-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, H5ZPpWqChsvKgqID6ZWrO0JZypzoOL+q4sc+KzwSXy+gaNKcwLRPdqvlgBRvBd8G yBiGf94/5aXLXxTeD8sLHA== 0000313212-94-000030.txt : 19940302 0000313212-94-000030.hdr.sgml : 19940302 ACCESSION NUMBER: 0000313212-94-000030 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19940301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE INTERNATIONAL FUNDS INC CENTRAL INDEX KEY: 0000313212 STANDARD INDUSTRIAL CLASSIFICATION: IRS NUMBER: 521175211 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 33 SEC FILE NUMBER: 002-65539 FILM NUMBER: 94513816 BUSINESS ADDRESS: STREET 1: 100 E PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 3015472000 FORMER COMPANY: FORMER CONFORMED NAME: PRICE T ROWE INTERNATIONAL TRUST DATE OF NAME CHANGE: 19900301 FORMER COMPANY: FORMER CONFORMED NAME: PRICE T ROWE INTERNATIONAL FUND INC DATE OF NAME CHANGE: 19890914 485APOS 1 INTERNATIONAL FILING PAGE 1 Registration Nos. 002-65539/811-2958 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X / Post-Effective Amendment No. 45 / X / REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X / Amendment No. 42 / X / Fiscal Year Ended December 31, 1993 T. ROWE PRICE INTERNATIONAL FUNDS, 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 December 29, 1993 ___________ It is proposed that this filing will become effective (check appropriate box): / / immediately upon filing pursuant to paragraph (b) / / on (date) pursuant to paragraph (b) / / 60 days after filing pursuant to paragraph (a) /X/ on (date) pursuant to paragraph (a) of Rule 485 CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933+ ___________________________________________________________________ Pursuant to Section 24f-2 of the Investment Company Act of 1940, the Registrant has registered an indefinite number of securities under the Securities Act of 1933 and intends to file a 24f-2 Notice by February 28, 1994. +Not applicable, as no securities are being registered by this Post-Effective Amendment No. 45 to the Registration Statement. PAGE 2 The Registration Statement of the T. Rowe Price International Funds, Inc. on Form N-1A (File No. 2-65539) is hereby amended under the Securities Act of 1933 to update the Registrant's financial statements, make other changes in the Registrant's Prospectus and Statement of Additional Information, and to satisfy the annual amendment requirement of Rule 8b-16 under the Investment Company Act of 1940. This Amendment consists of the following: Cross Reference Sheet Part A of Form N-1A, Revised Prospectus Part B of Form N-1A, Statement of Additional Information Part C of Form N-1A, Other Information Accountants' Consent PAGE 3 T. ROWE PRICE INTERNATIONAL STOCK FUND T. ROWE PRICE INTERNATIONAL DISCOVERY FUND T. ROWE PRICE EUROPEAN STOCK FUND T. ROWE PRICE NEW ASIA FUND T. ROWE PRICE JAPAN FUND T. ROWE PRICE LATIN AMERICA FUND CROSS REFERENCE SHEET N-1A Item No. Location _____________ ________ PART A Item 1. Cover Page Cover Page Item 2. Synopsis Transaction Costs and Fund Expenses Item 3. Condensed Financial Information Financial Highlights Item 4. General Description of Registrant Transactions Costs and Fund Expenses; Fund and Market Characteristics; Risk Factors; The Fund's Organization and Management; Understanding Fund Performance; Investment Programs and Practices Item 5. Management of the Fund Transaction Costs and Fund Expenses; Fund and Market Characteristics; The Fund's Organization and Management Item 6. Capital Stock and Other Securities Capital Stock; Dividends and Distributions; Taxes Item 7. Purchase of Securities Being NAV, Pricing, and Effective Offered Date; Shareholder Services; Conditions of Your Purchase; Completing the New Account Form; Opening a New Account; Purchasing Additional Shares Item 8. Redemption or Repurchase NAV, Pricing, and Effective Date; Receiving Your Proceeds; Conditions of Your Purchase; Exchanging and Redeeming Shares Item 9. Pending Legal Proceedings + PART B Item 10. Cover Page Cover Page Item 11. Table of Contents Table of Contents Item 12. General Information and History + Item 13. Investment Objectives and Policies Investment Objectives and Policies; Investment Objectives and Programs; Investment Restrictions; Risk Factors of Foreign Investing; Investment Performance Item 14. Management of the Registrant Management of Funds Item 15. Control Persons and Principal Principal Holders of Holders of Securities Securities PAGE 4 Item 16. Investment Advisory and Other Investment Management Services; Services Custodian; Legal Counsel; Independent Accountants Item 17. Brokerage Allocation Portfolio Transactions Item 18. Capital Stock and Other Securities Dividends; Capital Stock Item 19. Purchase, Redemption and Pricing Redemptions in Kind; Pricing of of Securities Being Offered Securities; Net Asset Value Per Share; Federal and State Registration of Shares Item 20. Tax Status Tax Status Item 21. Underwriters Distributor for Funds Item 22. Calculation of Yield Quotations of Money Market Funds + Item 23. Financial Statements Incorporated by Reference from Annual Report PART C Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C to this Registration Statement ___________________________________ + Not applicable or negative answer PAGE 5 Prospectus for the T. Rowe Price International Equity Funds, dated May 31, 1994, should be inserted here. PAGE 1 INTERNATIONAL EQUITY FUNDS T. Rowe Price International Funds, Inc. Facts at a Glance May 1, 1994 Prospectus Objective Contents Capital appreciation through ______________________ investment in companies based 1 About the Funds outside the United States. Current ______________________ income is incidental to the funds' Transaction Costs and investment objectives. Fund Expenses ______________________ Strategy Financial Highlights ______________________ International Stock fund invests Fund and Market worldwide primarily in well- Characteristics established, non-U.S. companies. ______________________ International Discovery fund invests Risk Factors worldwide primarily in rapidly ______________________ growing small- and medium-sized, 2 About Your Account non-U.S companies. ______________________ European Stock fund invests Pricing Shares; primarily in companies domiciled in Receiving Sale Europe. Proceeds Japan fund invests primarily in ______________________ Japanese companies. Distributions and Taxes New Asia fund invests primarily in ______________________ companies in Asia and the Pacific Transaction Procedures Basin, excluding Japan. and Special Requirements Latin America fund invests primarily ______________________ in companies located in Latin 3 More About the Funds America. ______________________ Organization and Risk/Reward Management Each fund's share price will ______________________ fluctuate with changes in market, Understanding Fund economic, and foreign currency Performance exchange conditions. Generally, ______________________ funds investing in a single country, Investment Programs and single or multiple emerging markets, Practices or principally in smaller companies ______________________ represent higher risk and potential 4 Investing With T. Rowe reward than those with greater Price geographic diversification and an ______________________ orientation toward established Meeting Requirements for companies and more mature economies New Accounts and markets. ______________________ PAGE 2 Investor Profile Opening a New Account Those seeking enhanced appreciation ______________________ potential over time and greater Purchasing Additional diversification for their equity Shares investments who can accept the ______________________ volatility of stock prices and the Exchanging and Redeeming special risks that may accompany ______________________ international investing. Shareholder Services ______________________ Fees and Charges 100% no load. No sales charges; free This prospectus contains telephone exchange; no 12b-1 information you should marketing fees. Redemption fees on know before investing. just two funds: the International Please keep it for Discovery and Latin America Funds future reference. A impose a 2% redemption fee, payable Statement of Additional to the funds, on shares held less Information about the than one year. funds, dated May 1, 1994, has been filed Investment Manager with the Securities and Rowe Price-Fleming International, Exchange Commission and Inc., was founded in 1979 as a joint is incorporated by venture between T. Rowe Price reference in this Associates, Inc. and Robert Fleming prospectus. To obtain a Holdings Ltd. Price-Fleming manages free copy, call approximately $15.0 billion through 1-800-638-5660. its offices in Baltimore, London, Tokyo, and Hong Kong. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES 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. PAGE 3 1 About the International funds Transaction Costs and funds' Expenses These tables should help you understand the kinds of expenses you will bear directly or indirectly as a Fund shareholder. The first part of the table, "Shareholder Transaction Costs," shows that you pay no direct costs to buy, sell or exchange shares in the Fund. All the money you invest in a Fund goes to work for you. ___________________________________________ Fund Expenses Shareholder Transaction Expenses Inter- na- Inter- tion- na- al tion- Dis- Euro- Latin al cov- pean Ja- New Amer- Stock ery Stock pan Asia ica ___________________________________________ Sales load "charge" on purchasesNone None None None None None ___________________________________________ Sales load "charge" on reinvested dividendsNone None None None None None ___________________________________________ Redemption fees None None None None None 2%+ ___________________________________________ Exchange fees None None None None None None ___________________________________________ PAGE 4 Annual Fund Expenses Inter- na- Inter- tion- na- al tion- Dis- Euro- Latin al cov- pean Ja- New Amer- Stock ery Stock pan Asia ica ___________________________________________ Manage- ment fee (after reduc- tion) 0.70% 1.10% 0.85%0.70%++ 0.85% 1.10% ___________________________________________ Total other (Share- holder servicing, custodial, auditing, etc.) +++ 0.31% 0.44% 0.50% 0.80% 0.44% 0.90% ___________________________________________ Distri- bution fees (12b-1) None None None None None None ___________________________________________ Total fund Ex- penses 1.01% 1.54% 1.35% 1.50% 1.29% 2.00% ___________________________________________ + On shares purchased and held for less than twelve months (details on pages ____ and ____. ++ The Japan Fund's management fee and its total expense ratio would have been 0.85% and 1.65%, respectively, had Price-Fleming not agreed to reduce management fees in accordance with the expense limitation. PAGE 5 +++ The funds charge a $5.00 fee for wire redemptions under $5,000, subject to change without notice. The following chart sets forth expense ratio limitations and the periods for which they are effective. For each, Price-Fleming has agreed to bear any Fund expenses which would cause the Fund's ratio of expenses to average net assets to exceed the indicated percentage limitations. The expenses borne by Price-Fleming are subject to reimbursement by the Fund through the indicated reimbursement date, provided no reimbursement will be made if it would result in the Fund's expense ratio exceeding its applicable limitation. Expense Reim- Limita- Ratio burse- tion Limita- ment Period tion Date _______ _______ _____ Short-Term Global Income+January 1, 1994- 1.00% December December 31, 1995 31, 1997 Global Government