection to any Bank
statement within ninety (90) days of receipt, the Customer shall
be deemed to have approved such statement. The Bank shall, to
the extent permitted by law, be released, relieved and discharged
with respect to all matters set forth in such statement or
reasonably implied therefrom as though it had been settled by the
decree of a court of competent jurisdiction in an action where
the Customer and all persons having or claiming an interest in
the Customer or the Customer's Accounts were parties if: (a) the
Customer has failed to provide a written exception or objection
to any Bank statement within ninety (90) days of receipt and
where the Customer's failure to so provide a written exception or
objection within such ninety (90) day period has limited the
Bank's (i) access to the records, materials and other information
required to investigate the Customer's exception or objection,
and (ii) ability to recover from third parties any amounts for
which the Bank may become liable in connection with such
exception or objection, or (b) where the Customer has otherwise
explicitly approved any such statement.
All collections of funds or other property paid or
distributed in respect of Securities in the Custody Account shall
be made at the risk of the Customer. The Bank shall have no
liability for any loss occasioned by delay in the actual receipt
of notice by the Bank or by its Subcustodians of any payment,
redemption or other transaction regarding Securities in the
Custody Account in respect of which the Bank has agreed to take
any action under this Agreement.
8. Corporate Actions; Proxies.
Whenever the Bank receives information concerning the
Securities which requires discretionary action by the beneficial
owner of the Securities (other than a proxy), such as
subscription rights, bonus issues, stock repurchase plans and
rights offerings, or legal notices or other material intended to
be transmitted to securities holders ("Corporate Actions"), the
Bank will give the Customer notice of such Corporate Actions to
the extent that the Bank's central corporate actions department
has actual knowledge of a Corporate Action in time to notify its
customers.
When a rights entitlement or a fractional interest resulting
from a rights issue, stock dividend, stock split or similar
Corporate Action is received which bears an expiration date, the
Bank will endeavor to obtain Instructions from the Customer or
its Authorized Person, but if Instructions are not received in
time for the Bank to take timely action, or actual notice of such
Corporate Action was received too late to seek Instructions, the
PAGE 6
Bank is authorized to sell such rights entitlement or fractional
interest and to credit the Deposit Account with the proceeds or
take any other action it deems, in good faith, to be appropriate
in which case it shall be held harmless for any such action.
The Bank will deliver proxies to the Customer or its
designated agent pursuant to special arrangements which may have
been agreed to in writing. Such proxies shall be executed in the
appropriate nominee name relating to Securities in the Custody
Account registered in the name of such nominee but without
indicating the manner in which such proxies are to be voted; and
where bearer Securities are involved, proxies will be delivered
in accordance with Instructions.
9. Nominees.
Securities which are ordinarily held in registered form may
be registered in a nominee name of the Bank, Subcustodian or
securities depository, as the case may be. The Bank may without
notice to the Customer cause any such Securities to cease to be
registered in the name of any such nominee and to be registered
in the name of the Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by
the issuer, the Bank may allot the called portion to the
respective beneficial holders of such class of security pro rata
or in any other manner that is fair, equitable and practicable.
The Customer agrees to hold the Bank, Subcustodians, and their
respective nominees harmless from any liability arising directly
or indirectly from their status as a mere record holder of
Securities in the Custody Account.
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person"
means employees or agents including investment managers as have
been designated by written notice from the Customer or its
designated agent to act on behalf of the Customer under this
Agreement. Such persons shall continue to be Authorized Persons
until such time as the Bank receives Instructions from the
Customer or its designated agent that any such employee or agent
is no longer an Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized
Person received by the Bank, via telephone, telex, TWX, facsimile
transmission, bank wire or other teleprocess or electronic
instruction or trade information system acceptable to the Bank
which the Bank believes in good faith to have been given by
Authorized Persons or which are transmitted with proper testing
or authentication pursuant to terms and conditions which the Bank
may specify. Unless otherwise expressly provided, all
PAGE 7
Instructions shall continue in full force and effect until
canceled or superseded.
Any Instructions delivered to the Bank by telephone shall
promptly thereafter be confirmed in writing by an Authorized
Person (which confirmation may bear the facsimile signature of
such Person), but the Customer will hold the Bank harmless for
the failure of an Authorized Person to send such confirmation in
writing, the failure of such confirmation to conform to the
telephone instructions received or the Bank's failure to produce
such confirmation at any subsequent time. The Bank may
electronically record any Instructions given by telephone, and
any other telephone discussions with respect to the Custody
Account. The Customer shall be responsible for safeguarding any
testkeys, identification codes or other security devices which
the Bank shall make available to the Customer or its Authorized
Persons.
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of
only such duties as are set forth in this Agreement or expressly
contained in Instructions which are consistent with the
provisions of this Agreement. Notwithstanding anything to the
contrary in this Agreement:
(i) The Bank will use reasonable care with respect to
its obligations under this Agreement and the
safekeeping of Assets. The Bank shall be liable to the
Customer for any loss which shall occur as the result
of the failure of a Subcustodian to exercise reasonable
care with respect to the safekeeping of such Assets to
the same extent that the Bank would be liable to the
Customer if the Bank were holding such Assets in New
York. In the event of any loss to the Customer by
reason of the failure of the Bank or its Subcustodian
to utilize reasonable care, the Bank shall be liable to
the Customer only to the extent of the Customer's
direct damages, and shall in no event be liable for any
special or consequential damages.
(ii) The Bank will not be responsible for any act,
omission, default or for the solvency of any broker or
agent which it or a Subcustodian appoints unless such
appointment was made negligently or in bad faith or for
any loss due to the negligent act of such broker or
agent except to the extent that such broker or agent
(other than a Subcustodian) performs in a negligent
manner which is the cause of the loss to the Customer
and the Bank failed to exercise reasonable care in
monitoring such broker's or agent's performance where
Customer has requested and Bank has agreed to accept
such monitoring responsibility.
PAGE 8
(iii) The Bank shall be indemnified by, and
without liability to the Customer for any action taken
or omitted by the Bank whether pursuant to Instructions
or otherwise within the scope of this Agreement if such
act or omission was in good faith, without negligence.
In performing its obligations under this Agreement, the
Bank may rely on the genuineness of any document which
it believes in good faith to have been validly
executed.
(iv) The Customer agrees to pay for and hold the Bank
harmless from any liability or loss resulting from the
imposition or assessment of any taxes or other
governmental charges, and any related expenses with
respect to income from or Assets in the Accounts,
except to the extent that the Bank has failed to
exercise reasonable care in performing any obligations
which the Bank may have agreed to assume (in addition
to those stated in this Agreement) with respect to
taxes and such failure by the Bank is the direct cause
of such imposition or assessment of such taxes, charges
or expenses.
(v) The Bank shall be entitled to rely, and may act,
upon the advice of counsel (who may be counsel for the
Customer) on all legal matters and shall be without
liability for any action reasonably taken or omitted
pursuant to such advice; provided, that the Bank gives
(to the extent practicable) prior notice to Customer of
Bank's intention to so seek advice of counsel and an
opportunity for consultation with Customer on the
proposed contact with counsel.
(vi) The Bank represents and warrants that it currently
maintain a banker's blanket bond which provides
standard fidelity and non-negligent loss coverage with
respect to the Securities and Cash which may be held by
Subcustodians pursuant to this Agreement. The Bank
agrees that if at any time it for any reason
discontinues such coverage, it shall immediately give
sixty (60) days' prior written notice to the Customer.
The Bank need not maintain any insurance for the
benefit of the Customer.
(vii) Without limiting the foregoing, the Bank
shall not be liable for any loss which results from:
(1) the general risk of investing, or (2) investing or
holding Assets in a particular country including, but
not limited to, losses resulting from nationalization,
expropriation or other governmental actions; regulation
of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market
PAGE 9
conditions which prevent the orderly execution of securities
transactions or affect the value of Assets.
(viii) Neither party shall be liable to the other
for any loss due to forces beyond their control
including, but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation, or
acts of God.
(b) Consistent with and without limiting the first
paragraph of this Section 12, it is specifically acknowledged
that the Bank shall have no duty or responsibility to:
(i) question Instructions or make any suggestions to
the Customer or an Authorized Person regarding such
Instructions;
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) advise the Customer or an Authorized Person
regarding any default in the payment of principal or
income of any security other than as provided in
Section 5(c) of this Agreement;
(iv) evaluate or report to the Customer or an
Authorized Person regarding the financial condition of
any broker, agent (other than a Subcustodian) or other
party to which Securities are delivered or payments are
made pursuant to this Agreement;
(v) review or reconcile trade confirmations received
from brokers. The Customer or its Authorized Persons
(as defined in Section 10) issuing Instructions shall
bear any responsibility to review such confirmations
against Instructions issued to and statements issued by
the Bank.
(c) The Customer authorizes the Bank to act under this
Agreement notwithstanding that the Bank or any of its divisions
or affiliates may have a material interest in a transaction, or
circumstances are such that the Bank may have a potential
conflict of duty or interest including the fact that the Bank or
any of its affiliates may provide brokerage services to other
customers, act as financial advisor to the issuer of Securities,
act as a lender to the issuer of Securities, act in the same
transaction as agent for more than one customer, have a material
interest in the issue of Securities, or earn profits from any of
the activities listed herein.
13. Fees and Expenses.
PAGE 10
The Customer agrees to pay the Bank for its services under
this Agreement such amount as may be agreed upon in writing,
together with the Bank's reasonable out-of-pocket or incidental
expenses, including, but not limited to, reasonable legal fees.
The Bank shall have a lien on and is authorized to charge any
Accounts of the Customer for any amount owing to the Bank under
any provision of this Agreement upon notice to the Customer.
14. Miscellaneous.
(a) Foreign Exchange Transactions. Pursuant to
Instructions, which may be standing Instructions, to facilitate
the administration of the Customer's trading and investment
activity, the Bank is authorized to enter into spot or forward
foreign exchange contracts with the Customer or an Authorized
Person for the Customer and may also provide foreign exchange
through its subsidiaries or Subcustodians. The Bank may
establish rules or limitations concerning any foreign exchange
facility made available. In all cases where the Bank, its
subsidiaries, affiliates or Subcustodians enter into a foreign
exchange contract related to Accounts, the terms and conditions
of the then current foreign exchange contract of the Bank, its
subsidiary, affiliate or Subcustodian and, to the extent not
inconsistent, this Agreement shall apply to such transaction.
(b) Certification of Residency, etc. The Customer
certifies that it is a resident of the United States and agrees
to notify the Bank of any changes in residency. The Bank may
rely upon this certification or the certification of such other
facts as may be required to administer the Bank's obligations
under this Agreement. The Customer will indemnify the Bank
against all losses, liability, claims or demands arising directly
or indirectly from any such certifications.
(c) Access to Records. The Bank shall allow the Customer's
independent public accountants, officers and advisers reasonable
access to the records of the Bank relating to the Assets as is
required in connection with their examination of books and
records pertaining to the Customer's affairs. Subject to
restrictions under applicable law, the Bank shall also obtain an
undertaking to permit the Customer's independent public
accountants reasonable access to the records of any Subcustodian
which has physical possession of any Assets as may be required in
connection with the examination of the Customer's books and
records.
(d) Governing Law; Successors and Assigns. This Agreement
shall be governed by the laws of the State of New York and shall
not be assignable by either party, but shall bind the successors
in interest of the Customer and the Bank.
PAGE 11
(e) Entire Agreement; Applicable Riders. Customer
represents that the Assets deposited in the Accounts are (Check
one):
X Employee Benefit Plan or other assets subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA");
X Mutual Fund assets subject to certain Securities and
Exchange Commission ("SEC") rules and regulations;
X Neither of the above.
With respect to each Customer, this Agreement consists
exclusively of this document together with Schedules A, B,
Exhibits I - _______ and the following Rider(s) to the
extent indicated on Schedule A hereto opposite the name of
the Customer under the column headed "Applicable Riders to
Agreement":
X ERISA
X MUTUAL FUND
SPECIAL TERMS AND CONDITIONS
There are no other provisions of this Agreement and this
Agreement supersedes any other agreements, whether written or
oral, between the parties. Any amendment to this Agreement must
be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions
of this Agreement are held invalid, illegal or enforceable in any
respect on the basis of any particular circumstances or in any
jurisdiction, the validity, legality and enforceability of such
provision or provisions under other circumstances or in other
jurisdictions and of the remaining provisions will not in any way
be affected or impaired.
PAGE 12
(g) Waiver. Except as otherwise provided in this
Agreement, no failure or delay on the part of either party in
exercising any power or right under this Agreement operates as a
waiver, nor does any single or partial exercise of any power or
right preclude any other or further exercise, or the exercise of
any other power or right. No waiver by a party of any provision
of this Agreement, or waiver of any breach or default, is
effective unless in writing and signed by the party against whom
the waiver is to be enforced.
(h) Notices. All notices under this Agreement shall be
effective when actually received. Any notices or other
communications which may be required under this Agreement are to
be sent to the parties at the following addresses or such other
addresses as may subsequently be given to the other party in
writing:
Bank: The Chase Manhattan Bank, N.A.
Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Investor Services
Telephone: (718) 242-3455
Facsimile: (718) 242-1374
Copy to: The Chase Manhattan Bank, N.A.
Woolgate House
Coleman Street
London EC2P 2HD England
Attention: Global Investor Services
Telephone: 44-71-962-5000
Facsimile: 44-71-962-5377
Telex: 8954681CMBG
Customer: Name of Customer from Schedule A
c/o T. Rowe Price
100 East Pratt Street
Baltimore, MD 21202
Attention: Treasurer
Telephone: (410) 625-6658
Facsimile: (410) 547-0180
(i) Termination. This Agreement may be terminated by the
Customer or the Bank by giving ninety (90) days written notice to
the other, provided that such notice to the Bank shall specify
the names of the persons to whom the Bank shall deliver the
Assets in the Accounts. If notice of termination is given by the
Bank, the Customer shall, within ninety (90) days following
receipt of the notice, deliver to the Bank Instructions
specifying the names of the persons to whom the Bank shall
deliver the Assets. In either case the Bank will deliver the
Assets to the persons so specified, after deducting any amounts
which the Bank determines in good faith to be owed to it under
PAGE 13
Section 13. If within ninety (90) days following receipt of a
notice of termination by the Bank, the Bank does not receive
Instructions from the Customer specifying the names of the
persons to whom the Bank shall deliver the Assets, the Bank, at
its election, may deliver the Assets to a bank or trust company
doing business in the State of New York to be held and disposed
of pursuant to the provisions of this Agreement, or to Authorized
Persons, or may continue to hold the Assets until Instructions
are provided to the Bank.
(j) Entire Agreement. This Agreement, including the
Schedules and Riders hereto, embodies the entire agreement and
understanding of the parties in respect of the subject matter
contained in this Agreement. This Agreement supersedes all other
custody or other agreements between the parties with respect to
such subject matter, which prior agreements are hereby terminated
effective as of the date hereof and shall have no further force
or effect.
EACH OF THE CUSTOMERS, INDIVIDUALLY
AND SEPARATELY LISTED ON SECTION I OF
SCHEDULE A HERETO
/s/Carmen F. Deyesu
By:________________________________
Carmen F. Deyesu
Treasurer & Vice President
EACH OF THE CUSTOMERS, INDIVIDUALLY
AND SEPARATELY LISTED ON SECTION II OF
SCHEDULE A HERETO
/s/Alvin M. Younger
By:____________________________________
Alvin M. Younger
Treasurer
EACH OF THE CUSTOMERS, INDIVIDUALLY
AND SEPARATELY LISTED ON SECTION III OF
SCHEDULE A HERETO
/s/Alvin M. Younger
By:___________________________________
Alvin M. Younger
Treasurer
<PAGE>
PAGE 14
THE CHASE MANHATTAN BANK, N.A.
/s/Alan Naughton
By:_________________________________
Alan Naughton
Vice President
STATE OF )
: ss.
COUNTY OF )
On this day of , 19 , before me
personally came , to me known, who
being by me duly sworn, did depose and say that he/she resides in
at ;
that he/she is of
, the entity
described in and which executed the foregoing instrument; that
he/she knows the seal of said entity, that the seal affixed to
said instrument is such seal, that it was so affixed by order of
said entity, and that he/she signed his/her name thereto by like
order.
__________________________________
Sworn to before me this
day of , 19 .
________________________________
Notary
<PAGE>
PAGE 15
STATE OF )
: ss.
COUNTY OF )
On this day of
,19 , before me personally came , to
me known, who being by me duly sworn, did depose and say that
he/she resides in
at ; that
he/she is a Vice President of THE CHASE MANHATTAN BANK, (National
Association), the corporation described in and which executed the
foregoing instrument; that he/she knows the seal of said
corporation, that the seal affixed to said instrument is such
corporate seal, that it was so affixed by order of the Board of
Directors of said corporation, and that he/she signed his/her
name thereto by like order.
___________________________________
Sworn to before me this
day of , 19 .
___________________________________
Notary
<PAGE>
PAGE 16
Schedule A
Page 1 of 2
LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO
GLOBAL CUSTODY AGREEMENT WITH
THE CHASE MANHATTAN BANK, N.A.
DATED JANUARY 3, 1994
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
I. INVESTMENT COMPANIES/PORTFOLIOS The Mutual Fund Rider is
REGISTERED UNDER THE INVESTMENT applicable to all
COMPANY ACT OF 1940 Customers listed under
Section I of this Schedule A.
Equity Funds
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Dividend Growth Fund, Inc.
T. Rowe Price Equity Income Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
Institutional International Funds, Inc. on behalf of:
Foreign Equity Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price European Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price New Asia Fund
T. Rowe Price Mid-Cap Growth Fund, Inc.
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price OTC Fund, Inc. on behalf of:
T. Rowe Price OTC Fund
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Small Cap Value Fund, Inc.
CUNA Mutual Funds, Inc. on behalf of:
CUNA Mutual Cornerstone Fund
<PAGE>
PAGE 17
Schedule A
Page 2 of 2
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
Income Funds
T. Rowe Price Adjustable Rate U.S. Government Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Summit Funds, Inc. on behalf of:
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Global Government Bond Fund
T. Rowe Price International Bond Fund
T. Rowe Price Short-Term Global Income Fund
II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is
applicable to all
T. Rowe Price Trust Company, as Customers under Section
Trustee for the Johnson Matthey II of this Schedule A.
Salaried Employee Savings Plan
Common Trust Funds
T. Rowe Price Trust Company, as Trustee
for the International Common Trust Fund
on behalf of the Underlying Trusts:
Foreign Discovery Trust
Foreign Discovery Trust-Augment
Pacific Discovery Trust
European Discovery Trust
Japan Discovery Trust
Latin American Discovery Trust
New York City International Common Trust Fund
III. OTHER No Riders are applicable
to the Customer listed
RPFI International Partners, L.P. under Section III of
this Schedule A.
<PAGE>
PAGE 18
ERISA Rider to Global Custody Agreement
Between The Chase Manhattan Bank, N.A. and
Each of the Entities Listed on Schedule A Hereto
effective January 3, 1994
Customer represents that the Assets being placed in the
Bank's custody are subject to ERISA. It is understood that in
connection therewith the Bank is a service provider and not a
fiduciary of the plan and trust to which the assets are related.
The Bank shall not be considered a party to the underlying plan
and trust and the Customer hereby assumes all responsibility to
assure that Instructions issued under this Agreement are in
compliance with such plan and trust and ERISA.
This Agreement will be interpreted as being in compliance
with the Department of Labor Regulations Section 2550.404b-1
concerning the maintenance of indicia of ownership of plan assets
outside of the jurisdiction of the district courts of the United
States.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
As used in this Agreement, the term Subcustodian and the
term securities depositories include a branch of the Bank,
a branch of a qualified U.S. bank, an eligible foreign
custodian, or an eligible foreign securities depository,
where such terms shall mean:
(a) "qualified U.S. bank" shall mean a U.S. bank as
described in paragraph (a)(2)(ii)(A)(1) of the
Department of Labor Regulations Section 2550.404b-1;
(b) "eligible foreign custodian" shall mean a banking
institution incorporated or organized under the laws
of a country other than the United States which is
supervised or regulated by that country's government
or an agency thereof or other regulatory authority in
the foreign jurisdiction having authority over banks;
and
(c) "eligible foreign securities depository" shall mean a
securities depository or clearing agency,
incorporated or organized under the laws of a country
other than the United States, which is supervised or
regulated by that country's government or an agency
thereof or other regulatory authority in the foreign
jurisdiction having authority over such depositories
or clearing agencies and which is described in
paragraph (c)(2) of the Department of Labor
Regulations Section 2550.404b-1.
