PAGE 1 Registration Nos. 811-07145
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. ___ / /
Post-Effective Amendment No. ___ / /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. ___ / /
T. ROWE PRICE INTERNATIONAL SERIES, INC.
__________________________________
(Exact Name of Registrant as Specified in Charter)
100 East Pratt Street, Baltimore, Maryland 21202
__________________________________________ _________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code 410-547-2000
____________
Henry H. Hopkins
100 East Pratt Street
Baltimore, Maryland 21202
__________________________________________
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering March 31, 1994
___________
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933+
______________________________________________________________________________
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate
Title of Securities Being Price Offering Amount of
Being Registered Registered Per Unit Price Registration Fee
______________________________________________________________________________
Capital Stock - $.0001 Indefinite Varying prices calculated $500
par value per share Number as set forth in prospectus
______________________________________________________________________________
The purpose of this Registration Statement is to register the Registrant under
the Investment Company Act of 1940, to register the shares of the Registrant
under the Securities Act of 1933 and to declare pursuant to Section 24(f) of
the Investment Company Act of 1940 and Rule 24f-2 thereunder that an
PAGE 2
indefinite number of its securities is being registered by this Registration
Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states the Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a) may
determine.
SUBJECT TO COMPLETION
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
<PAGE>
PAGE 3
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
CROSS REFERENCE SHEET
N-1A Item No. Location
_____________ ________
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary of Fund Fees and
Expenses
Item 3. Condensed Financial Information +
Item 4. General Description of Registrant Investment Summary; Investment
Objective; Fund
Characteristics; Investment
Program; Summary of Fund Fees
and Expenses; Risk Factors;
Investment Practices;
Performance Information;
Capital Stock
Item 5. Management of the Fund Summary of Fund Fees and
Expenses; Management of the
Fund; Expenses and Management
Fee
Item 6. Capital Stock and Other Securities Voting Rights; Capital Stock;
Dividends and Taxation
Item 7. Purchase of Securities Being Offered Purchase and Redemption of
Shares; NAV, Pricing, and
Effective Date
Item 8. Redemption or Repurchase Purchase and Redemption of
Shares; NAV, Pricing, and
Effective Date
Item 9. Pending Legal Proceedings +
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History +
Item 13. Investment Objectives and Policies Investment Objective and
Policies; Investment Objective;
Investment Program; Investment
Restrictions; Investment
Performance
Item 14. Management of the Registrant Management of Fund
Item 15. Control Persons and Principal Principal Holders of
Holders of Securities Securities
Item 16. Investment Advisory and Other Investment Management
Services Services; Custodian;
Independent Accountants;
Legal Counsel
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities Dividends; Capital Stock
<PAGE>
PAGE 4
Item 19. Purchase, Redemption and Pricing Redemptions in Kind;
of Securities Being Offered Pricing of Securities; Net
Asset Value Per Share; Federal
and State Registration of
Shares; Ratings of Corporate
Debt Securities
Item 20. Tax Status Tax Status
Item 21. Underwriters Distributor for Fund
Item 22. Calculation of Yield Quotations of
Money Market Funds +
Item 23. Financial Statements +
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement
___________________________________
+ Not applicable or negative answer
<PAGE>
PAGE 5
Prospectus for the T. Rowe Price International Series, Inc. dated March 31,
1994, should be inserted here.
PAGE 1
INTERNATIONAL STOCK Investment Summary
PORTFOLIO The Fund's investment objective is to seek
a total return on its assets from long-term
growth of capital and income, through
investments primarily in established, non-
U.S. companies.
Prospectus __________________________________________
March 31, 1994 Rowe Price-Fleming International, Inc.
T. Rowe Price (Price-Fleming), the Fund's manager, was
International Series, founded in 1979 as a joint venture between
Inc. T. Rowe Price Associates, Inc. (T. Rowe
Price) and Robert Fleming Holdings
Limited. Price-Fleming is one of
America's largest international mutual
Table of Contents fund asset managers with approximately
$9.0 billion under management in its
Fund Information offices in Baltimore, London, Tokyo, and
Investment Objective Hong Kong.
Fund Characteristics __________________________________________
Investment Program This prospectus contains information
Summary of Fund Fees that a prospective Contract Holder or
and Expenses Participant should know about the Fund
Risk Factors before investing. Please keep it for
Voting Rights future reference. A Statement of
Investment Practices Additional Information for the Fund (dated
Performance Information March 31, 1994) has been filed with the
Capital Stock Securities and Exchange Commission and is
Purchase and Redemption incorporated by reference in this
of Shares prospectus. It is available at no charge
NAV, Pricing, and by calling: 1-800-638-5660.
Effective Date
Distribution and Taxation THESE SECURITIES HAVE NOT BEEN APPROVED OR
Management of the Fund DISAPPROVED BY THE SECURITIES AND EXCHANGE
Expenses and Management COMMISSION, OR ANY STATE SECURITIES
Fee COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE
SECURITIES COMMISSION, PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
________________________ ___________________________________________
INVESTMENT OBJECTIVE The Fund's investment objective is to seek
a total return on its assets from long-term
growth of capital and income, through
investments primarily in established, non-
U.S. companies.
PAGE 2
_________________________ ___________________________________________
FUND CHARACTERISTICS Total return consists of capital
appreciation or depreciation, dividend
income, and currency gains or losses.
The Fund's share price will fluctuate
with market, economic and foreign exchange
conditions, and your investment may be
worth more or less when redeemed than when
purchased. The Fund should not be relied
upon as a complete investment program, nor
used to play short-term swings in the stock
or foreign exchange markets. The Fund is
subject to risks unique to international
investing. See extensive discussion under
Risk Factors beginning on page 4. Further,
there is no assurance that the favorable
trends discussed below will continue, and
the Fund cannot guarantee it will achieve
its investment objective.
Shares of the Fund are currently being
offered to insurance company separate
accounts established for the purpose of
funding variable annuity contracts.
Variable annuity Contract Holders or
Participants are not the shareholders of
the Fund. Rather, the separate account is
the shareholder, although voting rights may
be passed through to Contract Holders or
Participants. The variable annuity
contracts are described in separate
prospectuses issued by the insurance
companies. The Fund assumes no
responsibility for such prospectuses.
_________________________ ___________________________________________
INVESTMENT PROGRAM Over the last 30 years, many foreign
economies have grown faster than the United
States' economy, and the return from equity
investments in these countries has often
exceeded the return on similar investments
Investing overseas for in the United States. Moreover, there has
growth and income. normally been a wide and largely unrelated
variation in performance between
international equity markets over this
period. Although there can be no assurance
that these conditions will continue, the
PAGE 3
Fund's investment manager, Rowe
Price-Fleming International, Inc. (Price-
Fleming), within the framework of
diversification, seeks to identify and
invest in companies participating in the
faster growing foreign economies and
markets. Price-Fleming believes that
investment in foreign securities offers
significant potential for long-term capital
appreciation and an opportunity to achieve
investment diversification.
The Fund intends to diversify investments
broadly among countries and to normally
have at least three different countries
represented in the portfolio. The Fund may
invest in countries of the Far East and
Western Europe as well as South Africa,
Australia, Canada, and other areas
(including developing countries). Under
unusual circumstances, however, the Fund
may invest substantially all its assets in
one or two countries.
Portfolio Diversification. Today, more
than one-half of the world's stock market
value and over half of all fixed-income
securities are traded abroad. Investing
overseas can help diversify a portfolio
otherwise invested solely in U.S.
securities. Foreign stock and bond markets
often do not parallel the performance of
U.S. markets, which means that, over time,
diversifying investments across several
countries can help reduce portfolio
volatility.
In seeking its objective, the Fund
invests primarily in common stocks of
established foreign companies which have
the potential for growth of capital. In
order to increase total return, the Fund
may invest up to 35% of its assets in any
other type of security including
convertible securities; preferred stocks
and warrants; bonds, notes and other debt
securities (including Eurodollar
PAGE 4
securities); and obligations of domestic or
foreign governments and their political
subdivisions.
Under exceptional economic or market
conditions abroad, the Fund may temporarily
invest all or a major portion of its assets
in U.S. government obligations or debt
obligations of U.S. companies. The Fund
may invest its reserves in domestic as well
as foreign money market instruments. Also,
the Fund may enter into forward foreign
currency exchange contracts in order to
protect against uncertainty in the level of
future foreign exchange rates.
Please see Investment Policies for a more
complete description of the Fund's
investments.
________________________ ___________________________________________
SUMMARY OF FUND FEES AND Management Fee. The Fund pays Price-
EXPENSES Fleming an annual investment management fee
of ____% of the Fund's average daily net
assets.
Transfer Agent, Shareholder Servicing, and
Administrative Costs. The Fund is expected
to pay fees to: (i) T. Rowe Price Services,
Inc. (TRP Services) for transfer and
dividend disbursing agent functions and
shareholder services for all accounts and
(ii) T. Rowe Price for calculating the
daily share price and maintaining the
portfolio and general accounting records of
the Fund. These fees are expected to total
approximately $________ and $_________,
respectively, for the period ending
December 31, 1994.
________________________ ___________________________________________
RISK FACTORS Investors should understand and consider
carefully the special risks involved in
foreign investing. These risks are often
heightened for investments in emerging or
developing countries.
Foreign stock prices are subject to the
same influences as U.S. stocks, such as
PAGE 5
general economic conditions, company and
industry earnings prospects, and investor
psychology. International investing also
involves some additional risks:
o Currency fluctuations. Transactions
in foreign securities are conducted
in local currencies, so dollars must
be exchanged for another currency
each time a stock is bought or sold
or a dividend is paid. Likewise,
share-price quotations and total
return information reflect conversion
into dollars. Fluctuations in foreign
exchange rates can increase or
decrease the dollar value of a
foreign investment, boosting or
offsetting its local market return.
For example, if a French stock rose
10% in price during a year, but the
U. S. dollar gained 5% against the
French franc during that time, the
U.S. investor's return would be
reduced to 5%. This is because the
franc would "buy" fewer dollars at
the end of the year than at the
beginning, or, conversely, a dollar
would buy more francs.
o Costs. Investing in foreign markets
involves greater expenses for U.S.
investors than in domestic markets.
While the funds offer a very
efficient way for individuals to
invest abroad, their overall expense
levels are somewhat higher those of
typical domestic stock funds.
o Political and economic factors. The
economies and political structures of
some countries in which the funds can
invest may not compare favorably with
the United States in terms of wealth
and stability. Investments in these
countries may be riskier (more
volatile) than investments in more
PAGE 6
stable or mature countries, and their
markets may be subject to erratic and
abrupt price movements.
Some economies are less well
developed and less diverse (Latin
America, Eastern Europe), and may be more
vulnerable to the ebb and flow of
international trade (Japan, Southeast
Asia, Latin America). Some countries,
particularly in Latin America, are
grappling with severe inflation and high
levels of national debt. Investments in
countries that have recently begun moving
away from central planning and state-
owned industries toward free markets,
such as the Eastern European economies,
should be regarded as speculative and
could result in losses.
The internal politics of certain
portfolio countries have histories of
instability and upheaval (Latin America)
and their governments could act in a
detrimental or hostile manner toward
foreign investment. Any such actions
could affect security prices, impair a
fund's ability to repatriate capital or
income, and result in losses.
While there has been progress in
certain portfolio countries in areas such
as growth, economic liberalization,
fiscal discipline, and political and
social stability, there is no assurance
these trends will continue.
o Legal and regulatory. Certain
portfolio countries lack uniform
accounting, auditing, and financial
reporting standards, may have less
governmental supervision of financial
markets than in the U.S., and may not
honor legal rights enjoyed in the
U.S.
PAGE 7
o Pricing. Portfolio securities may be
listed on foreign exchanges that are
open on days (such as Saturdays) when
the fund does not compute its prices.
As a result, the fund's net asset
value may be significantly affected
by trading on days when shareholders
cannot make transactions.
________________________ ___________________________________________
VOTING RIGHTS The shares of the Fund have equal voting
rights. The various insurance companies
own all the outstanding shares of the Fund
in their separate accounts that are
registered under the 1940 Act. Under
current law the insurance companies must
vote the shares held in registered separate
accounts in accordance with voting
instructions received from variable
Contract Holders or Participants having the
right to give such instructions.
________________________ ___________________________________________
INVESTING IN Common stocks of foreign companies offer a
INTERNATIONAL STOCKS way to invest for long-term growth of
capital. As an economy expands, corporate
profits generally grow, and share values
rise.
The long-term rise of foreign stock
prices as a group has been punctuated by
periodic declines. As in the U.S., share
prices of even the best managed, most
profitable corporations are subject to
market risk, which means they can fluctuate
widely. For this reason, investors in
either foreign or domestic stocks should
have a long-term investment horizon and be
willing to wait out bear markets.
The accompanying charts show year-by-year
foreign stock returns as well as longer-
term performance. (The major international
stock markets are represented by Morgan
Stanley Capital International's EAFE Index
(Europe, Australia, Far East). In seven of
the years from 1970, when the Index began,
through 1993, foreign stocks posted
negative returns, as shown, which means
PAGE 8
they rose about 70% of the time. For this
same time span, however, all cumulative
returns for 10-year rolling periods were
positive. Thus, the risk of incurring a
loss was reduced considerably for longer
holding periods.
Your investment in the Fund will be
subject to the fluctuations -- up or down
-- described above. You should weigh this
factor carefully before investing.
Annual Returns on Foreign Stocks
(MSCI EAFE Index)*
Annual Total Returns
1979161.50 1987 678.56
1980263.58 1988 645.46
1981174.30 1989 677.95
1982 97.56 1990 380.16
1983186.83 1991 445.82
1984297.34 1992 385.31
1985354.42 1993 417.77
1986644.09
10-Year Cumulative Total Return
1970-10.50 1982 -0.86
1971 31.17 1983 24.61
1972 37.65 1984 7.86
1973-14.17 1985 56.72
1974-22.13 1986 69.94
1975 37.04 1987 24.93
1976 3.78 1988 28.59
1977 19.40 1989 10.80
1978 34.30 1990 -23.20
1979 6.17 1991 12.50
1980 24.44 1992 -11.85
1981 -1.04 1993 32.94
*These charts are intended as an
illustration of historical common stock
behavior and does not represent the
performance of any T. Rowe Price mutual
fund. Past results do not indicate future
returns.
PAGE 9
________________________ ___________________________________________
INVESTMENT PRACTICES This section takes a detailed look at some
of the types of securities the Fund may
hold in its portfolio and the various kinds
of investment practices that may be used in
day-to-day portfolio management. The Fund's
investment program is subject to further
restrictions and risks described in the
"Statement of Additional Information."
Shareholder approval is required to
substantively change the Fund's objective
(stated on page __) and to change 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.
Fund managers have Types of Portfolio Securities
considerable leeway in In seeking to meet its investment
choosing investment objective, the Fund may invest in any type
strategies and selecting of security whose investment
securities they believe characteristics are consistent with the
will help the Fund Fund's investment program. These and some
achieve its objective. of the other investment techniques the Fund
may use are described in the following
pages.
Fundamental Policy. The 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 the issuer or
more than 10% of the voting securities of
the issuer would be held by the fund.
Common and Preferred Stocks. Stocks
represent shares of ownership in a company.
Preferred stock, which has a specified
dividend, ranks after bonds and before
common stocks in its claim on income for
dividend payments and on assets should the
company be liquidated. After other claims
are satisfied, common stockholders
PAGE 10
participate in company profits on a pro
rata basis; profits may be paid out in
dividends or reinvested in the company to
help it grow. Increases and decreases in
earnings are usually reflected in a
company's stock price, so common stocks
have the greatest appreciation and
depreciation potential of all corporate
securities. While most preferred stocks
pay a dividend, the Fund may purchase
preferred stock where the issuer has
omitted, or is in danger of omitting,
payment of its dividend. Such investments
would be made primarily for their capital
appreciation potential.
Convertible Securities and Warrants. The
Fund may invest in debt or preferred equity
securities convertible into or exchangeable
for equity securities. The Fund will
generally purchase convertible securities
in companies which meet the investment
criteria for the Fund. Warrants are
options to buy a stated number of shares of
common stock at a specified price any time
during the life of the warrants (generally,
two or more years).
Hybrid Instruments. These instruments can
combine the characteristics of securities,
futures and options. For example, the
principal amount, redemption or conversion
terms of a security could be related to the
market price of some commodity, currency or
securities index. Such securities may bear
interest or pay dividends at below market
(or even relatively nominal) rates. Under
certain conditions, the redemption value of
such an investment could be zero. Hybrids
can have volatile prices and limited
liquidity and their use by the Fund may not
be successful.
Operating Policy. The Fund may invest up
to 10% of its total assets in hybrid
instruments.
PAGE 11
Private Placements (Restricted Securities).
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,
the sale of others may involve substantial
delays and additional costs.
Operating Policy. The Fund will not invest
more than 15% of its net assets in illiquid
securities.
Types of Management Practices
Cash Position. The Fund will hold a certain
portion of its assets in money market
securities, including repurchase
agreements, in the two highest rating
categories, maturing in one year or less.
For temporary, defensive purposes, the Fund
may invest without limitation in such
securities. This reserve position provides
flexibility in meeting redemptions,
expenses, and the timing of new
investments, and serves as a short-term
defense during periods of unusual market
volatility.
Borrowing Money and Transferring Assets.
The Fund can borrow money from banks as a
temporary measure for emergency purposes,
to facilitate redemption requests, or for
other purposes consistent with the fund's
investment objectives and program. Such
borrowings may be collateralized with fund
assets, subject to restrictions.
Fundamental Policy. Borrowings may not
exceed 33 1/3% of total Fund assets.
Operating Policies. The Fund may not
transfer as collateral any portfolio
securities except as necessary in
connection with permissible borrowings or
investments, and then such transfers may
PAGE 12
not exceed 33 1/3% of the Fund's total
assets. The Fund may not purchase
additional securities when borrowings
exceed 5% of total assets.
Foreign Currency Transactions. The Fund
will normally conduct its foreign currency
exchange transactions either on a spot
(i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange
market, or through entering into forward
contracts to purchase or sell foreign
currencies. The Fund will general not
enter into a forward with a term of greater
than one year.
The Fund will generally enter into
forward foreign currency exchange contracts
only under two circumstances. 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. Second, when Price-Fleming
believes that the currency of a particular
foreign country may suffer or enjoy a
substantial movement against another
currency, it may enter into a forward
contract to sell or buy the former foreign
currency (or another currency which acts as
a proxy for that currency) approximating
the value of some or all of the Fund's
portfolio securities denominated in such
foreign currency. Under certain
circumstances, the Fund may commit a
substantial portion or the entire value of
its portfolio to the consummation of these
contracts. Price-Fleming will consider the
effect such a commitment of its portfolio
to forward contracts would have on the
investment program of the Fund and the
flexibility of the Fund to purchase
additional securities. Although forward
contracts will be used primarily to protect
the Fund from adverse currency movements,
they also involve the risk that anticipated
currency movements will not be accurately
PAGE 13
predicted and the Fund's total return could
be adversely affected as a result.
Futures and Options. Futures are often used
to manage risk, because they enable the
investor to buy or sell an asset in the
future at an agreed upon price. Options
give the investor the right, but not the
obligation, to buy or sell an asset at a
predetermined price in the future. The Fund
may buy and sell futures contracts (and
options on such contracts) to manage its
exposure to changes in securities prices
and foreign currencies and to adjust its
overall exposure to certain markets. The
Fund 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 the Fund's total return; and the
potential loss from the use of futures can
exceed the Fund's initial investment in
such contracts.
Operating Policies. Futures: Initial margin
deposits and premiums on options used for
non-hedging purposes will not equal more
than 5% of the Fund's net asset value.
Options on securities: The total market
value of securities against which the fund
has written call or put options may not
exceed 25% of its total assets. The Fund
will not commit more than 5% of its total
assets to premiums when purchasing call or
put options.
Lending of Portfolio Securities. Like other
mutual funds, the Fund may lend securities
to broker-dealers, other institutions, or
other persons to earn additional income.
The principal risk is the potential
insolvency of the broker-dealer or other
borrower. In this event, the Fund could
PAGE 14
experience delays in recovering its
securities and possibly capital losses.
Fundamental Policy. The value of loaned
securities may not exceed 33 1/3% of the
Fund's total assets.
Portfolio Turnover. Turnover is an
indication of frequency. Although 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. Although the Fund does
not expect to generate any taxable income,
a high turn-over rate may increase the
possibility that the Fund will realize net
short-term capital gains, which are taxable
commencement to shareholders when
distributed. The Fund's portfolio turnover
rate is not expected to exceed _____%.
________________________ ___________________________________________
PERFORMANCE INFORMATION The Fund may advertise total return figures
on both a cumulative and compound average
annual basis and compare them to various
indices (e.g., the S&P 500), other mutual
funds or other performance measures. (The
total return of the Fund consists of the
change in its net asset value per share and
the net income it earns.) Cumulative total
return compares the amount invested at the
beginning of a period with the amount
redeemed at the end of the period, assuming
the reinvestment of all dividends and
capital gain distributions. The compound
average annual total return indicates a
yearly compound average of the Fund's
performance, derived from the cumulative
total return. The annual compound rate of
return for the Fund may vary from any
average. Further information about the
Fund's performance is contained in its
annual report which is available free of
charge.
Total returns quoted for the Fund
include the effect of deducting the Fund's
expenses, but may not include charges and
PAGE 15
expenses attributable to any particular
insurance product. Since you can only
purchase shares of the Fund through a
variable annuity, you should carefully
review the prospectus of the insurance
product you have chosen for information on
relevant charges and expenses. Excluding
these charges from quotations of the Fund's
performance has the effect of increasing
the performance quoted.
________________________ ___________________________________________
CAPITAL STOCK T. Rowe Price International Series, Inc.
(the Corporation) is a Maryland corporation
organized in 1994 and registered with the
Securities and Exchange Commission under
the Investment Company Act of 1940 as a
diversified, open-end investment company,
commonly known as a "mutual fund." The
Corporation is a series fund and has the
authority to issue other series in addition
to the T. Rowe Price International Stock
Portfolio currently in existence. A
mutual fund, such as the Fund, enables
shareholders to: (1) obtain professional
management of investments, including Price-
Fleming's proprietary research; (2)
diversify their portfolio to a greater
degree than would be generally possible if
they were investing as individuals and
thereby reduce, but not eliminate risks;
and (3) simplify the recordkeeping and
reduce transaction costs associated with
investments.
The Fund has an investment advisory group
composed of the following members: Martin
G. Wade, Christopher Alderson, Peter Askew,
David Boardman, Richard J. Bruce, Mark J.
T. Edwards, John R. Ford, Robert C. Howe,
James B. M. Seddon, Benedict R. F. Thomas,
and David J. L. Warren. This group has
day-to-day responsibility for managing the
portfolio and developing and executing the
Fund's investment program.
PAGE 16
Martin Wade joined Price-Fleming in 1979
and has 25 years of experience with Fleming
Group (Fleming Group includes Robert
Fleming Holdings Ltd. and/or Jardine
Fleming International Holdings Ltd.) in
research, client service and investment
management, including assignments in the
Far East and the United States.
Christopher Alderson joined Price-
Fleming in 1988, and has eight years of
experience with the Fleming Group in
research and portfolio management,
including an assignment in Hong Kong.
Peter Askew joined Price-Fleming in 1988
and has 19 years of experience managing
multicurrency fixed income portfolios.
David Boardman joined Price-Fleming in
1988 and has 19 years experience in
managing multicurrency fixed income
portfolios.
Richard J. Bruce joined Price-Fleming in
1991 and has six years of experience in
investment management with the Fleming
Group in Tokyo.
Mark J. T. Edwards joined Price-Fleming
in 1986 and has 13 years of experience in
financial analysis, including three years
in Fleming European research.
John R. Ford joined Price Fleming in
1982 and has 14 years of experience with
Fleming Group in research and portfolio
management, including assignments in the
Far East and the United States.