Bond++ January 1, 1993- 1.20% December December 31, 1994 31, 1996 International Discov- ery* January 1, 1993- 1.50% December December 31, 1993 31, 1995 Japan** January 1, 1994- 1.50% October October 31, 1995 31, 1997 Latin AmericaDecember 29, 1993-2.00% October October 31, 1995 31, 1997 * The International Discovery Fund previously operated under a 1.50% limitation that expired December 31, PAGE 6 1992. The reimbursement period for this limitation extends through December 31, 1994. ** The Japan Fund previously operated under a 1.50% limitation that expired December 31, 1993. The reimbursement period for this limitation extends through December 31, 1995. The second half of the table, "Annual Mutual Fund Expenses," provides an estimate of how much it will cost to operate the fund for a year, based on 1993 fiscal year expenses. These are costs you pay indirectly, because they are deducted from the fund's total assets before the daily share price is calculated and before dividends and other distributions are made. In other words, you will not see these expenses on your account statement. The main types of expenses, which all mutual funds may charge against fund assets, are: o A management fee: the percent of Fund assets paid to the fund's investment manager. Each fund's fee comprises both a group fee, discussed later, and an individual fund fee, as follows: International Stock Fund 0.35%; European Stock, Japan and New Asia Funds 0.50%; and International Discovery and Latin America Funds 0.75%. Because the investment programs of the International Discovery, European Stock, Japan, New Asia, and Latin America Funds are more costly to implement and maintain, the Individual Fund Fee is higher than that paid by most U.S. investment companies. o "Other" administrative expenses: primarily the servicing of shareholder accounts, such as providing statements, reports, disbursing dividends, as well as custodial services. For the year ended PAGE 7 December 31, 1993, the funds paid the following fees to T. Rowe Price Services, Inc. for transfer and dividend disbursing functions and shareholders services; T. Rowe Price Retirement Plan Services, Inc. for recordkeeping services for certain retirement plans; and T. Rowe Price for fund accounting services. Transfer Subaccounting Agent Services Accounting ________ ____________ __________ Interna- tional Stock $2,374,000 $1,252,000 $92,000 Inter- national Discov- ery $ 360,000 $ (50) $92,000 European Stock $ 366,000 $ 9,000 $83,000 Japan $ 234,000 $ 400 $83,000 New Asia $1,394,000 $ 23,000 $83,000 The Latin America Fund became effective on December 29, 1993, and is expected to pay TRP Services transfer agent fees totaling approximately $143,000 for the fiscal period ending October 31, 1994, and is also expected to pay shareholder service and accounting fees totaling approximately $133,000 and $83,000, respectively, for the same period to T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price, respectively, as described on page __ under Management of the Funds. o Marketing or distribution fees: an annual charge ("12-b") to existing shareholders to defray the cost of selling shares to new shareholders. T. Rowe Price funds do not levy 12b-1 fees. For further details on fund expenses, please see "The Funds' Organization and Management." o Hypothetical example: Assume you invest PAGE 8 at least $1,000, the Fund returns 5% annually, expense ratios remain as previously listed, and you close your account at the end of the time periods shown. Your expenses per $1,000 invested would be: Fund 1 Year 3 Years5 Years 10 Years ____ ______ ______________ ________ Inter- national Stock $10 $32 $56 $124 Inter- national Discovery $16 $49 $84 $183 European Stock $14 $43 $74 $162 Japan $15 $47 $82 $179 New Asia $13 $41 $71 $156 Latin America $20 $63 $108 $233 Financial Highlights The following table provides information about each fund's financial history. It is based on a single share outstanding throughout each fiscal year. The respective table is part of each fund's financial statements which are included in each fund's annual report and incorporated by reference into the Statement of Additional Information, which is available to shareholders. The financial statements in the annual report have been audited by the funds' independent accountants whose respective unqualified reports cover the periods shown. PAGE 9 Investment Activities Distributions Net Real- ized and Net Unreal- Total Asset ized Gain from Value, Net (Loss) Invest- Net Net Begin- Invest- on ment Invest-Real- Total Year Ended, ning of ment Invest- Activi- ment lized Distri- December 31 Period Income ments ties Income Gain butions _________________________________________________________________ Stock Fund! 1984 $7.16 $.15 $(.56) $(.41)$(.08) $(.08)$ (.16) 1985 6.59 .11 2.71 2.82 (.15) (.22) (.37) 1986 9.04 .11 5.23 5.34 (.11) (1.38) (1.49) 1987 12.89 .12 .74 .86 (.23) (4.98) (5.21) 1988 8.54 .16 1.36 1.52 (.16) (.93) (1.09) 1989 8.97 .16 1.94 2.10 (.16) (.67) (.83) 1990 10.24 .22 (1.13) (.91) (.16) (.36) (.52) 1991 8.81 .15 1.22 1.37 (.15) (.49) (.64) 1992 9.54 .14 (.47) (.33) (.16) (.16) (.32) 1993x 8.89 .10 2.75 2.85 -- -- -- _________________________________________________________________ End of Period Ratio of Ratio Net of Invest- Net Total Expenses ment Port- Asset Return to Income folio Value, (Includes Net Average to Aver- Turn- Year Ended, End of Reinvested Assets ($ Net age Net over December 31 Period Dividends) Thousands) Assets Assets Rate _________________________________________________________________ Stock Fund! 1984 $ 6.59 (5.9%) $ 180,705 1.11% 2.29% 37.7% 1985 9.04 45.3% 376,843 1.11% 1.54% 61.9% 1986 12.89 61.3% 790,020 1.10% 0.89% 56.4% 1987 8.54 8.0% 642,463 1.14% 0.93% 76.5% 1988 8.97 17.9% 630,114 1.16% 1.78% 42.4% 1989 10.24 23.7% 970,214 1.10% 1.63% 47.8% 1990 8.81 (8.9%) 1,030,848 1.09% 2.16% 47.1% 1991 9.54 15.9% 1,476,309 1.10% 1.51% 45.0% 1992 8.89 (3.5%) 1,949,631 1.05% 1.49% 37.8% 1993x 11.74 32.1%+ 2,746,055 1.01%++1.52%++29.8%++ PAGE 10 _________________________________________________________________ Investment Activities Distributions Net Real- ized and Net Unreal- Total Asset ized Gain from Value, Net (Loss) Invest- Net Net Begin- Invest- on ment Invest-Real- Total Year Ended, ning of ment Invest- Activi- ment lized Distri- December 31 Period Income ments ties Income Gain butions _________________________________________________________________ Discovery Fund 1989!! $10.00 $ .14!!!$ 4.03 $4.17 $ (.13) $(.10) $(.23) 1990 13.94 .14!!! (1.91) (1.77) (.15) (.27) (.42) 1991 11.75 .13!!! 1.24 1.37 (.13) -- (.13) 1992 12.99 .13!!! (1.31) (1.18) (.13) -- (.13) 1993x 11.68 .07!!! 4.41 4.48 -- -- -- _________________________________________________________________ End of Period Ratio of Ratio Net of Invest- Net Total Expenses ment Port- Asset Return to Income folio Value, (Includes Net Average to Aver- Turn- Year Ended, End ofReinvested Assets ($ Net age Net over December 31 PeriodDividends)Thousands) Assets Assets Rate _________________________________________________________________ Discovery Fund 1989!! $13.94 41.8%+ $ 61,166 1.50%!!!++ 0.76%++38.3%++ 1990 11.75(12.8%) 136,660 1.50%!!!++ 1.10% 44.0% 1991 12.99 11.7% 166,819 1.50%!!!++ 1.03% 56.3% 1992 11.68 (9.1%) 166,362 1.50%!!!++ 1.07% 38.0% 1993x 16.16 38.4%+ 329,001 1.50%!!!++ 0.81%++71.8%++ _________________________________________________________________ PAGE 11 Investment Activities Distributions Net Real- ized and Net Unreal- Total Asset ized Gain from Value, Net (Loss) Invest- Net Net Begin- Invest- on ment Invest-Real- Total Year Ended, ning of ment Invest- Activi- ment lized Distri- December 31 Period Income ments ties Income Gain butions _________________________________________________________________ European Stock 1990@ $10.00 $ .24@@$ (.56) $ (.32) $(.20) -- $(.20) 1991 9.48 .10 .59 .69 (.08) -- (.08) 1992 10.09 .14 (.70) (.56) (.17) -- (.17) 1993x 9.36 .12 1.89 2.01 -- -- -- _________________________________________________________________ End of Period Ratio of Ratio Net of Invest- Net Total Expenses ment Port- Asset Return to Income folio Value, (Includes Net Average to Aver- Turn- Year Ended, End of Reinvested Assets ($ Net age Net over December 31 Period Dividends) Thousands) Assets Assets Rate _________________________________________________________________ European Stock 1990@ $9.48 (3.2%)+ $ 99,447 1.75%@@++2.30%++ 34.9%++ 1991 10.09 7.3% 103,977 1.71% 1.04% 57.7% 1992 9.36 (5.6%) 173,798 1.48% 1.23% 52.0% 1993x 11.37 21.5%+ 265,784 1.35%++ 1.79%++ 21.3%++ _________________________________________________________________ PAGE 12 Investment Activities Distributions Net Real- ized and Net Unreal- Total Asset ized Gain from Value, Net (Loss) Invest- Net Net Begin- Invest- on ment Invest-Real- Total Year Ended, ning of ment Invest- Activi- ment lized Distri- December 31 Period Income ments ties Income Gain butions _________________________________________________________________ Japan 1992* $10.00 $(.01)** $(1.35) $ (1.36) -- -- -- 1993x 8.64 (.05)** 2.99 2.94 -- -- -- _________________________________________________________________ End of Period Ratio of Ratio Net of Invest- Net Total Expenses ment Port- Asset Return to Income folio Value, (Includes Net Average to Aver- Turn- Year Ended, End of Reinvested Assets ($ Net age Net over December 31 Period Dividends) Thousands) Assets Assets Rate _________________________________________________________________ Japan 1992* $ 8.64 (13.4%) $45,792 1.50%** (.22)% 41.6% 1993x 11.58 33.7%+ 87,163 1.50%++**(.58)%++61.4%++ _________________________________________________________________ PAGE 13 Investment Activities Distributions Net Real- ized and Net Unreal- Total Asset ized Gain from Value, Net (Loss) Invest- Net Net Begin- Invest- on ment Invest-Real- Total Year Ended, ning of ment Invest- Activi- ment lized Distri- December 31 Period Income ments ties Income Gain butions _________________________________________________________________ New Asia 1990# $10.00 $ .09##$ .07 $ .16 $(.08) -- $(.08) 1991 10.08 .21## 1.73 1.94 (.20) -- (.20) 1992 11.82 .20 1.12 1.32 (.20) $(.26) (.46) 1993x 12.68 .07 7.01 7.08 -- -- -- _________________________________________________________________ End of Period Ratio of Ratio Net of Invest- Net Total Expenses ment Port- Asset Return to Income folio Value, (Includes Net Average to Aver- Turn- Year Ended, End of Reinvested Assets ($ Net age Net over December 31 Period Dividends) Thousands) Assets Assets Rate _________________________________________________________________ New Asia 1990# $10.08 1.6%+ $ 10,986 1.75%##++ 2.10%++ 3.2%++ 1991 11.82 19.3% 102,922 1.75%## 1.75% 49.0% 1992 12.68 11.2% 314,504 1.51% 1.64% 36.3% 1993x 19.76 55.8%+ 1,650,450 1.29%++ 1.02%++40.4%++ _________________________________________________________________ ! All share and per-share figures reflect the 2-for-1 stock split effective August 31, 1987. !! For the period December 30, 1988 (commencement of operations) to December 31, 1989. !!! Excludes expenses in excess of a 1.50% voluntary expense limitation in effect through December 31, 1993. @ For the period February 28, 1990 (commencement of operations) to December 31, 1990. @@ Excludes expenses in excess of a 1.75% voluntary expense limitation in effect through December 31, 1991. PAGE 14 * For the period December 30, 1991 (commencement of operations) to December 31, 1992. ** Excludes expenses in excess of a 1.50% voluntary expense limitation in effect through December 31, 1993. # For the period September 28, 1990 (commencement of operations) to December 31, 1990. ## Excludes expenses