Section 4. Use of Subcustodian.
PAGE 19
Subsection (d) of this section is modified by deleting the
last sentence.
Section 5. Deposit Account Payments.
Subsection (b) is amended to read as follows:
(b) In the event that any payment made under this Section
5 exceeds the funds available in the Deposit Account, such
discretionary advance shall be deemed a service provided
by the Bank under this Agreement for which it is entitled
to recover its costs as may be determined by the Bank in
good faith.
Section 10. Authorized Persons.
Add the following paragraph at the end of Section 10:
Customer represents that: a) Instructions will only be issued
by or for a fiduciary pursuant to Department of Labor
Regulation Section 404b-1 (a)(2)(i) and b) if Instructions
are to be issued by an investment manager, such entity will
meet the requirements of Section 3(38) of ERISA and will have
been designated by the Customer to manage assets held in the
Customer Accounts ("Investment Manager"). An Investment
Manager may designate certain of its employees to act as
Authorized Persons under this Agreement.
Section 14(a). Foreign Exchange Transactions.
Add the following paragraph at the end of Subsection 14(a):
Instructions to execute foreign exchange transactions with
the Bank, its subsidiaries, affiliates or Subcustodians will
include (1) the time period in which the transaction must be
completed; (2) the location i.e., Chase New York, Chase
London, etc. or the Subcustodian with whom the contract is to
be executed and (3) such additional information and
guidelines as may be deemed necessary; and, if the
Instruction is a standing Instruction, a provision allowing
such Instruction to be overridden by specific contrary
Instructions.
<PAGE>
PAGE 20
Mutual Fund Rider to Global Custody Agreement
Between The Chase Manhattan Bank, N.A. and
Each of the Entities Listed on Schedule A Hereto
effective January 3, 1994
Customer represents that the Assets being placed in the
Bank's custody are subject to the Investment Company Act of 1940
(the Act), as the same may be amended from time to time.
Except to the extent that the Bank has specifically agreed to
comply with a condition of a rule, regulation, interpretation
promulgated by or under the authority of the SEC or the Exemptive
Order applicable to accounts of this nature issued to the Bank
(Investment Company Act of 1940, Release No. 12053, November 20,
1981), as amended, or unless the Bank has otherwise specifically
agreed, the Customer shall be solely responsible to assure that
the maintenance of Assets under this Agreement complies with such
rules, regulations, interpretations or exemptive order
promulgated by or under the authority of the Securities Exchange
Commission.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in
this Agreement shall mean a branch of a qualified U.S. bank,
an eligible foreign custodian or an eligible foreign
securities depository, which are further defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank
as defined in Rule 17f-5 under the Investment Company Act of
1940;
(b) "eligible foreign custodian" shall mean (i) a banking
institution or trust company incorporated or organized under
the laws of a country other than the United States that is
regulated as such by that country's government or an agency
thereof and that has shareholders' equity in excess of $200
million in U.S. currency (or a foreign currency equivalent
thereof), (ii) a majority owned direct or indirect subsidiary
of a qualified U.S. bank or bank holding company that is
incorporated or organized under the laws of a country other
than the United States and that has shareholders' equity in
excess of $100 million in U.S. currency (or a foreign
currency equivalent thereof)(iii) a banking institution or
trust company incorporated or organized under the laws of a
country other than the United States or a majority owned
direct or indirect subsidiary of a qualified U.S. bank or
bank holding company that is incorporated or organized under
the laws of a country other than the United States which has
such other qualifications as shall be specified in
Instructions and approved by the Bank; or (iv) any other
PAGE 21
entity that shall have been so qualified by exemptive order,
rule or other appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a
securities depository or clearing agency, incorporated or
organized under the laws of a country other than the United
States, which operates (i) the central system for handling
securities or equivalent book-entries in that country, or
(ii) a transnational system for the central handling of
securities or equivalent book-entries.
The Customer represents that its Board of Directors has
approved each of the Subcustodians listed in Schedule B to this
Agreement and the terms of the subcustody agreements between the
Bank and each Subcustodian, which are attached as Exhibits I
through of Schedule B, and further represents that its
Board has determined that the use of each Subcustodian and the
terms of each subcustody agreement are consistent with the best
interests of the Fund(s) and its (their) shareholders. The Bank
will supply the Customer with any amendment to Schedule B for
approval. As requested by the Bank, the Customer will supply the
Bank with certified copies of its Board of Directors
resolution(s) with respect to the foregoing prior to placing
Assets with any Subcustodian so approved.
Section 11. Instructions.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions
made pursuant to Section 5 and 6 of this Agreement may be
made only for the purposes listed below. Instructions must
specify the purpose for which any transaction is to be made
and Customer shall be solely responsible to assure that
Instructions are in accord with any limitations or
restrictions applicable to the Customer by law or as may be
set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at
prices as confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or
otherwise become payable;
(c) In exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan or
merger, consolidation, reorganization, recapitalization or
readjustment;
(d) Upon conversion of Securities pursuant to their terms
into other securities;
(e) Upon exercise of subscription, purchase or other similar
rights represented by Securities;
(f) For the payment of interest, taxes, management or
supervisory fees, distributions or operating expenses;
PAGE 22
(g) In connection with any borrowings by the Customer
requiring a pledge of Securities, but only against receipt of
amounts borrowed;
(h) In connection with any loans, but only against receipt
of adequate collateral as specified in Instructions which
shall reflect any restrictions applicable to the Customer;
(i) For the purpose of redeeming shares of the capital stock
of the Customer and the delivery to, or the crediting to the
account of, the Bank, its Subcustodian or the Customer's
transfer agent, such shares to be purchased or redeemed;
(j) For the purpose of redeeming in kind shares of the
Customer against delivery to the Bank, its Subcustodian or
the Customer's transfer agent of such shares to be so
redeemed;
(k) For delivery in accordance with the provisions of any
agreement among the Customer, the Bank 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 and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Customer;
(l) For release of Securities to designated brokers under
covered call options, provided, however, that such Securities
shall be released only upon payment to the Bank of monies for
the premium due and a receipt for the Securities which are to
be held in escrow. Upon exercise of the option, or at
expiration, the Bank will receive from brokers the Securities
previously deposited. The Bank will act strictly in
accordance with Instructions in the delivery of Securities to
be held in escrow and will have no responsibility or
liability for any such Securities which are not returned
promptly when due other than to make proper request for such
return;
(m) For spot or forward foreign exchange transactions to
facilitate security trading, receipt of income from
Securities or related transactions;
(n) For other proper purposes as may be specified in
Instructions issued by an officer of the Customer which shall
include a statement of the purpose for which the delivery or
payment is to be made, the amount of the payment or specific
Securities to be delivered, the name of the person or persons
to whom delivery or payment is to be made, and a
certification that the purpose is a proper purpose under the
instruments governing the Customer; and
(o) Upon the termination of this Agreement as set forth in
Section 14(i).
PAGE 23
Section 12. Standard of Care; Liabilities.
Add the following subsection (c) to Section 12:
(c) The Bank hereby warrants to the Customer that in its
opinion, after due inquiry, the established procedures to be
followed by each of its branches, each branch of a qualified
U.S. bank, each eligible foreign custodian and each eligible
foreign securities depository holding the Customer's
Securities pursuant to this Agreement afford protection for
such Securities at least equal to that afforded by the Bank's
established procedures with respect to similar securities
held by the Bank and its securities depositories in New York.
Section 14. Access to Records.
Add the following language to the end of Section 14(c):
Upon reasonable request from the Customer, the Bank shall
furnish the Customer such reports (or portions thereof) of
the Bank's system of internal accounting controls applicable
to the Bank's duties under this Agreement. The Bank shall
endeavor to obtain and furnish the Customer with such similar
reports as it may reasonably request with respect to each
Subcustodian and securities depository holding the Customer's
assets.
GLOBAL CUSTODY AGREEMENT
WITH
DATE
SPECIAL TERMS AND CONDITIONS RIDER
<PAGE>
PAGE 24
January, 1994 Schedule B
SUB-CUSTODIANS EMPLOYED BY
THE CHASE MANHATTAN BANK, N.A. LONDON, GLOBAL CUSTODY
COUNTRY
SUB-CUSTODIAN
CORRESPONDENT BANK
ARGENTINA
The Chase Manhattan Bank,
N.A.
Main Branch
25 De Mayo 130/140
Buenos Aires
ARGENTINA
The Chase
Manhattan Bank,
N.A. Buenos Aires<PAGE>
AUSTRALIA
The Chase Manhattan Bank,
Australia Limited
36th Floor
World Trade Centre
Jamison Street
Sydney
New South Wales 2000
AUSTRALIA
The Chase
Manhattan Bank
Australia Limited
Sydney
AUSTRIA
Creditanstalt - Bankvereln
Schottengasse 6
A - 1011, Vienna
AUSTRIA
Credit Lyonnais
Vienna
BANGLADESH<PAGE>
Standard Chartered Bank
18-20 Motijheel C.A.
Box 536,
Dhaka-1000
BANGLADESH<PAGE>
Standard Chartered
Bank Dhaka<PAGE>
BELGIUM<PAGE>
Generale Bank
3 Montagne Du Parc
1000 Bruxelles
BELGIUM<PAGE>
Credit Lyonnais
Bank Brussels<PAGE>
BOTSWANA<PAGE>
Standard Chartered Bank
Botswana Ltd.
4th Floor Commerce House
The Mall
Gaborone
BOTSWANA<PAGE>
Standard Chartered
Bank Botswana Ltd.
Gaborone<PAGE>
<PAGE>
BRAZIL Banco Chase Manhattan, S.A.
Chase Manhattan Center
Rua Verbo Divino, 1400
Sao Paulo, SP 04719-002
BRAZIL<PAGE>
Banco Chase Manhattan S.A.
Sao Paulo
PAGE 25
CANADA<PAGE>
The Royal Bank of Canada
Royal Bank Plaza
Toronto
Ontario M5J 2J5
CANADA
Canada Trust
Canada Trust Tower
BCE Place
161 Bay at Front
Toronto
Ontario M5J 2T2
CANADA<PAGE>
Toronto Dominion
Bank
Toronto
Toronto Dominion
Bank
Toronto<PAGE>
CHILE<PAGE>
The Chase Manhattan Bank,
N.A.
Agustinas 1235
Casilla 9192
Santiago
CHILE<PAGE>
The Chase
Manhattan Bank,
N.A.
Santiago<PAGE>
COLOMBIA<PAGE>
Cititrust Colombia S.A.
Sociedad Fiduciaria
Av. Jimenez No 8-89
Santafe de Bogota, DC
COLOMBIA<PAGE>
Cititrust Colombia
S.A. Sociedad
Fiduciaria
Santafe de Bogota<PAGE>
CZECH
REPUBLC<PAGE>
Ceskoslovenska Obchodni
Banka, A.S.
Na Prikoope 14
115 20 Praha 1
CZECH REPUBLIC<PAGE>
Ceskoslovenska
Obchodni Banka,
A.S.
Praha<PAGE>
DENMARK<PAGE>
Den Danske Bank
2 Holmens Kanala DK 1091
Copenhagen
DENMARK<PAGE>
Den Danske Bak
Copenhagen<PAGE>
EUROBONDS<PAGE>
Cedel S.A.
67 Boulevard Grande Duchesse
Charlotte
LUXEMBOURG
A/c The Chase Manhattan
Bank, N.A.
London
A/c No. 17817<PAGE>
ECU:Lloyds Bank
PLC
International
Banking Dividion
London
For all other
currencies: see
relevant country<PAGE>
<PAGE>
EURO CDS First Chicago Clearing Centre
27 Leadenhall Street
London EC3A 1AA
UNITED KINGDOM<PAGE>
ECU:Lloyds Bank PLC
Banking Division London
For all other currencies: see relevant country
PAGE 26
FINLAND<PAGE>
Kansallis-Osake-Pankki
Aleksanterinkatu 42
00100 Helsinki 10
FINLAND<PAGE>
Kanasallis-Osake-
Pankki<PAGE>
FRANCE<PAGE>
Banque Paribas
Ref 256
BP 141
3, Rue D'Antin
75078 Paris
Cedex 02
FRANCE<PAGE>
Societe Generale
Paris<PAGE>
GERMANY<PAGE>
Chase Bank A.G.
Alexanderstrasse 59
Postfach 90 01 09
60441 Frankfurt/Main
GERMANY<PAGE>
Chase Bank A.G.
Frankfurt<PAGE>
GREECE<PAGE>
National Bank of Greece S.A.
38 Stadiou Street
Athens
GREECE<PAGE>
National Bank of
Greece S.A. Athens
A/c Chase
Manhattan Bank,
N.A., London
A/c No.
040/7/921578-68<PAGE>
HONG KONG<PAGE>
The Chase Manhattan Bank,
N.A.
40/F One Exchange Square
8, Connaught Place
Central, Hong Kong
HONG KONG<PAGE>
The Chase
Manhattan Bank,
N.A.
Hong Kong<PAGE>
HUNGARY<PAGE>
Citibank Budapest Rt.
Vaci Utca 19-21
1052 Budapest V
HUNGARY<PAGE>
Citibank Budapest
Rt.
Budapest<PAGE>
INDIA<PAGE>
The Hongkong and Shanghai
Banking Corporation Limited
52/60 Mahatma Gandhi Road
Bombay 400 001
INDIA<PAGE>
The Hongkong and
Shanghai
Banking
Corporation
Limited
Bombay<PAGE>
<PAGE>
INDONESIA The Hongkong and Shanghai
Banking Corporation Limited
World Trade Center
J1. Jend Sudirman Kav. 29-31
Jakarta 10023
INDONESIA<PAGE>
The Chase Manhattan Bank, N.A.
Jakarta
PAGE 27
IRELAND<PAGE>
Bank of Ireland
International Financial
Services Centre
1 Hargourmaster Place
Dublin 1
IRELAND<PAGE>
Allied Irish Bank
Dublin<PAGE>
ISRAEL<PAGE>
Bank Leumi Le-Israel B.M.
19 Herzi Street
65136 Tel Aviv
ISRAEL<PAGE>
Bank Leumi Le-
Israel B.M.
Tel Aviv<PAGE>
ITALY<PAGE>
The Chase Manhattan Bank,
N.A.
Piazza Meda 1
20121 Milan
ITALY<PAGE>
The Chase
Manhattan Bank,
N.A.
Milan<PAGE>
JAPAN<PAGE>
The Chase Manhattan Bank,
N.A.
1-3 Marunouchi 1-Chome
Chiyoda-Ku
Tokyo 100
JAPAN<PAGE>
The Chase
Manhattan Bank,
N.A.
Tokyo<PAGE>
JORDAN<PAGE>
Arab Bank Limited
P.O. Box 950544-5
Amman
Shmeisani
JORDAN<PAGE>
Arab Bank Limited
Amman<PAGE>
LUXEMBOURG<PAGE>
Banque Generale du
Luxembourg S.A.
27 Avenue Monterey
LUXEMBOURG<PAGE>
Banque Generale du
Luxembourg S.A.
Luxembourg<PAGE>
MALAYSIA<PAGE>
The Chase Manhattan Bank,
N.A.
Pernas International
Jalan Sultan Ismail
50250, Kuala Lumpur
MALAYSIA<PAGE>
The Chase
Manhattan Bank,
N.A.
Kuala Lumpur<PAGE>
<PAGE>
MEXICO
(Equities)<PAGE>
The Chase Manhattan Bank, N.A.
Hamburgo 213, Piso 7
06660 Mexico D.F.
MEXICO<PAGE>
No correspondent Bank
(Government
Bonds)<PAGE>
Banco Nacional de Mexico,
Avenida Juarez No. 104 - 11
Piso
06040 Mexico D.F.
MEXICO<PAGE>
Banque Commerciale
du Maroc
Casablanca<PAGE>
<PAGE>
PAGE 28
NETHERLANDS<PAGE>
ABN AMRO N.V.
Securities Centre
P.O. Box 3200
4800 De Breda
NETHERLANDS<PAGE>
Credit Lyonnais
Bank Nederland
N.V.
Rotterdam<PAGE>
NEW ZEALAND<PAGE>
National Nominees Limited
Level 2 BNZ Tower
125 Queen Street
Auckland
NEW ZEALAND<PAGE>
National Bank of
New Zealand
Wellington<PAGE>
NORWAY<PAGE>
Den Norske Bank
Kirkegaten 21
Oslo 1
NORWAY<PAGE>
Den Norske Bank
Oslo<PAGE>
PAKISTAN<PAGE>
Citibank N.A.
State Life Building No.1
I.I. Chundrigar Road
Karachi
PAKISTAN<PAGE>
Citibank N.A.
Karachi<PAGE>
PERU<PAGE>
Citibank, N.A.
Camino Real 457
CC Torre Real - 5th Floor
San Isidro, Lima 27
PERU<PAGE>
Citibank N.A.
Lima<PAGE>
PHILIPPINES<PAGE>
The Hongkong and Shanghai
Banking Corporation Limited
Hong Kong Bank Centre 3/F
San Miguel Avenue
Ortigas Commercial Centre
Pasig Metro Manila
PHILIPPINES<PAGE>
The Hongkong and
Shaghai Banking
Corporation
Limited
Manila<PAGE>
POLAND<PAGE>
Bank Polska Kasa Opieki S.A.
6/12 Nowy Swiat Str
00-920 Warsaw
POLAND<PAGE>
Bank Potska Kasa
Opieki S.A.
Warsaw<PAGE>
<PAGE>
PORTUGAL Banco Espirito Santo & Comercial de Lisboa
Servico de Gestaode Titulos
R. Mouzinho da Silvelra, 36 r/c
1200 Lisbon
PORTUGAL<PAGE>
Banco Pinto & Sotto Mayor Avenida Fontes Pereira de Melo
1000 Lisbon
<PAGE>
PAGE 29
SHANGHAI
(CHINA)<PAGE>
The Hongkong and Shanghai
Banking Corporation Limited
Shanghai Branch
Corporate Banking Centre
Unit 504, 5/F Shanghai
Centre
1376 Hanjing Xi Lu
Shanghai
THE PEOPLE'S REPUBLIC OF
CHINA<PAGE>
The Chase
Manhattan Bank,
N.A.
Hong Kong<PAGE>
SCHENZHEN
(CHINA)<PAGE>
The Hongkong and Shanghai
Banking Corporation Limited
1st Floor
Central Plaza Hotel
No. 1 Chun Feng Lu
Shenzhen
THE PEOPLE'S REPUBLIC OF
CHINA<PAGE>
The Chase
Manhattan Bank,
N.A.
Hong Kong<PAGE>
SINGAPORE<PAGE>
The Chase Manhattan Bank,
N.A.
Shell Tower
50 Raffles Place
Singapore 0104
SINGAPORE<PAGE>
The Chase
Manhattan Bank,
N.A.
Singapore<PAGE>
SOUTH KOREA<PAGE>
The Hongkong & Shanghai
Banking Corporation Limited
6/F Kyobo Building
#1 Chongro, 1-ka Chongro-Ku,
Seoul
SOUGH KOREA<PAGE>
The Hongkong &
Shanghai Banking
Corporation
Limited
Seoul<PAGE>
SPAIN<PAGE>
The Chase Manhattan Bank,
N.A.
Calle Peonias 2
7th Floor
La Piovera
28042 Madrid
SPAIN<PAGE>
Banco Zaragozano,
S.A.
Madrid<PAGE>
URUGUAY<PAGE>
The First National Bank of
Boston
Zabala 1463
Montevideo
URUGUAY<PAGE>
The First National
Bank of Boston
Montevideo<PAGE>
<PAGE>
U.S.A The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York
NY 10081
U.S.A.<PAGE>
The Chase Manhattan Bank, N.A.
New York
PAGE 30
VENEZUELA<PAGE>
Citibank N.A.
Carmelitas a Altagracia
Edificio Citibank
Caracas 1010
VENEZUELA<PAGE>
Citibank N.A.