Robert C. Howe joined Price-Fleming in
1986 and has 13 years of experience in
economic research, company research and
portfolio management, including an
assignment in Japan.
PAGE 17
James B. M Seddon joined Price-Fleming
in 1987 and has seven years of experience
in investment management.
Benedict R. F. Thomas joined Price-
Fleming in 1988 and has five years of
portfolio management experience, including
assignments in London and Baltimore.
David J. L. Warren joined Price-Fleming
in 1984 and has 14 years of experience in
equity research, fixed income research and
portfolio management, including an
assignment in Japan.
Shareholder Rights. The Fund issues one
class of capital stock, all shares of which
have equal rights with regard to voting,
redemptions, dividends, distributions, and
liquidations. Fractional shares have
voting rights and participate in any
distributions and dividends. Shareholders
have no preemptive or conversion rights;
nor do they have cumulative voting rights.
When the Fund's shares are issued, they are
fully paid and nonassessable. The Fund
does not routinely hold annual meetings of
shareholders. However, if shareholders
representing at least 10% of all votes of
the Fund entitled to be cast so desire,
they may call a special meeting of
shareholders of the Fund for the purpose of
voting on the question of the removal of
any director(s). The total authorized
capital stock of the Fund consists of
1,000,000,000 shares, each having a par
value of $.0001. As of the date of this
prospectus, Price-Fleming owned 10,000
shares of the Fund which represented all of
the Fund's outstanding shares. As of
February 28, 1994, there were _________
shareholders in the other ___ T. Rowe Price
Funds.
________________________ ___________________________________________
PURCHASE AND REDEMPTION For instructions on how to purchase and
OF SHARES redeem shares of the Fund, read the
separate account prospectus.
PAGE 18
Shares of the Fund are sold and redeemed
without the imposition of any sales
commission or redemption charge. However,
certain deferred sales charges and other
charges may apply to the annuity contract.
Those charges are disclosed in the separate
account prospectus.
________________________ ___________________________________________
NAV, PRICING, AND Net Asset Value Per Share (NAV). The NAV
EFFECTIVE DATE per share, or share price, for the Fund is
normally determined as of 4:00 pm Eastern
Time (ET) each day the New York Stock
Exchange is open. The Fund's share price
is calculated by subtracting its
liabilities from its total assets and
dividing the result by the total number of
shares outstanding. Among other things,
the Fund's liabilities include accrued
expenses and dividends payable, and its
total assets include portfolio securities
valued at market as well as income accrued
but not yet received.
Purchases. The insurance companies
purchase shares of the Fund for separate
accounts, using premiums allocated by the
Contract Holders or Participants. Shares
are purchased at the NAV next determined
after the insurance company receives the
premium payment. Initial and subsequent
payments allocated to the Fund are subject
to the limits stated in the separate
account prospectus issued by the insurance
company.
Redemptions. The insurance companies
redeem shares of the Fund to make benefit
or surrender payments under the terms of
its Contracts. Redemptions are processed
on any day on which the New York Stock
Exchange is open and are priced at the
Fund's NAV next determined after the
insurance company receives a surrender
request in acceptable form.
PAGE 19
Proceeds. Payment for redeemed shares
will be made promptly, but in no event
later than seven days. However, the right
of redemption may be suspended or the date
of payment postponed in accordance with the
Investment Company Act of 1940. The amount
received upon redemption of the shares of
the Fund may be more or less than the
amount paid for the shares, depending on
the fluctuations in the market value of the
assets owned by the Fund.
The Fund reserves the right to change the
time at which purchases, redemptions, and
exchanges are priced if the New York Stock
Exchange closes at a time other than 4:00
pm ET or an emergency exists.
________________________ ___________________________________________
DIVIDENDS AND TAXATION For a discussion of the tax status of your
variable annuity contract, refer to the
prospectus of your insurance company's
separate account.
Dividends and Distributions. The policy of
the Fund is to distribute all of its net
investment income and net capital gains
each year to its shareholders, which are
the separate accounts established by the
various insurance companies for its
Contract Holders. All Fund distributions
made to these accounts will be reinvested
automatically in additional Fund shares.
Under current law, dividends and
distributions made by the Fund to separate
accounts are not taxable to the separate
account, the insurance company or the
Contract Holder. This is provided the
separate account meets the diversification
requirements of Section 817 (h) of the
Internal Revenue Code of 1986, as amended.
The Fund intends to diversify its
investments in such a manner as to permit
the separate account to so qualify.
PAGE 20
Foreign Transactions. If the Fund pays
nonrefundable taxes to foreign governments
during the year, the taxes will reduce the
Fund's dividends.
Passive Foreign Investment Companies. The
Fund may purchase the securities of certain
foreign investment funds or trusts called
passive foreign investment companies. Such
funds have been the only or primary means
to invest in certain countries. 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. 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,
the Fund may be subject to corporate income
tax and an interest charge on certain
dividends and capital gains earned from
these investments, regardless of whether
such income and gains are distributed to
shareholders.
In accordance with tax regulations, 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; losses will not be
recognized. Such gains will be considered
ordinary income which the Fund will be
required to distribute even though it has
not sold the security and received cash to
pay such distributions.
Tax Consequences of Hedging. Under
applicable tax law, the Fund may be
required to limit its gains from hedging in
foreign currency forwards, futures and
options. Although it is anticipated the
Fund will comply with such limits, the
extent to which these limits apply is
subject to tax regulations which have not
yet been issued. Hedging may also result
in the application of the mark-to-market
PAGE 21
and straddle provisions of the Internal
Revenue Code. These provisions could
result in an increase (or decrease) in the
amount of taxable dividends paid by the
Fund as well as affect whether dividends
paid by the Fund are classified as capital
gains or ordinary income.
________________________ ___________________________________________
MANAGEMENT OF THE FUND Investment Manager. Price-Fleming is
responsible for selection and management of
the Fund's portfolio investments. Price-
Fleming's U.S. office is located at 100
East Pratt Street, Baltimore, Maryland
21202.
Price-Fleming has offices Price-Fleming was incorporated in
in Baltimore, London, Maryland in 1979 as a joint venture between
Tokyo, and Hong Kong. T. Rowe Price and Robert Fleming Holdings
Limited (Flemings). Flemings is a
diversified investment organization which
participates in a global network of
regional investment offices in New York,
London, Zurich, Geneva, Tokyo, Hong Kong,
Manila, Kuala Lumpur, South Korea, and
Taiwan.
T. Rowe Price was incorporated in
Maryland in 1947 as successor to the
investment counseling business founded by
the late Thomas Rowe Price, Jr. in 1937.
Flemings was incorporated in 1974 in the
United Kingdom as successor to the business
founded by Robert Fleming in 1873. As of
December 31, 1993, T. Rowe Price and its
affiliates managed over $____ billion of
assets and Flemings managed the U.S.
equivalent of approximately $____ billion.
Board of Directors. The management of the
Fund's business and affairs is the
responsibility of the Fund's Board of
Directors.
T. Rowe Price, Flemings, and Jardine
Fleming are owners of Price-Fleming. The
common stock of Price-Fleming is 50% owned
by a wholly-owned subsidiary of T. Rowe
PAGE 22
Price, 25% by a subsidiary of Flemings and
25% by Jardine Fleming Group Limited
(Jardine Fleming). (Half of Jardine
Fleming is owned by Flemings and half by
Jardine Matheson Holdings Limited.) T.
Rowe Price has the right to elect a
majority of the board of directors of
Price-Fleming, and Flemings has the right
to elect the remaining directors, one of
whom will be nominated by Jardine Fleming.
Research and Administration. Certain
administrative support is provided by T.
Rowe Price which receives from Price-
Fleming a fee of .15% of the market value
of all assets in equity accounts, .15% of
the market value of all assets in active
fixed income accounts and .035% of the
market value of all assets in passive fixed
income accounts under Price-Fleming's
management. Additional investment research
and administrative support for equity
investments is provided to Price-Fleming by
Fleming Investment Management Limited (FIM)
and Jardine Fleming Investment Holdings
Limited (JFIH) for which each receives from
Price-Fleming a fee of .075% of the market
value of all assets in equal accounts under
Price-Fleming's management. FIM and JFIH
are wholly-owned subsidiaries of Flemings
and Jardine Fleming, respectively.
Fleming International Fixed Interest
Management Limited (FIFIM) provides Price-
Fleming additional investment research and
administrative support on fixed income
investments and receives from Price-Fleming
a fee of .075% of the market value of all
assets in active fixed income accounts and
.0175% of such market value in passive
fixed income accounts under Price-Fleming's
management. FIFIM is owned by Flemings.
Certain officers of Price-Fleming are
directors of FIFIM. JFIH receives a fee of
.075% of the market value of all assets in
active fixed income accounts and .0175% of
PAGE 23
such market value in passive fixed income
accounts under Price-Fleming's management.
Portfolio Transactions. Decisions with
respect to the purchase and sale of the
Fund's portfolio securities are made by
Price-Fleming. The Fund's Board of
Directors has authorized Price-Fleming to
utilize affiliates of Flemings and Jardine
Fleming in the capacity of broker in
connection with the execution of the Fund's
portfolio transactions if Price-Fleming
believes that doing so would result in an
economic advantage (in the form of lower
execution costs or otherwise) being
obtained by the Fund.
Investment Services. T. Rowe Price
Investment Services, Inc., a wholly-owned
subsidiary of T. Rowe Price, is the
distributor for this Fund as well as all
other T. Rowe Price Funds.
Transfer and Dividend Disbursing Agent.
TRP Services, a wholly-owned subsidiary of
T. Rowe Price, serves the Fund as transfer
and dividend disbursing agent. T. Rowe
Price calculates the daily share price and
maintains the portfolio and general
accounting records of the Fund. The
address for TRP Services is 100 East Pratt
Street, Baltimore, Maryland 21202.
________________________ ___________________________________________
EXPENSES AND MANAGEMENT Under the management agreement, all
FEE expenses of the Fund will be paid by Price-
Fleming, except interest, taxes, brokerage
commissions, directors' fees and expenses
(including counsel fees and expenses) and
extraordinary expenses. The Board of
Directors of the Fund reserves the right to
impose additional fees against shareholder
accounts to defray expenses which would
otherwise be paid by Price-Fleming 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 Price-Fleming.
PAGE 24
The Management Fee. The Fund pays Price-
Fleming an annual all-inclusive fee of
1.05% based on its average daily net
assets. The Fund calculates and accrues
the fee daily. (See "Transaction Costs and
Fund Expenses.")
PAGE 25
Prospectus
For Information Call:
T. Rowe Price International
Stock Portfolio
March 31, 1994
T. ROWE PRICE
Invest With ConfidenceR
<PAGE>
PAGE 6
STATEMENT OF ADDITIONAL INFORMATION
T. Rowe Price International Series, Inc. (the "Corporation")
T. Rowe Price International Stock Portfolio
(the "Fund")
Shares of the Fund are currently being offered to insurance company
separate accounts established for the purpose of funding variable annuity
contracts. Variable annuity Contract Holders or Participants are not the
shareholders of the Fund. Rather, the separate account is the shareholder,
although voting rights may be Participants. The variable annuity contracts
are described in separate prospectuses issued by the insurance companies. The
Fund assumes no responsibility for such prospectuses.
In the future, it is possible that the Fund may offer its shares to
separate accounts funding variable annuities or other insurance products of
other insurance companies.
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Fund's prospectus dated April 1, 1994, which
may be obtained from T. Rowe Price Investment Services, Inc., 100 East Pratt
Street, Baltimore, Maryland 21202.
The date of this Statement of Additional Information is April 1, 1994.
<PAGE>
PAGE 7
TABLE OF CONTENTS
Page Page
Call and Put Options . . . . . Investment Objective and Policies. .
Capital Stock. . . . . . . . . Investment Performance . . . . . . .
Custodian. . . . . . . . . . . Investment Program . . . . . . . . .
Dealer Options . . . . . . . . (page __ in Prospectus)
Distributor for Fund . . . . . Investment Restrictions. . . . . . .
Dividends. . . . . . . . . . . Legal Counsel. . . . . . . . . . . .
Federal and State Registration Lending of Portfolio Securities . .
of Shares . . . . . . . . . . Management of Fund . . . . . . . . .
Foreign Currency Transactions. Net Asset Value Per Share. . . . . .
Foreign Futures and Options. . Portfolio Transactions . . . . . . .
Futures Contracts. . . . . . . Pricing of Securities. . . . . . . .
Hybrid Commodity and Security Principal Holders of Securities . .
Instruments Repurchase Agreements . . . . . . .
Illiquid Securities. . . . . . Risk Factors of Foreign Investing. .
Independent Accountants. . . . Tax Status . . . . . . . . . . . . .
Investment Management Services (pages __ and __ in Prospectus)
(pages __ and __ in Prospectus) Taxation of Foreign Shareholders. .
Investment Objective . . . . .
(page __ in Prospectus)
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's
investment objective and policies discussed on pages __ and __ through __ of
the prospectus. Unless otherwise specified, the investment program and
restrictions of the Fund are not fundamental policies. The operating policies
of the Fund are subject to change by its Board of Directors without
shareholder approval. However, shareholders will be notified of a material
change in an operating policy. The fundamental policies of the Fund may not
be changed without the approval of at least a majority of the outstanding
shares of the Fund or, if it is less, 67% of the shares represented at a
meeting of shareholders at which the holders of 50% or more of the shares are
represented.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek a total return on its assets
from long-term growth of capital and income, through investments primarily in
established, non-U.S. companies. Investments may be made solely for capital
appreciation or solely for income or any combination of both for the purpose
of achieving a higher overall return.
The Fund's investment manager, Rowe Price-Fleming International, Inc.
("Price-Fleming"), one of America's largest managers of no-load international
mutual fund assets, regularly analyzes a broad range of international equity
and fixed income markets in order to assess the degree of risk and level of
return that can be expected from each market. Based upon its current
assessment, Price-Fleming believes long-term growth of capital may be achieved
by investing in marketable securities of non-United States companies which
have the potential for growth of capital. Of course, there can be no
assurance that Price-Fleming's forecasts of expected return will be reflected
in the actual returns achieved by the Fund.
<PAGE>
PAGE 8
The Fund's share price will fluctuate with market, economic and foreign
exchange conditions, and your investment may be worth more or less when
redeemed than when purchased. The Fund should not be relied upon as a
complete investment program, nor used to play short-term swings in the stock
or foreign exchange markets. The Fund is subject to risks unique to
international investing. See discussion under "Risk Factors of Foreign
Investing" beginning on page __. Further, there is no assurance that the
favorable trends discussed below will continue, and the Fund cannot guarantee
it will achieve its objective.
INVESTMENT PROGRAM
It is the present intention of Price-Fleming to invest in companies
based in (or governments of or within) the Far East (for example, Japan, Hong
Kong, Singapore, and Malaysia), Western Europe (for example, United Kingdom,
Germany, Netherlands, France, Spain, and Switzerland), South Africa,
Australia, Canada, and such other areas and countries as Price-Fleming may
determine from time to time.
In determining the appropriate distribution of investments among
various countries and geographic regions, Price-Fleming ordinarily considers
the following factors: prospects for relative economic growth between foreign
countries; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range of
individual investment opportunities available to international investors.
In analyzing companies for investment, Price-Fleming ordinarily looks
for one or more of the following characteristics: an above-average earnings
growth per share; high return on invested capital; healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; efficient service; pricing flexibility; strength of management; and
general operating characteristics which will enable the companies to compete
successfully in their market place. While current dividend income is not a
prerequisite in the selection of portfolio companies, the companies in which
the Fund invests normally will have a record of paying dividends, and will
generally be expected to increase the amounts of such dividends in future
years as earnings increase.
It is expected that the Fund's investments will ordinarily be traded on
exchanges located at least in the respective countries in which the various
issuers of such securities are principally based.
Today, more investment opportunities may exist abroad than in the U.S.
In 1970, two-thirds of the world's equity capitalization (the total market
value of the world's equity securities traded on stock exchanges) was
attributable to U.S. securities. Now over one-half of the world's equity
capitalization is attributable to foreign securities. And over the last ten
years, the EAFE Index, a widely accepted index of European, Australian and Far
Eastern equity securities, has outperformed the Standard & Poor's 500 Index.
Although the EAFE Index may not be representative of the Fund's portfolio,
Price-Fleming believes it may be a useful indicator of the opportunities in
foreign equity investing.
Risk Factors of Foreign Investing
There are special risks in investing in the Fund. Certain of these
risks are inherent in any international mutual fund while others relate more
to the countries in which the Fund will invest ("Portfolio Companies"). Many
PAGE 9
of the risks are more pronounced for investments in developing or emerging
countries. Although there is no universally accepted definition, a developing
country is generally considered to be a country which is in the initial stages
of its industrialization cycle with a per capita gross national product of
less than $5,000.
General. Investors should understand that all investments have a risk
factor. There can be no guarantee against loss resulting from an investment
in the Fund, and there can be no assurance that the Fund's investment policies
will be successful, or that its investment objective will be attained. The
Fund is designed for investors seeking to diversify beyond the United States
in an actively researched and managed portfolio, and is intended for long-term
investors who can accept the risks entailed in investment in foreign
securities.
Political and Economic Factors. Individual foreign economies of
certain countries may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. The internal politics of certain foreign countries are not
as stable as in the United States and war or insurgency may threaten others.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
effect on market prices of securities and payment of dividends. The economies
of many foreign countries are heavily dependent upon international trade and
are accordingly affected by protective trade barriers and economic conditions
of their trading partners. The enactment by these trading partners of
protectionist trade legislation could have a significant adverse effect upon
the securities markets of such countries. Certain countries may be heavily
dependent on a limited number of commodities and thus vulnerable to weaknesses
in world prices for these commodities.
Currency Fluctuations. The Fund will invest in securities denominated
in the currencies specified elsewhere herein. Accordingly, a change in the
value of any such currency against the U.S. dollar will result in a
corresponding change in the U.S. dollar value of the Fund's assets denominated
in that currency. Such changes will also affect the Fund's income. Exchange
rate movements can be large and endure for extended periods of time.
Generally, when a given currency appreciates against the dollar (the dollar
weakens) the value of the Fund's securities denominated in that currency will
rise. When a given currency depreciates against the dollar (the dollar
strengthens), the value of the Fund's securities denominated in that currency
would be expected to decline.
Investment and Repatriation of Restrictions. Foreign investment in the
securities markets of certain foreign countries is restricted or controlled in
varying degrees. These restrictions may limit at times and preclude
investment in certain of such countries and may increase the cost and expenses
of the Fund. Investments by foreign investors are subject to a variety of
restrictions in many developing countries. These restrictions may take the
form of prior governmental approval, limits on the amount or type of
securities held by foreigners, and limits on the types of companies in which
foreigners may invest. Additional or different restrictions may be imposed at
any time by these or other countries in which the Fund invests. In addition,
the repatriation of both investment income and capital from several foreign
countries is restricted and controlled under certain regulations, including in
some cases the need for certain government consents.
PAGE 10
Market Characteristics. It is contemplated that most foreign
securities will be purchased in over-the-counter markets or on stock exchanges
located in the countries in which the respective principal offices of the
issuers of the various securities are located, if that is the best available
market. Foreign stock markets are generally not as developed or efficient as,
and may be more volatile than, those in the United States. While growing in
volume, they usually have substantially less volume than U.S. markets and the
Fund's portfolio securities may be less liquid and more volatile than
securities of comparable U.S. companies. Equity securities may trade at
price/earnings multiples higher than comparable United States securities and
such levels may not be sustainable. Fixed commissions on foreign stock
exchanges are generally higher than negotiated commissions on United States
exchanges, although the Fund will endeavor to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies than in the United States. Moreover, settlement practices for
transactions in foreign markets may differ from those in United States
markets, and may include delays beyond periods customary in the United States.
Investment Funds. The Fund may invest in investment funds which have
been authorized by the governments of certain countries specifically to permit
foreign investment in securities of companies listed and traded on the stock
exchanges in these respective countries. The Fund's investment in these funds
is subject to the provisions of the 1940 Act discussed below. If the Fund
invests in such investment funds, the Fund's shareholders will bear not only
their proportionate share of the expenses of the Fund (including operating
expenses and the fees of the Investment Manager), but also will bear
indirectly similar expenses of the underlying investment funds. In addition,
the securities of these investment funds may trade at a premium over their net
asset value.
Information and Supervision. There is generally less publicly
available information about foreign companies comparable to reports and
ratings that are published about companies in the United States. Foreign
companies are also generally not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to United States companies.
Taxes. The dividends and interest payable on certain of the Fund's
foreign portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Fund's
shareholders. A shareholder otherwise subject to United States federal income
taxes may, subject to certain limitations, be entitled to claim a credit or
deduction for U.S. federal income tax purposes for his or her proportionate
share of such foreign taxes paid by the Fund. (See "Tax Status," page __.)
Costs. Investors should understand that the expense ratio of the Fund
can be expected to be higher than investment companies investing in domestic
securities since the cost of maintaining the custody of foreign securities and
the rate of advisory fees paid by the Fund are higher.
Foreign Exchanges and Markets. The Fund's portfolio securities from
time to time may be listed on foreign exchanges or traded in foreign markets
which trade on days (such as Saturday) when the Fund does not compute its
price or accept orders for the purchase, redemption or exchange of its shares.
As a result, the net asset value of the Fund may be significantly affected by
trading on days when shareholders cannot make transactions.
Other. With respect to certain foreign countries, especially
developing and emerging ones, there is the possibility of adverse changes in
PAGE 11
investment or exchange control regulations, expropriation or confiscatory
taxation, limitations on the removal of funds or other assets of the Fund,
political or social instability, or diplomatic developments which could affect
investments by U.S. persons in those countries.
Apart from the matters described herein, the Fund is not aware at this
time of the existence of any investment or exchange control regulations which
might substantially impair the operations of the Fund as described in the
prospectus and this Statement of Additional Information. It should be noted,
however, that this situation could change at any time.
Eastern Europe. Changes occurring in Eastern Europe, Russia and the
countries of the former Soviet Union today could have long-term potential
consequences. As restrictions fall, this could result in rising standards of
living, lower manufacturing costs, growing consumer spending, and substantial
economic growth. However, investment in the countries of Eastern Europe and
Russia is highly speculative at this time. Political and economic reforms are
too recent to establish a definite trend away from centrally-planned economies
and state owned industries. In many of the countries of Eastern Europe and
Russia, there is no stock exchange or formal market for securities. Such
countries may also have government exchange controls, currencies with no
recognizable market value relative to the established currencies of western
market economies, little or no experience in trading in securities, no
financial reporting standards, a lack of a banking and securities
infrastructure to handle such trading, and a legal tradition which does not
recognize rights in private property. In addition, these countries may have
national policies which restrict investments in companies deemed sensitive to
the country's national interest. Further, the governments in such countries
may require governmental or quasi-governmental authorities to act as custodian
of the Fund's assets invested in such countries and these authorities may not
qualify as a foreign custodian under the Investment Company Act of 1940 and
exemptive relief from such Act may be required. All of these considerations
are among the factors which could cause significant risks and uncertainties to
investment in Eastern Europe and Russia. The Fund will only invest in a
company located in, or a government of, Eastern Europe and Russia, if it
believes the potential return justifies the risk. To the extent any
securities issued by companies in Eastern Europe and Russia are considered
illiquid, the Fund will be required to include such securities within its 10%
restriction on investing in illiquid securities.
In addition to the investments described in the Fund's prospectus, the
Fund may invest in the following:
Types of Securities
Hybrid Instruments
The Fund may invest up to 10% of its total assets in hybrid
instruments.
Hybrid Instruments have recently been developed and combine the
elements of futures contracts or options with those of debt, preferred equity
or a depository instrument (hereinafter "Hybrid Instruments"). Often these
Hybrid Instruments are indexed to the price of a commodity, particular
currency, or a domestic or foreign debt or equity securities index. Hybrid
Instruments may take a variety of forms, including, but not limited to, debt
instruments with interest or principal payments or redemption terms determined
by reference to the value of a currency or commodity or securities index at a
future point in time, preferred stock with dividend rates determined by
PAGE 12
reference to the value of a currency, or convertible securities with the
conversion terms related to a particular commodity.