in excess of a 1.75% voluntary expense limitation in effect through December 31, 1992. + Not Annualized. ++ Annualized. x For ten months ended October 31, 1993. Fiscal year-end changed from December 31 to October 31. Fund and Market Characteristics: What to Expect To help you decide Why invest internationally? whether an international equity fund is There are three main reasons: appropriate for you, this section takes a closer o Expanded investment opportunities. More look at the T. Rowe Price than half of the world's total stock market funds' investment capitalization and two-thirds of global GNP programs and the markets consists of non-U.S. stocks and companies. in which they invest. o The potential for higher returns. One or more foreign stock markets outperformed the U.S. market (in U.S. dollar terms) in xx of the 20 years ended 1993. o Lower overall volatility in your investment portfolio through increased diversification. Since foreign stock markets tend to move independently of the U.S. market and each other, spreading investments across a number of markets can help smooth out fluctuations in the returns of your total equity holdings. What are some of the opportunities represented by major overseas markets? o Europe: market deregulation, privatization, and lower trade barriers have expanded the range of investment opportunities. The emergence of capitalist economies in eastern Europe could, over the PAGE 15 long term, open previously inaccessible markets and also provide a lower-cost, skilled labor pool, which may further stimulate European economies. o Asia: No longer solely dependent on the Japanese "engine" for growth, the newly industrialized countries of the Pacific Rim are powered by worldwide exports and, increasingly, by strong inter-regional demand. In addition, China's move toward a more capitalistic economy has positive implications for the entire region's future. o Japan: Although its growth rate has slowed, the longer-term outlook for Japan's economy is positive. In addition to its productive labor force, technological expertise, and commitment to capital investment, Japan's shift to a more domestic-oriented economy should promote future growth and create new investment opportunities. o Latin America: After years of stagnation, some countries here are experiencing rising growth rates that reflect lower trade barriers, privatization of industry, progress on reducing inflation and restructuring of national debt burdens. For more details on What can I expect in terms of price potential risks of volatility? foreign investments, see "Risk Factors" under Like U.S. stock investments, common stocks "Investment Policies and of foreign companies offer investors a way Practices." to build capital over time. 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 PAGE 16 widely. For this reason, investors in either foreign or domestic stocks should have a long-term investment horizon. 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.) From 1970, when the Index began, through 1993, foreign stocks posted negative returns in seven years, as shown, which means 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. [two bar charts here] Footnote for charts: These charts are intended to illustrate historical common stock behavior and do not represent the performance of any T. Rowe Price mutual fund. Past results do not indicate future returns. What are the major risks associated with international investing and these funds? Foreign stock prices are subject to many of the same influences as U.S. stocks, such as general economic conditions, company and industry earnings prospects, and investor psychology. International investing also involves additional risks which can increase the potential for the losses in the Funds. 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 PAGE 17 total return information reflect conversion into dollars. Fluctuations in foreign exchange rates can significantly 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. Exchange rate movements can be large and endure for extended periods of time. o Costs. It is more expensive for U.S. investors to trade in foreign markets than in the U.S. Mutual funds offer a very efficient way for individuals to invest abroad, but the overall expense ratios of international funds are usually somewhat higher than those of typical domestic stock funds. o Political and economic factors. The economies, markets and political structures of some countries in which each funds can invest may not compare favorably with the United States and other mature economies in terms of wealth and stability. Therefore, investments in these countries may be riskier, and 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, trade barriers and other protectionist or retaliatory measures (Japan, Southeast Asia, Latin America). Some countries, particularly in Latin America, are grappling with severe inflation and high PAGE 18 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. Certain portfolio countries have histories of instability and upheaval (Latin America) and internal politics that could cause their governments to act in a detrimental or hostile manner toward foreign investment. Any such actions could affect security prices, and impair a fund's ability to repatriate capital or income. While certain portfolio countries have made progress in economic growth, 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. o Pricing. Portfolio securities may be listed on foreign exchanges that are open on days (such as Saturdays) when the funds do not compute their prices. As a result, a funds' net asset values may be significantly affected by trading on days when shareholders cannot make transactions. How do fund managers try to reduce risk? The principal tools are intensive research and diversification; currency hedging techniques are used from time to time. o In addition to conducting on-site research in portfolio countries and PAGE 19 companies, Rowe Price-Fleming has close ties with investment analysts based throughout the world. o Diversification significantly reduces but does not eliminate risk. The impact on a fund's share price from a drop in the price of a particular stock is reduced substantially by investing in a portfolio with dozens of different companies. Likewise, the impact of unfavorable developments in a particular country is reduced in the multi-country funds because investments are spread among many countries. Portfolio managers keep close watch on individual investments as well as on political and economic trends in each country and region. Holdings are adjusted according to the manager's analysis and outlook. o While currency translation does affect the short-run returns provided by foreign stocks, its influence on long-term results has been far outweighed by price trends on local stock exchanges. However, when foreign exchange rates are expected to be unfavorable for U.S. investors, fund managers can hedge the risk through use of currency forwards and options. In a general sense, these tools allow a manager to exchange currencies in the future at a rate specified in the present. (For more details, please see "Foreign Currency Transactions" under "Investment Policies and Practices.") If the manager's forecast is wrong, however, the hedge may cause a loss. The fund or funds you How can I decide which fund may be most select should reflect appropriate for me? your individual investment goals, but First, be sure that your investment should not represent your objective is the same as a fund's: capital complete investment appreciation over time. If you will need PAGE 20 program. No fund should the money you plan to invest in the near be used for short-term future, none of these funds is suitable. trading purposes. Second, your decision should take into account whether you have any other foreign stock investments. If not, you may wish to invest in the most diversified funds to gain the broadest exposure to opportunities overseas. If you are supplementing existing holdings, you may wish to narrow your focus to a region or country-specific fund. Third, consider your risk tolerance and the risk profile of the various funds. International funds Comparison Chart Objective: All funds seek capital appreciation by investing primarily in common stocks. Risk Profile Type (Relative Geographic of to Each Fund Emphasis Company Other) ____ __________ ________ _________ Inter- Worldwide Large, Relatively national (excluding well- conservative Stock U.S.) established ___________________________________________ Inter- Worldwide Small to Aggressive national (excluding medium- Discovery U.S.) sized companies ___________________________________________ European Europe All sizes Moderate Stock (including Eastern Europe) ___________________________________________ New Asia Far East and All sizes Aggressive Pacific Basin (excluding Japan) PAGE 21 ___________________________________________ Japan Japan All sizes Moderate ___________________________________________ Latin Currently All sizes Most America Mexico aggressive Brazil Chile Argentina Is there addition information about the six funds to help me make a decision? Yes. You should review the following investment objectives and other details about each fund discussed in this prospectus and other materials you received about the funds. International Stock fund. The fund's objective is long-term growth of capital through investments primarily in common stocks of established, non-U.S. companies. The fund expects to invest substantially all of its assets outside the U.S. and to diversify broadly among countries throughout the world, both developed, newly industrialized, and emerging. International Discovery fund. This fund's objective is long-term growth of capital through investment primarily in common stocks of rapidly growing, small- to medium-sized non-U.S. companies. Such companies traditionally are more dynamic and offer greater growth potential than larger companies, but they are often overlooked or undervalued by investors. Smaller companies are generally riskier than large because they may have limited product lines, capital, and managerial resources. Their securities may be less liquid, that is, they may trade less frequently and with greater price swings. The fund expects to invest substantially all of its assets outside the U.S. in both developed and emerging markets. Depending PAGE 22 on conditions, the portfolio should comprise at least 10 countries and 100 different companies. European Stock fund. The fund's objective is long-term growth of capital through investment primarily in common stocks of both large and small European companies. The fund seeks to take advantage of opportunities arising from such trends as privatization, the reduction of trade barriers, and the potential growth of the emerging economies of Eastern Europe. The fund will normally invest at least 65% of its total assets in the common stocks of European companies. Normally, at least five countries will be represented in the portfolio, and investments may be made in any of the countries listed below, as well as others as their markets develop. Primary Emphasis: Others: France Austria Czech Republic Germany Belgium Greece Holland Denmark Hungary Italy Finland Poland Spain Ireland Slovakia Sweden Luxembourg Turkey Switzerland Norway Russia United Kingdom Portugal Japan fund. This fund's objective is long- term growth of capital through investment in common stocks of large and small companies domiciled or with primary operations in Japan. These securities must be issued by companies that are either domiciled