Caracas<PAGE>
<PAGE>
PAGE 31
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated as of April 18, 1994 (the
"Amendment Agreement") to the Global Custody Agreement, effective
January 3, 1994 (the "Custody Agreement") by and between each of
the Entities listed in Attachment A hereto, separately and
individually (each such entity referred to hereinafter as the
"Customer") and THE CHASE MANHATTAN BANK, N.A. (the "Bank").
Terms defined in the Custody Agreement are used herein as therein
defined.
WITNESSETH:
WHEREAS, the Customer wishes to appoint the Bank as its
global custodian and the bank wishes to accept such appointment
pursuant to the terms of the Custody Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment. Section I of Schedule A of the Custody
Agreement ("Schedule A") shall be amended to add each
Customer listed in Attachment A hereto. The revised
Schedule A incorporating these changes in the form
attached hereto as Attachment B shall supersede the
existing Schedule A in its entirety.
2. Agreement. The Customer agrees to be bound in all
respects by all the terms and conditions of the Custody
Agreement and shall be fully liable thereunder as a
"Customer" as defined in the Custody Agreement.
3. Confirmation of Agreement. Except as amended hereby, the
Custody Agreement is in full force and effect and as so
amended is hereby ratified, approved and confirmed by the
Customer and the Bank in all respects.
4. Governing Law. This Amendment Agreement shall be
construed in accordance with and governed by the law of
the State of New York without regard to its conflict of
law principles.
<PAGE>
PAGE 32
IN WITNESS WHEREOF, the parties have executed this Amendment
Agreement as of the day and year first above written.
THE CHASE MANHATTAN BANK, N.A.
/s/Alan P. Naughton
By:________________________________
Alan P. Naughton
Vice President
EACH OF THE CUSTOMERS LISTED IN
ATTACHMENT A HERETO, SEPARATELY AND
INDIVIDUALLY
/s/Carmen F. Deyesu
By: ______________________________
Carmen F. Deyesu
Treasurer<PAGE>
PAGE 33
Attachment A
LIST OF CUSTOMERS
T. Rowe Price International Series, Inc. on behalf of the
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Series, Inc. on behalf of the
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price New America Growth Fund, Inc.
T. Rowe Price Income Series, Inc. on behalf of
T. Rowe Price Limited-Term Bond Portfolio
<PAGE>
PAGE 34
Attachment B
Schedule A
Page 1 of 2
LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO
GLOBAL CUSTODY AGREEMENT WITH
THE CHASE MANHATTAN BANK, N.A.
DATED JANUARY 3, 1993
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
I. INVESTMENT The Mutual Fund Rider is
COMPANIES/PORTFOLIOS applicable to all Customers
REGISTERED UNDER THE listed under Section I
INVESTMENT COMPANY ACT OF 1940 of this Schedule A.
<PAGE>
PAGE 35
Equity Funds
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Dividend Growth Fund, Inc.
T. Rowe Price Equity Income Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
Institutional International Funds, Inc. on behalf of:
Foreign Equity Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price European Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price New Asia Fund
T. Rowe Price International Series, Inc., on behalf of:
T. Rowe Price International Stock Portfolio
T. Rowe Price Mid-Cap Growth Fund, Inc.
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price OTC Fund, Inc. on behalf of:
T. Rowe Price OTC Fund
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
CUNA Mutual Funds, Inc. on behalf of:
CUNA Mutual Cornerstone Fund
T. Rowe Price Equity Series, Inc. on behalf of:
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price New America Growth Fund, Inc.
Income Funds
T. Rowe Price Adjustable Rate U.S. Government Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Summit Funds, Inc. on behalf of:
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Global Government Income Fund
T. Rowe Price International Bond Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Income Series, Inc. on behalf of:
T. Rowe Price Limited-Term Bond Portfolio
II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is
applicable to all Customers
T. Rowe Price Trust Company, under Section II of this
as Trustee for the Johnson Schedule A.
Matthey Salaried Employee
Savings Plan
<PAGE>
PAGE 36
Common Trust Funds
T. Rowe Price Trust company,
as Trustee for the International
Common Trust Fund on behalf of
the Underlying Trusts:
Foreign Discovery Trust
Foreign Discovery Trust-Augment
Pacific Discovery Trust
European Discovery Trust
Japan Discovery Trust
Latin American Discovery Trust
New York City International Common Trust Fund
III. OTHER No Riders are applicable to
the Customer listed under
RPFI International Section III of this
Partners, L.P. Schedule A.
<PAGE>
PAGE 37
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated as of August 15, 1994 (the
"Amendment Agreement") to the Global Custody Agreement, effective
January 3, 1994, as amended (the "Custody Agreement") by and
between each of the Entities listed in Attachment A hereto,
separately and individually (each such entity referred to
hereinafter as the "Customer") and THE CHASE MANHATTAN BANK, N.A.
(the "Bank"). Terms defined in the Custody Agreement are used
herein as therein defined.
WITNESSETH:
WHEREAS, the Customer wishes to appoint the Bank as its
global custodian and the Bank wishes to accept such appointment
pursuant to the terms of the Custody Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment. Section I of Schedule A of the Custody
Agreement ("Schedule A") shall be amended to add each Customer
listed in Attachment A hereto. The revised Schedule A
incorporating these changes in the form attached hereto as
Attachment B shall supersede the existing Schedule A in its
entirety.
2. Agreement. The Customer agrees to be bound in all
respects by all the terms and conditions of the Custody Agreement
and shall be fully liable thereunder as a "Customer" as defined
in the Custody Agreement.
3. Confirmation of Agreement. Except as amended hereby,
the Custody Agreement is in full force and effect and as so
amended is hereby ratified, approved and confirmed by the
Customer and the Bank in all respects.
4. Governing Law. This Amendment Agreement shall be
construed in accordance with and governed by the law of the State
of New York without regard to its conflict of law principles.
<PAGE>
PAGE 38
IN WITNESS WHEREOF, the parties have executed this Amendment
Agreement as of the day and year first above written.
THE CHASE MANHATTAN BANK, N.A.
/s/Alan P. Naughton
By:_________________________________
Alan P. Naughton
Vice President
EACH OF THE CUSTOMERS LISTED IN
ATTACHMENT A HERETO, SEPARATELY AND
INDIVIDUALLY
/s/Carmen F. Deyesu
By:_________________________________
Carmen F. Deyesu
Treasurer
<PAGE>
PAGE 39
Attachment A
LIST OF CUSTOMERS
T. Rowe Price Equity Series, Inc. on behalf of the
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Personal Strategy Funds, Inc. on behalf of
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
<PAGE>
PAGE 40
Attachment B
Schedule A
Page 1 of 2
LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO
GLOBAL CUSTODY AGREEMENT WITH
THE CHASE MANHATTAN BANK, N.A.
DATED JANUARY 3, 1993
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
I. INVESTMENT The Mutual Fund Rider is
COMPANIES/PORTFOLIOS applicable to all Customers
REGISTERED UNDER THE listed under Section I
INVESTMENT COMPANY ACT OF 1940 of this Schedule A.
Equity Funds
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Dividend Growth Fund, Inc.
T. Rowe Price Equity Income Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
Institutional International Funds, Inc. on behalf of:
Foreign Equity Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price European Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price New Asia Fund
T. Rowe Price International Series, Inc., on behalf of:
T. Rowe Price International Stock Portfolio
T. Rowe Price Mid-Cap Growth Fund, Inc.
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price OTC Fund, Inc. on behalf of:
T. Rowe Price OTC Fund
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
CUNA Mutual Funds, Inc. on behalf of:
CUNA Mutual Cornerstone Fund
T. Rowe Price Equity Series, Inc. on behalf of:
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price New America Growth Fund, Inc.
<PAGE>
PAGE 41
Income Funds
T. Rowe Price Adjustable Rate U.S. Government Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Summit Funds, Inc. on behalf of:
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Global Government Income Fund
T. Rowe Price International Bond Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Income Series, Inc. on behalf of:
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Personal Strategy Funds, Inc. on behalf of:
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is
applicable to all Customers
T. Rowe Price Trust Company, under Section II of this
as Trustee for the Johnson Schedule A.
Matthey Salaried Employee
Savings Plan
Common Trust Funds
T. Rowe Price Trust company,
as Trustee for the International
Common Trust Fund on behalf of
the Underlying Trusts:
Foreign Discovery Trust
Foreign Discovery Trust-Augment
Pacific Discovery Trust
European Discovery Trust
Japan Discovery Trust
Latin American Discovery Trust
New York City International Common Trust Fund
III. OTHER No Riders are applicable to
the Customer listed under
RPFI International Section III of this
Partners, L.P. Schedule A.
<PAGE>
PAGE 42
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated as of November 28, 1994 (the
"Amendment Agreement") to the Global Custody Agreement, effective
January 3, 1994, as amended (the "Custody Agreement") by and
between each of the Entities listed in Attachment A hereto,
separately and individually (each such entity referred to
hereinafter as the "Customer") and THE CHASE MANHATTAN BANK, N.A.
(the "Bank"). Terms defined in the Custody Agreement are used
herein as therein defined.
WITNESSETH:
WHEREAS, the Customer wishes to appoint the Bank as its
global custodian and the Bank wishes to accept such appointment
pursuant to the terms of the Custody Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment. Section I of Schedule A of the Custody
Agreement ("Schedule A") shall be amended to add each Customer
listed in Attachment A hereto. The revised Schedule A
incorporating these changes in the form attached hereto as
Attachment B shall supersede the existing Schedule A in its
entirety.
2. Agreement. The Customer agrees to be bound in all
respects by all the terms and conditions of the Custody Agreement
and shall be fully liable thereunder as a "Customer" as defined
in the Custody Agreement.
3. Confirmation of Agreement. Except as amended hereby,
the Custody Agreement is in full force and effect and as so
amended is hereby ratified, approved and confirmed by the
Customer and the Bank in all respects.
4. Governing Law. This Amendment Agreement shall be
construed in accordance with and governed by the law of the State
of New York without regard to its conflict of law principles.
<PAGE>
PAGE 43
IN WITNESS WHEREOF, the parties have executed this Amendment
Agreement as of the day and year first above written.
THE CHASE MANHATTAN BANK, N.A.
/s/Alan P. Naughton
By:_________________________________
Alan P. Naughton
Vice President
EACH OF THE CUSTOMERS LISTED IN
ATTACHMENT A HERETO, SEPARATELY AND
INDIVIDUALLY
/s/Carmen F. Deyesu
By:_________________________________
Carmen F. Deyesu
Treasurer
<PAGE>
PAGE 44
Attachment A
LIST OF CUSTOMERS
T. Rowe Price Value Fund, Inc.
T. Rowe Price Capital Opportunity Fund, Inc.
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Emerging Markets Bond Fund
<PAGE>
PAGE 45
Attachment B
Schedule A
Page 1 of 2
LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO
GLOBAL CUSTODY AGREEMENT WITH
THE CHASE MANHATTAN BANK, N.A.
DATED JANUARY 3, 1993
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
I. INVESTMENT The Mutual Fund Rider is
COMPANIES/PORTFOLIOS applicable to all Customers
REGISTERED UNDER THE listed under Section I
INVESTMENT COMPANY ACT OF 1940 of this Schedule A.
Equity Funds
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Capital Opportunity Fund, Inc.
T. Rowe Price Dividend Growth Fund, Inc.
T. Rowe Price Equity Income Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
Institutional International Funds, Inc. on behalf of:
Foreign Equity Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price European Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price New Asia Fund
T. Rowe Price International Series, Inc., on behalf of:
T. Rowe Price International Stock Portfolio
T. Rowe Price Mid-Cap Growth Fund, Inc.
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price OTC Fund, Inc. on behalf of:
T. Rowe Price OTC Fund
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
CUNA Mutual Funds, Inc. on behalf of:
CUNA Mutual Cornerstone Fund
T. Rowe Price Equity Series, Inc. on behalf of:
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price New America Growth Fund, Inc.
T. Rowe Price Value Fund, Inc.<PAGE>
PAGE 46
Income Funds
T. Rowe Price Adjustable Rate U.S. Government Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Summit Funds, Inc. on behalf of:
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Global Government Income Fund
T. Rowe Price International Bond Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Income Series, Inc. on behalf of:
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Personal Strategy Funds, Inc. on behalf of:
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is
applicable to all Customers
T. Rowe Price Trust Company, under Section II of this
as Trustee for the Johnson Schedule A.
Matthey Salaried Employee
Savings Plan
Common Trust Funds
T. Rowe Price Trust company,
as Trustee for the International
Common Trust Fund on behalf of
the Underlying Trusts:
Foreign Discovery Trust
Foreign Discovery Trust-Augment
Pacific Discovery Trust
European Discovery Trust
Japan Discovery Trust
Latin American Discovery Trust
New York City International Common Trust Fund
III. OTHER No Riders are applicable to
the Customer listed under
RPFI International Section III of this
Partners, L.P. Schedule A.
<PAGE>
PAGE 47
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated as of May 31, 1995 (the
"Amendment Agreement") to the Global Custody Agreement, effective
January 3, 1994, as amended (the "Custody Agreement") by and
between each of the Entities listed in Attachment A hereto,
separately and individually (each such entity referred to
hereinafter as the "Customer") and THE CHASE MANHATTAN BANK, N.A.
(the "Bank"). Terms defined in the Custody Agreement are used
herein as therein defined.
WITNESSETH:
WHEREAS, the Customer wishes to appoint the Bank as its
global custodian and the Bank wishes to accept such appointment
pursuant to the terms of the Custody Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment. Section I of Schedule A of the Custody
Agreement ("Schedule A") shall be amended to add and delete
certain Customers as specified in Attachment A hereto. The
revised Schedule A incorporating these changes in the form
attached hereto as Attachment B shall supersede the existing
Schedule A in its entirety.
2. Agreement. The Customer agrees to be bound in all
respects by all the terms and conditions of the Custody Agreement
and shall be fully liable thereunder as a "Customer" as defined
in the Custody Agreement.
3. Confirmation of Agreement. Except as amended hereby,
the Custody Agreement is in full force and effect and as so
amended is hereby ratified, approved and confirmed by the
Customer and the Bank in all respects.
4. Governing Law. This Amendment Agreement shall be
construed in accordance with and governed by the law of the State
of New York without regard to its conflict of law principles.
<PAGE>
PAGE 48
IN WITNESS WHEREOF, the parties have executed this Amendment
Agreement as of the day and year first above written.
THE CHASE MANHATTAN BANK, N.A.
/s/Alan P. Naughton
By:_________________________________
Alan P. Naughton
Vice President
EACH OF THE CUSTOMERS LISTED IN
ATTACHMENT A HERETO, SEPARATELY AND
INDIVIDUALLY
/s/Carmen F. Deyesu
By:_________________________________
Carmen F. Deyesu
Treasurer
<PAGE>
PAGE 49
Attachment A
LIST OF CUSTOMERS
Add the following Fund:
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Emerging Markets Stock Fund
Delete the following Fund:
CUNA Mutual Funds, Inc. on behalf of:
CUNA Mutual Cornerstone Fund
<PAGE>
PAGE 50
Attachment B
Schedule A
Page 1 of 2
LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO
GLOBAL CUSTODY AGREEMENT WITH
THE CHASE MANHATTAN BANK, N.A.
DATED JANUARY 3, 1993
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
I. INVESTMENT The Mutual Fund Rider is
COMPANIES/PORTFOLIOS applicable to all Customers
REGISTERED UNDER THE listed under Section I
INVESTMENT COMPANY ACT OF 1940 of this Schedule A.
Equity Funds
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Capital Opportunity Fund, Inc.
T. Rowe Price Dividend Growth Fund, Inc.
T. Rowe Price Equity Income Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
Institutional International Funds, Inc. on behalf of:
Foreign Equity Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price European Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price New Asia Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price International Series, Inc., on behalf of:
T. Rowe Price International Stock Portfolio
T. Rowe Price Mid-Cap Growth Fund, Inc.
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price OTC Fund, Inc. on behalf of:
T. Rowe Price OTC Fund
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
T. Rowe Price Equity Series, Inc. on behalf of:
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price New America Growth Fund, Inc.
T. Rowe Price Value Fund, Inc.<PAGE>
PAGE 51
Income Funds
T. Rowe Price Adjustable Rate U.S. Government Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Summit Funds, Inc. on behalf of:
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Global Government Income Fund
T. Rowe Price International Bond Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Income Series, Inc. on behalf of:
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Personal Strategy Funds, Inc. on behalf of:
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is
applicable to all Customers
T. Rowe Price Trust Company, under Section II of this
as Trustee for the Johnson Schedule A.
Matthey Salaried Employee
Savings Plan
Common Trust Funds
T. Rowe Price Trust company,
as Trustee for the International
Common Trust Fund on behalf of
the Underlying Trusts:
Foreign Discovery Trust
Foreign Discovery Trust-Augment
Pacific Discovery Trust
European Discovery Trust
Japan Discovery Trust
Latin American Discovery Trust
New York City International Common Trust Fund
III. OTHER No Riders are applicable to
the Customer listed under
RPFI International Section III of this
Partners, L.P. Schedule A.
<PAGE>
PAGE 52
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated as of November 1, 1995 (the
"Amendment Agreement") to the Global Custody Agreement, effective
January 3, 1994, as amended (the "Custody Agreement") by and
between each of the Entities listed in Attachment A hereto,
separately and individually (each such entity referred to
hereinafter as the "Customer") and THE CHASE MANHATTAN BANK, N.A.
(the "Bank"). Terms defined in the Custody Agreement are used
herein as therein defined.
WITNESSETH:
WHEREAS, the Customer wishes to appoint the Bank as its
global custodian and the Bank wishes to accept such appointment
pursuant to the terms of the Custody Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment. Section I of Schedule A of the Custody
Agreement ("Schedule A") shall be amended to add and delete
certain Customers as specified in Attachment A hereto. The
revised Schedule A incorporating these changes in the form
attached hereto as Attachment B shall supersede the existing
Schedule A in its entirety.
2. Agreement. The Customer agrees to be bound in all
respects by all the terms and conditions of the Custody Agreement
and shall be fully liable thereunder as a "Customer" as defined
in the Custody Agreement.
3. Confirmation of Agreement. Except as amended hereby,
the Custody Agreement is in full force and effect and as so
amended is hereby ratified, approved and confirmed by the
Customer and the Bank in all respects.
4. Governing Law. This Amendment Agreement shall be
construed in accordance with and governed by the law of the State
of New York without regard to its conflict of law principles.
<PAGE>
PAGE 53
IN WITNESS WHEREOF, the parties have executed this Amendment
Agreement as of the day and year first above written.
THE CHASE MANHATTAN BANK, N.A.
/s/Alan R. Naughton
By:_________________________________
Alan R. Naughton
Vice President
EACH OF THE CUSTOMERS LISTED IN
ATTACHMENT A HERETO, SEPARATELY AND
INDIVIDUALLY
/s/Carmen F. Deyesu
By:_________________________________
Carmen F. Deyesu
Treasurer
<PAGE>
PAGE 54
Attachment A
LIST OF CUSTOMERS
Add the following Funds:
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Global Stock Fund
T. Rowe Price Corporate Income Fund, Inc.
T. Rowe Price Health & Life Sciences Fund, Inc.
<PAGE>
PAGE 55
Attachment B
Schedule A
Page 1 of 2
LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO
GLOBAL CUSTODY AGREEMENT WITH
THE CHASE MANHATTAN BANK, N.A.
DATED JANUARY 3, 1993
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
I. INVESTMENT The Mutual Fund Rider is
COMPANIES/PORTFOLIOS applicable to all Customers
REGISTERED UNDER THE listed under Section I
INVESTMENT COMPANY ACT OF 1940 of this Schedule A.
Equity Funds
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Capital Opportunity Fund, Inc.
T. Rowe Price Dividend Growth Fund, Inc.
T. Rowe Price Equity Income Fund
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
Institutional International Funds, Inc. on behalf of:
Foreign Equity Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price European Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price New Asia Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Series, Inc., on behalf of:
T. Rowe Price International Stock Portfolio
T. Rowe Price Mid-Cap Growth Fund, Inc.
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price OTC Fund, Inc. on behalf of:
T. Rowe Price OTC Fund
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
T. Rowe Price Equity Series, Inc. on behalf of:
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price New America Growth Fund, Inc.