The risks of investing in Hybrid Instruments reflect a combination of
the risks from investing in securities, options, futures and currencies,
including volatility and lack of liquidity. Reference is made to the
discussion of futures, options, and forward contracts herein for a discussion
of these risks. Further, the prices of the Hybrid Instrument and the related
commodity or currency 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). In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market or in a
private transaction between the Fund and the seller of the Hybrid Instrument,
the creditworthiness of the contra party to the transaction would be a risk
factor which the Fund would have to consider. Hybrid Instruments also may not
be subject to regulation of the Commodities Futures Trading Commission
("CFTC"), which generally regulates the trading of commodity futures by U.S.
persons, the SEC, which regulates the offer and sale of securities by and to
U.S. persons, or any other governmental regulatory authority.
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% of the value of its net assets are
invested in illiquid assets, including restricted securities, the Fund will
take appropriate steps to protect liquidity.
Notwithstanding the above, the Fund may purchase securities which,
while privately placed, are eligible for purchase and sale under Rule 144A
under the 1933 Act. This rule permits certain qualified institutional buyers,
such as the Fund, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. T. Rowe Price under the
supervision of the Fund's Board of Directors, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Fund's
restriction of investing no more than 15% of its 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
PAGE 13
does not invest more than 15% of its 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 Fund may invest in these
securities.
PORTFOLIO MANAGEMENT PRACTICES
Lending of Portfolio Securities
For the purpose of realizing additional income, the Fund may make
secured loans of portfolio securities amounting to not more than 33 1/3% of
its total assets. This policy is a fundamental policy. Securities loans are
made to broker-dealers or institutional investors or other persons, pursuant
to agreements requiring that the loans be continuously secured by collateral
at least equal at all times to the value of the securities lent marked to
market on a daily basis. The collateral received will consist of cash, U.S.
government securities, letters of credit or such other collateral as may be
permitted under its investment program. While the securities are being lent,
the Fund will continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities, as well as interest on the investment of
the collateral or a fee from the borrower. The Fund has a right to call each
loan and obtain the securities on five business days' notice or, in connection
with securities trading on foreign markets, within such longer period of time
which coincides with the normal settlement period for purchases and sales of
such securities in such foreign markets. The Fund will not have the right to
vote securities while they are being lent, but it will call a loan in
anticipation of any important vote. The risks in lending portfolio
securities, as with other extensions of secured credit, consist of possible
delay in receiving additional collateral or in the recovery of the securities
or possible loss of rights in the collateral should the borrower fail
financially. Loans will only be made to firms deemed by T. Rowe Price to be
of good standing and will not be made unless, in the judgment of T. Rowe
Price, the consideration to be earned from such loans would justify the risk.
Other Lending/Borrowing
Subject to approval by the Securities and Exchange Commission and certain
state regulatory agencies, the Fund may make loans to, or borrow funds from,
other mutual funds sponsored or advised by T. Rowe Price or Price-Fleming
(collectively, "Price Funds"). The Fund has no current intention of engaging
in these practices at this time.
Repurchase Agreements
The Fund may enter into a repurchase agreement through which an
investor (such as the Fund) purchases a security (known as the "underlying
security") from a well-established securities dealer or a bank that is a
member of the Federal Reserve System. Any such dealer or bank will be on T.
Rowe Price's approved list and have a credit rating with respect to its short-
term debt of at least A1 by Standard & Poor's Corporation, P1 by Moody's
Investors Service, Inc., or the equivalent rating by T. Rowe Price. 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
PAGE 14
as illiquid securities. The Fund will only enter into repurchase agreements
where (i) the underlying securities are of the type (excluding maturity
limitations) which the Fund's investment guidelines would allow it to purchase
directly, (ii) the market value of the underlying security, including interest
accrued, will be at all times equal to or exceed the value of the repurchase
agreement, and (iii) payment for the underlying security is made only upon
physical delivery or evidence of book-entry transfer to the account of the
custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying security and losses, including: (a)
possible decline in the value of the underlying security during the period
while the Fund seeks to enforce its rights thereto; (b) possible subnormal
levels of income and lack of access to income during this period; and
(c) expenses of enforcing its rights.
Options
Writing Covered Call Options
The Fund may write (sell) "covered" call options and purchase options
to close out options previously written by a Fund. In writing covered call
options, the Fund expects to generate additional premium income which should
serve to enhance the Fund's total return and reduce the effect of any price
decline of the security or currency involved in the option. Covered call
options will generally be written on securities or currencies which, in T.
Rowe Price's opinion, are not expected to have any major price increases or
moves in the near future but which, over the long term, are deemed to be
attractive investments for the Fund.
A call option gives the holder (buyer) the "right to purchase" a
security or currency at a specified price (the exercise price) at expiration
of the option (European style) or at any time until a certain date (the
expiration date) (American style). So long as the obligation of the writer of
a call option continues, he may be assigned an exercise notice by the broker-
dealer through whom such option was sold, requiring him to deliver the
underlying security or currency against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by
repurchasing an option identical to that previously sold. To secure his
obligation to deliver the underlying security or currency in the case of a
call option, a writer is required to deposit in escrow the underlying security
or currency or other assets in accordance with the rules of a clearing
corporation. The Fund will write only covered call options. This means that
the Fund will own the security or currency subject to the option or an option
to purchase the same underlying security or currency, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an
account consisting of cash, U.S. government securities or other liquid high-
grade debt obligations having a value equal to the fluctuating market value of
the optioned securities or currencies. In order to comply with the
requirements of several states, the Fund will not write a covered call option
if, as a result, the aggregate market value of all portfolio securities or
currencies covering call or put options exceeds 25% of the market value of the
Fund's net assets. Should these state laws change or should the Fund obtain a
waiver of its application, the Fund reserves the right to increase this
percentage. In calculating the 25% limit, the Fund will offset, against the
value of assets covering written calls and puts, the value of purchased calls
and puts on identical securities or currencies with identical maturity dates.
<PAGE>
PAGE 15
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 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
PAGE 16
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.
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 of the exercise price
against delivery of the underlying security or currency. The operation of put
options in other respects, including their related risks and rewards, is
substantially identical to that of call options.
The Fund would write put options only on a covered basis, which means
that the Fund would maintain in a segregated account cash, U.S. government
securities or other liquid high-grade debt obligations in an amount not less
than the exercise price or the Fund will own an option to sell the underlying
security or currency subject to the option having an exercise price equal to
or greater than the exercise price of the "covered" option at all times while
the put option is outstanding. (The rules of a clearing corporation currently
require that such assets be deposited in escrow to secure payment of the
exercise price.) The Fund would generally write covered put options in
circumstances where T. Rowe Price wishes to purchase the underlying security
or currency for the Fund's portfolio at a price lower than the current market
price of the security or currency. In such event the Fund would write a put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the Fund would
also receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received. Such a decline
could be substantial and result in a significant loss to the Fund. In
addition, the Fund, because it does not own the specific securities or
currencies which it may be required to purchase in exercise of the put, cannot
benefit from appreciation, if any, with respect to such specific securities or
currencies. In order to comply with the requirements of several states, the
Fund will not write a covered put option if, as a result, the aggregate market
value of all portfolio securities or currencies covering put or call options
PAGE 17
exceeds 25% of the market value of the Fund's net assets. Should these state
laws change or should the Fund obtain a waiver of its application, the Fund
reserves the right to increase this percentage. In calculating the 25% limit,
the Fund will offset, against the value of assets covering written puts and
calls, the value of purchased puts and calls on identical securities or
currencies with identical maturity dates.
Purchasing Put Options
The Fund may purchase American or European style put options. As the
holder of a put option, the Fund has the right to sell the underlying security
or currency at the exercise price at any time during the option period
(American style) or at the expiration of the option (European style). The
Fund may enter into closing sale transactions with respect to such options,
exercise them or permit them to expire. The Fund may purchase put options for
defensive purposes in order to protect against an anticipated decline in the
value of its securities or currencies. An example of such use of put options
is provided below.
The Fund may purchase a put option on an underlying security or
currency (a "protective put") owned by the Fund as a defensive technique in
order to protect against an anticipated decline in the value of the security
or currency. Such hedge protection is provided only during the life of the
put option when the Fund, as the holder of the put option, is able to sell the
underlying security or currency at the put exercise price regardless of any
decline in the underlying security's market price or currency's exchange
value. For example, a put option may be purchased in order to protect
unrealized appreciation of a security or currency where T. Rowe Price deems it
desirable to continue to hold the security or currency because of tax
considerations. The premium paid for the put option and any transaction costs
would reduce any capital gain otherwise available for distribution when the
security or currency is eventually sold.
The Fund may also purchase put options at a time when the Fund does not
own the underlying security or currency. By purchasing put options on a
security or currency it does not own, the Fund seeks to benefit from a decline
in the market price of the underlying security or currency. If the put option
is not sold when it has remaining value, and if the market price of the
underlying security or currency remains equal to or greater than the exercise
price during the life of the put option, the Fund will lose its entire
investment in the put option. In order for the purchase of a put option to be
profitable, the market price of the underlying security or currency must
decline sufficiently below the exercise price to cover the premium and
transaction costs, unless the put option is sold in a closing sale
transaction.
To the extent required by the laws of certain states, the Fund may not
be permitted to commit more than 5% of its assets to premiums when purchasing
put and call options. Should these state laws change or should the Fund
obtain a waiver of its application, the Fund may commit more than 5% of its
assets to premiums when purchasing call and put options. The premium paid by
the Fund when purchasing a put option will be recorded as an asset of the
Fund. This asset will be adjusted daily to the option's current market value,
which will be the latest sale price at the time at which the net asset value
per share of the Fund is computed (close of New York Stock Exchange), or, in
the absence of such sale, the latest bid price. This asset will be terminated
upon expiration of the option, the selling (writing) of an identical option in
a closing transaction, or the delivery of the underlying security or currency
upon the exercise of the option.
PAGE 18
Purchasing Call Options
The Fund may purchase American or European style call options. As
the holder of a call option, the Fund has the right to purchase the underlying
security or currency at the exercise price at any time during the option
period (American style) or at the expiration of the option (European style).
The Fund may enter into closing sale transactions with respect to such
options, exercise them or permit them to expire. The Fund may purchase call
options for the purpose of increasing its current return or avoiding tax
consequences which could reduce its current return. The Fund may also
purchase call options in order to acquire the underlying securities or
currencies. Examples of such uses of call options are provided below.
Call options may be purchased by the Fund for the purpose of acquiring
the underlying securities or currencies for its portfolio. Utilized in this
fashion, the purchase of call options enables the Fund to acquire the
securities or currencies at the exercise price of the call option plus the
premium paid. At times the net cost of acquiring securities or currencies in
this manner may be less than the cost of acquiring the securities or
currencies directly. This technique may also be useful to the Fund in
purchasing a large block of securities or currencies that would be more
difficult to acquire by direct market purchases. So long as it holds such a
call option rather than the underlying security or currency itself, the Fund
is partially protected from any unexpected decline in the market price of the
underlying security or currency and in such event could allow the call option
to expire, incurring a loss only to the extent of the premium paid for the
option.
To the extent required by the laws of certain states, the Fund may not
be permitted to commit more than 5% of its assets to premiums when purchasing
call and put options. Should these state laws change or should the Fund
obtain a waiver of its application, the Fund may commit more than 5% of its
assets to premiums when purchasing call and put options. The Fund may also
purchase call options on underlying securities or currencies it owns in order
to protect unrealized gains on call options previously written by it. A call
option would be purchased for this purpose where tax considerations make it
inadvisable to realize such gains through a closing purchase transaction.
Call options may also be purchased at times to avoid realizing losses.
Dealer (Over-the-Counter) Options
The Fund may engage in transactions involving dealer options. Certain
risks are specific to dealer options. While the Fund would look to a clearing
corporation to exercise exchange-traded options, if the Fund were to purchase
a dealer option, it would rely on the dealer from whom it purchased the option
to perform if the option were exercised. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as loss of the
expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while
dealer options have none. Consequently, the Fund will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Fund writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the
dealer to which the Fund originally wrote the option. While the Fund will
seek to enter into dealer options only with dealers who will agree to and
which are expected to be capable of entering into closing transactions with
the Fund, there can be no assurance that the Fund will be able to liquidate a
dealer option at a favorable price at any time prior to expiration. Until the
PAGE 19
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. Accordingly, the Fund will treat dealer options as subject to the
Fund's limitation on unmarketable securities. If the SEC changes its position
on the liquidity of dealer options, the Fund will change its treatment of such
instrument accordingly.
Futures Contracts
Transactions in Futures
The Fund may enter into financial futures contracts, including stock
index, interest rate and currency futures ("futures or futures contracts").
Stock index futures contracts may be used to provide a hedge for a
portion of the Fund's portfolio, as a cash management tool, or as an efficient
way for T. Rowe Price to implement either an increase or decrease in portfolio
market exposure in response to changing market conditions. Stock index
futures contracts are currently traded with respect to the S&P 500 Index and
other broad stock market indices, such as the New York Stock Exchange
Composite Stock Index and the Value Line Composite Stock Index. The Fund may,
however, purchase or sell futures contracts with respect to any stock index.
Nevertheless, to hedge the Fund's portfolio successfully, the Fund must sell
futures contacts with respect to indices or subindices whose movements will
have a significant correlation with movements in the prices of the Fund's
portfolio securities.
Interest rate or currency futures contracts may be used as a hedge
against changes in prevailing levels of interest rates or currency exchange
rates in order to establish more definitely the effective return on securities
or currencies held or intended to be acquired by the Fund. In this regard,
the Fund could sell interest rate or currency futures as an offset against the
effect of expected increases in interest rates or currency exchange rates and
purchase such futures as an offset against the effect of expected declines in
interest rates or currency exchange rates.
The Fund will enter into futures contracts which are traded on national
or foreign futures exchanges, and are standardized as to maturity date and
underlying financial instrument. The principal futures exchanges in the
United States are the Board of Trade of the City of Chicago, the Chicago
Mercantile Exchange, the New York Futures Exchange, and the Kansas City Board
of Trade. Futures exchanges and trading in the United States are regulated
PAGE 20
under the Commodity Exchange Act by the Commodity Futures Trading Commission
("CFTC"). Futures are traded in London at the London International Financial
Futures Exchange in Paris at the MATIF and in Tokyo at the Tokyo Stock
Exchange. Although techniques other than the sale and purchase of futures
contracts could be used for the above-referenced purposes, futures contracts
offer an effective and relatively low cost means of implementing the Fund's
objectives in these areas.
Regulatory Limitations
The Fund will engage in futures contracts and options thereon only for
bona fide hedging, yield enhancement, and risk management purposes, in each
case in accordance with rules and regulations of the CFTC.
The Fund may not enter into futures contracts or options thereon if,
with respect to positions which do not qualify as bona fide hedging under
applicable CFTC rules, the sum of the amounts of initial margin deposits on
the Fund's existing futures and premiums paid for options on futures would
exceed 5% of the net asset value of the Fund after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into; provided, however, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount may be excluded in calculating
the 5% limitation.
The Fund's use of futures contracts will not result in leverage.
Therefore, to the extent necessary, in instances involving the purchase of
futures contracts or call options thereon or the writing of put options
thereon by the Fund, an amount of cash, U.S. government securities or other
liquid, high-grade debt obligations, equal to the market value of the futures
contracts and options thereon (less any related margin deposits), will be
identified in an account with the Fund's custodian to cover the position, or
alternative cover will be employed.
In addition, CFTC regulations may impose limitations on the Fund's
ability to engage in certain risk management strategies. If the CFTC or other
regulatory authorities adopt different (including less stringent) or
additional restrictions, the Fund would comply with such new restrictions.
Trading in Futures Contracts
A futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (e.g., units of a debt security) for a specified price, date, time
and place designated at the time the contract is made. Brokerage fees are
incurred when a futures contract is bought or sold and margin deposits must be
maintained. Entering into a contract to buy is commonly referred to as buying
or purchasing a contract or holding a long position. Entering into a contract
to sell is commonly referred to as selling a contract or holding a short
position.
Unlike when the Fund purchases or sells a security, no price would be
paid or received by the Fund upon the purchase or sale of a futures contract.
Upon entering into a futures contract, and to maintain the Fund's open
positions in futures contracts, the Fund would be required to deposit with its
custodian in a segregated account in the name of the futures broker an amount
of cash, U.S. government securities, suitable money market instruments, or
liquid, high-grade debt securities, known as "initial margin." The margin
required for a particular futures contract is set by the exchange on which the
contract is traded, and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are customarily
PAGE 21
purchased and sold on margins that may range upward from less than 5% of the
value of the contract being traded.
If the price of an open futures contract changes (by increase in the
case of a sale or by decrease in the case of a purchase) so that the loss on
the futures contract reaches a point at which the margin on deposit does not
satisfy margin requirements, the broker will require an increase in the
margin. However, if the value of a position increases because of favorable
price changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to the Fund.
These subsequent payments, called "variation margin," to and from the
futures broker, are made on a daily basis as the price of the underlying
assets fluctuate making the long and short positions in the futures contract
more or less valuable, a process known as "marking to the market." The Fund
expects to earn interest income on its margin deposits.
Although certain futures contracts, by their terms, require actual
future delivery of and payment for the underlying instruments in practice most
futures contracts are usually closed out before the delivery date. Closing
out an open futures contract purchase or sale is effected by entering into an
offsetting futures contract purchase or sale, 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.
For example, the Standard & Poor's 500 Stock Index is composed of 500
selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 500 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 500 Index, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500 Index were
$150, one contract would be worth $75,000 (500 units x $150). The stock index
futures contract specifies that no delivery of the actual stock making up the
index will take place. Instead, settlement in cash occurs. Over the life of
the contract, the gain or loss realized by the Fund will equal the difference
between the purchase (or sale) price of the contract and the price at which
the contract is terminated. For example, if the Fund enters into a futures
contract to buy 500 units of the S&P 500 Index at a specified future date at a
contract price of $150 and the S&P 500 Index is at $154 on that future date,
the Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a
futures contract to sell 500 units of the stock index at a specified future
date at a contract price of $150 and the S&P 500 Index is at $152 on that
future date, the Fund will lose $1,000 (500 units x loss of $2).
Special Risks of Transactions in Futures Contracts
Volatility and Leverage. The prices of futures contracts are volatile
and are influenced, among other things, by actual and anticipated changes in
the market and interest rates, which in turn are affected by fiscal and
monetary policies and national and international political and economic
events.
PAGE 22
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of
a trading session. Once the daily limit has been reached in a particular type
of futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular
trading day and therefore does not limit potential losses, because the limit
may prevent the liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss,
as well as gain, to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract. However, the Fund would presumably
have sustained comparable losses if, instead of the futures contract, it had
invested in the underlying financial instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in order to be
certain that the Fund has sufficient assets to satisfy its obligations under a
futures contract, the Fund earmarks to the futures contract money market
instruments equal in value to the current value of the underlying instrument
less the margin deposit.
Liquidity. The Fund may elect to close some or all of its futures
positions at any time prior to their expiration. The Fund would do so to
reduce exposure represented by long futures positions or increase exposure
represented by short futures positions. The Fund may close its positions by
taking opposite positions which would operate to terminate the Fund's position
in the futures contracts. Final determinations of variation margin would then
be made, additional cash would be required to be paid by or released to the
Fund, and the Fund would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or board of
trade where the contracts were initially traded. Although the Fund intends to
purchase or sell futures contracts only on exchanges or boards of trade where
there appears to be an active market, there is no assurance that a liquid
market on an exchange or board of trade will exist for any particular contract
at any particular time. In such event, it might not be possible to close a
futures contract, and in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used to hedge the underlying
instruments, the Fund would continue to hold the underlying instruments
subject to the hedge until the futures contracts could be terminated. In such
circumstances, an increase in the price of underlying instruments, if any,
might partially or completely offset losses on the futures contract. However,
as described below, there is no guarantee that the price of the underlying
instruments will, in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.
<PAGE>
PAGE 23
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
underlying instruments on which the futures are written might advance and the
value of the underlying instruments held in the Fund's portfolio might
decline. If this were to occur, the Fund would lose money on the futures and
also would experience a decline in value in its underlying instruments.
However, while this might occur to a certain degree, T. Rowe Price believes
that over time the value of the Fund's portfolio will tend to move in the same
direction as the market indices which are intended to correlate to the price
movements of the underlying instruments sought to be hedged. It is also
possible that if the Fund were to hedge against the possibility of a decline
in the market (adversely affecting the underlying instruments held in its
portfolio) and prices instead increased, the Fund would lose part or all of
the benefit of increased value of those underlying instruments that it has
hedged, because it would have offsetting losses in its futures positions. In
addition, in such situations, if the Fund had insufficient cash, it might have
to sell underlying instruments to meet daily variation margin requirements.
Such sales of underlying instruments might be, but would not necessarily be,
at increased prices (which would reflect the rising market). The Fund might
have to sell underlying instruments at a time when it would be disadvantageous
to do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contracts and the portion of the portfolio being hedged, the price movements
of futures contracts might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors might close futures contracts through offsetting
transactions which could distort the normal relationship between the
underlying instruments and futures markets. Second, the margin requirements
in the futures market are less onerous than margin requirements in the
securities markets, and as a result the futures market might attract more
speculators than the securities markets do. Increased participation by
speculators in the futures market might also cause temporary price
distortions. Due to the possibility of price distortion in the futures market
and also because of the imperfect correlation between price movements in the
underlying instruments and movements in the prices of futures contracts, even
a correct forecast of general market trends by T. Rowe Price might not result
in a successful hedging transaction over a very short time period.
Options on Futures Contracts
Options on futures are similar to options on underlying instruments
except that options on futures give the purchaser the right, in return for the
PAGE 24
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. Alternatively, settlement may be made totally in
cash. 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
stock indices. Such options would be used in a manner similar to the use of
options on futures contracts. From time to time, a single order to purchase
or sell futures contracts (or options thereon) may be made on behalf of the
Fund and other T. Rowe Price Funds. Such aggregated orders would be allocated
among the Funds and the other T. Rowe Price Funds in a fair and non-
discriminatory manner.
Special Risks of Transactions in Options on Futures Contracts
The Fund may seek 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. The ability
to establish and close out positions on such options will be subject to the
maintenance of a liquid secondary market. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of options, or underlying
instruments; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or
be compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in the class or series of options) would cease to exist,
although outstanding options on the exchange that had been issued by a
clearing corporation as a result of trades on that exchange would continue to
be exercisable in accordance with their terms. There is no assurance that
higher than anticipated trading activity or other unforeseen events might not,
at times, render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.
Additional Futures and Options Contracts
Although the Fund has no current intention of engaging in futures or
options transactions other than those described above, it reserves the right
to do so. Such futures and options trading might involve risks which differ
from those involved in the futures and options described above.
Foreign Futures and Options
Participation in foreign futures and foreign options transactions
involves the execution and clearing of trades on or subject to the rules of a
PAGE 25
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, customers who trade foreign
futures or foreign options contracts may not be afforded certain of the
protective measures provided by the Commodity Exchange Act, the CFTC's
regulations and the rules of the National Futures Association and any domestic
exchange, including the right to use reparations proceedings before the
Commission and arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. In particular, funds received
from customers 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 your order is placed and the time it is liquidated, offset or
exercised.
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
PAGE 26
more efficient and economical than entering into separate forward contracts
for each currency held in the Fund. The precise matching of the forward
contract amounts and the value of the securities involved will not generally
be possible since the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date
it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. T. Rowe Price does not intend to enter into
such forward contracts under this second circumstance if, as a result, the
Fund will have more than 30% of the value of its net assets committed to the
consummation of such contracts. Other than as set forth above, and
immediately below, the Fund will also not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. The Fund, however, in order to avoid excess
transactions and transaction costs, may maintain a net exposure to forward
contracts in excess of the value of the Fund's portfolio securities or other
assets to which the forward contracts relate (including accrued interest to
the maturity of the forwards on such securities provided the excess amount is
"covered" by liquid, high-grade debt securities, denominated in any currency,
at least equal at all times to the amount of such excess. For these purposes
"the securities or other assets to which the forward contracts relate" may be
securities or assets denominated in a single currency, or where proxy forwards
are used, securities denominated in more than one currency). Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, T. Rowe Price believes that it
is important to have the flexibility to enter into such forward contracts when
it determines that the best interests of the Fund will be served.