in Japan, have at least half their assets in Japan, or derive at least half their revenues from Japan. The fund expects to invest substantially all of its assets in Japanese companies and will normally be invested across a wide range of industries and companies (both PAGE 23 small and large). While a single-country fund may normally be considered more risky than a multi- country fund, Japan has a highly developed and diverse economy which accounts for 17% of the world's output. Japanese stocks represent approximately one-quarter of the world's stock market capitalization. Investors should be aware that the U.S. dollar has fallen in value against the Japanese yen for many years, increasing returns on Japanese investments for U.S. investors. There is no assurance this currency trend will continue and its reversal would adversely affect the fund. Note: For special pricing and transaction information about the Japan fund, please see "Pricing Shares" on page __. New Asia fund. The fund's objective is long-term growth of capital through investment in large and small companies domiciled or with primary operations in Asia, excluding Japan. The fund expects to invest substantially all of its assets in the common stocks of Asian countries, excluding Japan and may also invest in companies in the Pacific Basin, including Australia and New Zealand. Countries in which the fund may invest include those listed below as well as others in the region, such as China, Pakistan, and Indochina, as their markets become more accessible. Investments will represent a minimum of five countries. Australia Philippines Hong Kong Singapore India South Korea Indonesia Taiwan Malaysia Thailand New Zealand PAGE 24 Economic growth among the Southeast Asia economies has outstripped both Europe and Japan in recent years, and the region's rising prosperity has been reflected in generally strong investment returns. However, investors should keep in mind that recent growth rates and fund returns may not be sustainable. Latin America fund. The fund's objective is long-term growth of capital through investment primarily in companies domiciled, or with primary operations, in Latin America. Initially the fund will focus on Mexico, Brazil, Chile, and Argentina, and the portfolio is normally expected to invest in at least four countries. Other countries will be added as opportunities arise and conditions permit. Normally, at least 65% of total assets will be invested in Latin America common stocks. The fund expects to make substantial investments (at times more than 25% of total assets) in the telephone companies of various Latin American countries. These utilities play a critical role in a country's economic development, but their stocks could be adversely affected if trends favoring development were to be reversed. For a while, the fund expects that many Latin American investments will be made indirectly through purchases of such vehicles as ADRs (American depositary receipts) traded in the United States. Direct investments will increase gradually as the markets for local shares become more liquid. The fund is registered as "non- diversified." This means that it may invest a greater portion of assets in a single company and own more of the company's voting securities than is permissible for a "diversified" fund. PAGE 25 This is potentially the most volatile of the T. Rowe Price international equity funds. The Latin American countries in general have less developed economies than other regions in which Price-Fleming invests and may continue to be subject to the effects of unpredictable political and economic conditions. A number of countries have legacies of political instability, hyper inflation, and currency devaluations versus the dollar (which would adversely affect returns to U.S. investors). Q. What kinds of securities can the funds invest in other than common stocks? A. Each of the funds expects to invest substantially all of its assets in common stocks. However, the funds may also invest in a variety of other equity related securities, such as preferred stocks, warrants and convertible securities, as well as corporate and governmental debt securities, when considered consistent with the fund's investment objectives and program. The funds may also engage in a variety of investment management practices, such as buying and selling futures and options. The fund's investments in securities other than common stocks is limited to no more than 35% of total assets. The funds will not purchase any debt security which at the time of purchase is rated below investment grade. This would not prevent a fund from retaining a security downgraded to below investment grade after purchase. Q. Where can I find more details about the fund's policies and practices? A. In Section 3, the following are discussed: PAGE 26 o Common and Preferred Stocks o Convertible Securities and Warrants o Hybrid Instruments o Private Placements o Cash Position o Borrowing Money and Transferring Assets o Operating Policies o Foreign Currency Transactions o Futures and Options o Lending of Portfolio Securities o Portfolio Turnover 2 About Your Account Pricing Shares and Receiving Sale Proceeds _______________________ Here are some procedures you should know The various ways you can when investing in a fund. buy, sell, and exchange shares are explained at How and when shares are priced the end of this The share price (also called "net asset prospectus and on the New value" or NAV per share) for each fund, Account Form. except the Japan fund, is calculated at 4 p.m. ET each day the New York Stock Exchange is open for business. The share price for the Japan fund is calculated at 4 p.m. ET each day the New York Stock Exchange and the Tokyo Stock Exchange are both open for business. To calculate the NAV, a fund's assets are priced and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. How your purchase, sale, or exchange price is determined _______________________ If we receive your request in correct form When filling out the New before 4 p.m. ET, your transaction will be Account Form, you may priced at that day's NAV. If we receive it wish to give yourself the after 4 p.m., it will be priced at the next widest range of options business day's NAV. for receiving proceeds from a sale. Japan fund: Pricing and Transactions. The fund will not process orders on any day when either the New York or Tokyo Stock Exchange is closed. Orders received on PAGE 27 such days will be priced on the next day the fund computes its net asset value. As such, you may experience a delay in purchasing or redeeming fund shares. Exchanges. If you wish to exchange into the Japan fund on a day when the New York Stock Exchange is open but the Tokyo Stock Exchange is closed, the exchange out of the other T. Rowe Price fund will be processed on that day but Japan fund shares will not be purchased until the next day the Japan Fund reopens. If you wish to exchange out of the Japan fund on a day when the New York Stock Exchange is open but the Tokyo Stock Exchange is closed, the exchange will be delayed until the next day the Japan Fund reopens. We're sorry, but we cannot accept orders that request a particular day or price for your transaction or any other special conditions. Note: The time at which transactions are priced may be changed in case of an emergency or if the New York Stock Exchange closes at a time other than 4 p.m. ET. How you can receive the proceeds from a sale _______________________ If your request is received by 4 p.m. ET in If for some reason we correct form, proceeds are usually sent on cannot accept your the next business day. Proceeds can be sent request to sell shares, to you by mail, or to your bank account by we will contact you. ACH transfer or bank wire. Proceeds sent by bank wire should be credited to your account the next business day, and proceeds sent by ACH transfer should be credited the second day after the sale. Exception: Under unusual circumstances or when deemed to be in the fund's best interest, your proceeds may not be sent for up to five business days after receiving your sale or exchange request. If you were exchanging into a bond or money fund, your PAGE 28 new investment would not begin to earn dividends until the sixth business day. Contingent Redemption Fee (Latin America fund and International Discovery fund). The funds can experience substantial price fluctuations and are intended for long-term investors. Short-term "market timers" who engage in frequent purchases and redemptions can disrupt the funds' investment programs and create additional transaction costs that are borne by all shareholders. For these reasons, each fund assesses a 2% fee on redemptions (including exchanges) of fund shares held for less than twelve months. Shares owned in the International Discovery fund as of February 27, 1994 are exempt from the fee. Redemption fees will be paid to the fund to help offset transaction costs. The funds will use the "first-in, first- out" (FIFO) method to determine the twelve month holding period. Under this method, the date of the redemption or exchange will be compared with the earliest purchase date of shares held in the account. If this holding period is less than twelve months, the redemption fee will be assessed. The fee does not apply to any shares purchased through reinvestment of dividends or capital gain distributions, or to shares held in retirement plans such as 401(k), 403(b), 457, profit sharing, and money purchase pension accounts. The fee does apply to shares held in IRA and SEP-IRA accounts and to shares purchased through automatic investment plans (described under "Shareholder Services"). Useful Information on Distributions and Taxes Dividends and other distributions PAGE 29 _______________________ Dividend and capital gain distributions are The funds distribute all reinvested in additional fund shares in net investment income and your account unless you select another realized capital gains to option on your New Account Form. The shareholders. advantage of reinvesting distributions arises from compounding; that is, you receive interest and capital gain distributions on a rising number of shares. Dividends not reinvested are paid by check or transmitted to your bank account via ACH. If the Post Office cannot deliver your check, or if your check remains uncashed for six months, a fund reserves the right to reinvest your distribution check in your account at the then current NAV and to reinvest all subsequent distributions in shares of the fund. Income dividends o The fund declares and pays dividends (if any) annually. o The dividends of each fund will not be eligible for the 70% deduction for dividends received by corporations, if, as expected, none of the funds' income consists of dividends paid by U.S. corporations. Capital gains o A capital gain or loss is the difference between the purchase and sale price of a security. o If the fund has net capital gains for the year (after subtracting any capital losses), they are usually declared and paid in December to shareholders of record on a specified date that month. Tax information _______________________ You need to be aware of the possible tax The funds send timely consequences when: information for your tax o the fund makes a distribution to your filing needs. account, or o you sell fund shares, including an exchange from one fund to another. PAGE 30 Taxes on fund redemptions. When you sell _______________________ shares in any fund, you may realize a gain The funds furnish average or loss. An exchange from one fund to cost and capital gain another is still a sale