T. Rowe Price Value Fund, Inc.
T. Rowe Price Health & Life Sciences Fund, Inc.<PAGE>
PAGE 56
Income Funds
T. Rowe Price Adjustable Rate U.S. Government Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Summit Funds, Inc. on behalf of:
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Global Government Income Fund
T. Rowe Price International Bond Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Income Series, Inc. on behalf of:
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Personal Strategy Funds, Inc. on behalf of:
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. Rowe Price Corporate Income Fund, Inc.
II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is
applicable to all Customers
T. Rowe Price Trust Company, under Section II of this
as Trustee for the Johnson Schedule A.
Matthey Salaried Employee
Savings Plan
Common Trust Funds
T. Rowe Price Trust Company,
as Trustee for the International
Common Trust Fund on behalf of
the Underlying Trusts:
Foreign Discovery Trust
Foreign Discovery Trust-Augment
Pacific Discovery Trust
European Discovery Trust
Japan Discovery Trust
Latin American Discovery Trust
New York City International Common Trust Fund
III. OTHER No Riders are applicable to
the Customer listed under
RPFI International Section III of this
Partners, L.P. Schedule A.<PAGE>
PAGE 57
AMENDMENT AGREEMENT
The Global Custody Agreement of January 3, 1994, as amended
April 18, 1994, August 15, 1994, November 28, 1994, May 31, 1995,
and November 1, 1995 (the "Custody Agreement"), by and between
each of the Entities listed in Attachment A hereto, separately
and individually (each such entity referred to hereinafter as the
"Customer") and The Chase Manhattan Bank, N.A., which contracts
have been assumed by operation of law by THE CHASE MANHATTAN BANK
(the "Bank") is hereby further amended, as of July 31, 1996 (the
"Amendment Agreement"). Terms defined in the Custody Agreement
are used herein as therein defined.
WITNESSETH:
WHEREAS, the Customer wishes to appoint the Bank as its
global custodian and the Bank wishes to accept such appointment
pursuant to the terms of the Custody Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment. Section I of Schedule A of the Custody
Agreement ("Schedule A") shall be amended to add and delete
certain Customers as specified in Attachment A hereto. The
revised Schedule A incorporating these changes in the form
attached hereto as Attachment B shall supersede the existing
Schedule A in its entirety.
2. Agreement. The Customer agrees to be bound in all
respects by all the terms and conditions of the Custody Agreement
and shall be fully liable thereunder as a "Customer" as defined
in the Custody Agreement.
3. Confirmation of Agreement. Except as amended hereby,
the Custody Agreement is in full force and effect and as so
amended is hereby ratified, approved and confirmed by the
Customer and the Bank in all respects.
4. Governing Law. This Amendment Agreement shall be
construed in accordance with and governed by the law of the State
of New York without regard to its conflict of law principles.
<PAGE>
PAGE 58
IN WITNESS WHEREOF, the parties have executed this Amendment
Agreement as of the day and year first above written.
THE CHASE MANHATTAN BANK
/s/Caroline Willson
By:_________________________________
Caroline Willson
Vice President
EACH OF THE CUSTOMERS LISTED IN
ATTACHMENT A HERETO, SEPARATELY AND
INDIVIDUALLY
/s/Carmen F. Deyesu
By:_________________________________
Carmen F. Deyesu
Treasurer
<PAGE>
PAGE 59
Attachment A
LIST OF CUSTOMERS
Add the following Funds:
T. Rowe Price Equity Series, Inc. on behalf of:
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price Financial Services Fund, Inc.
Institutional Equity Funds, Inc. on behalf of:
Mid-Cap Equity Growth Fund
T. Rowe Price Mid-Cap Value Fund, Inc.
T. Rowe Price Trust Company, as Trustee for the
International Common Trust Fund on behalf of:
Emerging Markets Equity Trust<PAGE>
PAGE 60
Attachment B
Schedule A
Page 1 of 2
LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO
GLOBAL CUSTODY AGREEMENT WITH
THE CHASE MANHATTAN BANK, N.A.
DATED JANUARY 3, 1994
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
I. INVESTMENT The Mutual Fund Rider is
COMPANIES/PORTFOLIOS applicable to all Customers
REGISTERED UNDER THE listed under Section I
INVESTMENT COMPANY ACT OF 1940 of this Schedule A.
Equity Funds
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Capital Opportunity Fund, Inc.
T. Rowe Price Dividend Growth Fund, Inc.
T. Rowe Price Equity Income Fund
T. Rowe Price Equity Series, Inc. on behalf of:
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 Financial Services Fund, Inc.
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
T. Rowe Price Health Sciences Fund, Inc.
Institutional Equity Funds, Inc. on behalf of:
Mid-Cap Equity Growth Fund
Institutional International Funds, Inc. on behalf of:
Foreign Equity Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price New Asia Fund
T. Rowe Price International Series, Inc., on behalf of:
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 Fund, Inc.
T. Rowe Price OTC Fund, Inc. on behalf of:
T. Rowe Price OTC Fund
PAGE 61
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
T. Rowe Price Value Fund, Inc.
Income Funds
T. Rowe Price Corporate Income Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price Income Series, Inc. on behalf of:
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price International Bond Fund
T. Rowe Price Short-Term Global Income Fund
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Personal Strategy Funds, Inc. on behalf of:
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Short-Term U.S. Government Fund, Inc.
T. Rowe Price Summit Funds, Inc. on behalf of:
T. Rowe Price Summit Limited-Term Bond Fund
II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is
applicable to all Customers
T. Rowe Price Trust Company, under Section II of this
as Trustee for the Johnson Schedule A.
Matthey Salaried Employee
Savings Plan
Common Trust Funds
T. Rowe Price Trust Company,
as Trustee for the International
Common Trust Fund on behalf of
the Underlying Trusts:
Emerging Markets Equity Trust
European Discovery Trust
Foreign Discovery Trust
Foreign Discovery Trust-Augment
Japan Discovery Trust
Latin America Discovery Trust
Pacific Discovery Trust
New York City International Common Trust Fund
III. OTHER No Riders are applicable to
the Customer listed under
RPFI International Section III of this
Partners, L.P. Schedule A.<PAGE>
PAGE 62
AMENDMENT, dated July 17, 1997 to the January 3, 1994
Custody Agreement ("Agreement"), as amended July 31, 1996
("Amendment Agreement"), by and between each of the Entities
listed in Attachment B of the Amendment Agreement, separately and
individually (each such entity hereinafter referred to as the
"Customer"), and The Chase Manhattan Bank, N.A. whose obligations
have since been adopted by The Chase Manhattan Bank ("Bank"),
having a place of business at One Chase Manhattan Plaza, New
York, N.Y. 10081
It is hereby agreed as follows:
Section 1. Except as modified hereby, the Agreement is
confirmed in all respects. Capitalized terms used herein without
definition shall have the meanings ascribed to them in the
Agreement.
Section 2. The Agreement is amended as follows by adding
the following as new Section 15:
(a) "CMBI" shall mean Chase Manhattan Bank
International, an indirect wholly-owned subsidiary of Bank,
located in Moscow, Russia, and any nominee companies appointed by
it.
(b) "International Financial Institution" shall
mean any bank in the top 1,000 (together with their affiliated
companies) as measured by "Tier 1" capital or any broker/dealer
in the top 100 as measured by capital.
(c) "Negligence" shall mean the failure to exercise
"Reasonable Care".
(d) "No-Action Letter" shall mean the response of
the Securities and Exchange Commission's Office of Chief Counsel
of Investment Management, dated April 18, 1995, in respect of the
Templeton Russia Fund, Inc. (SEC Ref. No. 95-151-CC, File No.
811-8788) providing "no-action" relief under Section 17(f) of the
Investment Company Act of 1940, as amended, and SEC Rule 17-f5
thereunder, in connection with custody of such Templeton Russia
Fund, Inc.'s investments in Russian Securities.
(e) "Reasonable Care" shall mean the use of
reasonable custodial practices under the applicable circumstances
as measured by the custodial practices then prevailing in Russia
of International Financial Institutions acting as custodians for
their institutional investor clients in Russia.
(f) "Registrar Company" shall mean any entity
providing share registration services to an issuer of Russian
Securities.
(g) "Registrar Contact" shall mean a contract
between CMBI and a Registrar Company (and as the same may be
amended from time to time) containing, inter alia, the
contractual provisions described at paragraphs (a)-(e) on pps. 5-
6 of the No-Action Letter.
PAGE 63
(h) "Russian Security" shall mean a Security issued
by a Russian issuer.
(i) "Share Extract" shall mean: (i) an extract of
its share registration books issued by a Registrar Company
indicating an investor's ownership of a security; and (ii) a form
prepared by CMBI or its agent in those cases where a Registrar
Company in unwilling to issue a Share Extract.
Section 3. Section 6(a) of the Agreement is amended by
adding the following at the end thereof: "With respect to Russia,
payment for Russian Securities shall not be made prior to the
issuance of the Share Extract relating to such Russian Security.
Delivery of Russian Securities may be made in accordance with the
customary or established securities trading or securities
processing practices and procedures in Russia. Delivery of
Russian Securities may also be made in any manner specifically
required by Instructions acceptable to the Bank. Customer shall
promptly supply such transaction and settlement information as
may be requested by Bank or CMBI in connection with particular
transactions."
Section 4. Section 8 of the Agreement is amended by
adding a new paragraph to the end thereof as follows: "It is
understood and agreed that Bank need only use its reasonable
efforts with respect to performing the functions described in
this Section 8 with respect to Russian Securities."
Section 5. Section 12(a)(i) of the Agreement is amended
with respect to Russian custody by deleting the phrase
"reasonable care" wherever it appears and substituting, in lieu
thereof, the phrase "Reasonable Care."
Section 6. Section 12(a)(i) of the Agreement is further
amended with respect to Russian custody by inserting the
following at the end of the first sentence thereof: "provided
that, with respect to Russian Securities, Bank's responsibilities
shall be limited to safekeeping of relevant Share Extracts."
Section 7. Section 12(a)(i) of the Agreement is further
amended with respect to Russian custody by inserting the
following after the second sentence thereof: "In connection with
the foregoing, neither Bank nor CMBI shall assume responsibility
for, and neither shall be liable for, any action or inaction of
any Registrar Company and no Registrar Company shall be, or shall
be deemed to be, Bank, CMBI, a Subcustodian, a securities
depository or the employee, agent or personnel of any of the
foregoing. To the extent that CMBI employs agents to perform any
of the functions to be performed by Bank or CMBI with respect to
Russian Securities, neither Bank nor CMBI shall be responsible
for any act, omission, default or for the solvency of any such
agent unless the appointment of such agent was made with
Negligence or in bad faith, or for any loss due to the negligent
act of such agent except to the extent that such agent performs
in a negligent manner which is the cause of the loss to the
Customer and the Bank or CMBI failed to exercise reasonable care
in monitoring such agent's performance where Customer has
PAGE 64
requested and Bank has agreed to accept such monitoring
responsibility and except that where Bank or CMBI uses (i) an
affiliated nominee or (ii) an agent to perform the share
registration or share confirmation functions described in
paragraphs (a)-(e) on pps. 5-6 of the No-Action Letter, and, to
the extent applicable to CMBI, the share registration functions
described on pps. 2-3 of the No-Action Letter, Bank and CMBI
shall be liable to Customer as if CMBI were responsible for
performing such services itself."
Section 8. Section 12(a)(ii) is amended with respect to
Russian custody by deleting the word "negligently" and
substituting, in lieu thereof, the word "Negligently."
Section 9. Section 12(a)(iii) is amended with respect to
Russian custody by deleting the word "negligence" and
substituting, in lieu thereof, the word "Negligence."
Section 10. Add a new Section 16 to the Agreement as
follows:
(a) Bank will advise Customer (and will update such
advice from time to time as changes occur) of those Registrar
Companies with which CMBI has entered into a Registrar Contract.
Bank shall cause CMBI both to monitor each Registrar Company and
to promptly advise Customer when CMBI has actual knowledge of the
occurrence of any one or more of the events described in
paragraphs (i)-(v) on pps. 8-9 of the No-Action Letter with
respect to a Registrar Company that serves in that capacity for
any issuer the shares of which are held by Customer.
(b) Where Customer is considering investing in the
Russian Securities of an issuer as to which CMBI does not have a
Registrar Company, Customer may request that Bank ask that CMBI
both consider whether it would be willing to attempt to enter
into such a Registrar Contract and to advise Customer of its
willingness to do so. Where CMBI has agreed to make such an
attempt, Bank will advise Customer of the occurrence of any one
or more or the events described in paragraphs (i)-(iv) on pps. 8-
9 of the No-Action Letter of which CMBI has actual knowledge.
(c) Where Customer is considering investing in the
Russian Securities of an issuer as to which CMBI has a Registrar
Contract with the issuer's Registrar Company, Customer may advise
Bank of its interest in investing in such issuer and, in such
event, Bank will advise Customer of the occurrence of any one or
more of the events described in paragraphs (i)-(v) on pps. 8-9 of
the No-Action Letter of which CMBI has actual knowledge.
Section 11. Add a new Section 17 to the Agreement as
follows: "Customer shall pay for and hold Bank and CMBI harmless
from any liability or loss resulting from the imposition or
assessment of any taxes (including, but not limited to, state,
stamp and other duties) or other governmental charges, and any
related expenses with respect to income on Russian Securities."
Section 12. Add a new Section 18 to the Agreement as
PAGE 65
follows: "Customer acknowledges and agrees that CMBI may not be
able, in given cases and despite its reasonable efforts, to
obtain a Share Extract from a Registrar Company and CMBI shall
not be liable in any such even including with respect to any
losses resulting from such failure."
Section 13. Add a new Section 19 to the Agreement as
follows: "Customer acknowledges that it has received, reviewed
and understands that Chase market report for Russia, including,
but not limited to, the risks described therein."
Section 14. Add a new Section 20 to the Agreement as
follows: "Subject to the cooperation of a Registrar Company, for
at least the first two years following CMBI's first use of a
Registrar Company, Bank shall cause CMBI to conduct share
confirmations on at least a quarterly basis, although thereafter
confirmations may be conducted on a less frequent basis if
Customer's Board of Directors, in consultation with CMBI,
determines it to be appropriate."
Section 15. Add a new Section 21 to the Agreement as
follows: "Bank shall cause CMBI to prepare for distribution to
Customer's Board of Directors a quarterly report identifying: (i)
any concerns it has regarding the Russian share registration
system that should be brought to the attention of the Board of
Directors; and (ii) the steps CMBI has taken during the reporting
period to ensure that Customer's interests continue to be
appropriately recorded."
Section 16. Add a new Section 22 to the Agreement as
follows: "Except as provided in new Section 16(b), the services to be
provided by Bank hereunder will be provided only in relation to
Russian Securities for which CMBI has entered into a Registrar
Contract with the relevant Registrar Company."
*********************
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first above written.
for EACH CUSTOMER THE CHASE MANHATTAN BANK
separately and individually
/s/Henry H. Hopkins /s/Helen C. Bairsto
Henry H. Hopkins Helen C. Bairsto
Vice President Vice President<PAGE>
PAGE 66
AMENDMENT AGREEMENT
The Global Custody Agreement of January 3, 1994, as amended
April 18, 1994, August 15, 1994, November 28, 1994, May 31, 1995,
November 1, 1995, and July 31, 1996 (the "Custody Agreement"), by
and between each of the Entities listed in Attachment A hereto,
separately and individually (each such entity referred to
hereinafter as the "Customer") and The Chase Manhattan Bank,
N.A., which contracts have been assumed by operation of law by
THE CHASE MANHATTAN BANK (the "Bank") is hereby further amended,
as of July 23, 1997 (the "Amendment Agreement"). Terms defined in
the Custody Agreement are used herein as therein defined.
WITNESSETH:
WHEREAS, the Customer wishes to appoint the Bank as its
global custodian and the Bank wishes to accept such appointment
pursuant to the terms of the Custody Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment. Section 1 of Schedule A of the Custody
Agreement ("Schedule A") shall be amended to add certain
Customers as specified in Attachment A hereto. The revised
Schedule A incorporating these changes in the form attached
hereto as Attachment B shall supersede the existing Schedule A in
its entirety.
2. Agreement. The Customer agrees to be bound in all
respects by all the terms and conditions of the Custody Agreement
and shall be fully liable thereunder as a "Customer" as defined
in the Custody Agreement.
3. Confirmation of Agreement. Except as amended hereby, the
Custody Agreement is in full force and effect and as so amended
is hereby ratified, approved and confirmed by the Customer and
the Bank in all respects.
4. Governing Law: This Amendment Agreement shall be
construed in accordance with and governed by the law of the State
of New York without regard to its conflict of law principles.
IN WITNESS WHEREOF, the parties have executed this Amendment
Agreement as of the day and year first above written.
THE CHASE MANHATTAN BANK
By:/S/Caroline Willson
Caroline Willson
Vice President
<PAGE>
PAGE 67
EACH OF THE CUSTOMERS LISTED IN
ATTACHMENT A HERETO, SEPARATELY
AND INDIVIDUALLY
By:/s/Carmen F. Deyesu
Carmen F. Deyesu
Treasurer<PAGE>
PAGE 64
Attachment A
LIST OF CUSTOMERS
Add the following Funds:
T. Rowe Price Diversified Small-Cap Growth Fund, Inc.
T. Rowe Price Media & Telecommunications Fund, Inc.
T. Rowe Price Tax-Efficient Balanced Fund, Inc.
Change the name of the following Fund:
T. Rowe Price OTC Fund, Inc., on behalf of:
T. Rowe Price OTC Fund
Effective May 1, 1997, the fund name changed to:
T. Rowe Price Small-Cap Stock Fund, Inc.
Delete the following Fund:
T. Rowe Price International Funds, Inc., on behalf of:
T. Rowe Price Short-Term Global Income Fund<PAGE>
PAGE 68
Attachment B
Schedule A
Page 1 of 3
LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO
GLOBAL CUSTODY AGREEMENT WITH
THE CHASE MANHATTAN BANK
DATED JANUARY 3, 1994
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
I. INVESTMENT COMPANIES/PORTFOLIOS The Mutual Fund Rider is
REGISTERED UNDER THE INVESTMENT applicable to all
COMPANY ACT OF 1940 Customers listed under
Section I of this
Schedule A.
Equity Funds
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Capital Opportunity 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. on behalf of:
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 Financial Services Fund, Inc.
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
T. Rowe Price Health Sciences Fund, Inc.
Institutional Equity Funds, Inc. on behalf of:
Mid-Cap Equity Growth Fund
Institutional International Funds, Inc. on behalf of:
Foreign Equity Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price New Asia Fund
<PAGE>
PAGE 69
Attachment B
Schedule A
Page 2 of 3
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
T. Rowe Price International Series, Inc. on behalf of:
T. Rowe Price International Stock Portfolio
T. Rowe Price Media & Telecommunications Fund, Inc.
T. Rowe Price Mid-Cap Growth Fund, Inc.
T. Rowe Price Mid-Cap Value Fund, Inc.
T. Rowe Price New America Growth Fund
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Small-Cap Stock Fund, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
T. Rowe Price Value Fund, Inc.
Income Funds
T. Rowe Price Corporate Income Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price Income Series, Inc. on behalf of:
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price International Bond Fund
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Personal Strategy Funds, Inc. on behalf of:
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Short-Term U.S. Government Fund, Inc.
T. Rowe Price Summit Funds, Inc. on behalf of:
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Tax-Efficient Balanced Fund, Inc.
<PAGE>
PAGE 70
Attachment B
Schedule A
Page 3 of 3
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is
applicable to all
T. Rowe Price Trust Company, Customers under Section
as Trustee for the Johnson II of this Schedule A.
Matthey Salaried Employee
Savings Plan
Common Trust Funds
T. Rowe Price Trust Company, as Trustee for the
International Common Trust Fund on behalf of the Underlying
Trusts:
Emerging Markets Equity Trust
European Discovery Trust
Foreign Discovery Trust
Foreign Discovery Trust - Augment
Japan Discovery Trust
Latin America Discovery Trust
Pacific Discovery Trust
New York City International Common Trust Fund
III. OTHER
RPFI International Partners, L.P. No Riders are
applicable to the
Customer listed under
Section III of this
Schedule A.
<PAGE>
PAGE 71
AMENDMENT, dated July 23, 1997, to the Custody Agreement
("Agreement"), dated January 3, 1994, between The Chase Manhattan
Bank (as successor to The Chase Manhattan Bank, N.A.), having an
office at 270 Park Avenue, New York, NY 10017-2070 and certain T.