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.
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.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for the Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver and if a decision is made to
sell the security and make delivery of the foreign currency. Conversely, it
may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security if its market value exceeds
the amount of foreign currency the Fund is obligated to deliver. However, as
noted, in order to avoid excessive transactions and transaction costs, the
Fund may use liquid, high-grade debt securities denominated in any currency,
to cover the amount by which the value of a forward contract exceeds the value
of the securities to which it relates.
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
PAGE 27
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.
Federal Tax Treatment of Options, Futures Contracts and Forward Foreign
Exchange Contracts
The Fund may enter into certain option, futures, and forward foreign
exchange contracts, including options and futures on currencies, which will be
treated as Section 1256 contracts or straddles.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of the Fund's fiscal year and any
gains or losses will be recognized for tax purposes at that time. Such gains
or losses from the normal closing or settlement of such transactions will be
characterized as 60% long-term capital gain or loss and 40% short-term capital
gain or loss regardless of the holding period of the instrument. The Fund
will be required to distribute net gains on such transactions to shareholders
even though it may not have closed the transaction and received cash to pay
such distributions.
Options, futures and forward foreign exchange contracts, including
options and futures on currencies, which offset a foreign dollar denominated
bond or currency position may be considered straddles for tax purposes in
which case a loss on any position in a straddle will be subject to deferral to
the extent of unrealized gain in an offsetting position. The holding period
of the securities or currencies comprising the straddle will be deemed not to
begin until the straddle is terminated. For securities offsetting a purchased
put, this adjustment of the holding period may increase the gain from sales of
PAGE 28
securities held less than three months. The holding period of the security
offsetting an "in-the-money qualified covered call" option on an equity
security will not include the period of time the option is outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may
be long-term capital loss, if the security covering the option was held for
more than twelve months prior to the writing of the option.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or currencies. Pending tax regulations could limit the extent that
net gain realized from option, futures or foreign forward exchange contracts
on currencies is qualifying income for purposes of the 90% requirement. In
addition, gains realized on the sale or other disposition of securities,
including option, futures or foreign forward exchange contracts on securities
or securities indexes and, in some cases, currencies, held for less than three
months, must be limited to less than 30% of the Fund's annual gross income.
In order to avoid realizing excessive gains on securities or currencies held
less than three months, the Fund may be required to defer the closing out of
option, futures or foreign forward exchange contracts) beyond the time when it
would otherwise be advantageous to do so. It is anticipated that unrealized
gains on Section 1256 option, futures and foreign forward exchange contracts,
which have been open for less than three months as of the end of the Fund's
fiscal year and which are recognized for tax purposes, will not be considered
gains on securities or currencies held less than three months for purposes of
the 30% test.
INVESTMENT RESTRICTIONS
Fundamental policies of the Fund may not be changed without the
approval of the lesser of (1) 67% of a Fund's shares present at a meeting of
shareholders if the holders of more than 50% of the outstanding shares are
present in person or by proxy or (2) more than 50% of a Fund's outstanding
shares. Other restrictions, in the form of operating policies, are subject to
change by the Fund's Board of Directors without shareholder approval. Any
investment restriction set forth herein or in the prospectus which involves a
maximum percentage of securities or assets shall not be considered to be
violated unless an excess over the percentage occurs immediately after, and is
caused by, an acquisition of securities or assets of, or borrowings by, the
Fund.
Fundamental Policies
As a matter of fundamental policy, the Fund may not:
(1) Borrowing. Borrow money except that the Fund may (i) borrow for
non-leveraging, temporary or emergency purposes and (ii) engage in
reverse repurchase agreements and make other investments or engage
in other transactions, which may involve a borrowing, in a manner
consistent with the Fund's investment objective and program,
provided that the combination of (i) and (ii) shall not exceed 33
1/3% of the value of the Fund's total assets (including the amount
borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which come to exceed
this amount will be reduced in accordance with applicable law. The
PAGE 29
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 it
may enter into futures contracts and options thereon;
(3) Industry Concentration. Purchase the securities of any issuer if,
as a result, more than 25% of the value of the Fund's total assets
would be invested in the securities of issuers having their
principal business activities in the same industry;
(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) Real Estate. Purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but this
shall not prevent the Fund from investing in securities or other
instruments backed by real estate or securities of companies
engaged in the real estate business;
(6) Senior Securities. Issue senior securities except in compliance
with the Investment Company Act of 1940; or
(7) Underwriting. Underwrite securities issued by other persons,
except to the extent that the Fund may be deemed to be an
underwriter within the meaning of the Securities Act of 1933 in
connection with the purchase and sale of its portfolio securities
in the ordinary course of pursuing its investment program.
With respect to investment restrictions (1) and (4), the Fund will
not borrow from or lend to any other T. Rowe Price Fund unless it
applies for and receives an exemptive order from the SEC or the SEC
issues rules permitting such transactions. The Fund has no current
intention of engaging in any such activity and there is no
assurance the SEC would grant any order requested by the Fund or
promulgate any rules allowing the transactions.
For purposes of investment restriction (3), U.S., state or local
governments, or related agencies or instrumentalities, are not
considered an industry.
Operating Policies
As a matter of operating policy, the Fund may not:
(1) Borrowing. The Fund will not purchase additional securities when
money borrowed exceeds 5% of its total assets.
(2) Control of Portfolio Companies. Invest in companies for the
purpose of exercising management or control;
(3) 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
PAGE 30
initial margin and premiums on such positions would exceed 5% of
the Fund's net asset value.
(4) Illiquid Securities. Purchase illiquid securities and securities
of unseasoned issuers if, as a result, more than 15% of its net
assets would be invested in such securities, provided that the Fund
will not invest more than 5% of its total assets in restricted
securities and not more than 5% in securities of unseasoned
issuers. Securities eligible for resale under Rule 144A of the
Securities Act of 1933 are not included in the 5% limitation but
are subject to the 15% limitation;
(4) Investment Companies. Purchase securities of open-end or closed-
end investment companies except in compliance with the Investment
Company Act of 1940 and applicable state law. Duplicate fees may
result from such purchases;
(5) 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;
(6) 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;
(7) Oil and Gas Programs. Purchase participations or other direct
interests or enter into leases with respect to, oil, gas, or other
mineral exploration or development programs;
(8) 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;
(9) Ownership of Portfolio Securities by Officers and Directors.
Purchase or retain the securities of any issuer if, to the
knowledge of the Fund's management, those officers and directors of
the Fund, and of its investment manager, who each own beneficially
more than .5% of the outstanding securities of such issuer,
together own beneficially more than 5% of such securities;
(10) Short Sales. Effect short sales of securities;
(11) Unseasoned Issuers. Purchase a security (other than obligations
issued or guaranteed by the U.S., any state or local government,
or any foreign government, their agencies or instrumentalities)
if, as a result, more than 5% of the value of the Fund's total
assets would be invested in the securities issuers which at the
time of purchase had been in operation for less than three years
(for this purpose, the period of operation of any issuer shall
include the period of operation of any predecessor or
unconditional guarantor of such issuer). This restriction does
not apply to securities of pooled investment vehicles or mortgage
or asset-backed securities; or
(12) Warrants. Invest in warrants if, as a result thereof, more than
2% of the value of the total assets of the Fund would be invested
PAGE 31
in warrants which are not listed on the New York Stock Exchange,
the American Stock Exchange, or a recognized foreign exchange, or
more than 5% of the value of the total assets of the Fund would
be invested in warrants whether or not so listed. For purposes
of these percentage limitations, the warrants will be valued at
the lower of cost or market and warrants acquired by the Funds in
units or attached to securities may be deemed to be without
value.
In addition to the restrictions described above, some foreign countries
limit, or prohibit, all direct foreign investment in the securities of their
companies. However, the governments of some countries have authorized the
organization of investment funds to permit indirect foreign investment in such
securities. For tax purposes these funds may be known as Passive Foreign
Investment Companies. The Fund is subject to certain percentage limitations
under the 1940 Act and certain states relating to the purchase of securities
of investment companies, and may be subject to the limitation that no more
than 10% of the value of the Fund's total assets may be invested in such
securities.
Notwithstanding anything in the above fundamental and operating
restrictions to the contrary, each 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.
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 gains
dividends. The results shown are historical and should not be considered
indicative of the future performance of the Fund. Each average annual
compound rate of return is derived from the cumulative performance of the Fund
over the time period specified. The annual compound rate of return for the
Fund over any other period of time will vary from the average.
Price-Fleming believes that foreign economies have performed well, and
emerging economies are significantly better than the world average, as shown
in the chart below.
<PAGE>
PAGE 32
GDP Growth Rates
1979 1980 1981 1982 1983 1984 1985 1986
____ ____ ____ ____ ____ ____ ____ ____
World 3.70 2.20 1.70 0.30 2.40 4.90 3.80 2.80
Industrialized 3.30 1.30 1.50 -0.20 2.70 4.90 3.60 2.80
Developing (Asia) 3.80 5.90 6.10 5.70 8.00 7.50 7.30 5.80
DEV/WLD 103% 268% 359% !!! 333% 153% 192% 207%
DEV/IND 115% 454% 407% !!! 296% 153% 203% 207%
10 Year
1987 1988 1989 Sample Average
____ ____ ____ _________________
World 3.60 4.40 !!! 2.98
Industrialized 3.50 4.50 3.50 2.79
Developing (Asia) 6.90 8.60 !!! 6.56
DEV/WLD 194% 0% !!! 220%
DEV/IND 206% 0% !!! 235%
Source: International Monetary Fund 1990 Yearbook
!!! 1989 figures for developing Asia (and therefore the World) are not yet
available
From time to time, in reports and promotional literature: (1) the
Fund's total return performance or P/E ratio may be compared to any one or
combination of the following: (i) the Standard & Poor's 500 Stock Index and
Dow Jones Industrial Average so that you may compare the Fund's results with
those of a group of unmanaged securities widely regarded by investors as
representative of the U.S. stock market in general; (ii) other groups of
mutual funds, including T. Rowe Price Funds, tracked by: (A) Lipper
Analytical Services, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets; (B)
Morningstar, Inc., another widely used independent research firm which ranks
mutual funds; or (C) other financial or business publications, such as
Business Week, Money Magazine, Forbes and Barron's, which provide similar
information; (iii) The Financial Times (a London based international financial
newspaper)-Actuaries World Indices, including Europe and sub indices
comprising this Index (a wide range of comprehensive measures of stock price
performance for the major stock markets as well as for regional areas, broad
economic sectors and industry groups); (iv) Morgan Stanley Capital
International Indices, including the EAFE Index, Pacific Basin Index and
Pacific Ex Japan Index which is a widely-recognized series of indices in
international market performance; (v) Baring International Investment
Management Limited (an international securities trading, research, and
investment management firm), as a source for market capitalization, GDP and
GNP; (vi) the International Finance Corporation (an affiliate of the World
Bank established to encourage economic development in less developed
countries), World Bank, OECD (Organization for Economic Co-Operation and
Development) and IMF (International Monetary Fund) as a source of economic
statistics; (vii) indices of stocks comparable to those in which the Fund
invests; and (viii) the performance of U.S. government and corporate bonds,
notes and bills. (The purpose of these comparisons would be to illustrate
historical trends in different market sectors so as to allow potential
investors to compare different investment strategies.); (2) the Consumer Price
Index (measure for inflation) may be used to assess the real rate of return
from an investment in the Fund; (3) other U.S. or foreign government
statistics such as GNP, and net import and export figures derived from
PAGE 33
governmental publications, e.g. The Survey of Current Business, may be used to
illustrate investment attributes of the Fund or the general economic,
business, investment, or financial environment in which the Fund operates; (4)
the effect of tax-deferred compounding on the Fund's investment returns, or on
returns in general, may be illustrated by graphs, charts, etc. where such
graphs or charts would compare, at various points in time, the return from an
investment in the Fund (or returns in general) on a tax-deferred basis
(assuming reinvestment of capital gains and dividends and assuming one or more
tax rates) with the return on a taxable basis; and (5) the sectors or
industries in which the Fund invests may be compared to relevant indices or
surveys (e.g. S&P Industry Surveys) in order to evaluate the Fund's historical
performance or current or potential value with respect to the particular
industry or sector.
Other Features and Benefits
The Fund is a member of the T. Rowe Price Family of Funds and may help
investors achieve various long-term investment goals, such as investing money
for retirement, saving for a down payment on a home, or paying college costs.
To explain how the Fund could be used to assist investors in planning for
these goals and to illustrate basic principles of investing, various
worksheets and guides prepared by T. Rowe Price Associates, Inc. and/or T.
Rowe Price Investment Services, Inc. may be made available. These currently
include: the Asset Mix Worksheet which is designed to show shareholders how to
reduce their investment risk by developing a diversified investment plan: the
College Planning Guide which discusses various aspects of financial planning
to meet college expenses and assists parents in projecting the costs of a
college education for their children; the Retirement Planning Kit (also
available in a PC version) which includes a detailed workbook to determine how
much money you may need for retirement and suggests how you might invest to
reach your goal; and the Retirees Financial Guide which includes a detailed
workbook to determine how much money you can afford to spend and still
preserve your purchasing power and suggest how you might invest to reach your
goal. From time to time, other worksheets and guides may be made available as
well. Of course, an investment in the Fund cannot guarantee that such goals
will be met.
From time to time, the example shown in the following page may be used
to assist investors in understanding the different returns and risk
characteristics of various investments, including presentation of historical
returns of these investments. An example of this is shown on the next page.
Historical Returns for Different Investments
Annualized Returns for Periods Ended 12/31/92
50 Years 25 Years 10 Years 5 Years
Small company stocks 16.3% 12.4% 11.6% 13.6%
Large company stocks 12.6 10.6 16.2 15.9
Foreign stocks N/A N/A 17.1 1.6
Long-term corporate bonds 5.4 8.8 13.1 12.5
Intermediate-Term U.S.
Gov't. bonds 5.6 9.0 11.0 10.3
Treasury bills 4.6 7.2 6.9 6.3
U.S. inflation 4.3 5.9 3.8 4.2
Source: Ibbotson Associates. Foreign stocks reflect performance of The
PAGE 34
Morgan Stanley Capital International EAFE Index, which includes some 1,000
companies representing the stock markets of Europe, Australia, New Zealand,
and the Far East. This chart is for illustrative purposes only and should not
be considered as performance for any T. Rowe Price Fund. Past performance
does not guarantee future results.
Also from time to time, various portfolios demonstrating how these historical
indices would have performed in various combinations over a specified time
period in terms of return may be presented to prospective investors. An
example of this is shown below.
Performance of Retirement Portfolios*
Asset Mix Annualized Returns Number of Value of
20 Years Years with $10,000
Ending 12/31/92 Negative Investment
Returns After
Period
___________________ _____________________ ________ ________
Best Worst
Portfolio Growth Income Safety Average Year Year
I. Low
Risk 15% 35% 50% 9.0% 19.0% -0.2% 1 $ 56,451
II. Moderate
Risk 55% 30% 15% 10.4% 25.7% -7.5% 2 $ 72,918
III. High
Risk 85% 15% 0% 11.2% 34.5% -16.2% 5 $ 83,382
Source: T. Rowe Price Associates; data supplied by Ibbotson Associates.
* Based on actual performance of stocks (Wilshire 5000), Lehman Brothers
Government/Corporate Bond Index, and Treasury bills from January 1973
through December 1992. Past performance does not guarantee future
results. Figures include changes in principal value and reinvested
dividends. This Exhibit is for illustrative purposes only and is not
representative of the performance of any T. Rowe Price Fund.
Redemptions in Kind
In the unlikely event a shareholder of the Fund were to receive an in
kind redemption of portfolio securities of the Fund, brokerage fees could be
incurred by the shareholder in 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.
PAGE 35
MANAGEMENT OF FUND
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
Price for more than five years. In the list below, the Fund's directors who
are considered "interested persons" of T. Rowe Price or the Fund as defined
under Section 2(a)(19) of the Investment Company Act of 1940 are noted with an
number sign (*). These directors are referred to as inside directors by
virtue of their officership, directorship, and/or employment with T. Rowe
Price.
JAMES S. RIEPE, President and Director--Managing Director, T. Rowe Price;
Chairman of the Board, T. Rowe Price Services, Inc., T. Rowe Price
Retirement Plan Services, Inc. and T. Rowe Price Trust Company; President
and Director, T. Rowe Price Investment Services, Inc.; Director, Rhone-
Poulenc Rorer, Inc.
HENRY H. HOPKINS, Vice President--Vice President, Price-Fleming and T. Rowe
Price Retirement Plan Services, Inc.; 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
LENORA V. HORNUNG, Secretary--Vice President, T. Rowe Price
CARMEN F. DEYESU, Treasurer--Vice President, T. Rowe Price, T. Rowe Price
Services, Inc., and T. Rowe Price Trust Company
DAVID S. MIDDLETON, Controller--Vice President, T. Rowe Price, T. Rowe Price
Services, Inc., and T. Rowe Price Trust Company
ANN B. CRANMER, Assistant Vice President--Vice President, Price-Fleming
ROGER L. FIERY, Assistant Vice President--Vice President, Rowe Price-Fleming
International, Inc.
EDWARD T. SCHNEIDER, Assistant Vice President--Vice President, T. Rowe Price
Services, Inc.
INGRID I. VORDEMBERGE, Assistant Vice President--Employee, T. Rowe Price
The Fund's Executive Committee, comprised of Mr. Riepe, has been
authorized by the Board of Directors to exercise all of the powers of the
Board to manage the Fund in the intervals between meetings of the Board,
except the powers prohibited by statute from being delegated.
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.
INVESTMENT MANAGEMENT SERVICES
Services
Under the Management Agreement, Price-Fleming provides the Fund with
discretionary investment services. Specifically, Price-Fleming is responsible
for supervising and directing the investments of the Fund in accordance with
the Fund's investment objective, program, and restrictions as provided in its
prospectus and this Statement of Additional Information. Price-Fleming 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,
Price-Fleming provides the Fund with certain corporate administrative
services, including: maintaining the Fund's corporate existence, corporate
PAGE 36
records, and registering and qualifying Fund shares under federal and state
laws; monitoring the financial, accounting, and administrative functions of
the Fund; maintaining liaison with the agents employed by the Fund such as the
Fund's custodian and transfer agent; assisting the Fund in the coordination of
such agents' activities; and permitting Price-Fleming's employees to serve as
officers, directors, and committee members of the Fund without cost to the
Fund.
The Management Agreement also provides that Price-Fleming, 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.
Under the Management Agreement, Price-Fleming is permitted to utilize
the services or facilities of others to provide it or the Fund with
statistical and other factual information, advice regarding economic factors
and trends, advice as to occasional transactions in specific securities, and
such other information, advice or assistance as Price-Fleming may deem
necessary, appropriate, or convenient for the discharge of its obligations
under the Management Agreement or otherwise helpful to the Fund.
Certain administrative support is provided by T. Rowe Price which
receives from Price-Fleming a fee of .15% of the market value of all assets in
equity accounts, .15% of the market value of all assets in active fixed income
accounts and .035% of the market value of all assets in passive fixed income
accounts under Price-Fleming's management.
Price-Fleming has entered into separate letters of agreement with
Fleming Investment Management Limited ("FIM"), Fleming International Fixed
Interest Management Limited ("FIFIM"), and Jardine Fleming Investment Holdings
Limited ("JFIH"), wherein FIM, FIFIM, and JFIH have agreed to render
investment research and administrative support to Price-Fleming. FIM and
FIFIM are wholly-owned subsidiaries of Robert Fleming Asset Management Limited
which is a wholly-owned subsidiary of Robert Fleming Holdings Limited ("Robert
Fleming Holdings"). JFIH is an indirect wholly-owned subsidiary of Jardine
Fleming Group Limited. Under the letters of agreement, these companies will
provide Price-Fleming with research material containing statistical and other
factual information, advice regarding economic factors and trends, advice on
the allocation of investments among countries and as between debt and equity
classes of securities, and research and occasional advice with respect to
specific companies. For these services, FIM and JFIH each receives a fee
.075% of the market value of all assets in equity accounts under
Price-Fleming's management. FIFIM and JFIH each receives a fee of .075% of
the market value of all assets in active fixed income accounts and .0175% of
such market value in passive fixed income accounts under Price-Fleming's
management.
Robert Fleming personnel have extensive research resources throughout
the world. A strong emphasis is placed on direct contact with companies in
the research universe. Robert Fleming personnel, who frequently speak the
local language, have access to the full range of research products available
in the market place and are encouraged to produce independent work dedicated
solely to portfolio investment management, which adds value to that generally
available.
Management Fee
The Fund pays Price-Fleming an annual all-inclusive fee (the "Fee") of
1.05%. The Fee is paid monthly to the Price-Fleming on the first business day
PAGE 37
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 rate and multiplying this product by the net
assets of the Fund for that day as determined in accordance with the Fund's
prospectus as of the close of business from the previous business day on which
the Fund was open for business.
The Management Agreement between the Fund and Price-Fleming provides
that Price-Fleming will pay all expenses of the 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' fee
and expenses (including counsel fees and expenses) and such nonrecurring 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 of the Fund
reserves the right to impose additional fees against shareholder accounts to
defray expenses which would otherwise be paid by Price-Fleming 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 Price-Fleming.
DISTRIBUTOR FOR FUND
T. Rowe Price Investment Services, Inc. ("Investment Services"), a
Maryland corporation formed in 1980 as a wholly-owned subsidiary of T. Rowe
Price, serves as the Fund's distributor. Investment Services is registered as
a broker-dealer under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. The offering of the
Fund's shares is continuous.
Investment Services is located at the same address as the Fund and T.
Rowe Price -- 100 East Pratt Street, Baltimore, Maryland 21202.
Investment Services serves as distributor to the Fund pursuant to an
Underwriting Agreement ("Underwriting Agreement"), which provides that the
Fund will pay all fees and expenses in connection with: registering and
qualifying its shares under the various state "blue sky" laws; preparing,
setting in type, printing, and mailing its prospectuses and reports to
shareholders; and issuing its shares, including expenses of confirming
purchase orders.
The Underwriting Agreement provides that Investment Services will pay
all fees and expenses in connection with: printing and distributing
prospectuses and reports for use in offering and selling Fund shares;
preparing, setting in type, printing, and mailing all sales literature and
advertising; Investment Services' federal and state registrations as a
broker-dealer; and offering and selling Fund shares, except for those fees and
expenses specifically assumed by the Fund. Investment Services' expenses are
paid by T. Rowe Price.
Investment Services acts as the agent of the Fund in connection with
the sale of its shares in all states in which the shares are qualified and in
which Investment Services is qualified as a broker-dealer. Under the
Underwriting Agreement, Investment Services accepts orders for Fund shares at
net asset value. No sales charges are paid by investors or the Fund.
<PAGE>
PAGE 38
CUSTODIAN
State Street Bank and Trust Company (the "Bank") 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. The Bank has entered into a Sub-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, in
accordance with regulations under the Investment Company Act of 1940. The
Bank's main office is at 225 Franklin Street, Boston, Massachusetts 02110.
The address for The Chase Manhattan Bank, N.A., London is Woolgate House,
Coleman Street, London, EC2P 2HD, England.
PORTFOLIO TRANSACTIONS
Investment or Brokerage Discretion
Decisions with respect to the purchase and sale of portfolio securities
on behalf of the Fund is made by Price-Fleming. Price-Fleming is also
responsible for implementing these decisions, including the allocation of
portfolio brokerage and principal business and the negotiation of commissions.