for tax purposes. (loss) information on most share redemptions. In January, the funds will send you and the IRS Form 1099-B, indicating the date and amount of each sale you made in the fund during the prior year. We will also tell you the average cost of the shares you sold during the year. Average cost information is not reported to the IRS, and you do not have to use it. You may calculate the cost basis using other methods acceptable to the IRS, such as "specific identification." To help you maintain accurate records, we send you a confirmation immediately following each transaction you make and a year-end statement detailing all your transactions in each fund account during the year. Taxes on fund distributions. The following _______________________ summary does not apply to retirement Distributions are accounts, such as IRAs, in the funds, which taxable whether are tax-deferred until you withdraw money reinvested in additional from them. shares or received in cash. In January, the funds will send you and the IRS Form 1099-DIV indicating the tax status of any dividend and capital gain distribution made to you. All distributions made by these funds are taxable to you for the year in which they were paid. The only exception is that distributions declared during the last three months of the year and paid in January are taxed as though they were paid by December 31. Dividends and distributions are taxable to you regardless of whether they are taken in cash or reinvested. The funds will send you any additional information you need to determine your taxes on fund distributions, such as the portion of your dividend, if any, that may be exempt from state income taxes. PAGE 31 Short-term capital gains are taxable as ordinary income and long-term gains are taxable at the applicable long-term gain rate. The gain is long or short term depending on how long the fund held the securities, not how long you held shares in the fund. Distributions resulting from the sale of certain foreign currencies and debt securities, to the extent of foreign exchange gains, are taxed as ordinary income or loss. If the fund pays nonrefundable taxes to foreign governments during the year, the taxes will reduce the fund's dividends, but will still be included in your taxable income. However, you may be able to claim an offsetting credit or deduction on you tax return for your portion of foreign taxes paid by the fund. Tax effect of buying shares before a capital gain distribution. If you buy shares near or on the "record date" - the date that establishes you as the person to receive the upcoming distribution - you will receive, in the form of a taxable distribution, a portion of the money you just invested. Therefore, you may wish to find out the fund's record date(s) before investing. Of course, the fund's share price will reflect undistributed capital gains or unrealized appreciation, if any. Passive Foreign Investment Companies. Each 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 PAGE 32 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 funds may be required to limit their gains from hedging in foreign currency forwards, futures and options. Although it is anticipated the funds 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 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 funds as well as affect whether dividends paid by the funds are classified as capital gains or ordinary income. Transaction Procedures and Special Requirements Purchase Conditions _______________________ Nonpayment. If your payment is not received Following these or you pay with a check or ACH transfer procedures helps assure that does not clear, your purchase will be timely and accurate cancelled. You will be responsible for any transactions. losses or expenses incurred by the fund or PAGE 33 transfer agent, and the fund can redeem shares you own in this or another identically registered T. Rowe Price fund as reimbursement. The fund and its agents have the right to reject or cancel any purchase, exchange, or redemption due to nonpayment. U.S. Dollars. All purchases must be paid for in U.S. dollars; checks must be drawn on U.S. banks. Sale (Redemption) Conditions 10-day Hold. If you sell shares that you just purchased and paid for by check or ACH transfer, the fund will redeem your shares at the price on the day the request is received, but will generally delay sending you the proceeds for up to 10 calendar days to allow the check or transfer to clear. If you requested a redemption by mail or mailgram, the proceeds will be mailed no later than the seventh day following receipt unless the check or ACH transfer has not cleared. (The 10-day hold does not apply to purchases paid for by: bank wire; cashier's, certified, or treasurer's checks; or automatic purchases through your paycheck.) Telephone Transactions. Telephone exchange and redemption are established automatically when you sign the New Account Form unless you check the box which states that you do not want these services. The fund uses reasonable procedures (including shareholder identity verification) to confirm that instructions given by telephone are genuine. If these procedures are not followed, it is the opinion of certain regulatory agencies that a fund may be liable for any losses that may result from acting on the instructions given. All conversations are recorded, and a confirmation is sent within five business days after the telephone transaction. PAGE 34 Redemptions over $250,000. Large sales can adversely affect a portfolio manager's ability to implement a fund's investment strategy by causing the premature sale of securities that would otherwise be held. If in any 90-day period, you redeem (sell) more than $250,000, or your sale amounts to more than 1% of the fund's net assets, the fund has the right to delay sending your proceeds for up to five business days after receiving your request, or to pay the difference between the redemption amount and the lesser of the two previously mentioned figures with securities from the fund. Excessive Trading _______________________ Frequent trades involving either T. Rowe Price may bar substantial fund assets or a substantial excessive traders from portion of your account or accounts purchasing shares. controlled by you, can disrupt management of the fund and raise its expenses. We define "excessive trading" as exceeding one purchase and sale involving the same fund within any 120-day period. For example, you are in fund A. You can move substantial assets from fund A to fund B, and, within the next 120 days, sell your shares in fund B to return to fund A or move to fund C. If you exceed the number of trades described above, you may be barred from further purchases of T. Rowe Price funds. Three types of transactions are exempt from excessive trading guidelines: (1) trades solely between money market funds, (2) redemptions that are not part of exchanges, and (3) systematic purchases or redemptions (See "Shareholder Services"). Keeping Your Account Open Due to the relatively high cost of maintaining small accounts, we ask you to maintain an account balance of at least PAGE 35 $1,000. If your balance is below $1,000 for three months or longer, the fund has the right to close your account after giving you 60 days in which to increase your balance. Signature Guarantees _______________________ You may need to have your signature A signature guarantee is guaranteed in certain situations, such as: designed to protect you and the fund from fraud o Written requests to 1) redeem over by verifying your $50,000 or 2) wire redemption proceeds. signature. o Remitting redemption proceeds to any person, address, or bank account not on record. o Transferring redemption proceeds to a T. Rowe Price fund account with a different registration from yours. o Establishing certain services after the account is opened. You can obtain a signature guarantee from most banks, savings institutions, broker/dealers and other guarantors acceptable to T. Rowe Price. We cannot accept guarantees from notaries public or organizations that do not provide reimbursement in the case of fraud. 3 More About the funds The funds' Organization and Management ______________________ How are the funds organized? Shareholders benefit from Price-Fleming's ___ years Currently, the Corporation consists of of investment management nine series, each representing a separate experience. class of shares and having different objectives and investment policies. The nine series and the years in which each was established are as follows: International Stock Fund, 1979; International Bond Fund, 1986; International Discovery Fund, 1988; European Stock Fund, New Asia Fund, Global Government Bond Fund, 1990; Japan Fund, PAGE 36 1991; Short-Term Global Income Fund, 1992; and Latin America Fund, 1993. The Short- Term Global Income, Global Government Bond and International Bond Funds are described in a separate prospectus. The Corporation's Charter provides that the Board of Directors may issue additional series of shares and/or additional classes of shares for each series. Although each fund is offering only its own shares, it is possible that a fund might become liable for any misstatement in the prospectus about another fund. The funds' Board has considered this factor in approving the use of two combined prospectuses. What is meant by "shares"? As with all mutual funds, investors purchase "shares" when they invest in a fund. These shares are part of a fund's authorized capital stock, but share certificates are not issued. Each share and fractional share entitles the shareholder to: o receive a proportional interest in a fund's capital gain distributions; o cast one vote per share on certain fund matters, including the election of fund directors, changes in fundamental policies, or approval of changes in a fund's management contract. Does each fund have an annual shareholder meeting? The funds are not required to hold meetings but will do so when certain matters, such as a change in a fund's fundamental policies, are to be decided. In addition, shareholders representing at least 10% of all eligible votes may call a special meeting if they wish for the purpose of voting on the removal of any fund director(s). If a meeting is held and you cannot attend, you can vote by proxy. Well before the meeting, the fund will send you proxy materials that explain the issues to PAGE 37 be decided and include a voting card for you to mail back. _________________________ Who runs the funds? All decisions regarding General Oversight. The funds are governed the purchase and sale of by a Board of Directors that meets fund investments are made regularly to review the fund's investments, by Price-Fleming- performance, expenses, and other business -specifically by the affairs. The Board elects the funds' funds' portfolio officers. managers. Investment Manager. Price-Fleming is responsible for selection and management of each 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, 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 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. Portfolio Management. Each fund has an investment advisory group that has day-to- day responsibility for managing the PAGE 38 portfolio and developing and executing each fund's investment program. The members of each advisory group are listed below. International Stock and International Discovery funds. 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. European Stock fund. Martin G. Wade, Richard J. Bruce, Mark J. T. Edwards, John R. Ford, and James B. M. Seddon. Japan fund. Martin G. Wade, Christopher Alderson, and David J. L. Warren. New Asia fund. Martin G. Wade, Peter Askew, Robert C. Howe, and Benedict R. F. Thomas. Latin America fund. Martin G. Wade, Mark J. T. Edwards, and John R. Ford. 