Rowe Price funds.
It is agreed as follows:
1. The third line of Section 8 of the Agreement is deleted and the
following is inserted, in lieu thereof:
Bank shall provide proxy voting services in
accordance with the terms of the proxy voting
services rider ("Proxy Rider") annexed hereto
as Exhibit 1. Proxy voting services may be
provided by Bank or, in whole or in part, by
one or more third parties appointed by Bank
(which may be Affiliates of Bank).
2. Except as modified hereby, the Agreement is confirmed in
all respects.
IN WITNESS WHEREOF, the parties have executed this Amendment as
of the date first above written.
EACH OF THE CUSTOMERS, INDIVIDUALLY THE CHASE MANHATTAN
AND SEPARATELY LISTED ON SECTION 1 OF BANK
SCHEDULE A HERETO
By:/s/Henry H. Hopkins By:/s/Helen C. Bairsto
Henry H. Hopkins Helen C. Bairsto
Vice President Vice President
EACH OF THE CUSTOMERS, INDIVIDUALLY AND
SEPARATELY LISTED ON SECTION 2 OF
SCHEDULE A HERETO
By:/s/Nancy M. Morris
Nancy M. Morris
Vice President
<PAGE>
PAGE 72
Exhibit 1
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
AND
Certain T. ROWE PRICE FUNDS
dated 3rd January, 1994
1. Global Proxy Services ("Proxy Services") shall be provided for
the countries listed in the procedures and guidelines
("Procedures") furnished to the Customer, as the same may be
amended by Bank from time to time on prior notice to Customer.
The Procedures are incorporated by reference herein and form
a part of this Rider.
2. Proxy Services shall consist of those elements as set forth in
the Procedures, and shall include (a) notifications
("Notifications") by Bank to Customer of the dates of pending
shareholder meetings, resolutions to be voted upon and the
return dates as may be received by Bank or provided to Bank by
its Subcustodians or third parties, and (b) voting by Bank of
proxies based on Customer directions. Original proxy materials
or copies thereof shall not be provided. Notifications shall
generally be in English and, where necessary, shall be
summarized and translated from such non-English materials as
have been made available to Bank or its Subcustodian. In this
respect Bank s only obligation is to provide information from
sources it believes to be reliable and/or to provide materials
summarized and/or translated in good faith. Bank reserves the
right to provide Notifications, or parts thereof, in the
language received. Upon reasonable advance request by
Customer, backup information relative to Notifications, such
as annual reports, explanatory material concerning
resolutions, management recommendations or other material
relevant to the exercise of proxy voting rights shall be
provided as available, but without translation.
3. While Bank shall attempt to provide accurate and complete
Notifications, whether or not translated, Bank shall not be
liable for any losses or other consequences that may result
from reliance by Customer upon Notifications where Bank
prepared the same in good faith.
4. Notwithstanding the fact that Bank may act in a fiduciary
capacity with respect to Customer under other agreements or
otherwise under the Agreement, in performing Proxy Services
PAGE 73
Bank shall be acting solely as the agent of Customer, and
shall not exercise any discretion with regard to such Proxy
Services.
5. Proxy voting may be precluded or restricted in a variety of
circumstances, including, without limitation, where the
relevant Securities are: (I) on loan; (ii) at registrar for
registration or reregistration; (iii) the subject of a
conversion or other corporate action; (iv) not held in a name
subject to the control of Bank or its Subcustodian or are
otherwise held in a manner which precludes voting; (v) not
capable of being voted on account of local market regulations
or practices or restrictions by the issuer; or (vi) held in a
margin or collateral account.
6. Customer acknowledges that in certain countries Bank may be
unable to vote individual proxies but shall only be able to
vote proxies on a net basis (e.g., a net yes or no vote given
the voting instructions received from all customers).
7. Customer shall not make any use of the information provided
hereunder, except in connection with the funds or plans
covered hereby, and shall in no event sell, license, give or
otherwise make the information provided hereunder available,
to any third party, and shall not directly or indirectly
compete with Bank or diminish the market for Proxy Services by
provision of such information, in whole or in part, for
compensation or otherwise, to any third party.
8. The names of Authorized Persons for Proxy Services shall be
furnished to Bank in accordance with Section 10 of the Agreement.
Proxy Services fees shall be as separately agreed. <PAGE>
PAGE 74
SCHEDULE A
SECTION 1
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
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. on behalf of:
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Financial Services Fund, Inc.
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 Income Series, Inc. on behalf of:
T. Rowe Price Limited Term Bond Portfolio
Institutional Equity Funds, Inc. on behalf of:
Mid-Cap Equity Growth Fund
T. Rowe Price Media & Telecommunications Fund, Inc.
T. Rowe Price Mid-Cap Growth Fund, Inc.
T. Rowe Price Mid-Cap Value Fund, Inc.
T. Rowe Price New America Growth Fund, Inc.
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Personal Strategy Funds, Inc. on behalf of:
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Short-Term U.S. Government Fund, Inc.
T. Rowe Price Small-Cap Stock Fund, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
T. Rowe Price Summit Funds, Inc. on behalf of:
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Tax-Efficient Balanced Fund, Inc.
T. Rowe Price Value Fund, Inc.
SECTION 2
NYC International Common Trust Fund<PAGE>
PAGE 75
AMENDMENT, dated October 29, 1997, to the Custody Agreement
("Agreement"), dated January 3, 1994, between The Chase Manhattan
Bank (as successor to The Chase Manhattan Bank, N.A.), having an
office at 270 Park Avenue, New York, NY 10017-2070 and certain T.
Rowe Price funds.
It is agreed as follows:
1. The third line of Section 8 of the Agreement is deleted and the
following is inserted, in lieu thereof:
Bank shall provide proxy voting services in
accordance with the terms of the proxy voting
services rider ("Proxy Rider") annexed hereto
as Exhibit 1. Proxy voting services may be
provided by Bank or, in whole or in part, by
one or more third parties appointed by Bank
(which may be Affiliates of Bank).
2. Except as modified hereby, the Agreement is confirmed in
all respects.
IN WITNESS WHEREOF, the parties have executed this Amendment as
of the date first above written.
EACH OF THE CUSTOMERS, INDIVIDUALLY THE CHASE MANHATTAN
AND SEPARATELY LISTED ON SECTION 1 OF BANK
SCHEDULE A HERETO
By:/s/Henry H. Hopkins By:/s/Helen C. Bairsto
Henry H. Hopkins Helen C. Bairsto
Vice President Vice President
EACH OF THE CUSTOMERS, INDIVIDUALLY AND
SEPARATELY LISTED ON SECTION 2 OF
SCHEDULE A HERETO
By:/s/Nancy M. Morris
Nancy M. Morris
Vice President
<PAGE>
PAGE 76
Exhibit 1
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
AND
Certain T. ROWE PRICE FUNDS
dated 3rd January, 1994
1. Global Proxy Services ("Proxy Services") shall be provided for
the countries listed in the procedures and guidelines
("Procedures") furnished to the Customer, as the same may be
amended by Bank from time to time on prior notice to Customer.
The Procedures are incorporated by reference herein and form
a part of this Rider.
2. Proxy Services shall consist of those elements as set forth in
the Procedures, and shall include (a) notifications
("Notifications") by Bank to Customer of the dates of pending
shareholder meetings, resolutions to be voted upon and the
return dates as may be received by Bank or provided to Bank by
its Subcustodians or third parties, and (b) voting by Bank of
proxies based on Customer directions. Original proxy materials
or copies thereof shall not be provided. Notifications shall
generally be in English and, where necessary, shall be
summarized and translated from such non-English materials as
have been made available to Bank or its Subcustodian. In this
respect Bank s only obligation is to provide information from
sources it believes to be reliable and/or to provide materials
summarized and/or translated in good faith. Bank reserves the
right to provide Notifications, or parts thereof, in the
language received. Upon reasonable advance request by
Customer, backup information relative to Notifications, such
as annual reports, explanatory material concerning
resolutions, management recommendations or other material
relevant to the exercise of proxy voting rights shall be
provided as available, but without translation.
3. While Bank shall attempt to provide accurate and complete
Notifications, whether or not translated, Bank shall not be
liable for any losses or other consequences that may result
from reliance by Customer upon Notifications where Bank
prepared the same in good faith.
4. Notwithstanding the fact that Bank may act in a fiduciary
capacity with respect to Customer under other agreements or
otherwise under the Agreement, in performing Proxy Services
PAGE 77
Bank shall be acting solely as the agent of Customer, and
shall not exercise any discretion with regard to such Proxy
Services.
5. Proxy voting may be precluded or restricted in a variety of
circumstances, including, without limitation, where the
relevant Securities are: (I) on loan; (ii) at registrar for
registration or reregistration; (iii) the subject of a
conversion or other corporate action; (iv) not held in a name
subject to the control of Bank or its Subcustodian or are
otherwise held in a manner which precludes voting; (v) not
capable of being voted on account of local market regulations
or practices or restrictions by the issuer; or (vi) held in a
margin or collateral account.
6. Customer acknowledges that in certain countries Bank may be
unable to vote individual proxies but shall only be able to
vote proxies on a net basis (e.g., a net yes or no vote given
the voting instructions received from all customers).
7. Customer shall not make any use of the information provided
hereunder, except in connection with the funds or plans
covered hereby, and shall in no event sell, license, give or
otherwise make the information provided hereunder available,
to any third party, and shall not directly or indirectly
compete with Bank or diminish the market for Proxy Services by
provision of such information, in whole or in part, for
compensation or otherwise, to any third party.
8. The names of Authorized Persons for Proxy Services shall be
furnished to Bank in accordance with Section 10 of the Agreement.
Proxy Services fees shall be as separately agreed. <PAGE>
PAGE 78
SCHEDULE A
SECTION 1
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
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. on behalf of:
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Financial Services Fund, Inc.
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 Income Series, Inc. on behalf of:
T. Rowe Price Limited Term Bond Portfolio
Institutional Equity Funds, Inc. on behalf of:
Mid-Cap Equity Growth Fund
T. Rowe Price Media & Telecommunications Fund, Inc.
T. Rowe Price Mid-Cap Growth Fund, Inc.
T. Rowe Price Mid-Cap Value Fund, Inc.
T. Rowe Price New America Growth Fund, Inc.
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Personal Strategy Funds, Inc. on behalf of:
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. Rowe Price Real Estate Fund, Inc.
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Short-Term U.S. Government Fund, Inc.
T. Rowe Price Small-Cap Stock Fund, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
T. Rowe Price Summit Funds, Inc. on behalf of:
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Tax-Efficient Balanced Fund, Inc.
T. Rowe Price Value Fund, Inc.
SECTION 2
NYC International Common Trust Fund<PAGE>
PAGE 79
AMENDMENT AGREEMENT
The Global Custody Agreement of January 3, 1994, as amended April
18, 1994, August 15, 1994, November 28, 1994, May 31, 1995,
November 1, 1995, July 31, 1996, and July 23, 1997 (the "Custody
Agreement"), by and between each of the Entities listed in
Attachment A hereto, separately and individually (each such entity
referred to hereinafter as the "Customer") and The Chase Manhattan
Bank, N.A., which contracts have been assumed by operation of law
by THE CHASE MANHATTAN BANK (the "Bank") is hereby further amended,
as of October 29, 1997 (the "Amendment Agreement"). Terms defined
in the Custody Agreement are used herein as therein defined.
WITNESSETH:
WHEREAS, the Customer wishes to appoint the Bank as its global
custodian and the Bank wishes to accept such appointment pursuant
to the terms of the Custody Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment. Section 1 of Schedule A of the Custody Agreement
("Schedule A") shall be amended to add certain Customers as
specified in Attachment A hereto. The revised Schedule A
incorporating these changes in the form attached hereto as
Attachment B shall supersede the existing Schedule A in its
entirety.
2. Agreement. The Customer agrees to be bound in all respects by
all the terms and conditions of the Custody Agreement and shall be
fully liable thereunder as a "Customer" as defined in the Custody
Agreement.
3. Confirmation of Agreement. Except as amended hereby, the
Custody Agreement is in full force and effect and as so amended is
hereby ratified, approved and confirmed by the Customer and the
Bank in all respects.
4. Governing Law: This Amendment Agreement shall be construed in
accordance with and governed by the law of the State of New York
without regard to its conflict of law principles.
<PAGE>
PAGE 80
IN WITNESS WHEREOF, the parties have executed this Amendment
Agreement as of the day and year first above written.
THE CHASE MANHATTAN BANK
By:/s/Helen C. Bairsto
Helen C. Bairsto
Vice President
EACH OF THE CUSTOMERS LISTED IN
ATTACHMENT A HERETO, SEPARATELY
AND INDIVIDUALLY
By:/s/Carmen F. Deyesu
Carmen F. Deyesu
Treasurer
PAGE 81
Attachment A
LIST OF CUSTOMERS
Add the following Fund:
T. Rowe Price Real Estate Fund, Inc.
PAGE 82
Attachment B
Schedule A
Page 1 of 3
LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO
GLOBAL CUSTODY AGREEMENT WITH
THE CHASE MANHATTAN BANK
DATED JANUARY 3, 1994
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
I. INVESTMENT COMPANIES/PORTFOLIOS The Mutual Fund Rider
REGISTERED UNDER THE INVESTMENT is applicable to
COMPANY ACT OF 1940 all Customers listed
under Section I of
this Schedule A.
Equity Funds
T. Rowe Price Balanced Fund, Inc.
T. Rowe Price Blue Chip Growth Fund, Inc.
T. Rowe Price Capital Appreciation Fund
T. Rowe Price Capital Opportunity 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. on behalf of:
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 Financial Services Fund, Inc.
T. Rowe Price Growth & Income Fund, Inc.
T. Rowe Price Growth Stock Fund, Inc.
T. Rowe Price Health Sciences Fund, Inc.
Institutional Equity Funds, Inc. on behalf of:
Mid-Cap Equity Growth Fund
Institutional International Funds, Inc. on behalf of:
Foreign Equity Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price New Asia Fund
<PAGE>
PAGE 83
Attachment B
Schedule A
Page 2 of 3
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
T. Rowe Price International Series, Inc. on behalf of:
T. Rowe Price International Stock Portfolio
T. Rowe Price Media & Telecommunications Fund, Inc.
T. Rowe Price Mid-Cap Growth Fund, Inc.
T. Rowe Price Mid-Cap Value Fund, Inc.
T. Rowe Price New America Growth Fund
T. Rowe Price New Era Fund, Inc.
T. Rowe Price New Horizons Fund, Inc.
T. Rowe Price Real Estate Fund, Inc.
T. Rowe Price Science & Technology Fund, Inc.
T. Rowe Price Small-Cap Stock Fund, Inc.
T. Rowe Price Small-Cap Value Fund, Inc.
T. Rowe Price Value Fund, Inc.
Income Funds
T. Rowe Price Corporate Income Fund, Inc.
T. Rowe Price High Yield Fund, Inc.
T. Rowe Price Income Series, Inc. on behalf of:
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price International Bond Fund
T. Rowe Price New Income Fund, Inc.
T. Rowe Price Personal Strategy Funds, Inc. on behalf of:
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. Rowe Price Short-Term Bond Fund, Inc.
T. Rowe Price Short-Term U.S. Government Fund, Inc.
T. Rowe Price Summit Funds, Inc. on behalf of:
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Tax-Efficient Balanced Fund, Inc.
<PAGE>
PAGE 84
Attachment B
Schedule A
Page 3 of 3
APPLICABLE RIDERS TO
CUSTOMER GLOBAL CUSTODY AGREEMENT
II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is
T. Rowe Price Trust Company, applicable to all
as Trustee for the Customers under Section
Johnson Matthey Salaried II of this Schedule A.
Employee Savings Plan
Common Trust Funds
T. Rowe Price Trust Company, as Trustee for the
International Common Trust Fund on behalf of the Underlying
Trusts:
Emerging Markets Equity Trust
European Discovery Trust
Foreign Discovery Trust
Foreign Discovery Trust - Augment
Japan Discovery Trust
Latin America Discovery Trust
Pacific Discovery Trust
New York City International Common Trust Fund
III. OTHER
RPFI International Partners, L.P. No Riders are
applicable to the
Customer listed under
Section III of this
Schedule A.<PAGE>
PAGE 85
AMENDMENT AGREEMENT TO
RUSSIAN RIDER TO THE GLOBAL
CUSTODY AGREEMENT
AMENDMENT to Attachment B of Global Custody Agreement dated
January 3, 1994, as amended July 23, 1997, is hereby further
amended as of September 3, 1997.
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment. Amend Attachment B to consist of the following
funds when pertaining to the Russian Rider dated July 17, 1997:
Institutional International Funds, Inc., on behalf of:
Foreign Equity Fund
T. Rowe Price International Funds, Inc. on behalf of:
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price New Asia Fund
T. Rowe Price International Series, Inc. on behalf of:
T. Rowe Price International Stock Portfolio
IN WITNESS WHEREOF, the parties have executed this Amendment
Agreement as of the day and year first above written.
THE CHASE MANHATTAN BANK EACH OF THE PARTIES LISTED ABOVE
By: /s/Helen C. Bairsto By:/s/Henry H. Hopkins
Helen C. Bairsto Henry H. Hopkins
Vice President Vice President
The Transfer Agency and Service Agreement between T. Rowe Price Services,
Inc. and T. Rowe Price Funds, dated January 1, 1998, as amended.
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
T. ROWE PRICE SERVICES, INC.
and
EACH OF THE PARTIES INDICATED ON APPENDIX A
<PAGE>
TABLE OF CONTENTS
Page
Article A Terms of Appointment 2
Article B Duties of Price Services 3
1. Receipt of Orders/Payments 3
2. Redemptions 5
3. Transfers 7
4. Confirmations 7
5. Returned Checks and ACH Debits 7
6. Redemption of Shares under Ten Day Hold 8
7. Dividends, Distributions and Other
Corporate Actions 10
8. Unclaimed Payments and Certificates 11
9. Books and Records 11
10. Authorized Issued and Outstanding Shares 14
11. Tax Information 14
12. Information to be Furnished to the Fund 14
13. Correspondence 15
14. Lost or Stolen Securities 15
15. Telephone Services 15
16. Collection of Shareholder Fees 16
17. Form N-SAR 16
18. Cooperation With Accountants 16
19. Blue Sky 16
20. Other Services 16
21. Fees and Out-of-Pocket Expenses 17
Article C Representations and Warranties of the Price
Services 19
Article D Representations and Warranties of the Fund 19
Article E Standard of Care/Indemnification 20
Article F Dual Interests 22
Article G Documentation 22
Article H References to Price Services 24
Article I Compliance with Governmental Rules and
Regulations 25
Article J Ownership of Software and Related Material 25
Article K Quality Service Standards 25
Article L As of Transactions 25
Article M Term and Termination of Agreement 29
Article N Notice 29
Article O Assignment 29
Article P Amendment/Interpretive Provisions 30
Article Q Further Assurances 30
Article R Maryland Law to Apply 30
Article S Merger of Agreement 30
<PAGE>
Article T Counterparts 30
Article U The Parties 30
Article V Directors, Trustees, Shareholders and Massachusetts
Business Trust 31
Article W Captions 31
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the first day of January, 1998, 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 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;
<PAGE>
WHEREAS, Price Services may also enter into, on behalf of the Funds,
certain banking relationships to perform various banking services including, but
not limited to, check deposits, check disbursements, automated clearing house
transactions ("ACH") and wire transfers.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
A. Terms of Appointment
Subject to the terms and conditions set forth in this Agreement, the Fund
hereby employs and appoints Price Services to act, and Price Services agrees to
act, as the Fund's transfer agent, dividend disbursing agent and agent in
connection with: (1) the Fund's authorized and issued shares of its common stock
or shares of beneficial interest (all such stock and shares to be referred to as
"Shares"); (2) any dividend reinvestment or other services provided to the
shareholders of the Fund ("Shareholders"), including, without limitation, any
periodic investment plan or periodic withdrawal program; and (3) certain
Retirement Plan and Retirement Accounts as agreed upon by the parties.