How Brokers and Dealers are Selected
Equity Securities
In purchasing and selling the Fund's portfolio securities, it is Price-
Fleming's policy to obtain quality execution at the most favorable prices
through responsible broker-dealers and, in the case of agency transactions, at
competitive commission rates where such rates are negotiable. However, under
certain conditions, the Fund may pay higher brokerage commissions in return
for brokerage and research services. In selecting broker-dealers to execute
the Fund's portfolio transactions, consideration is given to such factors as
the price of the security, the rate of the commission, the size and difficulty
of the order, the reliability, integrity, financial condition, general
execution and operational capabilities of competing brokers and dealers, their
expertise in particular markets and the brokerage and research services they
provide to Price-Fleming or the Fund. It is not the policy of Price-Fleming
to seek the lowest available commission rate where it is believed that a
broker or dealer charging a higher commission rate would offer greater
reliability or provide better price or execution.
Transactions on stock exchanges involve the payment of brokerage
commissions. In transactions on stock exchanges in the United States, these
commissions are negotiated. Traditionally, commission rates have generally
not been negotiated on stock markets outside the United States. In recent
years, however, an increasing number of overseas stock markets have adopted a
system of negotiated rates, although a number of markets continue to be
subject to an established schedule of minimum commission rates. It is
expected that equity securities will ordinarily be purchased in the primary
markets, whether over-the-counter or listed, and that listed securities may be
purchased in the over-the-counter market if such market is deemed the primary
market. In the case of securities traded on the over-the-counter markets,
there is generally no stated commission, but the price usually includes an
PAGE 39
undisclosed commission or markup. In underwritten offerings, the price
includes a disclosed, fixed commission or discount.
Fixed Income Securities
For fixed income securities, it is expected that purchases and sales
will ordinarily be transacted with the issuer, or issuer's underwriter, or
with a primary market maker acting as principal on a net basis, with no
brokerage commission being paid by the Fund. However, the price of the
securities generally includes compensation which is not disclosed separately.
Transactions placed though dealers who are serving as primary market makers
reflect the spread between the bid and asked prices.
With respect to equity and fixed income securities, Price-Fleming 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. The prices the Fund pays to
underwriters of newly-issued securities usually include a concession paid by
the issuer to the underwriter.
Price-Fleming may cause the Fund to pay a broker-dealer who furnishes
brokerage and/or research services a commission for executing a transaction
that is in excess of the commission another broker-dealer would have received
for executing the transaction if it is determined that such commission is
reasonable in relation to the value of the brokerage and/or research services
which have been provided. In some cases, research services are generated by
third parties but are provided to Price-Fleming by or through broker-dealers.
Descriptions of Research Services Received from Brokers and Dealers
Price-Fleming receives a wide range of research services from brokers
and dealers covering investment opportunities throughout the world, including
information on the economies, industries, groups of securities, individual
companies, statistics, political developments, technical market action,
pricing and appraisal services, and performance analyses of all the countries
in which the Fund's portfolio is likely to be invested. Price-Fleming cannot
readily determine the extent to which commissions charged by brokers reflect
the value of their research services, but brokers occasionally suggest a level
of business they would like to receive in return for the brokerage and
research services they provide. To the extent that research services of value
are provided by brokers, Price-Fleming may be relieved of expenses which it
might otherwise bear. In some cases, research services are generated by third
parties but are provided to Price-Fleming by or through brokers.
Commissions to Brokers who Furnish Research Services
Certain broker-dealers which provide quality execution services also
furnish research services to Price-Fleming. Price-Fleming 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
its clients to pay a broker which furnishes brokerage or research services a
higher commission than that which might be charged by another broker which
does not furnish brokerage or research services, or which furnishes brokerage
or research services deemed to be of lesser value, if such commission is
deemed reasonable in relation to the brokerage and research services provided
by the broker, viewed in terms of either that particular transaction or the
overall responsibilities of the adviser with respect to the accounts as to
which it exercises investment discretion. Accordingly, Price-Fleming may
PAGE 40
assess the reasonableness of commissions in light of the total brokerage and
research services provided by each particular broker.
Miscellaneous
Research services furnished by brokers through which Price-Fleming
effects securities transactions may be used in servicing all accounts managed
by Price-Fleming, Conversely, research services received from brokers which
execute transactions for the Fund will not necessarily be used by Price-
Fleming exclusively in connection with the management of the Fund.
Some of Price-Fleming's other clients have investment objectives and
programs similar to those of the Fund. Price-Fleming 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 Price-Fleming's policy not to favor one client over another
in making recommendations or in placing orders. Price-Fleming 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. Price-Fleming 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.
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.
Transactions with Related Brokers and Dealers
As provided in the Investment Management Agreement between the Fund and
Price-Fleming, Price-Fleming 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 Price-Fleming 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 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
PAGE 41
trading desks, although orders for the 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 Price-Fleming to
utilize certain affiliates of Robert Fleming and JFG in the capacity of broker
in connection with the execution of each Fund's portfolio transactions,
provided that Price-Fleming believes that doing so will result in an economic
advantage (in the form of lower execution costs or otherwise) being obtained
for each Fund. These affiliates include Jardine Fleming Securities Limited
("JFS"), a wholly-owned subsidiary of JFG, RF&Co., Jardine Fleming Australia
Securities Limited, and Robert Fleming, Inc. (a New York brokerage firm).
The above-referenced authorization was made in accordance with
Section 17(e) of the Investment Company Act of 1940 (the "1940 Act") and
Rule 17e-1 thereunder which require the Fund's 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. Except with
respect to tender offers, 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 Fund. 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 the Fund to
seek to take advantage of them.
PRICING OF SECURITIES
Equity securities listed or regularly traded on a securities exchange
(including NASDAQ) are valued at the last quoted sales price on the day the
valuations are made. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the
primary market for such security. Other equity securities and those listed
securities that are not traded on a particular day are valued at a price
within the limits of the latest bid and asked prices deemed by the Board of
Directors or by persons delegated by the Board, best to reflect fair value.
Debt securities are generally traded in the over-the-counter market and
are valued at a price deemed best to reflect fair value as quoted by dealers
who make markets in these securities or by an independent pricing service.
Short-term debt securities are valued at their cost in local currency which,
when combined with accrued interest, approximates fair value.
For purposes of determining the Fund's net asset value per share, all
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at the mean of the bid and offer prices of such currencies
against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
Fund, as authorized by the Board of Directors.
Trading in the portfolio securities of the Fund may take place in
various foreign markets on certain days (such as Saturday) when the Fund is
not open for business and does not calculate its net asset value. In
addition, trading in the Fund's portfolio securities may not occur on days
when the Fund is open. The calculation of the Fund's net asset value normally
will not take place contemporaneously with the determination of the value of
the Fund's portfolio securities. Events affecting the values of portfolio
PAGE 42
securities that occur between the time their prices are determined and the
time the Fund's net asset value is calculated will not be reflected in the
Fund's net asset value unless Price-Fleming, under the supervision of the
Fund's Board of Directors, determines that the particular event should be
taken into account in computing the Fund's net asset value.
NET ASSET VALUE PER SHARE
The purchase and redemption price of the Fund's shares is equal to the
Fund's net asset value per share or share price. The Fund determines its net
asset value per share by subtracting the Fund's liabilities (including accrued
expenses and dividends payable) from its total assets (the market value of the
securities the Fund holds plus cash and other assets, including income accrued
but not yet received) and dividing the result by the total number of shares
outstanding. The net asset value per share of the Fund is calculated as of
the close of trading on the New York Stock Exchange ("NYSE") every day the
NYSE is open for trading. The NYSE is closed on the following days: New
Year's Day, Washington's Birthday, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
Determination of net asset value (and the offering, sale, redemption
and repurchase of shares) for the Fund may be suspended at times (a) during
which the NYSE is closed, other than customary weekend and holiday closings,
(b) during which trading on the NYSE is restricted (c) during which an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or (d) during which
a governmental body having jurisdiction over the Fund may by order permit such
a suspension for the protection of the Fund's shareholders; provided that
applicable rules and regulations of the Securities and Exchange Commission (or
any succeeding governmental authority) shall govern as to whether the
conditions prescribed in (b), (c) or (d) exist.
DIVIDENDS
Unless you elect otherwise, dividends and capital gain distributions
will be reinvested on the reinvestment date using the NAV per share of that
date. The reinvestment date normally precedes the payment date by about 10
days although the exact timing is subject to change.
TAX STATUS
The Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended ("Code").
For tax purposes, the Fund must declare dividends equal to at least 98%
of ordinary income (as of December 31) and capital gains (as of October 31) in
order to avoid a federal excise tax and distribute 100% of ordinary income and
capital gains as of December 31 to avoid federal income tax. It does not make
any difference whether dividends and capital gain distributions are paid in
cash or in additional shares.
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 ordinary income for tax purposes. If the net effect of these
transactions is a gain, the dividend paid by the Fund will be increased; if
the result is a loss, the income dividend paid by the Fund will be decreased.
PAGE 43
Adjustments, to reflect these gains and losses will be made at the end of the
Fund's taxable year.
At the time of your purchase, the Fund's net asset value may reflect
undistributed income, capital gains or net unrealized appreciation or
depreciation of securities held by the Fund which may be a subsequently
distributed to you either as dividends or capital gain distributions. 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 without deduction
for dividends or other distributions to shareholders; (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), and may qualify for the 70% deduction for dividends received by
corporations; and (iii) foreign tax credits would not "pass through" to
shareholders.
CAPITAL STOCK
The Fund's Charter authorizes its 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 Corporation's 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 Funds have
authorized to issue without shareholder approval.
Except to the extent that the Corporation's Board of Directors might
provide by resolution that holders of shares of a particular class are
entitled to vote as a class on specified matters presented for a vote of the
holders of all shares entitled to vote on such matters, there would be no
right of class vote unless and to the extent that such a right might be
construed to exist under Maryland law. The Charter contains no provision
entitling the holders of the present class of capital stock to a vote as a
class on any matter. Accordingly, the preferences, rights, and other
characteristics attaching to any class of shares, including the present class
of capital stock, might be altered or eliminated, or the class might be
combined with another class or classes, by action approved by the vote of the
holders of a majority of all the shares of all classes entitled to be voted on
the proposal, without any additional right to vote as a class by the holders
of the capital stock or of another affected class or classes.
Each insurance company, as the Shareholder, is entitled to one vote for
each full share held (and fractional votes for fractional shares held) and
PAGE 44
will vote in the election of or removal of directors (to the extent
hereinafter provided) and on other matters submitted to the vote of the
Shareholder. However, the insurance company may pass through voting rights to
Contract Holders or Participants. Fund shares for which Contract Holders or
Participants are entitled to give voting instructions, but as to which no
voting instructions are received, and shares owned by the insurance companies
or affiliated companies in the separate accounts, will be voted in proportion
to the shares for which voting instructions have been received. Under state
insurance law, there are certain circumstances under which the insurance
companies may disregard such voting instructions. If voting instructions are
ever so ignored, Contract Holders or Participants will be advised of that
action in the next semi-annual report.
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 Corporation, a
special meeting of shareholders of the Corporation shall be called by the
Secretary of the Corporation on the written request of shareholders entitled
to cast at least 10% of all the votes of the Corporation entitled to be cast
at such meeting. Shareholders requesting such a meeting must pay to the
Corporation the reasonably estimated costs of preparing and mailing the notice
of the meeting. The Corporation, however, will otherwise assist the
shareholders seeking to hold the special meeting in communicating to the other
shareholders of the Corporation to the extent required by Section 16(c) of the
Investment Company Act of 1940.
FEDERAL AND STATE REGISTRATION OF SHARES
The Fund's shares are registered for sale under the Securities Act of
1933, and the Fund or its shares are registered under the laws of all states
which require registration, as well as the District of Columbia and Puerto
Rico.
LEGAL COUNSEL
Shereff, Friedman, Hoffman, & Goodman, whose address is 919 Third
Avenue, New York, New York 10022, is legal counsel to the Fund.
INDEPENDENT ACCOUNTANTS
_______________________________, ___________________________, are
independent accountants to the Fund. The Statement of Assets and Liabilities
of the Fund as of March __, 1994, included in the Statement of Additional
Information, has been included in reliance on the report of ____________,
given on the authority of said firm as experts in auditing and accounting.
<PAGE>
PAGE 45
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements. A Statement of Assets and Liabilities of
Registrant as of March ___, 1994, appears in the Statement of
Additional Information. Such Statement has been examined by
_____________________, independent accountants, and has been
included in the Statement of Additional Information in reliance on
the report of such accountants appearing in the Statement of
Additional Information given upon their authority as experts in
auditing and account.+ All other financial statements, schedules
and historical information have been omitted as the subject matter
is not required, not present, or not present in amounts sufficient
to require submission.
(b) Exhibits.
(1) Articles of Incorporation of Registrant, dated January 31,
1994
(2) By-Laws of Registrant
(3) Inapplicable
(4) 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.
(5) Investment Management Agreement between Registrant, on
behalf of T. Rowe Price International Stock Portfolio, and
T. Rowe Price Associates, Inc. (to be filed by amendment)
(6) Underwriting Agreement between Registrant, on behalf of T.
Rowe Price International Stock Portfolio, and T. Rowe Price
Investment Services, Inc. (to be filed by amendment)
(7) Inapplicable
(8)(a) Custodian Agreement between T. Rowe Price Funds and State
Street Bank and Trust Company, dated September 28, 1987, as
amended to June 24, 1988, October 19, 1988, February 22,
1989, July 19, 1989, September 15, 1989, December 15, 1989,
December 20, 1989, January 25, 1990, February 21, 1990, June
12, 1990, July 18, 1990, October 15, 1990, February 13,
1991, March 6, 1991, September 12, 1991, November 6, 1991,
April 23, 1992, September 2, 1992, November 3, 1992,
December 16, 1992, December 21, 1992, January 28, 1993,
April 22, 1993 and September 16, 1993 (to be filed by
amendment)
+Omitted from Registration Statement as initially filed since
Registrant has no assets or liabilities and has never had any
assets or liabilities. Registrant proposes to raise its minimum
capital through an initial private offering of shares at $______
per share.
PAGE 46
(8)(b) Subcustodian Agreement between Registrant, on behalf of T.
Rowe Price International Stock Portfolio and State Street
Bank and Trust Company and the Chase Manhattan Bank, N.A.
(to be filed by amendment)
(9)(a) Transfer Agency and Service Agreement between T. Rowe Price
Services, Inc. and T. Rowe Price Funds (to be filed by
amendment)
(9)(b) Agreement between T. Rowe Price Associates, Inc. and T. Rowe
Price Funds for Fund Accounting Services (to be filed by
amendment)
(9)(c) Inapplicable
(10) Opinion of Counsel, dated February 1, 1994
(11) Inapplicable
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16) Inapplicable
Item 25. Persons Controlled by or Under Common Control.
None.
Item 26. Number of Holders of Securities
As of February 1, 1994, there were zero shareholders in the T. Rowe
Price International Series, Inc.
Item 27. Indemnification
The Registrant maintains comprehensive Errors and Omissions and Officers and
Directors insurance policies written by the Evanston Insurance Company, The
Chubb Group and ICI Mutual. These policies provide coverage for the named
insureds, which include T. Rowe Price Associates, Inc. ("Price Associates"),
Rowe Price-Fleming International, Inc., T. Rowe Price Investment Services,
Inc., T. Rowe Price Services, Inc., T. Rowe Price Trust Company, T. Rowe Price
Stable Asset Management, Inc., RPF International Bond Fund and thirty-four
other investment companies, namely, T. Rowe Price Growth Stock Fund, Inc., T.
Rowe Price New Horizons Fund, Inc., T. Rowe Price New Era Fund, Inc., T. Rowe
Price New Income Fund, Inc., T. Rowe Price Prime Reserve Fund, Inc., T. Rowe
Price Tax-Free Income Fund, Inc., T. Rowe Price 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 State Tax-Free Income Trust, T. Rowe Price
California Tax-Free Income Trust, T. Rowe Price Science & Technology Fund,
Inc., T. Rowe Price Small-Cap Value Fund, Inc., Institutional International
Funds, Inc., T. Rowe Price U.S. Treasury Funds, Inc., T. Rowe Price Index
PAGE 47
Trust, Inc., T. Rowe Price Spectrum Fund, Inc., T. Rowe Price Balanced Fund,
Inc., T. Rowe Price Adjustable Rate U.S. Government Fund, Inc., T. Rowe Price
Mid-Cap Growth Fund, Inc., T. Rowe Price OTC Fund, Inc., T. Rowe Price Tax-
Free Insured Intermediate Bond Fund, Inc., T. Rowe Price Dividend Growth Fund,
Inc., T. Rowe Price Blue Chip Growth Fund, Inc., T. Rowe Price Summit Funds,
Inc. and T. Rowe Price Summit Municipal Funds, Inc. The Registrant and the
thirty-four investment companies listed above, with the exception of
Institutional International Funds, Inc. and T. Rowe Price Index Trust, Inc.,
will be collectively referred to as the Price Funds. With respect to all such
Price Funds excluding the Registrant, T. Rowe Price International Funds, Inc.,
and Institutional International Funds, Inc., their investment manager is Price
Associates. The investment manager to the Registrant, T. Rowe Price
International Funds, Inc., and Institutional International Funds, Inc. is Rowe
Price-Fleming International, Inc. ("Manager") which is 50% owned by TRP
Finance, Inc., a wholly-owned subsidiary of the Manager, 25% owned by Copthall
Overseas Limited, a wholly-owned subsidiary of Robert Fleming Holdings
Limited, and 25% owned by Jardine Fleming International Holdings Limited. In
addition to the corporate insureds, the policies also cover the officers,
directors, and employees of each of the named insureds. The premium is
allocated among the named corporate insureds in accordance with the provisions
of Rule 17d-1(d)(7) under the Investment Company Act of 1940.
General. The Charter of the Corporation provides that to the
fullest extent permitted by Maryland or federal law, no director of
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
herein shall be deemed to protect any director or officer of the
Corporation against any liability to the Corporation of the holders of
Shares to which such director or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Article X, Section 10.01 of the Registrant's By-Laws provides as follows:
Section 10.01. Indemnification and Payment of Expenses in Advance:
The Corporation shall indemnify any individual ("Indemnitee") who is a present
or former director, officer, employee, or agent of the Corporation, or who is
or has been serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, who, by reason of his position was, is, or is threatened to
be made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter collectively referred to as a "Proceeding") against any
judgments, penalties, fines, settlements, and reasonable expenses (including
attorneys' fees) incurred by such Indemnitee in connection with any
Proceeding, to the fullest extent that such indemnification may be lawful
under Maryland law. 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 Maryland law. 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 Maryland law.
Notwithstanding the foregoing, nothing herein shall protect or purport to
protect any Indemnitee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office
("Disabling Conduct").
PAGE 48
Anything in this Article X to the contrary notwithstanding, no
indemnification shall be made by the Corporation to any Indemnitee unless:
(a) there is a final decision on the merits by a court or other body
before whom the Proceeding was brought that the Indemnitee was not
liable by reason of Disabling Conduct; or
(b) in the absence of such a decision, there is a reasonable
determination, based upon a review of the facts, that the
Indemnitee was not liable by reason of Disabling Conduct, which
determination shall be made by:
(i) the vote of a majority of a quorum of directors who are
neither "interested persons" of the Corporation as defined in
Section 2(a)(19) of the Investment Company Act, nor parties to
the Proceeding; or
(ii) an independent legal counsel in a written opinion.
Anything in this Article X to the contrary notwithstanding, any advance
of expenses by the Corporation to any Indemnitee shall be made only upon the
undertaking by such Indemnitee to repay the advance unless it is ultimately
determined that such Indemnitee is entitled to indemnification as above
provided, and only if one of the following conditions is met:
(a) the Indemnitee provides a security for his undertaking; or
(b) the Corporation shall be insured against losses arising by reason
of any lawful advances; or
(c) there is a determination, based on a review of readily available
facts, that there is reason to believe that the Indemnitee will
ultimately be found entitled to indemnification, which
determination shall be made by:
(i) a majority of a quorum of directors who are neither
"interested persons" of the Corporation as defined in Section
2(a)(19) of the Investment Company Act, nor parties to the
Proceeding; or
(ii) an independent legal counsel in a written opinion.
Section 10.02 of the Registrant's By-Laws provides as follows:
Section 10.02. Insurance of Officers, Directors, Employees and Agents:
To the fullest extent permitted by applicable Maryland law and by Section
17(h) of the Investment Company Act, 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 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
PAGE 49
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 28. Business and Other Connections of Investment Manager.
M. David Testa, who is Chairman of the Board of the Manager, is
presently a Managing Director of Price Associates and a Director of Fleming
International Fixed Interest Management Limited.
George J. Collins, a Director of the Manager, is Chief Executive
Officer, President, and Managing Director of Price Associates.
D. William J. Garrett, a Director of the Manager, is Chairman of Robert
Fleming Securities Limited, a Director of Robert Fleming Holdings Limited
("Robert Fleming Holdings"), a parent of the Manager which is a United Kingdom
holding company duly organized and existing under the laws of the United
Kingdom, Robert Fleming Management Services Limited, Robert Fleming Management
Services Limited, Robert Fleming & Co. Limited, and Fleming Investments
Limited. Mr. Garrett also serves as Director and/or officer of other
companies related to or affiliated with the above listed companies.
P. John Manser, a Director of the Manager, is Chief Executive of Robert
Fleming Holdings, Chairman of Robert Fleming & Co. Limited, Director of
Jardine Fleming Group Limited, Robert Fleming Management Services Limited,
Fleming Investment Management Limited, Robert Fleming Asset Management
Limited, Jardine Fleming Holdings Limited, and Robert Fleming Asset Management
Limited and also serves as a director of the U.K. Securities and Investments
Board. Mr. Manser also serves as Director and/or officer of other companies
related to or affiliated with the above listed companies.
George A. Roche, a Vice President and a Director of the Manager, is
Chief Financial Officer and a Managing Director of Price Associates.
Charles H. Salisbury, Jr., a Vice President and a Director of the
Manager, is a Managing Director of Price Associates.
Alan H. Smith, a Director of the Manager, is Managing Director of
Jardine Fleming Group Limited and Jardine Fleming Holdings Limited, Chairman
of Jardine Fleming Investment Management Limited, Jardine Fleming & Company
Limited and Jardine Fleming Securities Limited and a Director of Robert
Fleming Holdings. Mr. Smith also serves as Director and/or officer of other
companies related to or affiliated with the above listed companies.
Alvin M. Younger, Jr., the Secretary and Treasurer of the Manager, is a
Managing Director and the Secretary and Treasurer of Price Associates.
With the exception of Christopher D. Alderson, Peter B. Askew, David P.
Boardman, Richard J. Bruce, Ann B. Cranmer, Mark J. T. Edwards, John R. Ford,
Stephen Ilott, Christopher Rothery, James B. M. Seddon, Benedict R. F. Thomas,
David J. L. Warren, and Martin G. Wade, all officers of the Manager are
PAGE 50
officers and/or employees of Price Associates and may also be officers and/or
directors of one or more subsidiaries of Price Associates and/or one or more
of the registered investment companies which Price Associates or the Manager
serves as investment adviser. Messrs. Boardman and Askew, Executive Vice
President and Vice President of the Manager, respectively, and Messrs. Ilott
and Rothery are employees of Fleming International Fixed Interest Management
Limited, an investment adviser registered under the Investment Advisers Act of
1940. Ms. Cranmer is an employee of Fleming Investment Management Limited.
Mr. Wade, who is President of the Manager, is also a Non-Executive Director of
Holdings.
RPFI International Partners, Limited Partnership, is a Delaware limited
partnership organized in 1985 for the purpose of investing in a diversified
group of small and medium-sized rapidly growing non- U.S. companies. The
Manager is the general partner of this partnership, and certain clients of
the Manager are its limited partners.
See also "Management of Fund," in the Registrant's Statement of
Additional Information.
Item 29. Principal Underwriters.