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. Peter Askew joined Price-Fleming in 1988 and has 19 years of experience managing multicurrency fixed income portfolios. 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. David Boardman joined Price-Fleming in 1988 and has 19 years experience in PAGE 39 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. 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. Portfolio Transactions. Decisions with respect to the purchase and sale of a fund's portfolio securities on behalf of each fund are made by Price-Fleming. The funds' Board of Directors has authorized Price-Fleming to utilize affiliates of Flemings and Jardine Fleming in the PAGE 40 capacity of broker in connection with the execution of a 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. Marketing. T. Rowe Price Investment Services, Inc., a wholly-owned subsidiary of T. Rowe Price, distributes (sells) shares of these and all other T. Rowe Price funds. Shareholder Services. T. Rowe Price Services, Inc., another wholly-owned subsidiary, acts as the funds' transfer and dividend disbursing agent and provides shareholder and administrative services. Services for certain types of retirement plans are provided by T. Rowe Price Retirement Plan Services, Inc., also a wholly-owned subsidiary. The address for each is 100 East Pratt St., Baltimore, MD 21202. How are fund expenses determined? The management agreement spells out the expenses to be paid by the fund. In addition to the management fee, the fund pays for the following: shareholder service expenses; custodial, accounting, legal, and audit fees; costs of preparing and printing prospectuses and reports sent to shareholders; registration fees and expenses; proxy and annual meeting expenses (if any); and director/trustee fees and expenses. The Management Fee. This fee has two parts -- an "individual fund fee" (discussed on page 2) which reflects the fund's particular investment management costs, and a "group fee." The group fee, which reflects the benefits each fund derives from sharing the resources of the T. Rowe PAGE 41 Price investment management complex, is calculated monthly based on the net combined assets of all T. Rowe Price funds (except Equity Index and both Spectrum funds). The fee schedule (shown below) is graduated, declining as the asset total rises, so shareholders benefit from the overall growth in mutual fund assets. 0.480% First $1 billion 0.450% Next $1 billion 0.420% Next $1 billion 0.390% Next $1 billion 0.370% Next $1 billion 0.360% Next $2 billion 0.350% Next $2 billion 0.340% Next $5 billion 0.330% Next $10 billion 0.320% Next $10 billion 0.310% Thereafter Based on combined Price funds' assets of approximately $34.7 billion at December 31, 1993, the Group Fee was 0.35%. 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. PAGE 42 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 such market value in passive fixed income accounts under Price-Fleming's management. Understanding Performance Information This section should help you understand the terms used to describe the funds' performance. You will come across them in shareholder reports you receive from us four times a year, in our newsletters, "Insights" reports, in T. Rowe Price advertisements, and in the media. _________________________ Total Return Total return is the most This tells you how much an investment in a widely used performance fund has changed in value over a given time measure. Detailed period. It reflects any net increase or performance information decrease in the share price and assumes is included in the funds' that all dividends and capital gains (if annual reports and any) paid during the period were reinvested quarterly shareholder in additional shares. Reinvesting reports. distributions means that total return numbers include the effect of compounding, i.e., you receive income and capital gain distributions on a rising number of shares. Advertisements for the fund may include cumulative or compound average annual total return figures, which may be compared with various indices, other performance measures, or other mutual funds. PAGE 43 Cumulative Total Return This is the actual rate of return on an investment for a specified period. A cumulative return does not indicate how much the value of the investment may have fluctuated between the beginning and the end of the period specified. Average Annual Total Return This is always hypothetical. Working backward from the actual cumulative return, it tells you what constant year-by-year return would have produced the actual, cumulative return. By smoothing out all the variations in annual performance, it gives you an idea of the investment's annual contribution to your portfolio provided you held it for the entire period in question. Investment Programs and Practices _________________________ This section takes a detailed look at some fund managers have of the types of securities the funds may considerable leeway in hold in their portfolios and the various choosing investment kinds of investment practices that may be strategies and selecting used in day-to-day portfolio management. securities they believe The funds' investment programs are subject will help the funds to further restrictions and risks described achieve their objectives. in the "Statement of Additional Information." Shareholder approval is required to substantively change a 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. Types of Portfolio Securities fund managers have In seeking to meet its investment considerable leeway in objective, the funds may invest in any type choosing investment of security whose investment PAGE 44 strategies and selecting characteristics are consistent with the securities they believe fund's investment program. These and some will help the fund of the other investment techniques the achieve its objectives. funds may use are described in the following pages. Fundamental Policy. With the exception of Latin America fund, a fund will not purchase a security if, as a result, with respect to 75% of the fund's total assets, more than 5% of its total assets would be invested in securities of the issuer. Non-Diversified Status - Latin America fund. The fund is registered as a non- diversified mutual fund. This means that the fund may invest a greater portion of its assets in, and own a greater amount of the voting securities of, a single company than a diversified fund which may subject the fund to greater risk with respect to its portfolio securities. However, because the fund intends to qualify as a "regulated investment company" under the Internal Revenue Code, it must invest so that, with respect to 50% of its total assets, not more than 5% of its assets are invested in the securities of a single issuer. Common and Preferred Stocks. Stocks represent shares of ownership in a company. Generally, preferred stock has a specified dividend and 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 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 generally have the greatest appreciation and depreciation potential of all corporate securities. While most preferred stocks pay a dividend, the funds may purchase PAGE 45 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 funds may invest in debt or preferred equity securities convertible into or exchangeable for equity securities. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than non- convertible securities. They generally participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree. In recent years, convertibles have been developed which combine higher or lower current income with options and other features. 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). Fixed Income Securities. The funds may invest in debt securities of any type without regard to quality or rating. Such securities would be purchased in companies which meet the investment criteria for the fund. The price of a bond fluctuates with changes in interest rates, rising when interest fall and falling when interest rise. 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 PAGE 46 can have volatile prices and limited liquidity and their use by a fund may not be successful. Operating Policy. Each fund may invest up to 10% of its total assets in hybrid instruments. 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. Each fund will not invest more than 15% of its net assets in illiquid securities. Types of Management Practices Cash Position. Each 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, a 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. Each 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. PAGE 47 Fundamental Policy. Borrowings may not exceed 33 1/3% of a fund's total fund assets. Operating Policies. Each fund may not transfer as collateral any portfolio securities except as necessary in connection with permissible borrowings or investments, and then such transfers may not exceed 33 1/3% of the fund's total assets. A fund may not purchase additional securities when borrowings exceed 5% of total assets. Foreign Currency Transactions. The funds will normally conduct their 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 funds will general not enter into a forward with a term of greater than one year. The funds will generally enter into forward foreign currency exchange contracts only under two circumstances. First, when a 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, a fund may commit a substantial portion or the entire value of its portfolio to the consummation of these contracts. Price-Fleming will consider the PAGE 48 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 predicted and a fund's total return could be adversely affected as a result. There are certain markets where it is not possible to engage in effective foreign currency hedging. This may be true, for example, for the currencies of various Latin American countries where the foreign exchange markets are not sufficiently developed to permit hedging activity to take place. 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 funds may buy and sell futures contracts (and options on such contracts) to manage its exposure to changes in securities prices and foreign currencies and as an efficient means of adjusting overall exposure to certain markets. The funds may purchase, sell, or write call and put options on securities, financial indices, and foreign currencies. Futures contracts and options may not always be successful hedges; their prices can be highly volatile; using them could lower a fund's total return; and the potential loss from the use of futures can exceed a fund's initial investment in such contracts. PAGE 49 Operating Policies. Futures: Initial margin deposits and premiums on options used for non-hedging purposes will not equal more than 5% of a fund's net asset value. Options on securities: The total market value of securities against which a fund has written call or put options may not exceed 25% of its total assets. A 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 funds 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 funds could experience delays in recovering securities and possibly capital losses. Fundamental Policy. The value of loaned securities may not exceed 33 1/3% of a fund's total assets. Portfolio Turnover. Turnover is an indication of ____________________________ frequency. Portfolio Turnover The funds Rates will not 1991 1992 1993 generally ____________________________ trade in Interna- securities tional for short-term Stock Fund45.0% 37.8%29.8%* profits, but ____________________________ when circum- Interna- stances tional warrant, Discovery securities Fund 56.3% 38.0%71.8%* may be ____________________________ purchased European and sold Stock Fund57.7% 52.0%21.3%* without regard ____________________________ to the length Japan Fund ** 41.6%61.4%* of time held. ____________________________ PAGE 50 The funds' New Asia portfolio Fund 49.0% 36.3%40.4%* turnover rates ____________________________ for the *Annualized. previous three **Prior to commencement of years are fund operations. shown in Table 6. Table 6 European, New Asia and Latin America funds Location of Company. In determining the domicile or nationality of a company, the funds would primarily consider the following factors: whether the company is organized under the laws of a particular country; or, whether the company derives a significant proportion (at least 50%) of its revenues or profits from goods produced or sold, investments made, or services performed in the country or has at least 50% of its assets situated in that country. Each of these Funds will invest at least 65% of its total assets in companies located (as defined above) in the respective regions indicated. 