The parties to the Agreement hereby acknowledge that from time to time,
Price Services and T. Rowe Price Trust Company may enter into contracts ("Other
Contracts") with employee benefit plans and/ or their sponsors for the provision
of certain plan participant services to Retirement Plans and Retirement
Accounts. Compensation paid to Price Services pursuant to this Agreement is with
respect to the services described herein and not with respect to services
provided under Other Contracts.
B. Duties of Price Services
Price Services agrees that it will perform the following services:
1. Receipt of Orders/Payments
Receive for acceptance, orders/payments for the purchase of Shares and
promptly deliver payment and appropriate documentation thereof to the authorized
custodian of the Fund (the "Custodian"). Upon receipt of any check or other
instrument drawn or endorsed to it as agent for, or identified as being for the
account of, the Fund, Price Services will process the order as follows:
<PAGE>
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);
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;
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.
<PAGE>
Upon receipt of funds through the Federal Reserve Wire System that are
designated for purchases in Funds which declare dividends at 12:00 p.m. (or such
time as set forth in the Fund's current prospectus), Price Services shall
promptly notify the Fund and the Custodian of such deposit.
2. Redemptions
Receive for acceptance redemption requests, including telephone redemptions
and requests received from Administrators for distributions to participants or
their designated beneficiaries or for payment of fees due the Administrator or
such other person, including Price Services, and deliver the appropriate
documentation thereof to the Custodian. Price Services shall receive and stamp
with the date of receipt, all requests for redemptions of Shares (including all
certificates delivered to it for redemption) and shall process said redemption
requests as follows, subject to the provisions of Section 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;
oFor 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 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;
<PAGE>
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;
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 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
<PAGE>
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 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 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
<PAGE>
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.
oAll 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 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.
<PAGE>
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.
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;
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;
<PAGE>
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;
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 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
<PAGE>
Agreement, will be delivered to the Fund as of the date of termination or at
such other time as may be mutually agreed upon.
All books, records, information and data pertaining to the business of the
other party which are exchanged or received pursuant to the negotiation or the
carrying out of this Agreement shall remain confidential, and shall not be
voluntarily disclosed to any other person, except after prior notification to
and approval by the other party hereto, which approval shall not be unreasonably
withheld and may not be withheld where Price Services or the Fund may be exposed
to civil or criminal contempt proceedings for failure to comply; when requested
to divulge such information by duly constituted governmental authorities; or
after so requested by the other party hereto.
10. Authorized Issued and Outstanding Shares
Record the issuance of Shares of the Fund and maintain, pursuant to Rule
17Ad-10(e) of the '34 Act, a record of the total number of Shares of the Fund
which are authorized, issued and outstanding, based upon data provided to it by
the Fund. Price Services shall also provide the Fund on a regular basis the
total number of Shares which are authorized and issued and outstanding. Price
Services shall have no obligation, when recording the issuance of Shares, to
monitor the issuance of such Shares or to take cognizance of any laws relating
to the issuance or sale of such Shares.
11. Tax Information
Prepare and file with the Internal Revenue Service and with other
appropriate state agencies and, if required, mail to investors, those returns
for reporting dividends and distributions paid as required to be so filed and
mailed, and shall withhold such sums required to be withheld under applicable
Federal income tax laws, rules, and regulations. Additionally, Price Services
will file and, as applicable, mail to investors, any appropriate information
returns required to be filed in connection with Retirement Plan processing, such
as 1099R, 5498, as well as any other appropriate forms that the Fund or Price
Services may deem necessary. The Fund and Price Services shall agree to
procedures to be followed with respect to Price Services' responsibilities in
connection with compliance with back-up withholding and other tax laws.
<PAGE>
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 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.
<PAGE>
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.
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
<PAGE>
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.
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
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
<PAGE>
will contain costs for both the Funds and other funds serviced by Price
Services. These costs will be allocated based on a reasonable allocation
methodology. Where possible, such as in the case of inbound and outbound WATS
charges, allocation will be made on the actual distribution or usage.
C. Representations and Warranties of Price Services
Price Services represents and warrants to the Fund that:
1.
It is a corporation duly organized and existing and in good standing under the
laws of Maryland;
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;
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;
<PAGE>
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 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>
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;"
othe 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
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.
<PAGE>
F. Dual Interests
It is understood that some person or persons may be directors, officers, or
shareholders of both the Funds and Price Services (including Price Services's
affiliates), and that the existence of any such dual interest shall not affect
the validity of this Agreement or of any transactions hereunder except as
otherwise provided by a specific provision of applicable law.
G. Documentation
oAs 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;
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:
<PAGE>
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;
oA certified copy of each amendment to the Articles of Incorporation or
Declaration of Trust, and the By-Laws of the Fund;
o
Certified copies of each vote of the Board of Directors/ Trustees authorizing
officers to give instructions to the Transfer Agent;
o
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.
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
<PAGE>
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) involving the purchase or
redemption of Shares (including exchanges) that is processed at a time other
than the time of the computation of the Fund's net asset value per Share next
computed after receipt of any such transaction order by Price Services due to an
act or omission of Price Services. "As Of Processing" refers to the processing
of these Transactions. If more than one Transaction ("Related Transaction") in
the Fund is caused by or 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.
3.
With respect to any Transaction which causes Dilution to the Fund of $100,000 or
more, immediately provide the
<PAGE>
Fund: (i) a report identifying the Transaction and the Dilution resulting
therefrom, (ii) the reason such Transaction was processed as described above,
and (iii) the action that Price Services has or intends to take to prevent the
reoccurrence of such as of processing ("Report").
o Liability
1.
It will be the normal practice of the Funds not to hold Price Services liable
with respect to any Transaction which causes Dilution to any single Fund of less
than $25,000. Price Services will, however, closely monitor for each Fund the
daily and Cumulative Gain/Dilution which is caused by Transactions of less than
$25,000. When the Cumulative Dilution to any Fund exceeds 3/ 10 of 1% per share,
Price Services, in consultation with counsel to the Fund, will make appropriate
inquiry to determine whether it should take any remedial action. Price Services
will report to the Board of Directors/Trustees of the Fund ("Board") any action
it has taken.
2.
Where a Transaction causes Dilution to a Fund greater than $25,000 ("Significant
Transaction"), but less than $100,000, Price Services will review with Counsel
to the Fund the circumstances surrounding the underlying Transaction to
determine whether the Transaction was caused by or occurred as a result of a
negligent act or omission by Price Services. If it is determined that the
Dilution is the result of a negligent action or omission by Price Services,
Price Services and outside counsel for the Fund will negotiate settlement. All
such Significant Transactions will be reported to the Audit Committee at its
annual meeting (unless the settlement fully compensates the Fund for any
dilution). Any significant Transaction, however, causing Dilution in excess of
the lesser of $100,000 or a penny per share will be PROMPTLY reported to the
Board and resolved at the next scheduled Board Meeting. Settlement for
significant Transactions causing Dilution of $100,000 or more will not be
entered into until approved by the Board. The factors to consider in making any
determination regarding the settlement of a Significant Transaction would
include but not be limited to:
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;
<PAGE>
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".
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
oThis Agreement shall run for a period of one (1) year from the date first
written above and will be renewed from year to year thereafter unless terminated
by either party as provided hereunder.
o
This Agreement may be terminated by the Fund upon one hundred twenty (120) days'
written notice to Price Services; and
<PAGE>
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.
P. Amendment/Interpretive Provisions
The parties by mutual written agreement may amend this Agreement at any
time. In addition, in connection with the operation of this Agreement, Price
Services and the Fund may agree from time to time on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. Any
such interpretive or additional provisions are to be signed by all parties and
annexed hereto, but no such provision shall contravene any applicable Federal or
state law or regulation and no such interpretive or additional provision shall
be deemed to be an amendment of this Agreement.
Q. Further Assurances
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
<PAGE>
R. Maryland Law to Apply
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of Maryland.
S. Merger of Agreement
This Agreement, including the attached Appendices and Schedules supersedes
any prior agreement with respect to the subject hereof, whether oral or written.
T. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instruments.
U. The Parties
All references herein to "the Fund" are to each of the Funds listed on
Appendix A individually, as if this Agreement were between such individual Fund
and Price Services. In the case of a series Fund or trust, all references to
"the Fund" are to the individual series or portfolio of such Fund or trust, or
to such Fund or trust on behalf of the individual series or portfolio, as
appropriate. The "Fund" also includes any T. Rowe Price Funds which may be
established after the execution of this Agreement. Any reference in this
Agreement to "the parties" shall mean Price Services and such other individual
Fund as to which the matter pertains.
V. Directors, Trustees and Shareholders and Massachusetts Business Trust
It is understood and is expressly stipulated that neither the holders of
Shares in the Fund nor any Directors or Trustees 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
<PAGE>
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.
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: ________________________
James S. Riepe Carmen F. Deyesu
DATED: ________________________ DATED: _______________________
<PAGE>
APPENDIX A
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
<PAGE>
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 MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
<PAGE>
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
<PAGE>
T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of the:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
on behalf of the:
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
<PAGE>
AMENDMENT NO. 1
TRANSFER AGENCY AND SERVICE AGREEMENT
BETWEEN
T. ROWE PRICE SERVICES, INC.
AND
THE T. ROWE PRICE FUNDS
The Transfer Agency and Service Agreement of January 1, 1998, between T. Rowe
Price Services, Inc., and each of the Parties listed on Appendix A thereto is
hereby amended, as of January 21, 1998, by adding thereto T. Rowe Price Index
Trust, Inc., on behalf of T. Rowe Price Extended Equity Market Index Fund and T.
Rowe Price Total Equity Market Index 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
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>
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global 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 MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
<PAGE>
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida 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>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
Attest:
/s/Patricia S. 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>
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, 1998, as amended January
21, 1998 between T. Rowe Price Services, Inc., and each of the Parties listed on
Appendix A thereto is hereby amended, as of October 30, 1998, by adding thereto
T. Rowe Price Prime Reserve Fund, Inc., on behalf of T. Rowe Price Prime Reserve
Fund--PLUS Class and T. Rowe Price Tax-Exempt Money Fund, Inc., on behalf of T.
Rowe Price Tax-Exempt Money Fund--PLUS Class.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
<PAGE>
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
<PAGE>
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. Rowe Price Prime Reserve Fund--PLUS Class
T. ROWE PRICE REAL ESTATE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
<PAGE>
T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. Rowe Price Tax-Exempt Money Fund--PLUS Class
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
Attest:
/s/Patricia S. Lippert /s/Carmen F. Deyesu
______________________ ______________________________
Patricia S. Lippert, By: Carmen F. Deyesu
Secretary Treasurer
Attest: T. ROWE PRICE SERVICES, INC.
/s/Barbara A. Van Horn /s/Henry H. Hopkins
______________________ ______________________________
Barbara A. Van Horn, By: Henry H. Hopkins,
Assistant Secretary Vice President
<PAGE>
AMENDMENT NO. 3
TRANSFER AGENCY AND SERVICE AGREEMENT
BETWEEN
T. ROWE PRICE SERVICES, INC.
AND
THE T. ROWE PRICE FUNDS
The Transfer Agency and Service Agreement of January 1, 1998, as amended January
21, 1998, and October 30, 1998 between T. Rowe Price Services, Inc., and each of
the Parties listed on Appendix A thereto is hereby amended, as of November 11,
1998, by adding thereto T. Rowe Price International Funds, Inc., on behalf of T.
Rowe Price International Growth & Income Fund.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
<PAGE>
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Growth & Income Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
<PAGE>
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. Rowe Price Prime Reserve Fund--PLUS Class
T. ROWE PRICE REAL ESTATE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.
<PAGE>
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. Rowe Price Tax-Exempt Money Fund--PLUS Class
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
Attest:
/s/Patricia S. Lippert /s/Carmen F. Deyesu
______________________ ______________________________
Patricia S. Lippert, By: Carmen F. Deyesu
Secretary Treasurer
Attest: T. ROWE PRICE 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, 1998, as amended.
<PAGE>
AGREEMENT
between
T. ROWE PRICE ASSOCIATES, INC.
and
THE T. ROWE PRICE FUNDS
for
FUND ACCOUNTING SERVICES
<PAGE>
TABLE OF CONTENTS
Page
Article A Terms of Appointment/Duties of Price Associates 1
Article B Fees and Out-of-Pocket Expenses 3
Article C Representations and Warranties of Price Associates3
Article D Representations and Warranties of the Fund 4
Article E Ownership of Software and Related Material 4
Article F Quality Service Standards 4
Article G Standard of Care/Indemnification 4
Article H Dual Interests 7
Article I Documentation 7
Article J Recordkeeping/Confidentiality 7
Article K Compliance with Governmental Rules and
Regulations 8
Article L Terms and Termination of Agreement 8
Article M Notice 9
Article N Assignment 9
Article O Amendment/Interpretive Provisions 9
Article P Further Assurances 10
Article Q Maryland Law to Apply 10
Article R Merger of Agreement 10
Article S Counterparts 10
Article T The Parties 10
Article U Directors, Trustee and Shareholders and
Massachusetts Business Trust 10
Article V Captions 11
<PAGE>
AGREEMENT made as of the first day of January, 1998, by and between T. ROWE
PRICE ASSOCIATES, INC., a Maryland corporation having its principal office and
place of business at 100 East Pratt Street, Baltimore, Maryland 21202 ("Price
Associates"), and each Fund which is listed on Appendix A (as such Appendix may
be amended from time to time) and which evidences its agreement to be bound
hereby by executing a copy of this Agreement (each such Fund individually
hereinafter referred to as "the Fund", whose definition may be found in Article
T);
WHEREAS, Price Associates has the capability of providing the Funds with
certain accounting services ("Accounting Services");
WHEREAS, the Fund desires to appoint Price Associates to provide these
Accounting Services and Price Associates desires to accept such appointment;
WHEREAS, the Board of Directors of the Fund has authorized the Fund to
utilize various pricing services for the purpose of providing to Price
Associates securities prices for the calculation of the Fund's net asset value.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
A. Terms of Appointment/Duties of Price Associates
Subject to the terms and conditions set forth in this Agreement, the Fund
hereby employs and appoints Price Associates to provide, and Price Associates
agrees to provide, the following Accounting Services:
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
<PAGE>
established by each of the Fund's Board of Directors including, but
not limited to, the utilization of such pricing valuation sources
and/or pricing services as determined by the Boards. Price Associates
shall have no liability for any losses or damages incurred by the Fund
as a result of erroneous portfolio security evaluations provided by
such designated sources and/or pricing services; provided that, Price
Associates reasonably believes the prices are accurate, has adhered to
its normal verification control procedures, and has otherwise met the
standard of care as set forth in Article G of this Agreement;
e.
Provide daily cash flow and transaction status information to each
Fund's adviser;
f.
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 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
<PAGE>
including, but not limited to, their opinion included in each such
Fund's annual report on Form N-SAR and annual amendment to Form N-1A.
B. Fees and Out-of-Pocket Expenses
Each Fund shall pay to Price Associates for its Accounting Services
hereunder, fees as set forth in the Schedule attached hereto. In addition, each
Fund will reimburse Price Associates for out-of-pocket expenses such as postage,
printed forms, voice and data transmissions, record retention, disaster
recovery, third party vendors, equipment leases and other similar items as may
be agreed upon between Price Associates and the Fund. Some invoices will
contain costs for both the Funds and other funds serviced by Price Associates.
In these cases, a reasonable allocation methodology will be used to allocate
these costs to the Funds.
C. Representations and Warrantees of Price Associates
Price Associates represents and warrants to the Fund that:
1.
It is a corporation duly organized and existing in good standing under the laws
of Maryland.
2. It is duly qualified to carry on its business in Maryland.
3.
It is empowered under applicable laws and by its charter and By-Laws to enter
into and perform this Agreement.
4.
All requisite corporate proceedings have been taken to authorize it to enter
into and perform this Agreement.
5.
It has, and will continue to have, access to the necessary facilities, equipment
and personnel to perform its duties and obligations under this Agreement.
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
<PAGE>
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
3.
All proceedings required by said Articles of Incorporation or Declaration of
Trust, as the case may be, and By-Laws have been taken to authorize it to enter
into and perform this Agreement.
E. Ownership of Software and Related Material
All computer programs, magnetic tapes, written procedures, and similar
items purchased and/or developed and used by Price Associates in performance of
the Agreement shall be the property of Price Associates and will not become the
property of the Funds.
F. Quality Service Standards
Price Associates and the Fund may, from time to time, agree to certain
quality service standards, with respect to Price Associates' services hereunder.
G. Standard of Care/Indemnification
Notwithstanding anything to the contrary in this Agreement:
1.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;"
<PAGE>
o
the employee responsible for the error or omission had been reasonably
trained and was being appropriately monitored; and
o
the error or omission did not result from wanton or reckless conduct
on the part of the employee.
It is understood that Price Associates is not obligated to have in place
separate procedures to prevent each and every conceivable type of error or
omission. The term "appropriate procedures and adequate system of internal
controls" shall mean procedures and controls reasonably designed to prevent
and detect errors and omissions. In determining the reasonableness of such
procedures and controls, weight will be given to such factors as are
appropriate, including the prior occurrence of any similar errors or
omissions, when such procedures and controls were in place and fund
accounting industry standards in place at the time of the error.
2.
The Fund shall indemnify and hold Price Associates harmless from and against all
losses, costs, damages, claims, actions, and expenses, including reasonable
expenses for legal counsel, incurred by Price Associates resulting from: (i)
any action or omission by Price Associates or its agents or subcontractors in
the performance of their duties hereunder; (ii) Price Associates acting upon
instructions believed by it to have been executed by a duly authorized officer
of the Fund; or (iii) Price Associates acting upon information provided by the
Fund in form and under policies agreed to by Price Associates and the Fund.
Price Associates shall not be entitled to such indemnification in respect of
actions or omissions constituting negligence or willful misconduct of Price
Associates or where Price Associates has not exercised reasonable care in
selecting or monitoring the performance of its agents or subcontractors.
3.
Price Associates shall indemnify and hold harmless the Fund from all losses,
costs, damages, claims, actions and expenses, including reasonable expenses for
legal counsel, incurred by the Fund resulting from the negligence or willful
misconduct of Price Associates or which result from Price Associates' failure to
exercise reasonable care in selecting or monitoring the performance of its
agents or subcontractors. The Fund shall not be entitled to such
indemnification with respect to actions or omissions constituting negligence or
willful misconduct of such Fund or its agents or subcontractors; unless such
negligence or misconduct is attributable to Price Associates.
<PAGE>
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.
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
<PAGE>
records in such form and in such manner as required by applicable law, including
the Investment Company Act of 1940 ("the Act") and the Securities Exchange Act
of 1934 ("the '34 Act").
2.
Price Associates and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except: (a) after prior notification to and approval in writing by the other
party hereto, which approval shall not be unreasonably withheld and may not be
withheld where Price Associates or Fund may be exposed to civil or criminal
contempt proceedings for failure to comply; (b) when requested to divulge such
information by duly constituted governmental authorities; or (c) after so
requested by the other party hereto.
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.
<PAGE>
M. Notice
Any notice as required by this Agreement shall be sufficiently given (i)
when sent to an authorized person of the other party at the address of such
party set forth above or at such other address as such party may from time to
time specify in writing to the other party; or (ii) as otherwise agreed upon by
appropriate officers of the parties hereto.
N. Assignment
Neither this Agreement nor any rights or obligations hereunder may be
assigned either voluntarily or involuntarily, by operation of law or otherwise,
by either party without the prior written consent of the other party, provided
this shall not preclude Price Associates from employing such agents and
subcontractors as it deems appropriate to carry out its obligations set forth
hereunder.
O. Amendment/Interpretive Provisions
The parties by mutual written agreement may amend this Agreement at any
time. In addition, in connection with the operation of this Agreement, Price
Associates and the Fund may agree from time to time on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. Any
such interpretive or additional provisions are to be signed by all parties and
annexed hereto, but no such provision shall contravene any applicable Federal or
state law or regulation and no such interpretive or additional provision shall
be deemed to be an amendment of this Agreement.
P. Further Assurances
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
Q. Maryland Law to Apply
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of Maryland.
<PAGE>
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 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
<PAGE>
only the trust property of the Trust as provided in its Declaration of Trust.
V. Captions
The captions in the Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers.