(a) The principal underwriter for the Registrant is Investment
Services. Investment Services acts as the principal underwriter for the
other thirty-four Price Funds. Investment Services is a wholly-owned
subsidiary of the Manager is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. Investment Services has been
formed for the limited purpose of distributing the shares of the Price
Funds and will not engage in the general securities business. Since the
Price Funds are sold on a no-load basis, Investment Services will not
receive any commission or other compensation for acting as principal
underwriter.
(b) The address of each of the directors and officers of Investment
Services listed below is 100 East Pratt Street, Baltimore, Maryland
21202.
Name and Principal Positions and Offices Offices
Business Address With Underwriter With Registrant
__________________ _____________________ _______________
James Sellers Riepe President and Director Vice President and
Trustee
Henry Holt Hopkins Vice President and Vice President
Director
Mark E. Rayford Director None
Charles E. Vieth Vice President and None
Director
Patricia M. Archer Vice President None
Edward C. Bernard Vice President None
Joseph C. Bonasorte Vice President None
Meredith C. Callanan Vice President None
Victoria C. Collins Vice President None
Christopher W. Dyer Vice President None
Mark S. Finn Vice President and None
Assistant Controller
Forrest R. Foss Vice President None
Patricia O. Goodyear Vice President None
James W. Graves Vice President None
Andrea G. Griffin Vice President None
PAGE 51
Thomas Grizzard Vice President None
David J. Healy Vice President None
Joseph P. Healy Vice President None
Walter J. Helmlinger Vice President None
Eric G. Knauss Vice President None
Douglas G. Kremer Vice President None
Sharon Renae Krieger Vice President None
Keith Wayne Lewis Vice President None
David A. Lyons Vice President None
Sarah McCafferty Vice President None
Maurice A. Minerbi Vice President None
George A. Murnaghan Vice President None
Steven E. Norwitz Vice President None
Kathleen M. O'Brien Vice President None
Charles S. Peterson Vice President None
Pamela D. Preston Vice President None
Lucy B. Robins Vice President None
John R. Rockwell 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
Joseph P. Croteau Controller None
Catherine L. Berkenkemper Assistant Vice President None
S. Brooks Biggs Assistant Vice President None
Patricia S. Butcher Assistant Vice President None
Laura H. Chasney Assistant Vice President None
George H. Finney Assistant Vice President None
John A. Galateria Assistant Vice President None
Cheryl A. Gustitus Assistant Vice President None
Keith J. Langrehr Assistant Vice President None
C. Lillian Matthews Assistant Vice President None
Tom J. Mauer Assistant Vice President None
Janice D. McCrory Assistant Vice President None
Sandra J. McHenry Assistant Vice President None
JeanneMarie B. Patella Assistant Vice President None
Arthur J. Siber Assistant Vice President None
Mary A. Tamberrino Assistant Vice President None
Monica R. Tucker Assistant Vice President None
Linda C. Wright Assistant Vice President None
Nolan L. North Assistant Treasurer None
Barbara A. VanHorn Assistant Secretary None
(c) Not applicable. Investment Services will not receive any
compensation with respect to its activities as underwriter for the Price
Funds since the Price Funds are sold on a no-load basis.
Item 30. Location of Accounts and Records.
All accounts, books, and other documents required to be maintained by T.
Rowe Price International Series, Inc. under Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder will be
maintained by T. Rowe Price International Series, Inc., at its offices at
100 East Pratt Street, Baltimore, Maryland 21202. Transfer agent,
dividend disbursing, and shareholder service activities are performed by
T. Rowe Price Services, Inc., at 100 East Pratt Street, Baltimore,
Maryland 21202. Custodian activities for T. Rowe Price International
Series, Inc. are performed at State Street Bank and Trust Company's
Service Center (State Street South), 1776 Heritage Drive, Quincy,
Massachusetts 02171.
PAGE 52
Item 31. Management Services.
The Registrant is not a party to any management-related service contract,
other than as set forth in the Prospectus.
Item 32. Undertakings.
(a) The undersigned Registrant hereby undertakes to file an amendment
to the Registration Statement with certified financial statements
showing the initial capital received before accepting subscriptions
from any persons in excess of 25 if it raises its initial capital
pursuant to Section 14(a)(3) of the 1940 Act.
(b) The Fund will file, within four to six months from the effective
date of its registration statement, a post-effective amendment
using financial statements which need not be certified.
(c) If requested to do so by the holders of at least 10% of all votes
entitled to be cast, the Registrant will call a meeting of
shareholders for the purpose of voting on the question of removal
of a director or directors and will assist in communications with
other shareholders to the extent required by Section 16(c).
(d) The Fund agrees to furnish, upon request and without charge, a copy
of its latest Annual Report to each person to whom as prospectus is
delivered.
<PAGE>
PAGE 53
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baltimore, State of
Maryland, this 4th day of February, 1994.
T. ROWE PRICE INTERNATIONAL SERIES, INC.
/s/James S. Riepe
By:James S. Riepe, President and Director
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/James S. Riepe President and Director
James S. Riepe (Principal Executive Officer) February 4, 1994
/s/Carmen F. Deyesu Treasurer
Carmen F. Deyesu (Principal Financial Officer) February 4, 1994
PAGE 1
T. ROWE PRICE INTERNATIONAL SERIES, INC.
ARTICLES OF INCORPORATION
FIRST: THE UNDERSIGNED, Henry H. Hopkins, whose address is 100 East
Pratt Street, Baltimore, Maryland 21202, being at least eighteen years of age,
acting as incorporator, does hereby form a corporation under the General Laws
of the State of Maryland.
SECOND: (a) The name of the corporation (which is hereinafter called
the "Corporation") is:
T. Rowe Price International Series, Inc.
(b) The Corporation acknowledges that it is adopting its corporate
name through permission of T. Rowe Price Associates, Inc., a Maryland
corporation (hereinafter referred to as "Price Associates"), and acknowledges
that Price Associates has the sole and exclusive right to use or license the
use of the name "T. Rowe Price" in commerce. The Corporation agrees that if
at any time and for any cause, the investment adviser or distributor of the
Corporation ceases to be Price Associates or an affiliate of Price Associates,
the Corporation shall at the written request of Price Associates take all
requisite action to amend its charter to eliminate the name "T. Rowe Price"
from the Corporation's corporate name and from the designations of its shares
of capital stock. The Corporation further acknowledges that Price Associates
reserves the right to grant the non-exclusive right to use the name "T. Rowe
Price" to any other corporation, including other investment companies, whether
now in existence or hereafter created.
THIRD: (a) The purposes for which the Corporation is formed and the
business and objects to be carried on and promoted by it are:
(1) To engage generally in the business of investing,
reinvesting, owning, holding or trading in securities, as defined in the
Investment Company Act of 1940, as from time to time amended
(hereinafter referred to as the "Investment Company Act"), as an
investment company classified under the Investment Company Act as a
management company.
(2) To engage in any one or more businesses or transactions, or
to acquire all or any portion of any entity engaged in any one or more
businesses or transactions, which the Board of Directors may from time
to time authorize or approve, whether or not related to the business
described elsewhere in this Article or to any other business at the time
or theretofore engaged in by the Corporation.
(b) The foregoing enumerated purposes and objects shall be in no way
limited or restricted by reference to, or inference from, the terms of any
other clause of this or any other Article of the charter of the Corporation,
and each shall be regarded as independent; and they are intended to be and
shall be construed as powers as well as purposes and objects of the
Corporation and shall be in addition to and not in limitation of the general
powers of corporations under the General Laws of the State of Maryland.
PAGE 2
FOURTH: The present address of the principal office of the Corporation
in this State is:
100 East Pratt Street
Baltimore, Maryland 21202
FIFTH: The name and address of the resident agent of the Corporation in
this State are:
Henry H. Hopkins
100 East Pratt Street
Baltimore, Maryland 21202
Said resident agent is a citizen of the State of Maryland, and actually
resides therein.
SIXTH: (a) The total number of shares of stock of all classes and
series which the Corporation initially has authority to issue is One Billion
(1,000,000,000) shares of capital stock (par value $.0001 per share),
amounting in aggregate par value to One Hundred Thousand Dollars ($100,000).
All of such shares are initially classified as "Common Stock" of the "T. Rowe
Price International Stock Portfolio" series. Each such series shall consist,
until further changed, of the lesser of (x) 1,000,000,000 shares or (y) the
number of shares that could be issued by issuing all of the shares of any
series currently or hereafter classified less the total number of shares then
issued and outstanding in all of such series. The Board of Directors may
classify and reclassify any unissued shares of capital stock (whether or not
such shares have been previously classified or reclassified) by setting or
changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of such shares of stock.
(b) The following is a description of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of Common
Stock classified as the "T. Rowe Price International Stock Portfolio" series
and any additional series of Common Stock of the Corporation (unless provided
otherwise by the Board of Directors with respect to any such additional series
at the time it is established and designated):
(1) Assets Belonging to Series. All consideration received by
the Corporation from the issue or sale of shares of a particular series,
together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of
such assets, and any funds or payments derived from any investment or
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of account
of the Corporation. Such consideration, assets, income, earnings,
profits and proceeds, together with any General Items allocated to that
series as provided in the following sentence, are herein referred to
collectively as "assets belonging to" that series. In the event that
there are any assets, income, earnings, profits or proceeds which are
not readily identifiable as belonging to any particular series
(collectively, "General Items"), such General Items shall be allocated
by or under the supervision of the Board of Directors to and among any
one or more of the series established and designated from time to time
in such manner and on such basis as the Board of Directors, in its sole
discretion, deems fair and equitable; and any General Items so allocated
PAGE 3
to a particular series shall belong to that series. Each such
allocation by the Board of Directors shall be conclusive and binding for
all purposes.
(2) Liabilities of Series. The assets belonging to each
particular series shall be charged with the liabilities of the
Corporation in respect of that series and all expenses, costs, charges
and reserves attributable to that series, and any general liabilities,
expenses, costs, charges or reserves of the Corporation which are not
readily identifiable as pertaining to any particular series, shall be
allocated and charged by or under the supervision of the Board of
Directors to and among any one or more of the series established and
designated from time to time in such manner and on such basis as the
Board of Directors, in its sole discretion, deems fair and equitable.
The liabilities, expenses, costs, charges and reserves allocated and so
charged to a series are herein referred to collectively as "liabilities
of" that series. Each allocation of liabilities, expenses, costs,
charges and reserves by or under the supervision of the Board of
Directors shall be conclusive and binding for all purposes.
(3) Dividends and Distributions. Dividends and capital gains
distributions on shares of a particular series may be paid with such
frequency, in such form and in such amount as the Board of Directors may
determine by resolution adopted from time to time, or pursuant to a
standing resolution or resolutions adopted only once or with such
frequency as the Board of Directors may determine, after providing for
actual and accrued liabilities of that series. All dividends on shares
of a particular series shall be paid only out of the income belonging to
that series and all capital gains distributions on shares of a
particular series shall be paid only out of the capital gains belonging
to that series. All dividends and distributions on shares of a
particular series shall be distributed pro rata to the holders of that
series in proportion to the number of shares of that series held by such
holders at the date and time of record established for the payment of
such dividends or distributions, except that in connection with any
dividend or distribution program or procedure, the Board of Directors
may determine that no dividend or distribution shall be payable on
shares as to which the shareholder's purchase order and/or payment have
not been received by the time or times established by the Board of
Directors under such program or procedure.
Dividends and distributions may be paid in cash, property or
additional shares of the same or another series, or a combination
thereof, as determined by the Board of Directors or pursuant to any
program that the Board of Directors may have in effect at the time for
the election by shareholders of the form in which dividends or
distributions are to be paid. Any such dividend or distribution paid in
shares shall be paid at the current net asset value thereof.
(4) Voting. On each matter submitted to a vote of the
shareholders, each holder of shares shall be entitled to one vote for
each share standing in his name on the books of the Corporation,
irrespective of the series thereof, and all shares of all series shall
vote as a single class ("Single Class Voting"); provided, however, that
(i) as to any matter with respect to which a separate vote of any series
is required by the Investment Company Act or by the Maryland General
Corporation Law, such requirement as to a separate vote by that series
shall apply in lieu of Single Class Voting; (ii) in the event that the
separate vote requirement referred to in (i) above applies with respect
to one or more series, then, subject to (iii) below, the shares of all
PAGE 4
other series shall vote as a single class; and (iii) as to any matter
which does not affect the interest of a particular series, including
liquidation of another series as described in subsection (7) below, only
the holders of shares of the one or more affected series shall be
entitled to vote.
(5) Redemption by Shareholders. Each holder of shares of a
particular series shall have the right at such times as may be permitted
by the Corporation to require the Corporation to redeem all or any part
of his shares of that series, at a redemption price per share equal to
the net asset value per share of that series next determined after the
shares are properly tendered for redemption, less such redemption fee or
sales charge, if any, as may be established by the Board of Directors in
its sole discretion. Payment of the redemption price shall be in cash;
provided, however, that if the Board of Directors determines, which
determination shall be conclusive, that conditions exist which make
payment wholly in cash unwise or undesirable, the Corporation may, to
the extent and in the manner permitted by the Investment Company Act,
make payment wholly or partly in securities or other assets belonging to
the series of which the shares being redeemed are a part, at the value
of such securities or assets used in such determination of net asset
value.
Notwithstanding the foregoing, the Corporation may postpone payment
of the redemption price and may suspend the right of the holders of
shares of any series to require the Corporation to redeem shares of that
series during any period or at any time when and to the extent
permissible under the Investment Company Act.
(6) Redemption by Corporation. The Board of Directors may cause
the Corporation to redeem at net asset value the shares of any series
from a holder (i) if the Board of Directors of the Corporation
determines in its sole discretion that failure to so redeem such shares
may have materially adverse consequences to the holders of shares of the
Corporation or any series, or (ii) upon such other conditions with
respect to the maintenance of shareholder accounts of a minimum amount
as may from time to time be established by the Board of Directors in its
sole discretion.
(7) Liquidation. In the event of the liquidation of a
particular series, the shareholders of the series that is being
liquidated shall be entitled to receive, as a class, when and as
declared by the Board of Directors, the excess of the assets belonging
to that series over the liabilities of that series. The holders of
shares of any particular series shall not be entitled thereby to any
distribution upon liquidation of any other series. The assets so
distributable to the shareholders of any particular series shall be
distributed among such shareholders in proportion to the number of
shares of that series held by them and recorded on the books of the
Corporation. The liquidation of any particular series in which there
are shares then outstanding may be authorized by vote of a majority of
the Board of Directors then in office, subject to the approval of a
majority of the outstanding voting securities of that series, as defined
in the Investment Company Act, and without the vote of the holders of
shares of any other series. The liquidation of a particular series may
be accomplished, in whole or in part, by the transfer of assets of such
series to another series or by the exchange of shares of such series for
the shares of another series.
<PAGE>
PAGE 5
(8) Net Asset Value Per Share. The net asset value per share of
any series shall be the quotient obtained by dividing the value of the
net assets of that series (being the value of the assets belonging to
that series less the liabilities of that series) by the total number of
shares of that series outstanding, all as determined by or under the
direction of the Board of Directors in accordance with generally
accepted accounting principles and the Investment Company Act. Subject
to the applicable provisions of the Investment Company Act, the Board of
Directors, in its sole discretion, may prescribe and shall set forth in
the By-Laws of the Corporation or in a duly adopted resolution of the
Board of Directors such bases and times for determining the value of the
assets belonging to, and the net asset value per share of outstanding
shares of, each series, or the net income attributable to such shares,
as the Board of Directors deems necessary or desirable. The Board of
Directors shall have full discretion, to the extent not inconsistent
with the Maryland General Corporation Law and the Investment Company
Act, to determine which items shall be treated as income and which items
as capital and whether any item of expense shall be charged to income or
capital. Each such determination and allocation shall be conclusive and
binding for all purposes.
The Board of Directors may determine to maintain the net asset
value per share of any series at a designated constant dollar amount and
in connection therewith may adopt procedures not inconsistent with the
Investment Company Act for the continuing declaration of income
attributable to that series as dividends and for the handling of any
losses attributable to that series. Such procedures may provide that in
the event of any loss, each shareholder shall be deemed to have
contributed to the capital of the Corporation attributable to that
series his pro rata portion of the total number of shares required to be
canceled in order to permit the net asset value per share of that series
to be maintained, after reflecting such loss, at the designated constant
dollar amount. Each shareholder of the Corporation shall be deemed to
have agreed, by his investment in any series with respect to which the
Board of Directors shall have adopted any such procedure, to make the
contribution referred to in the preceding sentence in the event of any
such loss.
(9) Equality. All shares of each particular series shall
represent an equal proportionate interest in the assets belonging to
that series (subject to the liabilities of that series), and each share
of any particular series shall be equal to each other share of that
series. The Board of Directors may from time to time divide or combine
the shares of any particular series into a greater or lesser number of
shares of that series without thereby changing the proportionate
interest in the assets belonging to that series or in any way affecting
the rights of holders of shares of any other series.
(10) Conversion or Exchange Rights. Subject to compliance with
the requirements of the Investment Company Act, the Board of Directors
shall have the authority to provide that holders of shares of any series
shall have the right to convert or exchange said shares into shares of
one or more other classes or series of shares in accordance with such
requirements and procedures as may be established by the Board of
Directors.
(c) The shares of Common Stock of the Corporation, or of any series of
Common Stock of the Corporation to the extent such Common Stock is divided
into series, may be further subdivided into classes (which may, for
convenience of reference be referred to a term other than "class"). Unless
PAGE 6
otherwise provided in the Articles Supplementary establishing such classes,
all such shares, or all shares of a series of Common Stock in a series, shall
have identical voting, dividend, and liquidation rights. Shares of the
classes shall also be subject to such front-end sales loads, contingent
deferred sales charges, expenses (including, without limitation, distribution
expenses under a Rule 12b-1 plan and administrative expenses under an
administration or service agreement, plan or other arrangement, however
designated), conversion rights, and class voting rights as shall be consistent
with Maryland law, the Investment Company Act of 1940, and the rules and
regulations of the National Association of Securities Dealers and shall be
contained in Articles Supplementary establishing such classes.
(d) For the purposes hereof and of any articles supplementary to the
charter providing for the classification or reclassification of any shares of
capital stock or of any other charter document of the Corporation (unless
otherwise provided in any such articles or document), any class or series of
stock of the Corporation shall be deemed to rank:
(1) prior to another class or series either as to dividends or
upon liquidation, if the holders of such class or series shall be
entitled to the receipt of dividends or of amounts distributable on
liquidation, dissolution or winding up, as the case may be, in
preference or priority to holders of such other class or series;
(2) on a parity with another class or series either as to
dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation price per share
thereof be different from those of such others, if the holders of such
class or series of stock shall be entitled to receipt of dividends or
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in proportion to their respective dividend rates or
redemption or liquidation prices, without preference or priority over
the holders of such other class or series; and
(3) junior to another class or series either as to dividends or
upon liquidation, if the rights of the holders of such class or series
shall be subject or subordinate to the rights of the holders of such
other class or series in respect of the receipt of dividends or the
amounts distributable upon liquidation, dissolution or winding up, as
the case may be.
(e) Unless otherwise prohibited by law, so long as the Corporation is
registered as an open-end management investment company under the Investment
Company Act, the Board of Directors shall have the power and authority,
without the approval of the holders of any outstanding shares, to increase or
decrease the number of shares of capital stock or the number of shares of
capital stock of any class or series that the Corporation has authority to
issue.
(f) The Corporation may issue and sell fractions of shares of capital
stock having pro rata all the rights of full shares, including, without
limitation, the right to vote and to receive dividends, and wherever the words
"share" or "shares" are used in the charter or By-Laws of the Corporation,
they shall be deemed to include fractions of shares, where the context does
not clearly indicate that only full shares are intended.
(g) The Corporation shall not be obligated to issue certificates
representing shares of any class or series of capital stock. At the time of
issue or transfer of shares without certificates, the Corporation shall
PAGE 7
provide the shareholder with such information as may be required under the
Maryland General Corporation Law.
SEVENTH: The number of directors of the Corporation shall initially be
one (1), which number may be increased or decreased pursuant to the By-Laws of
the Corporation, but shall never be less than the minimum number permitted by
the General Laws of the State of Maryland now or hereafter in force. James S.
Riepe shall serve as director until the first annual meeting and until his
successor is elected and qualified.
EIGHTH: (a) The following provisions are hereby adopted for the
purpose of defining, limiting, and regulating the powers of the Corporation
and of the directors and shareholders:
(1) The Board of Directors is hereby empowered to authorize the
issuance from time to time of shares of its stock of any class or
series, whether now or hereafter authorized, or securities convertible
into shares of its stock of any class or series, whether now or
hereafter authorized, for such consideration as may be deemed advisable
by the Board of Directors and without any action by the shareholders.
(2) No holder of any stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any
preemptive right to subscribe for or purchase any stock or any other
securities of the Corporation other than such, if any, as the Board of
Directors, in its sole discretion, may determine and at such price or
prices and upon such other terms as the Board of Directors, in its sole
discretion, may fix; and any stock or other securities which the Board
of Directors may determine to offer for subscription may, as the Board
of Directors in its sole discretion shall determine, be offered to the
holders of any class, series or type of stock or other securities at the
time outstanding to the exclusion of the holders of any or all other
classes, series or types of stock or other securities at the time
outstanding.
(3) The Board of Directors of the Corporation shall, consistent
with applicable law, have power in its sole discretion to determine from
time to time in accordance with sound accounting practice or other
reasonable valuation methods what constitutes annual or other net
profits, earnings, surplus, or net assets in excess of capital; to
determine that retained earnings or surplus shall remain in the hands of
the Corporation; to set apart out of any funds of the Corporation such
reserve or reserves in such amount or amounts and for such proper
purpose or purposes as it shall determine and to abolish any such
reserve or any part thereof; to distribute and pay distributions or
dividends in stock, cash or other securities or property, out of surplus
or any other funds or amounts legally available therefor, at such times
and to the shareholders of record on such dates as it may, from time to
time, determine; and to determine whether and to what extent and at what
times and places and under what conditions and regulations the books,
accounts and documents of the Corporation, or any of them, shall be open
to the inspection of shareholders, except as otherwise provided by
statute or by the By-Laws, and, except as so provided, no shareholder
shall have any right to inspect any book, account or document of the
Corporation unless authorized so to do by resolution of the Board of
Directors.
(4) Notwithstanding any provision of law requiring the
authorization of any action by a greater proportion than a majority of
the total number of shares of all classes and series of capital stock or
PAGE 8
of the total number of shares of any class or series of capital stock
entitled to vote as a separate class, such action shall be valid and
effective if authorized by the affirmative vote of the holders of a
majority of the total number of shares of all classes and series
outstanding and entitled to vote thereon, or of the class or series
entitled to vote thereon as a separate class, as the case may be, except
as otherwise provided in the charter of the Corporation.
(5) The Corporation shall indemnify (i) its past and present
directors and officers, whether serving the Corporation or at its
request any other entity, to the full extent required or permitted by
the General Laws of the State of Maryland now or hereafter in force,
including the advance of expenses under the procedures and to the full
extent permitted by law, and (ii) other employees and agents to such
extent as shall be authorized by the Board of Directors or the By-Laws
and as permitted by law. Nothing contained herein shall be construed to
protect any director or officer of the Corporation against any liability
to the Corporation or its security holders 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. The foregoing rights of indemnification shall not be
exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is
necessary to carry out these indemnification provisions and is expressly
empowered to adopt, approve and amend from time to time such by-laws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment
of the charter of the Corporation or repeal of any of its provisions
shall limit or eliminate the right of indemnification provided hereunder
with respect to acts or omissions occurring prior to such amendment or
repeal.
(6) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment Company
Act, no director or officer of the Corporation shall be personally
liable to the Corporation or its shareholders for money damages;
provided, however, that nothing herein shall be construed to protect any
director or officer of the Corporation against any liability to the
Corporation or its security holders 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. No amendment of the charter of the Corporation or repeal of any
of its provisions shall limit or eliminate the limitation of liability
provided to directors and officers hereunder with respect to any act or
omission occurring prior to such amendment or repeal.