4 Investing with T. Rowe Price Meeting Requirements for New Accounts Tax Identification Number We must have your correct social security or corporate tax identification number and a signed New Account Form or W-9 Form. Otherwise, federal law requires the fund to withhold a percentage (currently 31%) of your dividends, capital gain distributions, and redemptions, and may _________________________ subject you to an IRS fine. You will also Always verify your be prohibited from opening another account transactions by carefully by exchange. If this information is not reviewing the received within 60 days after your account confirmation we send you. is established, your account may be Please report any redeemed, priced at the NAV on the date of discrepancies to Investor redemption. Services. PAGE 51 Unless you request otherwise, one shareholder report will be mailed to multiple account owners with the same tax identification number and same zip code and to those shareholders who have requested that their account be combined with someone else's for financial reporting. Opening a New Account: $2,500 minimum initial investment; $1,000 for retirement or gifts or transfers to minors (UGMA/UTMA) accounts. _________________________ Account Registration Regular Mail If you own other T. Rowe Price funds, be T. Rowe Price sure to register any new account just like Account Services your existing accounts so you can exchange P.O. Box 17300 among them easily. (The name and account Baltimore, MD type would have to be identical.) 21298-9353 By Mail Mailgram, Express, Please make your check payable to T. Rowe Registered, or Certified Price funds (otherwise it may be returned) Mail and send it together with the New Account T. Rowe Price Form to the address at left. Account Services 10090 Red Run Blvd. By Wire Owings Mills, MD o Call Investor Services for an account 21117 number and use the wire address below. o Complete a New Account Form and mail it to one of the appropriate addresses listed at left. Note: Retirement plans cannot be opened by wire. o Give the following wire address to your bank: Morgan Guaranty Trust Co. of New York, ABA# 021000238, T. Rowe Price [fund name], AC-00153938. Provide fund name, account name(s), and account number. By Exchange Call Investor Services. The new account will have the same registration as the account from which you are exchanging. Services for the new account may be carried over by telephone request if preauthorized on the existing account. (See explanation of "Excessive Trading" under "Transaction Procedures.") PAGE 52 _________________________ In Person Drop-off locations Drop off your New Account Form at any of 101 East Lombard St. the locations listed at left and obtain a Baltimore, MD receipt. Note: The fund and its agents have the T. Rowe Price right to waive or lower investment Financial Center minimums, to accept initial purchases by 10090 Red Run Blvd. telephone or mailgram, to cancel or reject Owings Mills, MD any purchase or exchange if the written confirmation has not been received by the Farragut Square shareholder, or to otherwise modify the 900 17th Street, N.W. conditions of purchase or any services at Washington, D.C. any time. ARCO Tower Purchasing Additional Shares: $100 minimum 31st Floor purchase; $50 minimum for retirement plans 515 S. Flower St. and Automatic Asset Builder; $5,000 minimum Los Angeles, CA for telephone purchases By ACH Transfer Use Tele*Access(registered trademark), PC*Access(registered trademark) or call Investor Services if you have established electronic transfers using the ACH network. By Wire Call Investor Services or use the wire address in "Opening a New Account." ______________________ By Mail Regular Mail o Provide your account number and the fund T. Rowe Price funds name on your check. Account Services o Mail the check to us at the address shown P. O. Box 89000 at left with a stub from a statement Baltimore, MD confirming a prior transaction or a note 21289-1500 stating that you want to purchase shares in that fund (provide account number). By Automatic Asset Builder Fill out the Automatic Asset Builder section on the New Account or Shareholder Services Form ($50 minimum). By Phone Call Investor Services to lock in that day's closing price; payment is due within PAGE 53 five days ($5,000 minimum). Exchanging and Redeeming Shares _________________________ By Phone Regular Mail Call Investor Services. If you find our Non-Retirement phones busy during unusually volatile and IRA Accounts: markets, please consider placing your order T. Rowe Price by Tele*Access or PC*Access (if you have Account Services previously authorized telephone services), P.O. Box 89000 or by express mail or mailgram. For Baltimore, MD exchange policies, please see "Transaction 21289-0220 Procedures and Special Requirements - Excessive Trading." Employer-Sponsored Retirement Accounts: Redemption proceeds can be mailed to your T. Rowe Price account address, sent by ACH transfer, or Trust Company wired to your bank. For charges, see P.O. Box 89000 "Electronic Transfers - By Wire" on the Baltimore, MD next page. 21289-0300 By Mail Mailgram, Express, Provide account name(s) and numbers, fund Registered, or Certified name(s), and exchange or redemption amount. Mail (See page __.) For exchanges, mail to the appropriate address at left, indicate the fund you are exchanging from and the fund(s) you are exchanging into. T. Rowe Price requires the signatures of all owners exactly as registered, and possibly a signature guarantee (see "Transaction Procedures and Special Requirements--Signature Guarantees"). Note: Redemptions from retirement accounts, including IRAs, must be in writing. Please call Investor Services to obtain an IRA Distribution Request Form. For employer-sponsored retirement accounts, call Investor Services or your plan administrator for instructions. Shareholder Services _________________________ Many services are available to you as a T. Investor Services Rowe Price shareholder; some you receive 1-800-638-5660 automatically and others you must authorize PAGE 54 1-410-625-6500 on the New Account Form. By signing up for services on the New Account Form rather than later on, you avoid having to complete a separate form and obtain a signature guarantee. This section reviews some of the principal services currently offered. Our Services Guide contains detailed descriptions of these and other services. If you are a new T. Rowe Price investor, you will receive a Services Guide with our Welcome Kit. Retirement Plans We offer a wide range of plans for individuals and institutions, including large and small businesses: IRAs, SEP-IRAs, Keoghs (profit sharing, money purchase pension), 401(k), and 403(b)(7). For information on IRAs, call Investor Services. For information on all other retirement plans, please call our Trust Company at 1-800-492-7670. Exchange Service You can move money from one account to an existing identically registered account, or open a new identically registered account. Remember, exchanges are purchases and sales for tax purposes. (Exchanges into a state tax-free fund are limited to investors living in states where the funds are registered.) Some of the T. Rowe Price funds may impose a redemption fee of .50%-2%, payable to such funds, on shares held for less than one year, or in some funds, six months. Automated Services Tele*Access. 24-hour service via toll-free number provides information such as yields, prices, dividends, account balances, and your latest transaction, as well as the ability to request prospectuses, account forms, duplicate statements and initiate purchase, redemption and exchange orders in your accounts (see "Electronic Transfers" below). PAGE 55 PC*Access. 24-hour service via dial-up modem provides the same information as Tele*Access, but on a personal computer. Please call Investor Services for an information guide. Telephone and Walk-In Services Buy, sell, or exchange shares by calling one of our service representatives or by visiting one of our four investor center locations. Electronic Transfers By ACH. With no charges to pay, you can initiate a purchase or redemption for as little as $1,000 or as much as $100,000 between your bank account and fund account using the ACH network. Enter instructions via Tele*Access, PC*Access or call Investor Services. By Wire. Electronic transfers can also be conducted via bank wire. There is currently a $5 fee for wire redemptions under $5,000, and your bank may charge for wire transfers regardless of size. Automatic Investing ($50 minimum) You can invest automatically in several different ways, including: o Automatic Asset Builder. You instruct us to move $50 or more once a month or less often from your bank account, or you can instruct your employer to send all or a portion of your paycheck, to the fund or funds you designate. o Automatic Exchange. Enables you to set up systematic investments from one fund account into another, such as from a money fund into a stock fund. Discount Brokerage You can trade stocks, bonds, options, precious metals and other securities at a PAGE 56 substantial savings over regular commission rates. Call Investor Services for information. Note: If you buy or sell T. Rowe Price funds through anyone other than T. Rowe Price, such as broker-dealers or banks, you may be charged transaction or service fees by those institutions. No such fees are charged by T. Rowe Price Investment Services or the fund for transactions conducted directly with the fund. PAGE 57 Prospectus To Open an Account Investor Services International 1-800-638-5660 Equity Funds 1-410-547-2308 For Existing Accounts To help you ______________ Shareholder Services achieve your A choice of 1-800-225-5132 financial goals, T. Rowe Price worldwide and 1-410-625-6500 T. Rowe Price International regional stock offers a wide Funds, Inc. funds for For Yields & Prices range of stock, May 1, 1994 investors Tele*Access(registered bond, and money seeking to trademark) market diversify 1-800-638-2587 investments, as beyond U.S. 1-410-625-7676 well as borders. 