T. ROWE PRICE ASSOCIATES, INC. T. ROWE PRICE FUNDS
/s/Alvin Younger, Jr. /s/Carmen F. Deyesu
BY: ____________________ BY: _____________________
Alvin Younger, Jr. Carmen F. Deyesu
DATED: __________________ DATED: _____________________
<PAGE>
APPENDIX A
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
<PAGE>
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 MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
<PAGE>
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
<PAGE>
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
<PAGE>
AMENDMENT NO. 1
AGREEMENT
BETWEEN
T. ROWE PRICE ASSOCIATES, INC.
AND
THE T. ROWE PRICE FUNDS
FOR
FUND ACCOUNTING SERVICES
The Agreement for Fund Accounting Services of January 1, 1998, between T. Rowe
Price Associates, Inc. and each of the Parties listed on Appendix A thereto is
hereby amended, as of January 21, 1998, by adding thereto T. Rowe Price Index
Trust, Inc., on behalf of T. Rowe Price Extended Equity Market Index Fund and T.
Rowe Price Total Equity Market Index 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
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
<PAGE>
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 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global 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 MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
<PAGE>
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
<PAGE>
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
<PAGE>
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>
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, 1998, as amended
January 21, 1998 between T. Rowe Price Associates, Inc. and each of the Parties
listed on Appendix A thereto is hereby further amended, as of October 30, 1998,
by adding thereto T. Rowe Price Prime Reserve Fund, Inc., on behalf of T. Rowe
Price Prime Reserve Fund--PLUS Class and T. Rowe Price Tax-Exempt Money Fund,
Inc., on behalf of T. Rowe Price Tax-Exempt Money Fund--PLUS Class.
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
<PAGE>
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 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
T. Rowe Price Prime Reserve Fund--PLUS Class
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
<PAGE>
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. Rowe Price Tax-Exempt Money Fund--PLUS Class
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
<PAGE>
Attest:
/s/Patricia S. Lippert /s/Carmen F. Deyesu
________________________ ______________________________
Patricia S. Lippert, By: Carmen F. Deyesu
Secretary Treasurer
Attest: T. ROWE PRICE ASSOCIATES, INC.
/s/Barbara A. Van Horn /s/Henry H. Hopkins
________________________ ______________________________
Barbara A. Van Horn, By: Henry H. Hopkins,
Assistant Secretary Managing Director
<PAGE>
AMENDMENT NO. 3
AGREEMENT
BETWEEN
T. ROWE PRICE ASSOCIATES, INC.
AND
THE T. ROWE PRICE FUNDS
FOR
FUND ACCOUNTING SERVICES
The Agreement for Fund Accounting Services of January 1, 1998, as amended
January 21, 1998, and October 30, 1998 between T. Rowe Price Associates, Inc.
and each of the Parties listed on Appendix A thereto is hereby further amended,
as of November 11, 1998, by adding thereto T. Rowe Price International Funds,
Inc., on behalf of T. Rowe Price International Growth & Income Fund.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
<PAGE>
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 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Growth & Income Fund
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
T. Rowe Price Prime Reserve Fund--PLUS Class
RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
<PAGE>
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. Rowe Price Tax-Exempt Money Fund--PLUS Class
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE VALUE FUND, INC.
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Attest:
/s/Patricia S. Lippert /s/Carmen F. Deyesu
________________________ ______________________________
Patricia S. Lippert, By: Carmen F. Deyesu
Secretary Treasurer
Attest: T. ROWE PRICE ASSOCIATES, INC.
/s/Barbara A. Van Horn /s/Henry H. Hopkins
________________________ ______________________________
Barbara A. Van Horn, By: Henry H. Hopkins,
Assistant Secretary Managing Director
The Agreement between T. Rowe Price Retirement Plan Services, Inc. and
the Taxable Funds, dated January 1, 1998, as amended.
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AGREEMENT
between
T. ROWE PRICE RETIREMENT PLAN SERVICES, INC.
and
EACH OF THE PARTIES INDICATED ON APPENDIX A
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TABLE OF CONTENTS
Page
Article A Terms of Appointment 2
Article B Duties of RPS 2
1. Contributions - Retirement Plans and
Retirement Accounts 2
2. Retirement Plans - Redemptions to Cover
Distributions 3
3. Other Provisions 4
4. Exchanges 5
5. Books and Records 5
6. Tax Information 6
7. Other Information to be Furnished to the
Funds 6
8. Telephone 6
9. Correspondence 6
10. Prospectuses/Confirmation Statements 7
11. Proxies 7
12. Form N-SAR 7
13. Withholding 7
Article C Fee and Out-of-Pocket Expenses 7
1. Postage 8
2. Proxies 8
3. Communications 8
4. Record Retention 9
5. Disaster Recovery 9
Article D Representations and Warranties of RPS 9
Article E Representations and Warranties of the Fund 9
Article F Standard of Care/Indemnification 10
Article G Dual Interests 12
Article H Documentation 13
Article I Recordkeeping/Confidentiality 14
Article J Ownership of Software and Related Material 15
Article K As of Transactions 15
1. Reporting 15
2. Liability 16
Article L Term and Termination of Agreement 18
Article M Notice 19
Article N Assignment 19
Article O Amendment/Interpretive Provisions 19
Article P Further Assurances 19
Article Q Maryland Law to Apply 19
Article R Merger of Agreement 20
Article S Counterparts 20
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Article T The Parties 20
Article U Directors, Trustees and Shareholders and
Massachusetts Business Trust 20
Article V Captions 21
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AGREEMENT, made as of the first day of January, 1998, by and between T.
ROWE PRICE RETIREMENT PLAN SERVICES, INC., a Maryland corporation having its
principal office and place of business at 100 East Pratt Street, Baltimore,
Maryland 21202 ("RPS"), and EACH FUND WHICH IS LISTED ON APPENDIX A (as such
Appendix may be amended from time to time) and which evidences its agreement to
be bound hereby by executing a copy of this Agreement (each Fund hereinafter
referred to as "the Fund") whose definition may be found in Article T;
WHEREAS, the Funds are named investment options under various tax-sheltered
plans, including, but not limited to, state and local government deferred
compensation plans, 403(b) plans, and profit sharing, thrift, 401(k) and money
purchase pension plans for self-employed individuals, professional partnerships
and corporations (collectively referred to as "Retirement Plans"); and the Fund
has determined that such investments of Retirement Plans in the Funds are in the
best long-term interest of the Funds;
WHEREAS, RPS has the capability of providing special services, on behalf of
the Fund, for the accounts of individuals ("Participants") participating in
these Retirement Plans ("Retirement Accounts");
WHEREAS, RPS represents that it is registered with the Securities and
Exchange Commission as a Transfer Agent under Section 17A of the Securities
Exchange Act of 1934 ("the '34 Act");
WHEREAS, RPS may subcontract or jointly contract with other parties on
behalf of the Funds to perform certain of the functions described herein, RPS
may also enter into, on behalf of the Funds, certain banking relationships to
perform various banking services, including, but not limited to, check deposits,
disbursements, automatic clearing house transactions ("ACH") and wire transfers.
Subject to guidelines mutually agreed upon by the Funds and RPS, excess
balances, if any, resulting from these banking relationships will be invested
and the income therefrom will be used to offset fees which would otherwise be
charged to the Funds under this Agreement;
WHEREAS, the Fund desires to contract with RPS to provide the functions and
services described herein in connection with the Retirement Plans and Retirement
Accounts;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
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A. Terms of Appointment
Subject to the terms and conditions set forth in this Agreement, the Fund
hereby employs and appoints RPS to perform the services and functions described
herein in connection with certain Retirement Plan and Retirement Accounts as
agreed upon by the parties.
B. Duties of RPS
RPS agrees that it will perform the following services:
1. Contributions - Retirement Plans and Retirement Accounts
After RPS has received monies from Retirement Plans and has determined
the proper allocation of such monies to the Retirement Accounts of Participants
based upon instructions received from Participants, Retirement Plans or their
designees, or Retirement Plan Administrator(s) ("Administrator(s)"), RPS will,
as a responsibility under the Agreement:
a.
In the case of a new Participant, establish and maintain a Retirement Account
for such Participant;
b.
Compute the number of shares of each Fund to which the Participant is entitled
in accordance with the price per share of such Fund as calculated and provided
by the Fund for orders received at that time and date, and purchase the
appropriate shares in each such Retirement Account;
c.
Calculate the aggregate of all purchases in the Retirement Accounts and transmit
the net purchase order to T. Rowe Price Services, Inc. ("Services") or directly
to the Fund, as the case may be, for purchase into an omnibus account
established in each Fund registered in RPS' or its affiliates' name as agent for
Retirement Plans or in the individual Retirement Plan's name ("Omnibus
Account"); and
d.
Transmit to Services, by wire, at a time mutually agreed upon by both parties,
the aggregate money allocated to coincide with the purchase order.
2. Retirement Plans - Redemptions to Cover Distributions.
After RPS has received instructions from the Administrator regarding
distributions to be made to Participants
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or their designated beneficiaries from Funds designated as investment options
under the Retirement Plan, RPS will, as a responsibility under the Agreement:
a.
Compute the number of shares to be redeemed from each such Retirement Account
for such distributions in accordance with the price per share of such Fund as
calculated and provided by the Fund for orders received in good order at that
time and date.
b.
After such computation, calculate the aggregate amount of all redemptions in the
Retirement Accounts.
c.
Transmit any net redemption order to Services or directly to the Fund, as the
case may be, for the Omnibus Account of each Fund. Services will wire proceeds
to RPS to coincide with the redemption order for each Omnibus Account. RPS will
Distribute to Participants or their designated beneficiaries the amount to be
disbursed.
d.
After RPS has received instructions from the Administrator regarding
disbursements to be made regarding the payment of fees due the Administrator, or
other persons including RPS, RPS will, as a responsibility under this Agreement:
i.
Compute the number of shares to be redeemed from each Retirement Account to pay
for such disbursements and the total number of all shares to be redeemed in
accordance with the price per share for order received in good order at that
time and date, of such Fund as calculated and provided by the Fund;
ii.
Inform Services, or the Funds directly, as the case may be, of the necessary
Shares to be redeemed from the Omnibus Account of the Funds to cover such
disbursements; and
iii.
Mail or wire to the Administrator or such other person as designated by the
Administrator the amount to be disbursed.
3. Other Provisions
a.
If any instruction tendered by an Administrator to purchase or redeem shares in
a Retirement Account is not satisfactory to RPS, RPS shall promptly notify the
Administrator of such fact together with the reason therefor;
b.
The authority of RPS to perform its responsibilities under Paragraph B(2) with
respect to each Fund shall be suspended
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upon RPS's receipt of notification from such Fund of the suspension of the
determination of the Fund's net asset value per share and shall remain suspended
until RPS receives proper notification from the Fund; and
c.
The Fund will promptly inform RPS of the declaration of any dividend or
distribution on account of the capital stock of any Fund so that RPS may
properly credit income and capital gain payments to each Retirement Account.
4. Exchanges
Effect exchanges of shares of the Funds in the Retirement Accounts
upon receipt of appropriate instructions from the Administrator and/or
Participant in accordance with the price per share of the Funds as calculated
and provided by the Fund for orders received in good order at that time and
date. Calculate and transmit a net purchase and redemption order to Services or
the Fund, as the case may be, for the Omnibus Account of each Fund. RPS will
transmit by wire the aggregate monies allocated to each Fund to Services to
coincide with any net purchase order or instruct Services to wire to it monies
from each Fund's Omnibus Account to coincide with any net redemption order.
5. Books and Records
RPS shall maintain records showing for each Retirement Plan or
Retirement Account, the following:
a. Names, addresses and tax identification numbers, when provided;
b. Number of shares held of each Fund;
c.
Historical information regarding the account of each Participant and/or
Retirement Plan, including dividends and capital gain distributions invested in
shares;
d.
Any instructions from a Participant or Administrator, including all forms
executed by a Participant with respect to elections with respect to payment
options in connection with the redemption of shares or distribution elections,
if applicable; and
e.
Any information required in order for RPS to perform the calculations
contemplated under this Agreement.
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Any such records maintained pursuant to Rule 31a-1 under the
Investment Company Act of 1940 ("the Act") will be preserved for the periods
prescribed in Rule 31a-2 thereunder. Disposition of such records after such
prescribed periods shall be as mutually agreed upon from time to time by RPS and
the Funds. The retention of such records, which may be inspected by the Fund at
reasonable times, shall be at the expense of the Funds. All records maintained
by RPS in connection with the performance of its duties under this Agreement
will remain the property of the Funds and, in the event of termination of this
Agreement, will be delivered to the Fund as of the date of termination of this
agreement or at such other time as may be mutually agreed upon.
6. Tax Information
RPS shall also prepare and file with appropriate federal and state
agencies, such information returns and reports as required by applicable Federal
statutes relating to redemptions effected in Retirement Accounts which
constitute reportable distributions. RPS will also prepare and submit to
Participants, such reports containing information as is required by applicable
Federal law.
7. Other Information to be Furnished to the Funds
RPS will furnish to the Fund, such information, including Participant
lists and statistical information as may be agreed upon from time to time
between RPS and the Fund. Permission of the Administrator may also be required.
8. Telephone
RPS will promptly respond to any telephone calls from Administrators
and/or Participants relating to the Retirement Accounts and/or questions
pertaining to the Funds.
9. Correspondence
RPS will promptly and fully answer correspondence from Administrators
and Participants relating to Retirement Accounts and transfer agent procedures,
and such other correspondence as may from time to time be mutually agreed upon
with the Funds. Copies of all correspondence will be retained by RPS in
accordance with applicable law.
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10. Prospectuses/Confirmation Statements
RPS will be responsible for mailing all confirmations and statements
of transactions, prospectuses, semi-annual and annual reports of the Funds and
other enclosures and mailings, as may be requested by the Funds or required by
applicable Federal law.
11. Proxies
As requested by the Funds, RPS shall assist in the mailing of proxy
cards and other material required to be mailed by the Fund in connection with
shareholder meetings of the Fund and shall assist in the receipt, examination
and tabulation of returned proxies and the certification of the vote to the
Fund.
12. Form N-SAR
RPS shall maintain such records, if any, as shall enable the Fund to
fulfill the requirements of Form N-SAR.
13. Withholding
The Fund and RPS shall agree to procedures to be followed with respect
to RPS's responsibilities in connection with compliance for federal withholding
on distributions to Participants from Retirement Accounts.
C. Fees and Out-of-Pocket Expenses
Each Fund shall pay to RPS for its services hereunder fees computed as set
forth in the Schedule attached hereto. Except as provided below, RPS will be
responsible for all expenses relating to the providing of services. Each Fund,
however, will reimburse RPS for the following out-of-pocket expenses and charges
incurred in providing services:
1.
Postage. The cost of postage and freight for mailing materials, including
confirmations and statements as well as Fund prospectuses and Fund shareholder
reports, to Participants, or their agents, including overnight delivery, UPS and
other express mail services and special courier services required to transport
mail between RPS locations and mail processing vendors.
2.
Proxies. The cost to mail proxy cards and other material supplied to it by the
Fund and costs related to the receipt,
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examination and tabulation of returned proxies and the certification of the vote
to the Fund.
3. Communications
a.
Print. The printed forms used internally and externally for documentation and
processing Participant, or their agent's, inquiries and requests; paper and
envelope supplies for letters, notices, and other written communications sent to
Administrators and Participants, or their agents.
b.
Print & Mail House. The cost of internal and third party printing and mail
house services, including printing of statements and reports.
c.
Voice and Data. The cost of equipment (including associated maintenance),
supplies and services used for communicating with the Participants or their
Administrator, the Fund's transfer agent, other Fund offices, and other agents
of either the Fund or RPS. These charges shall include:
o
telephone toll charges (both incoming and outgoing, local, long distance and
mailgrams); and
o
data and telephone lines and associated equipment such as modems, multiplexers,
and facsimile equipment.
4.Record Retention. The cost of maintenance and supplies used to maintain,
microfilm, copy, record, index, display, retrieve, and store, in microfiche or
microfilm form, documents and records.
5.Disaster Recovery. The cost of services, equipment, facilities and other
charges necessary to provide disaster recovery for any and all services listed
in this Agreement.
D. Representations and Warranties of RPS
RPS represents and warrants to the Fund that:
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.
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3.
It is empowered under applicable laws and by its charter and by-laws to enter
into and perform this Agreement.
4.
All requisite corporate proceedings have been taken to authorize it to enter
into and perform this Agreement.
5.
It has and will continue to have access to the necessary facilities, equipment
and personnel to perform its duties and obligations under this Agreement.
6.
It is registered with the Securities and Exchange Commission as a Transfer Agent
pursuant to Section 17A of the '34 Act.
E. Representations and Warranties of the Fund
The Fund represents and warrants to RPS that:
1.
It is a corporation or business trust duly organized and existing and in good
standing under the laws of Maryland, or Massachusetts, as the case may be.
2.
It is empowered under applicable laws and by its Articles of Incorporation or
Declaration of Trust, as the case may be, and By-Laws to enter into and perform
this Agreement.
3.
All proceedings required by said Articles of Incorporation or Declaration of
Trust, as the case may be, and By-Laws have been taken to authorize it to enter
into and perform this Agreement.
4. It is an investment company registered under the Act.
5.
A registration statement under the Securities Act of 1933 ("the '33 Act") is
currently effective and will remain effective, and appropriate state securities
law filing have been made and will continue to be made, with respect to all
shares of the Fund being offered for sale.
F. Standard of Care/Indemnification
Notwithstanding anything to the contrary in this Agreement:
1. RPS shall not be liable to the Fund for any act or failure to act by it or
its agents or subcontractors on behalf of the Fund in carrying or attempting to
carry out the terms and provisions of
<PAGE>
this Agreement provided RPS has acted in good faith and without negligence or
willful misconduct and selected and monitored the performance of its agents and
subcontractors with reasonable care.
2. The Fund shall indemnify and hold RPS harmless from and against all losses,
costs, damages, claims, actions and expenses, including reasonable expenses for
legal counsel, incurred by RPS resulting from: (i) any action or omission by RPS
or its agents or subcontractors in the performance of their duties hereunder;
(ii) RPS acting upon instructions reasonably believed by it to have been
executed by a duly authorized officer of the Fund; or (iii) RPS acting upon
information provided by the Fund in form and under policies agreed to by RPS and
the Fund. RPS shall not be entitled to such indemnification in respect of
actions or omissions constituting negligence or willful misconduct of RPS or
where RPS has not exercised reasonable care in selecting or monitoring the
performance of its agents or subcontractors.
3. Except as provided in Article K of this Agreement, RPS shall indemnify and
hold harmless the Fund from all losses, costs, damages, claims, actions and
expenses, including reasonable expenses for legal counsel, incurred by the Fund
resulting from negligence or willful misconduct of RPS or which result from RPS'
failure to exercise reasonable care in selecting or monitoring the performance
of its agents or subcontractors. The Fund shall not be entitled to such
indemnification in respect of actions or omissions constituting negligence or
willful misconduct of such Fund or its agents or subcontractors; unless such
negligence or misconduct is attributable to RPS.
4. In determining RPS' liability, an isolated error or omission will normally
not be deemed to constitute negligence when it is determined that:
o RPS had in place "appropriate procedures".
o
the employees responsible for the error or omission had been reasonably trained
and were being appropriately monitored; and
o
the error or omission did not result from wanton or reckless conduct on the part
of the employees.
It is understood that RPS is not obligated to have in place separate procedures
to prevent each and every conceivable type of error or omission. The term
"appropriate procedures" shall mean procedures
<PAGE>
reasonably designed to prevent and detect errors and omissions. In determining
the reasonableness of such procedures, weight will be given to such factors as
are appropriate, including the prior occurrence of any similar errors or
omissions when such procedures were in place and transfer agent industry
standards in place at the time of the occurrence.
5.
In the event either party is unable to perform its obligations under the terms
of this Agreement because of acts of God, strikes or other causes reasonably
beyond its control, such party shall not be liable to the other party for any
loss, cost, damage, claims, actions or expense resulting from such failure to
perform or otherwise from such causes.
6.
In order that the indemnification provisions contained in this Article F shall
apply, upon the assertion of a claim for which either party may be required to
indemnify the other, the party seeking indemnification shall promptly notify the
other party of such assertion, and shall keep the other party advised with
respect to all developments concerning such claim. The party who may be
required to indemnify shall have the option to participate with the party
seeking indemnification in the defense of such claim, or to defend against said
claim in its own name or in the name of the other party. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
7.Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement.