(7) The Corporation reserves the right from time to time to make
any amendments of its charter which may now or hereafter be authorized
by law, including any amendments changing the terms or contract rights,
as expressly set forth in its charter, of any of its outstanding stock
by classification, reclassification or otherwise.
(b) The enumeration and definition of particular powers of the Board
of Directors included in the foregoing shall in no way be limited or
restricted by reference to or inference from the terms of any other clause of
this or any other Article of the charter of the Corporation, or construed as
or deemed by inference or otherwise in any manner to exclude or limit any
powers conferred upon the Board of Directors under the General Laws of the
State of Maryland now or hereafter in force.
PAGE 9
NINTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation,
acknowledging the same to be my act, on this 31st day of January, 1994.
Witness:
/s/Lenora V. Hornung /s/Henry H. Hopkins
_____________________________ ______________________________________
Henry H. Hopkins
PAGE 1
BY-LAWS
OF
T. ROWE PRICE INTERNATIONAL SERIES, INC.
<PAGE>
PAGE 2
TABLE OF CONTENTS
Page
ARTICLE I. NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL . . 1
1.01. Name. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Principal Office. . . . . . . . . . . . . . . . . . . 1
1.03. Seal. . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . 1
2.01. Annual Meetings . . . . . . . . . . . . . . . . . . . 1
2.02. Special Meetings. . . . . . . . . . . . . . . . . . . 2
2.03. Place of Meetings . . . . . . . . . . . . . . . . . . 2
2.04. Notice of Meetings. . . . . . . . . . . . . . . . . . 2
2.05. Voting - in General . . . . . . . . . . . . . . . . . 2
2.06. Shareholders Entitled to Vote . . . . . . . . . . . . 3
2.07. Voting - Proxies. . . . . . . . . . . . . . . . . . . 3
2.08. Quorum. . . . . . . . . . . . . . . . . . . . . . . . 3
2.09. Absence of Quorum . . . . . . . . . . . . . . . . . . 3
2.10. Stock Ledger and List of Shareholders . . . . . . . . 4
2.11. Informal Action by Shareholders . . . . . . . . . . . 4
ARTICLE III. BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . 4
3.01. Number and Term of Office . . . . . . . . . . . . . . 4
3.02. Qualification of Directors. . . . . . . . . . . . . . 4
3.03. Election of Directors . . . . . . . . . . . . . . . . 5
3.04. Removal of Directors. . . . . . . . . . . . . . . . . 5
3.05. Vacancies and Newly Created Directorships . . . . . . 5
3.06. General Powers. . . . . . . . . . . . . . . . . . . . 5
3.07. Power to Issue and Sell Stock . . . . . . . . . . . . 6
3.08. Power to Declare Dividends. . . . . . . . . . . . . . 6
3.09. Annual and Regular Meetings . . . . . . . . . . . . . 6
3.10. Special Meetings. . . . . . . . . . . . . . . . . . . 6
3.11. Notice. . . . . . . . . . . . . . . . . . . . . . . . 7
3.12. Waiver of Notice. . . . . . . . . . . . . . . . . . . 7
3.13. Quorum and Voting . . . . . . . . . . . . . . . . . . 7
3.14. Conference Telephone. . . . . . . . . . . . . . . . . 7
3.15. Compensation. . . . . . . . . . . . . . . . . . . . . 7
3.16. Action without a Meeting. . . . . . . . . . . . . . . 7
3.17. Director Emeritus . . . . . . . . . . . . . . . . . . 7
ARTICLE IV. EXECUTIVE COMMITTEE AND OTHER COMMITTEES. . . . . . . 8
4.01. How Constituted . . . . . . . . . . . . . . . . . . . 8
4.02. Powers of the Executive Committee . . . . . . . . . . 8
4.03. Other Committees of the Board of Directors. . . . . . 8
4.04. Proceedings, Quorum and Manner of Acting. . . . . . . 8
4.05. Other Committees. . . . . . . . . . . . . . . . . . . 8
ARTICLE V. OFFICERS. . . . . . . . . . . . . . . . . . . . . . . 9
5.01. General . . . . . . . . . . . . . . . . . . . . . . . 9
5.02. Election, Term of Office and Qualifications . . . . . 9
5.03. Resignation . . . . . . . . . . . . . . . . . . . . . 9
5.04. Removal . . . . . . . . . . . . . . . . . . . . . . . 9
5.05. Vacancies and Newly Created Offices . . . . . . . . . 9
5.06. Chairman of the Board . . . . . . . . . . . . . . . . 9
5.07. President . . . . . . . . . . . . . . . . . . . . . . 10
5.08. Vice President. . . . . . . . . . . . . . . . . . . . 10
PAGE 3
5.09. Treasurer and Assistant Treasurers. . . . . . . . . . 10
5.10. Secretary and Assistant Secretaries . . . . . . . . . 11
5.11. Subordinate Officers. . . . . . . . . . . . . . . . . 11
5.12. Remuneration. . . . . . . . . . . . . . . . . . . . . 11
5.13. Surety Bond . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI. CUSTODY OF SECURITIES AND CASH. . . . . . . . . . . . 11
6.01. Employment of a Custodian . . . . . . . . . . . . . . 11
6.02. Central Certificate Service . . . . . . . . . . . . . 12
6.03. Cash Assets . . . . . . . . . . . . . . . . . . . . . 12
6.04. Free Cash Accounts. . . . . . . . . . . . . . . . . . 12
6.05. Action Upon Termination of Custodian Agreement. . . . 12
6.06. Other Arrangements. . . . . . . . . . . . . . . . . . 12
ARTICLE VII. EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES. . . . 13
7.01. Execution of Instruments. . . . . . . . . . . . . . . 13
7.02. Voting of Securities. . . . . . . . . . . . . . . . . 13
ARTICLE VIII. CAPITAL STOCK . . . . . . . . . . . . . . . . . . . 13
8.01. Ownership of Shares . . . . . . . . . . . . . . . . . 13
8.02. Transfer of Capital Stock . . . . . . . . . . . . . . 13
8.03. Transfer Agents and Registrars. . . . . . . . . . . . 14
8.04. Transfer Regulations. . . . . . . . . . . . . . . . . 14
8.05. Fixing of Record Date . . . . . . . . . . . . . . . . 14
ARTICLE IX. FISCAL YEAR, ACCOUNTANT . . . . . . . . . . . . . . . 14
9.01. Fiscal Year . . . . . . . . . . . . . . . . . . . . . 14
9.02. Accountant. . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE X. INDEMNIFICATION AND INSURANCE . . . . . . . . . . . . 15
10.01. Indemnification and Payment of Expenses in Advance. . 15
10.02. Insurance of Officers, Directors, Employees and Agents16
10.03. Amendment . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE XI. AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . 17
11.01. General . . . . . . . . . . . . . . . . . . . . . . . 17
11.02. By Shareholders Only. . . . . . . . . . . . . . . . . 17
ARTICLE XII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 17
12.01 Use of the Term "Annual Meeting". . . . . . . . . . . 17
<PAGE>
PAGE 4
T. ROWE PRICE INTERNATIONAL SERIES, INC.
(A Maryland Corporation)
BY-LAWS
ARTICLE I
NAME OF CORPORATION,
LOCATION OF OFFICES AND SEAL
Section 1.01.Name: The name of the Corporation is T. ROWE PRICE
INTERNATIONAL SERIES, INC.
Section 1.02.Principal Office: The principal office of the Corporation
in the State of Maryland shall be located in the City of Baltimore. The
Corporation may, in addition, establish and maintain such other offices and
places of business, within or outside the State of Maryland, as the Board of
Directors may from time to time determine. [MGCL, Sections 2-103(4), 2-
108(a)(1)]
Section 1.03.Seal: The corporate seal of the Corporation shall be
circular in form, and shall bear the name of the Corporation, the year of its
incorporation, and the words "Corporate Seal, Maryland." The form of the seal
shall be subject to alteration by the Board of Directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. In lieu of affixing the corporate seal to any document
it shall be sufficient to meet the requirements of any law, rule, or
regulation relating to a corporate seal to affix the word "(Seal)" adjacent to
the signature of the authorized officer of the Corporation. Any officer or
Director of the Corporation shall have authority to affix the corporate seal
of the Corporation to any document requiring the same. [MGCL, Sections 1-
304(b), 2-103(3)]
ARTICLE II
SHAREHOLDERS
Section 2.01.Annual Meetings: The Corporation shall not be required to
hold an annual meeting of its shareholders in any year unless the Investment
Company Act of 1940 requires an election of directors by shareholders. In the
event that the Corporation shall be so required to hold an annual meeting,
such meeting shall be held at a date and time set by the Board of Directors,
which date shall be no later than 120 days after the occurrence of the event
requiring the meeting. Any shareholders' meeting held in accordance with the
preceding sentence shall for all purposes constitute the annual meeting of
shareholders for the fiscal year of the corporation in which the meeting is
held. At any such meeting, the shareholders shall elect directors to hold the
offices of any directors who have held office for more than one year or who
have been elected by the Board of Directors to fill vacancies which result
from any cause. Except as the Articles of Incorporation or statute provides
otherwise, Directors may transact any business within the powers of the
Corporation as may properly come before the meeting. Any business of the
PAGE 5
Corporation may be transacted at the annual meeting without being specially
designated in the notice, except such business as is specifically required by
statute to be stated in the notice. [MGCL, Section 2-501]
Section 2.02.Special Meetings: Special meetings of the shareholders may
be called at any time by the Chairman of the Board, the President, any Vice
President, or by the Board of Directors. Special meetings of the shareholders
shall be called by the Secretary on the written request of shareholders
entitled to cast at least ten (10) percent of all the votes entitled to be
cast at such meeting, provided that (a) such request shall state the purpose
or purposes of the meeting and the matters proposed to be acted on, and (b)
the shareholders requesting the meeting shall have paid to the Corporation the
reasonably estimated cost of preparing and mailing the notice thereof, which
the Secretary shall determine and specify to such shareholders. Unless
requested by shareholders entitled to cast a majority of all the votes
entitled to be cast at the meeting, a special meeting need not be called to
consider any matter which is substantially the same as a matter voted upon at
any special meeting of the shareholders held during the preceding twelve (12)
months. [MGCL, Section 2-502]
Section 2.03.Place of Meetings: All shareholders' meetings shall be
held at such place within the United States as may be fixed from time to time
by the Board of Directors. [MGCL, Section 2-503]
Section 2.04.Notice of Meetings: Not less than ten (10) days, nor more
than ninety (90) days before each shareholders' meeting, the Secretary or an
Assistant Secretary of the Corporation shall give to each shareholder entitled
to vote at the meeting, and each other shareholder entitled to notice of the
meeting, written notice stating (1) the time and place of the meeting, and (2)
the purpose or purposes of the meeting if the meeting is a special meeting or
if notice of the purpose is required by statute to be given. Such notice
shall be personally delivered to the shareholder, or left at his residence or
usual place of business, or mailed to him at his address as it appears on the
records of the Corporation. Notice shall be deemed to be given when deposited
in the United States mail addressed to the shareholders as aforesaid. No
notice of a shareholders' meeting need be given to any shareholder who shall
sign a written waiver of such notice, whether before or after the meeting,
which is filed with the records of shareholders' meetings, or to any
shareholder who is present at the meeting in person or by proxy. Notice of
adjournment of a shareholders' meeting to another time or place need not be
given if such time and place are announced at the meeting, unless the
adjournment is for more than one hundred twenty (120) days after the original
record date. Irregularities in the notice of any meeting to, or the
nonreceipt of any such notice by, any of the stockholders shall not invalidate
any action otherwise properly taken by or at any such meeting. [MGCL,
Sections 2-504, 2-511(d)]
Section 2.05.Voting - In General: Except as otherwise specifically
provided in the Articles of Incorporation or these By-Laws, or as required by
provisions of the Investment Company Act with respect to the vote of a series,
if any, of the Corporation, at every shareholders' meeting, each shareholder
shall be entitled to one vote for each share of stock of the Corporation
validly issued and outstanding and held by such shareholder, except that no
shares held by the Corporation shall be entitled to a vote. Fractional shares
shall be entitled to fractional votes. Except as otherwise specifically
provided in the Articles of Incorporation, or these By-Laws, or as required by
provisions of the Investment Company Act, a majority of all the votes cast at
a meeting at which a quorum is present is sufficient to approve any matter
which properly comes before the meeting. The vote upon any question shall be
by ballot whenever requested by any person entitled to vote, but, unless such
a request is made, voting may be conducted in any way approved by the meeting.
[MGCL, Sections 2-214(a)(i), 2-506(a)(2), 2-507(a), 2-509(b)]
At any meeting at which there is an election of Directors, the Chairman
of the meeting may, and upon the request of the holders of ten (10) percent of
the stock entitled to vote at such election shall, appoint two inspectors of
election who shall first subscribe an oath or affirmation to execute
PAGE 6
faithfully the duties of inspectors at such election with strict impartiality
and according to the best of their ability, and shall, after the election,
make a certificate of the result of the vote taken. No candidate for the
office of Director shall be appointed as an inspector.
Section 2.06.Shareholders Entitled to Vote: If, pursuant to Section
8.05 hereof, a record date has been fixed for the determination of
shareholders entitled to notice of or to vote at any shareholders' meeting,
each shareholder of the Corporation shall be entitled to vote in person or by
proxy, each share or fraction of a share of stock outstanding in his name on
the books of the Corporation on such record date. If no record date has been
fixed for the determination of shareholders, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day on which notice of
the meeting is mailed or the 30th day before the meeting, whichever is the
closer date to the meeting, or, if notice is waived by all shareholders, at
the close of business on the tenth (10th) day next preceding the date of the
meeting. [MGCL, Sections 2-507, 2-511]
Section 2.07.Voting - Proxies: The right to vote by proxy shall exist
only if the instrument authorizing such proxy to act shall have been executed
in writing by the shareholder himself, or by his attorney thereunto duly
authorized in writing. No proxy shall be valid more than eleven (11) months
after its date unless it provides for a longer period. All proxies shall be
delivered to the Secretary of the Corporation or to the person acting as
Secretary of the meeting before being voted, who shall decide all questions
concerning qualification of voters, the validity of proxies, and the
acceptance or rejection of votes. If inspectors of election have been
appointed by the chairman of the meeting, such inspectors shall decide all
such questions. A proxy with respect to stock held in the name of two or more
persons shall be valid if executed by one of them unless at or prior to
exercise of such proxy the Corporation receives a specific written notice to
the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a shareholder shall be deemed valid unless challenged at or prior to
its exercise. [MGCL, Section 2-507(b)]
Section 2.08.Quorum: The presence at any shareholders' meeting, in
person or by proxy, of shareholders entitled to cast a majority of the votes
entitled to be cast at the meeting shall constitute a quorum. [MGCL, Section
2-506(a)]
Section 2.09.Absence of Quorum: In the absence of a quorum, the holders
of a majority of shares entitled to vote at the meeting and present thereat in
person or by proxy, or, if no shareholder entitled to vote is present in
person or by proxy, any officer present who is entitled to preside at or act
as Secretary of such meeting, may adjourn the meeting sine die or from time to
time. Any business that might have been transacted at the meeting originally
called may be transacted at any such adjourned meeting at which a quorum is
present.
Section 2.10.Stock Ledger and List of Shareholders: It shall be the
duty of the Secretary or Assistant Secretary of the Corporation to cause an
original or duplicate stock ledger to be maintained at the office of the
Corporation's transfer agent, containing the names and addresses of all
shareholders and the number of shares of each class held by each shareholder.
Such stock ledger may be in written form, or any other form capable of being
converted into written form within a reasonable time for visual inspection.
Any one or more persons, who together are and for at least six (6) months have
been shareholders of record of at least five percent (5%) of the outstanding
capital stock of the Corporation, may submit (unless the Corporation at the
time of the request maintains a duplicate stock ledger at its principal
office) a written request to any officer of the Corporation or its resident
agent in Maryland for a list of the shareholders of the Corporation. Within
twenty (20) days after such a request, there shall be prepared and filed at
the Corporation's principal office a list, verified under oath by an officer
of the Corporation or by its stock transfer agent or registrar, which sets
PAGE 7
forth the name and address of each shareholder and the number of shares of
each class which the shareholder holds. [MGCL, Sections 2-209, 2-513]
Section 2.11.Informal Action By Shareholders: Any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if the following are filed with the records of shareholders' meetings:
(a) A unanimous written consent which sets forth the action and
is signed by each shareholder entitled to vote on the
matter; and
(b) A written waiver of any right to dissent signed by each
shareholder entitled to notice of the meeting, but not
entitled to vote at it.
[MGCL, Section 2-505]
ARTICLE III
BOARD OF DIRECTORS
Section 3.01.Number and Term of Office: The Board of Directors shall
consist of one (1) Director, which number may be increased by a resolution of
a majority of the entire Board of Directors, provided that the number of
Directors shall not be more than fifteen (15) nor less than the lesser of (i)
three (3) or (ii) the number of shareholders of the Corporation. Each
Director (whenever elected) shall hold office until the next annual meeting of
shareholders and until his successor is elected and qualifies or until his
earlier death, resignation, or removal. [MGCL, Sections 2-402, 2-404, 2-405]
Section 3.02.Qualification of Directors: No member of the Board of
Directors need be a shareholder of the Corporation, but at least one member of
the Board of Directors shall be a person who is not an interested person (as
such term is defined in the Investment Company Act) of the investment adviser
of the Corporation, nor an officer or employee of the Corporation. [MGCL,
Section 2-403; Investment Company Act, Section 10(d)]
Section 3.03.Election of Directors: Until the first annual meeting of
shareholders, or until successors are duly elected and qualified, the Board of
Directors shall consist of the persons named as such in the Articles of
Incorporation. Thereafter, except as otherwise provided in Sections 3.04 and
3.05 hereof, at each annual meeting, the shareholders shall elect Directors to
hold office until the next annual meeting and/or until their successors are
elected and qualify. In the event that Directors are not elected at an annual
shareholders' meeting, then Directors may be elected at a special
shareholders' meeting. Directors shall be elected by vote of the holders of a
plurality of the shares present in person or by proxy and entitled to vote.
[MGCL, Section 2-404]
Section 3.04.Removal of Directors: At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any Director or Directors from office, either with or without
cause, and may elect a successor or successors to fill any resulting vacancies
for the unexpired terms of removed Directors. [MGCL, Sections 2-406, 2-407]
Section 3.05.Vacancies and Newly Created Directorships: If any
vacancies occur in the Board of Directors by reason of resignation, removal or
otherwise, or if the authorized number of Directors is increased, the
Directors then in office shall continue to act, and such vacancies (if not
previously filled by the shareholders) may be filled by a majority of the
Directors then in office, whether or not sufficient to constitute a quorum,
provided that, immediately after filling such vacancy, at least two-thirds of
the Directors then holding office shall have been elected to such office by
the shareholders of the Corporation. In the event that at any time, other
PAGE 8
than the time preceding the first meeting of shareholders, less than a
majority of the Directors of the Corporation holding office at that time were
so elected by the shareholders, a meeting of the shareholders shall be held
promptly and in any event within sixty (60) days for the purpose of electing
Directors to fill any existing vacancies in the Board of Directors unless the
Securities and Exchange Commission shall by order extend such period. Except
as provided in Section 3.04 hereof, a Director elected by the Board of
Directors to fill a vacancy shall be elected to hold office until the next
annual meeting of shareholders or until his successor is elected and
qualifies. [MGCL, Section 2-407; Investment Company Act, Section 16(a)]
Section 3.06.General Powers:
(a) The property, business, and affairs of the Corporation
shall be managed under the direction of the Board of Directors which may
exercise all the powers of the Corporation except such as are by law, by the
Articles of Incorporation, or by these By-Laws conferred upon or reserved to
the shareholders of the Corporation. [MGCL, Section 2-401]
(b) All acts done by any meeting of the Directors or by any
person acting as a Director, so long as his successor shall not have been duly
elected or appointed, shall, notwithstanding that it be afterwards discovered
that there was some defect in the election of the Directors or such person
acting as a Director or that they or any of them were disqualified, be as
valid as if the Directors or such person, as the case may be, had been duly
elected and were or was qualified to be Directors or a Director of the
Corporation.
Section 3.07.Power to Issue and Sell Stock: The Board of Directors may
from time to time authorize by resolution the issuance and sale of any of the
Corporation's authorized shares to such persons as the Board of Directors
shall deem advisable and such resolution shall set the minimum price or value
of consideration for the stock or a formula for its determination, and shall
include a fair description of any consideration other than money and a
statement of the actual value of such consideration as determined by the Board
of Directors or a statement that the Board of Directors has determined that
the actual value is or will be not less than a certain sum. [MGCL, Section 2-
203]
Section 3.08.Power to Declare Dividends:
(a) The Board of Directors, from time to time as it may deem
advisable, may declare and the Corporation pay dividends, in cash, property,
or shares of the Corporation available for dividends out of any source
available for dividends, to the shareholders according to their respective
rights and interests. [MGCL, Section 2-309]
(b) The Board of Directors shall cause to be accompanied by a
written statement any dividend payment wholly or partly from any source other
than the Corporation's accumulated undistributed net income (determined in
accordance with good accounting practice and the rules and regulations of the
Securities and Exchange Commission then in effect) not including profits or
losses realized upon the sale of securities or other properties. Such
statement shall adequately disclose the source or sources of such payment and
the basis of calculation and shall be otherwise in such form as the Securities
and Exchange Commission may prescribe. [Investment Company Act, Section 19;
SEC Rule 19a-1; MGCL, Section 2-309(c)]
(c) Notwithstanding the above provisions of this Section 3.08,
the Board of Directors may at any time declare and distribute pro rata among
the shareholders a stock dividend out of the Corporation's authorized but
unissued shares of stock, including any shares previously purchased by the
Corporation, provided that such dividend shall not be distributed in shares of
any class with respect to any shares of a different class. The shares so
distributed shall be issued at the par value thereof, and there shall be
transferred to stated capital, at the time such dividend is paid, an amount of
surplus equal to the aggregate par value of the shares issued as a dividend
PAGE 9
and there may be transferred from earned surplus to capital surplus such
additional amount as the Board of Directors may determine. [MGCL, Section 2-
309]
Section 3.09.Annual and Regular Meetings: The annual meeting of the
Board of Directors for choosing officers and transacting other proper business
shall be held after the annual shareholders' meeting at such time and place as
may be specified in the notice of such meeting of the Board of Directors or,
in the absence of such annual shareholders' meeting, at such time and place as
the Board of Directors may provide. The Board of Directors from time to time
may provide by resolution for the holding of regular meetings and fix their
time and place (within or outside the State of Maryland). [MGCL, Section 2-
409(a)]
Section 3.10.Special Meetings: Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, the
President (or, in the absence or disability of the President, by any Vice
President), the Treasurer, or two or more Directors, at the time and place
(within or outside the State of Maryland) specified in the respective notices
or waivers of notice of such meetings.
Section 3.11.Notice: Notice of annual, regular, and special meetings
shall be in writing, stating the time and place, and shall be mailed to each
Director at his residence or regular place of business or caused to be
delivered to him personally or to be transmitted to him by telegraph, cable,
or wireless at least two (2) days before the day on which the meeting is to be
held. Except as otherwise required by the By-Laws or the Investment Company
Act, such notice need not include a statement of the business to be transacted
at, or the purpose of, the meeting. [MGCL, Section 2-409(b)]
Section 3.12.Waiver of Notice: No notice of any meeting need be given
to any Director who is present at the meeting or to any Director who signs a
waiver of the notice of the meeting (which waiver shall be filed with the
records of the meeting), whether before or after the meeting. [MGCL, Section
2-409(c)]
Section 3.13.Quorum and Voting: At all meetings of the Board of
Directors the presence of one-third of the total number of Directors
authorized, but not less than two (2) Directors if there are at least two
directors, shall constitute a quorum. In the absence of a quorum, a majority
of the Directors present may adjourn the meeting, from time to time, until a
quorum shall be present. The action of a majority of the Directors present at
a meeting at which a quorum is present shall be the action of the Board of
Directors unless the concurrence of a greater proportion is required for such
action by law, by the Articles of Incorporation or by these By-Laws. [MGCL,
Section 2-408]
Section 3.14.Conference Telephone: Members of the Board of Directors or
of any committee designated by the Board, may participate in a meeting of the
Board or of such committee by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time, and participation by such means shall constitute
presence in person at such meeting. [MGCL, Section 2-409(d)]
Section 3.15.Compensation: Each Director may receive such remuneration
for his services as shall be fixed from time to time by resolution of the
Board of Directors.
Section 3.16.Action Without a Meeting: Except as otherwise provided
under the Investment Company Act, any action required or permitted to be taken
at any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if a unanimous written consent which sets forth the action
is signed by all members of the Board or of such committee and such written
consent is filed with the minutes of proceedings of the Board or committee.
[MGCL, Section 2-408(c)]
<PAGE>
PAGE 10
Section 3.17.Director Emeritus: Upon the retirement of a Director of
the Corporation, the Board of Directors may designate such retired Director as
a Director Emeritus. The position of Director Emeritus shall be honorary only
and shall not confer upon such Director Emeritus any responsibility, or voting
authority, whatsoever with respect to the Corporation. A Director Emeritus
may, but shall not be required to, attend the meetings of the Board of
Directors and receive materials normally provided Directors relating to the
Corporation. The Board of Directors may establish such compensation as it may
deem appropriate under the circumstances to be paid by the Corporation to a
Director Emeritus.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01.How Constituted: By resolution adopted by the Board of
Directors, the Board may appoint from among its members one or more
committees, including an Executive Committee, each consisting of at least two
(2) Directors. Each member of a committee shall hold office during the
pleasure of the Board. [MGCL, Section 2-411]
Section 4.02.Powers of the Executive Committee: Unless otherwise
provided by resolution of the Board of Directors, the Executive Committee, in
the intervals between meetings of the Board of Directors, shall have and may
exercise all of the powers of the Board of Directors to manage the business
and affairs of the Corporation except the power to:
(a) Declare dividends or distributions on stock;
(b) Issue stock other than as provided in Section 2-411(b) of
Corporations and Associations Article of the Annotated Code
of Maryland;
(c) Recommend to the shareholders any action which requires
shareholder approval;
(d) Amend the By-Laws; or
(e) Approve any merger or share exchange which does not require
shareholder approval.
[MGCL, Section 2-411(a)]
Section 4.03.Other Committees of the Board of Directors: To the extent
provided by resolution of the Board, other committees shall have and may
exercise any of the powers that may lawfully be granted to the Executive
Committee. [MGCL, Section 2-411(a)]
Section 4.04.Proceedings, Quorum, and Manner of Acting: In the absence
of appropriate resolution of the Board of Directors, each committee may adopt
such rules and regulations governing its proceedings, quorum and manner of
acting as it shall deem proper and desirable, provided that the quorum shall
not be less than two (2) Directors. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member. [MGCL, Section 2-411(c)]
Section 4.05.Other Committees: The Board of Directors may appoint other
committees, each consisting of one or more persons who need not be Directors.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the Board of Directors, but shall not
exercise any power which may lawfully be exercised only by the Board of
Directors or a committee thereof.
PAGE 11
ARTICLE V
OFFICERS
Section 5.01.General: The officers of the Corporation shall be a
President, one or more Vice Presidents (one or more of whom may be designated
Executive Vice President), a Secretary, and a Treasurer, and may include one
or more Assistant Vice Presidents, one or more Assistant Secretaries, one or
more Assistant Treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 5.11 hereof. The Board of Directors
may elect, but shall not be required to elect, a Chairman of the Board.
[MGCL, Section 2-412]
Section 5.02.Election, Term of Office and Qualifications: The officers
of the Corporation (except those appointed pursuant to Section 5.11 hereof)
shall be elected by the Board of Directors at its first meeting and thereafter
at each annual meeting of the Board. If any officer or officers are not
elected at any such meeting, such officer or officers may be elected at any
subsequent regular or special meeting of the Board. Except as provided in
Sections 5.03, 5.04, and 5.05 hereof, each officer elected by the Board of
Directors shall hold office until the next annual meeting of the Board of
Directors and until his successor shall have been chosen and qualified. Any
person may hold two or more offices of the Corporation, except that neither
the Chairman of the Board, nor the President, may hold the office of Vice
President, but no person shall execute, acknowledge, or verify any instrument
in more than one capacity if such instrument is required by law, the Articles
of Incorporation, or these By-Laws to be executed, acknowledged, or verified
by two or more officers. The Chairman of the Board shall be selected from
among the Directors of the Corporation and may hold such office only so long
as he continues to be a Director. No other officer need be a Director.
[MGCL, Sections 2-412, 2-413 and 2-415]
Section 5.03.Resignation: Any officer may resign his office at any time
by delivering a written resignation to the Board of Directors, the President,
the Secretary, or any Assistant Secretary. Unless otherwise specified
therein, such resignation shall take effect upon delivery.
Section 5.04.Removal: Any officer may be removed from office by the
Board of Directors whenever in the judgment of the Board of Directors the best
interests of the Corporation will be served thereby. [MGCL, Section 2-413(c)]
Section 5.05Vacancies and Newly Created Offices: If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Board of Directors at any meeting or, in
the case of any office created pursuant to Section 5.11 hereof, by any officer
upon whom such power shall have been conferred by the Board of Directors.
[MGCL, Section 2-413(d)]
Section 5.06.Chairman of the Board: Unless otherwise provided by
resolution of the Board of Directors, the Chairman of the Board, if there be
such an officer, shall be the chief executive and operating officer of the
Corporation, shall preside at all shareholders' meetings, and at all meetings
of the Board of Directors. He shall be ex officio a member of all standing
committees of the Board of Directors. Subject to the supervision of the Board
of Directors, he shall have general charge of the business, affairs, property,
and operation of the Corporation and its officers, employees, and agents. He
may sign (unless the President or a Vice President shall have signed)
certificates representing stock of the Corporation authorized for issuance by
the Board of Directors and shall have such other powers and perform such other
duties as may be assigned to him from time to time by the Board of Directors.
Section 5.07.President: Unless otherwise provided by resolution of the
Board of Directors, the President shall, at the request of or in the absence
PAGE 12
or disability of the Chairman of the Board, or if no Chairman of the Board has
been chosen, he shall preside at all shareholders' meetings and at all
meetings of the Board of Directors and shall in general exercise the powers
and perform the duties of the Chairman of the Board. He may sign (unless the
Chairman or a Vice President shall have signed) certificates representing
stock of the Corporation authorized for issuance by the Board of Directors.
Except as the Board of Directors may otherwise order, he may sign in the name
and on behalf of the Corporation all deeds, bonds, contracts, or agreements.
He shall exercise such other powers and perform such other duties as from time
to time may be assigned to him by the Board of Directors.
Section 5.08.Vice President: The Board of Directors shall, from time to
time, designate and elect one or more Vice Presidents (one or more of whom may
be designated Executive Vice President) who shall have such powers and perform
such duties as from time to time may be assigned to them by the Board of
Directors or the President. At the request or in the absence or disability of
the President, the Vice President (or, if there are two or more Vice
Presidents, the Vice President in order of seniority of tenure in such office
or in such other order as the Board of Directors may determine) may perform
all the duties of the President and, when so acting, shall have all the powers
of and be subject to all the restrictions upon the President. Any Vice
President may sign (unless the Chairman, the President, or another Vice
President shall have signed) certificates representing stock of the
Corporation authorized for issuance by the Board of Directors.
Section 5.09.Treasurer and Assistant Treasurers: The Treasurer shall be
the principal financial and accounting officer of the Corporation and shall
have general charge of the finances and books of account of the Corporation.
Except as otherwise provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation and of the
performance by the custodian of its duties with respect thereto. He may
countersign (unless an Assistant Treasurer or Secretary or Assistant Secretary
shall have countersigned) certificates representing stock of the Corporation
authorized for issuance by the Board of Directors. He shall render to the
Board of Directors, whenever directed by the Board, an account of the
financial condition of the Corporation and of all his transactions as
Treasurer; and as soon as possible after the close of each fiscal year he
shall make and submit to the Board of Directors a like report for such fiscal
year. He shall cause to be prepared annually a full and correct statement of
the affairs of the Corporation, including a balance sheet and a financial
statement of operations for the preceding fiscal year, which shall be
submitted at the annual meeting of shareholders and filed within twenty (20)
days thereafter at the principal office of the Corporation. He shall perform
all the acts incidental to the office of the Treasurer, subject to the control
of the Board of Directors. Any Assistant Treasurer may perform such duties of
the Treasurer as the Treasurer or the Board of Directors may assign, and, in
the absence of the Treasurer, he may perform all the duties of the Treasurer.
Section 5.10.Secretary and Assistant Secretaries: The Secretary shall
attend to the giving and serving of all notices of the Corporation and shall
record all proceedings of the meetings of the shareholders and Directors in
one or more books to be kept for that purpose. He shall keep in safe custody
the seal of the Corporation and shall have charge of the records of the
Corporation, including the stock books and such other books and papers as the
Board of Directors may direct and such books, reports, certificates and other
documents required by law to be kept, all of which shall at all reasonable
times be open to inspection by any Director. He shall countersign (unless the
Treasurer, an Assistant Treasurer or an Assistant Secretary shall have
countersigned) certificates representing stock of the Corporation authorized
for issuance by the Board of Directors. He shall perform such other duties as
appertain to his office or as may be required by the Board of Directors. Any
Assistant Secretary may perform such duties of the Secretary as the Secretary
or the Board of Directors may assign, and, in the absence of the Secretary, he
may perform all the duties of the Secretary.
Section 5.11.Subordinate Officers: The Board of Directors from time to
time may appoint such other officers or agents as it may deem advisable, each
PAGE 13
of whom shall have such title, hold office for such period, have such
authority and perform such duties as the Board of Directors may determine.
The Board of Directors from time to time may delegate to one or more officers
or agents the power to appoint any such subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities, and duties.
Any officer or agent appointed in accordance with the provisions of this
Section 5.11 may be removed, either with or without cause, by any officer upon
whom such power of removal shall have been conferred by the Board of
Directors. [MGCL, Section 2-412(b)]
Section 5.12.Remuneration: The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution of
the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in
accordance with the provisions of Section 5.11 hereof.
Section 5.13.Surety Bond: The Board of Directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder)
to the Corporation in such sum and with such surety or sureties as the Board
of Directors may determine, conditioned upon the faithful performance of his
or her duties to the Corporation, including responsibility for negligence and
for the accounting for any of the Corporation's property, funds or securities
that may come into his or her hands.
ARTICLE VI
CUSTODY OF SECURITIES AND CASH
Section 6.01.Employment of a Custodian: The Corporation shall place and
at all times maintain in the custody of a Custodian (including any sub-
custodian for the Custodian) all funds, securities, and similar investments
owned by the Corporation. The Custodian shall be a bank having an aggregate
capital, surplus, and undivided profits of not less than $10,000,000. Subject
to such rules, regulations, and orders as the Securities and Exchange
Commission may adopt as necessary or appropriate for the protection of
investors, the Corporation's Custodian may deposit all or a part of the
securities owned by the Corporation in a sub-custodian or sub-custodians
situated within or without the United States. The Custodian shall be
appointed and its remuneration fixed by the Board of Directors. [Investment
Company Act, Section 17(f)]
Section 6.02.Central Certificate Service: Subject to such rules,
regulations, and orders as the Securities and Exchange Commission may adopt as
necessary or appropriate for the protection of investors, the Corporation's
Custodian may deposit all or any part of the securities owned by the
Corporation in a system for the central handling of securities established by
a national securities exchange or national securities association registered
with the Commission under the Securities Exchange Act of 1934, or such other
person as may be permitted by the Commission, pursuant to which system all
securities of any particular class or series of any issuer deposited within
the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities. [Investment
Company Act, Section 17(f)]
Section 6.03.Cash Assets: The cash proceeds from the sale of securities
and similar investments and other cash assets of the Corporation shall be kept
in the custody of a bank or banks appointed pursuant to Section 6.01 hereof,
or in accordance with such rules and regulations or orders as the Securities
and Exchange Commission may from time to time prescribe for the protection of
investors, except that the Corporation may maintain a checking account or
accounts in a bank or banks, each having an aggregate capital, surplus, and
PAGE 14
undivided profits of not less than $10,000,000, provided that the balance of
such account or the aggregate balances of such accounts shall at no time
exceed the amount of the fidelity bond, maintained pursuant to the
requirements of the Investment Company Act and rules and regulations
thereunder, covering the officers or employees authorized to draw on such
account or accounts. [Investment Company Act, Section 17(f)]
Section 6.04.Free Cash Accounts: The Corporation may, upon resolution
of its Board of Directors, maintain a petty cash account free of the foregoing
requirements of this Article VI in an amount not to exceed $500, provided that
such account is operated under the imprest system and is maintained subject to
adequate controls approved by the Board of Directors over disbursements and
reimbursements including, but not limited to, fidelity bond coverage for
persons having access to such funds. [Investment Company Act, Rule 17f-3]
Section 6.05.Action Upon Termination of Custodian Agreement: Upon
resignation of a custodian of the Corporation or inability of a custodian to
continue to serve, the Board of Directors shall promptly appoint a successor
custodian, but in the event that no successor custodian can be found who has
the required qualifications and is willing to serve, the Board of Directors
shall call as promptly as possible a special meeting of the shareholders to
determine whether the Corporation shall function without a custodian or shall
be liquidated. If so directed by vote of the holders of a majority of the
outstanding shares of stock of the Corporation, the custodian shall deliver
and pay over all property of the Corporation held by it as specified in such
vote.
Section 6.06.Other Arrangements: The Corporation may make such other
arrangements for the custody of its assets (including deposit arrangements) as
may be required by any applicable law, rule or regulation.
ARTICLE VII
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 7.01.Execution of Instruments: All deeds, documents, transfers,
contracts, agreements, requisitions or orders, promissory notes, assignments,
endorsements, checks and drafts for the payment of money by the Corporation,
and other instruments requiring execution by the Corporation shall be signed
by the Chairman, the President, a Vice President, or the Treasurer, or as the
Board of Directors may otherwise, from time to time, authorize. Any such
authorization may be general or confined to specific instances.
Section 7.02.Voting of Securities: Unless otherwise ordered by the
Board of Directors, the Chairman, the President, or any Vice President shall
have full power and authority on behalf of the Corporation to attend and to
act and to vote, or in the name of the Corporation to execute proxies to vote,
at any meeting of shareholders of any company in which the Corporation may
hold stock. At any such meeting such officer shall possess and may exercise
(in person or by proxy) any and all rights, powers, and privileges incident to
the ownership of such stock. The Board of Directors may by resolution from
time to time confer like powers upon any other person or persons. [MGCL,
Section 2-509]
ARTICLE VIII
CAPITAL STOCK
Section 8.01.Ownership of Shares:
<PAGE>
PAGE 15
(a) Certificates certifying the ownership of shares will not be
issued for shares purchased or otherwise acquired. The ownership of shares,
full or fractional, shall be recorded on the books of the Corporation or its
agent. The record books of the Corporation as kept by the Corporation or its
agent, as the case may be, shall be conclusive as to the number of shares held
from time to time by each such shareholder.
Section 8.02.Transfer of Capital Stock:
(a) Shares of stock of the Corporation shall be transferable
only upon the books of the Corporation kept for such purpose.
(b) The Corporation shall be entitled to treat the holder of
record of any share of stock as the absolute owner thereof for all purposes,
and accordingly shall not be bound to recognize any legal, equitable, or other
claim or interest in such share on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise
expressly provided by the statutes of the State of Maryland.
Section 8.03.Transfer Agents and Registrars: The Board of Directors
may, from time to time, appoint or remove transfer agents and registrars of
transfers of shares of stock of the Corporation, and it may appoint the same
person as both transfer agent and registrar.
Section 8.04.Transfer Regulations: The shares of stock of the
Corporation may be freely transferred, and the Board of Directors may, from
time to time, adopt lawful rules and regulations with reference to the method
of transfer of the shares of stock of the Corporation.
Section 8.05.Fixing of Record Date: The Board of Directors may fix in
advance a date as a record date for the determination of the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or to exercise any rights in respect of any
change, conversion, or exchange of stock, or for any other proper purpose,
provided that such record date shall be a date not more than sixty (60) days
nor, in the case of a meeting of shareholders, less than ten (10) days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. In such case, only such shareholders as shall
be shareholders of record on the record date so fixed shall be entitled to
such notice of, and to vote at, such meeting or adjournment, or to give such
consent, or to receive payment of such dividend or other distribution, or to
receive such allotment of rights, or to exercise such rights, or to take other
action, as the case may be, notwithstanding any transfer of any shares on the
books of the Corporation after any such record date. A meeting of
shareholders convened on the date for which it was called may be adjourned
from time to time without notice to a date not more than one hundred twenty
(120) days after the original record date. [MGCL, Section 2-511]
ARTICLE IX
FISCAL YEAR, ACCOUNTANT
Section 9.01.Fiscal Year: The fiscal year of the Corporation shall be
the twelve (12) calendar months beginning on the 1st day of November in each
year and ending on the last day of the following October, or such other period
of twelve (12) calendar months as the Board of Directors may by resolution
prescribe.
Section 9.02.Accountant:
(a) The Corporation shall employ an independent public
accountant or firm of independent public accountants for each series of the
PAGE 16
Corporation to examine the accounts of the Corporation with respect to such
series and to sign and certify financial statements filed by the Corporation
with respect to such series. The certificates and reports of the
accountant(s) shall be addressed both to the Board of Directors and to the
shareholders. The Corporation may employ a different accountant with respect
to each series.
(b) A majority of the members of the Board of Directors who are
not interested persons (as such term is defined in the Investment Company Act)
of the Corporation shall select the accountant for each series, by vote cast
in person, at any meeting held within such period of time as may be allowed
under the Investment Company Act. Such selection shall be submitted for
ratification or rejection at the next succeeding annual shareholders' meeting
for such series. If such meeting shall reject such selection, the accountant
for such series shall be selected by majority vote of the Corporation's
outstanding voting securities of such series, either at the meeting at which
the rejection occurred or at a subsequent meeting of shareholders for such
series called for the purpose.
(c) Any vacancy occurring between annual meetings, due to the
death or resignation of the accountant of a series, may be filled by the vote
of a majority of those members of the Board of Directors who are not
interested persons (as so defined) of the Corporation, cast in person at a
meeting called for the purpose of voting on such action.
(d) The employment of the accountant of a series shall be
conditioned upon the right of such series of the Corporation by vote of a
majority of the outstanding voting securities of such series at any meeting
called for the purpose to terminate such employment forthwith without any
penalty. [Investment Company Act, Section 32(a)]
ARTICLE X
INDEMNIFICATION AND INSURANCE
Section 10.01.Indemnification and Payment of Expenses in Advance: The
Corporation shall indemnify any individual ("Indemnitee") who is a present or
former director, officer, employee, or agent of the Corporation, or who is or
has been serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, who, by reason of his position was, is, or is threatened to
be made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter collectively referred to as a "Proceeding") against any
judgments, penalties, fines, settlements, and reasonable expenses (including
attorneys' fees) incurred by such Indemnitee in connection with any
Proceeding, to the fullest extent that such indemnification may be lawful
under Maryland law. 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 Maryland law. 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 Maryland law.
Notwithstanding the foregoing, nothing herein shall protect or purport
to protect any Indemnitee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office
("Disabling Conduct").
Anything in this Article X to the contrary notwithstanding, no
indemnification shall be made by the Corporation to any Indemnitee unless:
PAGE 17
(a) there is a final decision on the merits by a court or other
body before whom the Proceeding was brought that the
Indemnitee was not liable by reason of Disabling Conduct;
or
(b) in the absence of such a decision, there is a reasonable
determination, based upon a review of the facts, that the
Indemnitee was not liable by reason of Disabling Conduct,
which determination shall be made by:
(i) the vote of a majority of a quorum of directors who are
neither "interested persons" of the Corporation as defined in
Section 2(a)(19) of the Investment Company Act, nor parties to
the Proceeding; or
(ii) an independent legal counsel in a written opinion.
Anything in this Article X to the contrary notwithstanding, any advance
of expenses by the Corporation to any Indemnitee shall be made only upon the
undertaking by such Indemnitee to repay the advance unless it is ultimately
determined that such Indemnitee is entitled to indemnification as above
provided, and only if one of the following conditions is met:
(a) the Indemnitee provides a security for his undertaking; or
(b) the Corporation shall be insured against losses arising by
reason of any lawful advances; or
(c) there is a determination, based on a review of readily
available facts, that there is reason to believe that the
Indemnitee will ultimately be found entitled to
indemnification, which determination shall be made by:
(i) a majority of a quorum of directors who are neither
"interested persons" of the Corporation as defined in Section
2(a)(19) of the Investment Company Act, nor parties to the
Proceeding; or
(ii) an independent legal counsel in a written opinion.
Section 10.02. Insurance of Officers, Directors, Employees and Agents:
To the fullest extent permitted by applicable Maryland law and by Section
17(h) of the Investment Company Act, as from time to time amended, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, or agent of the Corporation, or who is
or was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust,
or other enterprise, against any liability asserted against him and incurred
by him in or arising out of his position, whether or not the Corporation would
have the power to indemnify him against such liability. [MGCL, Section 2-
418(k)]
Section 10.03.Amendment: No amendment, alteration or repeal of this
Article or the adoption, alteration or amendment of any other provision of the
Articles of Incorporation or By-Laws inconsistent with this Article shall
adversely affect any right or protection of any person under this Article with
respect to any act or failure to act which occurred prior to such amendment,
alteration, repeal or adoption.
ARTICLE XI
AMENDMENTS
Section 11.01.General: Except as provided in Section 11.02 hereof, all
PAGE 18
By-Laws of the Corporation, whether adopted by the Board of Directors or the
shareholders, shall be subject to amendment, alteration, or repeal, and new
By-Laws may be made, by the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of stock of the
Corporation entitled to vote, at any annual or special meeting the
notice or waiver of notice of which shall have specified or summarized
the proposed amendment, alteration, repeal, or new By-Law; or
(b) the Directors present at any regular or special meeting at
which a quorum is present if the notice or waiver of notice thereof or
material sent to the Directors in connection therewith on or prior to
the last date for the giving of such notice under these By-Laws shall
have specified or summarized the proposed amendment, alteration, repeal,
or new By-Law.
Section 11.02.By Shareholders Only:
(a) No amendment of any section of these By-Laws shall be made
except by the shareholders of the Corporation if the shareholders shall have
provided in the By-Laws that such section may not be amended, altered, or
repealed except by the shareholders.
(b) From and after the issue of any shares of the Capital Stock
of the Corporation, no amendment of this Article XI shall be made except by
the shareholders of the Corporation.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Use of the Term "Annual Meeting:" The use of the term
"annual meeting" in these By-Laws shall not be construed as implying a
requirement that a shareholder meeting be held annually.
February 4, 1994
T. Rowe Price International Series, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Dear Sirs:
In connection with the proposed registration of an indefinite number of
shares of Capital Stock of your Company, I have examined certified copies of
your Company's Articles of Incorporation dated January 31, 1994, and the By-
Laws of your Company as presently in effect.
I am of the opinion that:
(i) your Company is a corporation duly organized and existing under the
laws of Maryland; and
(ii) each of such authorized shares of Capital Stock of your Company,
upon payment in full of the price fixed by the Board of Directors of
your Company, will be legally and validly issued and will be fully
paid and non-assessable.
I hereby consent to the use of this opinion as an exhibit to the
Company's Registration Statement on Form N-1A to be filed with the Securities
and Exchange Commission for the registration under the Securities Act of 1933
of an indefinite number of shares of Capital Stock of your Company.
Sincerely,
/s/Henry H. Hopkins
Henry H. Hopkins