G. Dual Interests
It is understood that some person or persons may be directors, officers, or
shareholders of both RPS and the Fund and that the existence of any such dual
interest shall not affect the validity of this Agreement or of any transactions
hereunder except as otherwise provided by a specific provision of applicable
law.
H. Documentation
1.
As requested by RPS, the Fund shall promptly furnish to RPS the following:
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a.
A certified copy of the resolution of the Directors/ Trustees of the Fund
authorizing the appointment of RPS and the execution and delivery of this
Agreement;
b.
A copy of the Articles of Incorporation or Declaration of Trust, as the case may
be, and By-Laws of the Fund and all amendments thereto;
c.
An opinion of counsel for the Fund with respect to the validity of the stock,
the number of Shares authorized, the status of redeemed Shares, and the number
of Shares with respect to which a Registration Statement has been filed and is
in effect; and
d.
A copy of the Fund's current and new prospectuses and shareholder reports issued
by the Fund.
The delivery of any such document to either party hereto for the purpose of
any other agreement to which the Fund and RPS are or were parties shall be
deemed to be delivery for the purposes of this Agreement.
2.
As requested by RPS, the Fund will also furnish to RPS from time to time the
following documents:
a.
Each resolution of the Board of Directors/Trustees of the Fund authorizing the
original issue of its shares;
b.
Each Registration Statement filed with the Securities and Exchange Commission
and amendments and orders thereto in effect with respect to the sale of shares
with respect to the Fund;
c.
A certified copy of each amendment to the Articles of Incorporation or
Declaration of Trust, and the By-Laws of the Fund;
d.
Certified copies of each vote of the Board of Directors/Trustees authorizing
officers to give instructions to the Fund; and
e.
Such other documents or opinions which RPS, in its discretion, may reasonably
deem necessary or appropriate in the proper performance of its duties under this
Agreement.
3.
RPS hereby agrees to establish and maintain facilities and procedures reasonably
acceptable to the Fund for safekeeping
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of check forms and facsimile signature imprinting devices, if any, and for the
preparation or use, and for keeping account of, such forms and devices.
I. Recordkeeping/Confidentiality
1.
RPS shall keep records relating to the services to be performed hereunder, in
the form and manner as it may deem advisable, provided that RPS shall keep all
records in such form and in such manner as required by applicable law, including
the Act and the '34 Act.
2.
RPS and the Fund agree that all books, records, information and data pertaining
to the business of the other party which are exchanged or received pursuant to
the negotiation or the carrying out of this Agreement shall remain confidential,
and shall not be voluntarily disclosed to any other person, except: (a) after
prior notification to and approval in writing by the other party hereto, which
approval shall not be unreasonably withheld and may not be withheld where RPS or
the Fund may be exposed to civil or criminal contempt proceedings for failure to
comply; (b) when requested to divulge such information by duly constituted
governmental authorities; (c) after so requested by the other party hereto; or
(d) by the Administrator. The permission of the Administrator may be required
before disclosure is made to the Funds.
J. Ownership of Software and Related Material
All computer programs, magnetic tapes, written procedures and similar items
purchased and/or developed and used by RPS in performance of the Agreement shall
be the property of RPS and will not become the property of the Fund.
K. As Of Transactions
For purposes of this Article K, the term "Transaction" shall mean any
single or "related transaction" (as defined below) involving the purchase or
redemption of shares (including exchanges) processed at a time other than the
time of the computation of the Fund's net asset value per share next computed
after receipt of any such transaction order by RPS due to an act or omission of
RPS. "As Of Processing" refers to the processing of these Transactions. If
more than one Transaction ("Related Transaction") in the Fund is caused by or
occurs as a result of the same act or omission, such transactions shall be
aggregated with other transactions in the Fund and be considered as one
Transaction.
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1. Reporting
RPS shall:
a.
Utilize a system to identify all Transactions, and shall compute the net effect
of such Transactions upon the Fund on a daily, monthly and rolling 365 day
basis. The Monthly and rolling 365 day periods are hereinafter referred to as
"Cumulative."
b.
Supply to the Fund, from time to time as mutually agreed upon, a report
summarizing the Transactions and the daily and Cumulative net effects of such
Transactions both in terms of aggregate dilution and loss ("Dilution") or gain
and negative dilution ("Gain") experienced by the Fund, and the impact such
Gain or Dilution has had upon the Fund's net asset value per share.
c.
With respect to any Transaction which causes Dilution to the Fund of $100,000 or
more, immediately provide the Fund: (i) a report identifying the Transaction and
the Dilution resulting therefrom, (ii) the reason such Transaction was processed
as described above, and (iii) the action that RPS has or intends to take to
prevent the reoccurrence of such as of processing ("Report").
2. Liability
a.
It will be the normal practice of the Fund not to hold RPS liable with respect
to any Transaction which causes Dilution to any single Fund of less than
$25,000. RPS will, however, closely monitor for each Fund the daily and
Cumulative Gain/Dilution which is caused by Transactions of less than $25,000.
When the Cumulative Dilution to any Fund exceeds 3/10 of 1% per share, RPS, in
consultation with counsel to the Fund, will make appropriate inquiry to
determine whether it should take any remedial action. RPS will report to the
Board of Directors/Trustees of the Fund ("Board"), as appropriate, any action it
has taken.
b.
Where a Transaction causes Dilution to a Fund greater than $25,000 ("Significant
Transaction") but less than $100,000, RPS will review with Counsel to the Fund
the circumstances surrounding the underlying Significant Transaction to
determine whether the Significant Transaction was caused by or occurred as a
result of a negligent act or omission by RPS. If it is determined that the
Dilution is the result of a negligent action or omission by RPS, RPS and outside
counsel for the Fund will negotiate
<PAGE>
settlement. All such Significant Transactions will be reported to the Audit
Committee at its annual meeting (unless the settlement fully compensates the
Fund for any Dilution). Any Significant Transaction, however, causing Dilution
in excess of the lesser of $100,000 or a penny per share will be PROMPTLY
reported to the Board and resolved at the next scheduled Board Meeting.
Settlement for Significant Transactions causing Dilution of $100,000 or more
will not be entered into until approved by the Board. The factors to consider in
making any determination regarding the settlement of a Significant Transaction
would include but not be limited to:
i.
Procedures and controls adopted by RPS to prevent As Of Processing;
ii.
Whether such procedures and controls were being followed at the time of the
Significant Transaction;
iii.
The absolute and relative volume of all transactions processed by RPS on the day
of the Significant Transaction;
iv.
The number of Transactions processed by RPS during prior relevant periods, and
the net Dilution/Gain as a result of all such Significant Transactions to the
Fund and to all other Funds; and
v.
The prior response of RPS to recommendations made by the Funds regarding
improvement to RPS's As Of Processing procedures.
c.In determining RPS' liability with respect to Significant Transaction, an
isolated error or omission will normally not be deemed to constitute negligence
when it is determined that:
o RPS had in place "appropriate procedures".
o
the employees responsible for the error or omission had been reasonably trained
and were being appropriately monitored; and
o
the error or omission did not result from wanton or reckless conduct on the part
of the employees.
It is understood that RPS is not obligated to have in place separate procedures
to prevent each and every conceivable type of error or omission. The term
"appropriate procedures" shall mean procedures
<PAGE>
reasonably designed to prevent and detect errors and omissions. In determining
the reasonableness of such procedures, weight will be given to such factors as
are appropriate, including the prior occurrence of any similar errors or
omissions when such procedures were in place and transfer agent industry
standards in place at the time of the occurrence.
L. Term and Termination of Agreement
1.This Agreement shall run for a period of one (1) year from the date first
written above and will be renewed from year to year thereafter unless terminated
by either party as provided hereunder.
2.
This Agreement may be terminated by the Funds upon one hundred twenty (120)
days' prior written notice to RPS; and by RPS, upon three hundred sixty-five
(365) days' prior written notice to the Fund.
3.
Upon termination hereof, the Fund shall pay to RPS such compensation as may be
due as of the date of such termination, and shall likewise reimburse for
out-of-pocket expenses related to its services hereunder.
M. Notice
Any notice as required by this Agreement shall be sufficiently given (i)
when sent to an authorized person of the other party at the address of such
party set forth above or at such other address as such 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.
<PAGE>
O. Amendment/Interpretive Provisions
The parties by mutual written agreement may amend this Agreement at any
time. In addition, in connection with the operation of this Agreement, RPS and
the Fund may agree from time to time on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions are to be signed by all parties and annexed hereto, but no
such provision shall contravene any applicable federal or state law or
regulation and no such interpretive or additional provision shall be deemed to
be an amendment of this Agreement.
P. Further Assurances
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
Q. Maryland Law to Apply
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of Maryland.
R. Merger of Agreement
This Agreement, including the attached Schedule supersede any prior
agreement with respect to the subject hereof, whether oral or written.
S. Counterparts
This Agreement may be executed by the parties hereto in any number of
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
T. The Parties
All references herein to "the Fund" are to each of the Funds listed on
Appendix A individually, as if this Agreement were between such individual Fund
and RPS. In the case of a series Fund or trust, all references to "the Fund"
are to the individual series or portfolio of such Fund or trust, or to such Fund
or trust on behalf of the individual series or portfolio, as appropriate. Any
reference in this Agreement to "the parties" shall mean RPS and
<PAGE>
such other individual Fund as to which the matter pertains. The "Fund" also
includes any T. Rowe Price Fund which may be established after the date of this
Agreement.
Any reference in this Agreement to "the parties" shall mean the Funds and
RPS.
U. Directors, Trustees and Shareholders and Massachusetts Business Trust
It is understood and is expressly stipulated that neither the holders of
shares in the Fund nor any Directors or Trustees of the Fund shall be personally
liable hereunder. With respect to any Fund which is a party to this Agreement
and which is organized as a Massachusetts business trust, the term "Fund" means
and refers to the trustees from time to time serving under the applicable trust
agreement (Declaration of Trust) of such Trust as the same may be amended from
time to time. It is expressly agreed that the obligations of any such Trust
hereunder shall not be binding upon any of the trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust, as provided in the Declaration of Trust of the Trust.
The execution and delivery of this Agreement has been authorized by the Trustees
and signed by an authorized officer of the Trust, acting as such, and neither
such authorization by such Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them, but shall bind only
the trust property of the Trust as provided in its Declaration of Trust.
V. Captions
The captions in the Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers.
T. ROWE PRICE RETIREMENT PLAN T. ROWE PRICE FUNDS
SERVICES, INC.
/s/Charles E. Vieth /s/Carmen F. Deyesu
BY: ____________________ BY: ___________________
Charles E. Vieth Carmen F. Deyesu
DATED: ____________________ DATED: ___________________
<PAGE>
APPENDIX A
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
<PAGE>
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
<PAGE>
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE VALUE FUND, INC.
<PAGE>
AMENDMENT NO. 1
AGREEMENT
BETWEEN
T. ROWE PRICE RETIREMENT PLAN SERVICES, INC.
AND
EACH OF THE PARTIES INDICATED ON APPENDIX A
The Retirement Plan Services Contract of January 1, 1998, between T. Rowe
Price Retirement Plan Services, Inc. and each of the Parties listed on Appendix
A thereto is hereby amended, as of January 21, 1998, by adding thereto T. Rowe
Price Index Trust, Inc., on behalf of T. Rowe Price Extended Equity Market Index
Fund and T. Rowe Price Total Equity Market Index Fund.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
<PAGE>
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE REAL ESTATE FUND, INC.
<PAGE>
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE 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 RETIREMENT PLAN
SERVICES, INC.
/s/Barbara A. Van Horn /s/Henry H. Hopkins
_____________________ ____________________________
Barbara A. Van Horn, By: Henry H. Hopkins,
Assistant Secretary Vice President
<PAGE>
AMENDMENT NO. 2
AGREEMENT
BETWEEN
T. ROWE PRICE RETIREMENT PLAN SERVICES, INC.
AND
EACH OF THE PARTIES INDICATED ON APPENDIX A
The Retirement Plan Services Contract of January 1, 1998, as amended January 21,
1998 between T. Rowe Price Retirement Plan Services, Inc. and each of the
Parties listed on Appendix A thereto is hereby further amended, as of October
30, 1998, by adding thereto T. Rowe Price Prime Reserve Fund, Inc., on behalf of
T. Rowe Price Prime Reserve Fund--PLUS Class.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
<PAGE>
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. Rowe Price Prime Reserve Fund--PLUS Class
<PAGE>
T. ROWE PRICE REAL ESTATE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE VALUE FUND, INC.
Attest:
/s/Patricia S. Lippert /s/Carmen F. Deyesu
_____________________ _________________________
Patricia S. Lippert, By: Carmen F. Deyesu
Secretary Treasurer
Attest: T. ROWE PRICE RETIREMENT PLAN
SERVICES, INC.
/s/Barbara A. Van Horn /s/Henry H. Hopkins
_____________________ ____________________________
Barbara A. Van Horn, By: Henry H. Hopkins,
Assistant Secretary Vice President
<PAGE>
AMENDMENT NO. 3
AGREEMENT
BETWEEN
T. ROWE PRICE RETIREMENT PLAN SERVICES, INC.
AND
EACH OF THE PARTIES INDICATED ON APPENDIX A
The Retirement Plan Services Contract of January 1, 1998, as amended January 21,
1998, and October 30, 1998 between T. Rowe Price Retirement Plan Services, Inc.
and each of the Parties listed on Appendix A thereto is hereby further amended,
as of November 11, 1998, by adding thereto T. Rowe Price International Funds,
Inc., on behalf of T. Rowe Price International Growth & Income Fund.
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
T. ROWE PRICE CAPITAL APPRECIATION FUND
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
T. ROWE PRICE GNMA FUND
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
<PAGE>
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund
INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund
T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund
T. Rowe Price Emerging Markets Stock Fund
T. Rowe Price Global Stock Fund
T. Rowe Price International Growth & Income Fund
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE MID-CAP VALUE FUND, INC.
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW HORIZONS FUNDS, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund
T. Rowe Price Personal Strategy Growth Fund
T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. Rowe Price Prime Reserve Fund--PLUS Class
<PAGE>
T. ROWE PRICE REAL ESTATE FUND, INC.
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund
T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund
T. Rowe Price Summit GNMA Fund
T. ROWE PRICE VALUE FUND, INC.
Attest:
/s/Patricia S. Lippert /s/Carmen F. Deyesu
_____________________ _________________________
Patricia S. Lippert, By: Carmen F. Deyesu
Secretary Treasurer
Attest: T. ROWE PRICE RETIREMENT PLAN
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 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 7 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated November 18, 1998, relating to the financial
statements and financial highlights appearing in the October 31, 1998 Annual
Reports to the Shareholders of the T. Rowe Price Summit Cash Reserves Fund, T.
Rowe Price Summit Limited-Term Bond Fund, and T. Rowe Price Summit GNMA Fund,
comprising T. Rowe Price Summit Funds, Inc., which are incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
heading "Independent Accountants" in the Statement of Additional Information.
/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
December 13, 1998
PAGE 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 6 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated November 18, 1998, relating to the financial
statements and financial highlights appearing in the October 31, 1998 Annual
Reports to the Shareholders of the T. Rowe Price Summit Municipal Money Market
Fund, T. Rowe Price Summit Municipal Intermediate Fund, and T. Rowe Price Summit
Municipal Income Fund, comprising T. Rowe Price Summit Municipal Funds, Inc.,
which are incorporated by reference into the Registration Statement. We also
consent to the references to us under the heading "Financial Highlights" in the
Prospectus and under the heading "Independent Accountants" in the Statement of
Additional Information.
/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
<PAGE>
Baltimore, Maryland
December 13, 1998
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<PAGE>
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<NAME> T ROWE PRICE SUMMIT MUNICIPAL FUNDS INC
<SERIES>
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<NAME> T ROWE PRICE SUMMIT MUNICIPAL MONEY MARKET FUND
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<PAGE>
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<PAGE>
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T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
(on behalf of California Tax-Free Bond Fund
California Tax-Free Money Fund)
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
(on behalf of T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio)
T. ROWE PRICE GNMA FUND
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
(on behalf of Government Reserve Investment Fund
Reserve Investment Fund)
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
<PAGE>
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
(on behalf of Florida Insured Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
Maryland Tax-Free Bond Fund
New Jersey Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
Virginia Short-Term Tax-Free Bond Fund
Virginia Tax-Free Bond Fund)
T. ROWE PRICE SUMMIT FUNDS, INC.
(on behalf of T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit GNMA Fund
T. Rowe Price Summit Limited-Term Bond Fund)
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
(on behalf of T. Rowe Price Summit Municipal Income Fund
T. Rowe Price Summit Municipal Intermediate Fund
T. Rowe Price Summit Municipal Money Market Fund)
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
and
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
(on behalf of U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund)
POWER OF ATTORNEY
RESOLVED, that the Corporations/Trusts (collectively the
"Corporations/Trusts" and individually the "Corporation/Trust") and each of its
directors/trustees do hereby constitute and authorize, William T. Reynolds, Joel
H. Goldberg, and Henry H. Hopkins, and each of them individually, their true and
lawful attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable the Corporation/Trust to comply with the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and any rules,
regulations, orders or other requirements of the United States Securities and
Exchange Commission thereunder, in connection with the registration under the
Securities Act of 1933, as amended, of shares of the Corporation/Trust, to be
offered by the Corporation/Trust, and the registration of the Corporation/Trust
under the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the name of
the Corporation/Trust on its behalf, and to sign the names of each of such
directors/trustees and officers on his behalf as such director/trustee or
officer to any amendment or supplement (including Post-Effective Amendments) to
the Registration Statement on Form N-1A of the Corporation/Trust filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
and the Registration Statement on Form N-1A of the Corporation/Trust under the
Investment Company Act of 1940, as amended, and to any instruments or documents
filed or to be filed as a part of or in connection with such Registration
Statement.
IN WITNESS WHEREOF, the above named Corporations/Trusts have caused these
presents to be signed and the same attested by its Secretary, each thereunto
duly authorized by its Board of Directors/Trustees, and each of the undersigned
has hereunto set his hand and seal as of the day set opposite his name.
<PAGE>
ALL CORPORATIONS/TRUSTS
/s/Carmen F. Deyesu
____________________________ Treasurer (Principal Financial Officer)
April 22, 1998
Carmen F. Deyesu
/s/Calvin W. Burnett
____________________________ Director/Trustee April 22, 1998
Calvin W. Burnett
/s/Anthony W. Deering
____________________________ Director/Trustee April 22, 1998
Anthony W. Deering
/s/F. Pierce Linaweaver
____________________________ Director/Trustee April 22, 1998
F. Pierce Linaweaver
/s/John G. Schreiber
____________________________ Director/Trustee April 22, 1998
John G. Schreiber
(Signatures Continued)
JAMES S. RIEPE, Director
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
JAMES S. RIEPE, Vice President and Director/Trustee
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. ROWE PRICE GNMA FUND
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
T. ROWE PRICE SUMMIT FUNDS, INC.
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
/s/James S. Riepe
____________________________ April 22, 1998
<PAGE>
James S. Riepe
(Signatures Continued)
M. DAVID TESTA, Director/Trustee
T. ROWE PRICE CALFORNIA TAX-FREE INCOME TRUST
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. ROWE PRICE GNMA FUND
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
T. ROWE PRICE SUMMIT FUNDS, INC.
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
/s/M. David Testa
____________________________ April 22, 1998
M. David Testa
(Signatures Continued)
WILLIAM T. REYNOLDS, Chairman of the Board (Principal Executive Officer)
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
T. ROWE PRICE CORPORATE INCOME FUND, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
T. ROWE PRICE SUMMIT FUNDS, INC.
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
<PAGE>
WILLIAM T. REYNOLDS, Director/Trustee
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
T. ROWE PRICE GNMA FUND
/s/William T. Reynolds
____________________________ April 22, 1998
William T. Reynolds
(Signatures Continued)
T. ROWE PRICE GNMA FUND
T. ROWE PRICE U.S. TREASURY FUNDS, INC.
/s/Peter Van Dyke
____________________________ President April 22, 1998
Peter Van Dyke
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
/s/Charles B. Hill
____________________________ President April 22, 1998
Charles B. Hill
ATTEST:
/s/Patricia S. Butcher
____________________________
Patricia S. Butcher, Secretary
<PAGE>