24 hours, 7 days convenient services and timely, Investor Centers informative reports. First Floor 101 East Lombard St. Baltimore, MD Farragut Square 900 17th Street, N.W. First Floor Washington, D.C. T. Rowe Price Financial Center 10090 Red Run Blvd. Owings Mills, MD ARCO Tower T. Rowe Price 31st Floor Invest With 515 S. Flower St. Confidence Los Angeles, CA (registered trademark) PAGE 6 STATEMENT OF ADDITIONAL INFORMATION T. Rowe Price International Funds, Inc. (the "Corporation") International Stock Fund International Discovery Fund European Stock Fund Japan Fund New Asia Fund Latin America Fund (the "Funds") This Statement of Additional Information is not a prospectus but should be read in conjunction with the Funds' prospectus dated May 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 May 1, 1994. PAGE 7 TABLE OF CONTENTS Page Page Call and Put Options . . . . . . . Investment Objectives and Capital Stock. . . . . . . . . . . Policies . . . . . . . . . . . . . . Custodian. . . . . . . . . . . . . Investment Performance. . . . . . . . Dealer Options . . . . . . . . . . Investment Programs . . . . . . . . . Distributor for Funds. . . . . . . (pages __-__ in Prospectus) Dividends. . . . . . . . . . . . . Investment Restrictions . . . . . . . Federal and State Registration Legal Counsel . . . . . . . . . . . of Shares . . . . . . . . . . . . Lending of Portfolio Securities . . . Foreign Currency Transactions. . . Management of Funds . . . . . . . . . Foreign Futures and Options. . . . Net Asset Value Per Share . . . . . . Futures Contracts. . . . . . . . . Portfolio Transactions. . . . . . . . Hybrid Instruments . . . . . . . . Pricing of Securities . . . . . . . . Illiquid Securities. . . . . . . . Principal Holders of Securities . . . Independent Accountants. . . . . . Repurchase Agreements . . . . . . . . Investment Management Services . . Risk Factors of Foreign Investing . . (pages __ and __ in Prospectus) Tax Status. . . . . . . . . . . . . Investment Objectives. . . . . . (pages __ and __ in Prospectus) (page __ in Prospectus) Taxation of Foreign Shareholders. . INVESTMENT OBJECTIVES AND POLICIES The following information supplements the discussion of each Fund's investment objectives and policies discussed on pages __, and __ through __ of the prospectus. Unless otherwise specified, the investment program and restrictions of each Fund are not fundamental policies. The operating policies of each 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 each Fund may not be changed without the approval of at least a majority of the outstanding shares of each 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 OBJECTIVES International Stock Fund The Fund's investment objective is to seek a total return on its assets from long-term growth of capital and income, principally through investments in common stocks of 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. International Discovery Fund The Fund's investment objective is to seek long-term growth of capital through investment primarily in the common stocks of rapidly growing, small- and medium-sized companies based outside the United States. PAGE 8 European Stock Fund The Fund's investment objective is to seek long-term capital appreciation by investing primarily in common stocks issued by both large- and small-capitalization companies domiciled in Europe. Current income is a secondary objective. Japan Fund The Fund's investment objective is to seek long-term growth of capital by investing in stocks of large- and small-capitalization companies domiciled, or with primary operations, in Japan. New Asia Fund The Fund's investment objective is to seek long-term growth of capital by investing in both large- and small-capitalization companies domiciled, or with primary operations, in Asia, excluding Japan. The Fund may also invest in the common stocks of companies in the Pacific Basin, including Australia and New Zealand. Latin America Fund The Fund's investment objective is to seek long-term growth of capital by investing in companies domiciled, or with primary operations, in Latin America. All Funds The Funds' 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 Funds. Each 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 Funds 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 Funds are 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 Funds cannot guarantee they will achieve their objectives. INVESTMENT PROGRAMS International Stock Fund It is the present intention of Price-Fleming to invest in companies PAGE 9 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, Latin America, 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 practically the opposite is true. 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. International Discovery Fund It is the present intention of Price-Fleming to invest primarily in smaller (i.e. small to medium size) companies based in developed and selected emerging countries located in the Pacific Basin, Western Europe, Latin America and such other areas and countries as Price-Fleming may determine from time to time. Price-Fleming believes that such smaller companies may have the potential for greater, more dynamic growth than larger firms, which may have reached a period of maturity and more gradual growth. It is generally easier for a company to grow from a smaller base. In addition, smaller companies are often more flexible and responsive to customers, and to changes in competitive conditions. Medium size companies also display such characteristics to a certain extent. However, there are also special risks associated with investing in smaller companies. In selecting portfolio investments, Price-Fleming will consider: a PAGE 10 company's growth prospects, including the potential for superior appreciation due to growth in earnings, relative valuation of its securities, and any risk associated with investment; the industry in which the company operates, with a view to identification of global developments within industries, international investment trends, and social, economic or political movements affecting a particular industry; the country in which the company is based, as well as historical and anticipated foreign currency exchange rate fluctuations; and the feasibility of gaining access to the securities market in a country and of implementing the necessary custodial arrangements. The investment program of the Fund has been developed in the belief that research-based investment in a diversified portfolio of equity securities of companies in a number of foreign countries will give shareholders a chance to participate on a global basis in the opportunities available in the growing foreign securities markets. The countries in which the Fund will seek investments include those listed below. The Fund may not invest in all the countries listed, and it may invest in other countries as well, when such investments are consistent with the Fund's investment objective and policies. Countries designated with a number sign (#) are emerging, or less developed, countries which for purposes of this prospectus are defined as countries with a low or middle-income economy as determined by the World Bank. Pacific Basin Western Europe Other Australia Austria Argentina# Hong Kong Belgium Brazil# Korea+ Denmark Canada Japan Finland Chile#+ Malaysia# France Hungary# Philippines# Germany India#+ New Zealand Greece# Mexico# Singapore# Ireland Turkey# Taiwan#+ Italy Colombia#+ Thailand# Luxembourg Venezuela# Indonesia# Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom ______________________________________________________________________________ + Indicates countries in which the Fund effectively may invest only or primarily through investment funds subject to the provisions of the Investment Company Act of 1940 relating to the purchase of securities of investment companies. See "Investment Restrictions Operating Policy No. 3." The Fund also will seek to invest in leading companies in other emerging countries as their securities markets and banking systems develop, including People's Republic of China, Czechoslovakia, Israel, Jordan, Morocco, Nigeria, Pakistan, Poland, Peru and Vietnam, at such time as investment in these countries becomes feasible. It may not be feasible for the Fund currently to invest in all of these countries due to restricted access to their securities markets or inability to implement satisfactory custodial arrangements. PAGE 11 Under exceptional economic or market conditions abroad, the Fund may temporarily invest all or a major portion of its assets in United States government obligations or debt obligations of companies incorporated in or having their principal activities in the United States. European Stock Fund Market deregulation, privatization, and lowered barriers to foreign investment have led to greater investment opportunities in Western Europe and the potential for greater investment in Eastern Europe. Economic and political reforms in Eastern Europe may increase the investment and growth possibilities for all of Europe. European markets for investment include: Primary Secondary Developing France Austria Czechoslovakia Germany Belgium Greece Holland Denmark Hungary Italy Finland Poland Spain Ireland Turkey Sweden Luxembourg Switzerland Norway United Kingdom Portugal ______________________________________________________________________________ Other Eastern European markets may become available at any time. Western Europe now represents more than 20% of the world's stock market value. Moreover, Price-Fleming believes a number of European stock markets are undervalued in relation to the size and potential growth of their economies. Diversifying among foreign economies and currencies also can help to reduce investment risk compared to investing in a single country. The Fund intends to invest in companies based in any Western or Eastern European country, as well as Russia and the countries of the former Soviet Union. The Fund will normally have at least 65% of its assets in European equity securities and be invested in a minimum of five different countries. In seeking its objectives, the Fund will invest primarily in established European companies participating in markets and sectors which have superior long-term growth potential. Individual stocks will be evaluated on various criteria, including earnings history and prospects, book value, degree of price leverage, and price/earnings ratio. Both large and small capitalization companies will be candidates for the portfolio. In determining the domicile or nationality of a company, the Fund would primarily consider the following factors: whether the company is organized under the laws of a particular country; or, whether the company derives a significant proportion (at least 50%) of its revenues or profits from goods produced or sold, investments made, or services performed in the country or has at least 50% of its assets situated in that country. The Fund will invest primarily in equity securities which include common and preferred stocks, warrants or other similar rights, and convertible securities. The Fund may also invest up to 35% of its total assets in any PAGE 12 other type of security including, but not limited to, bonds, notes, and other debt securities of foreign issuers. Japan Fund The Japan Fund invests primarily in common stocks of Japanese companies participating in markets and sectors which are believed to have attractive long-term growth potential. These may include the export sector, where many Japanese companies are world leaders in their industries. They may also include the consumer sector -- the fastest-growing segment of Japan's economy -- where companies are working to meet growing domestic demand for consumer goods and services. The Fund has the flexibility to invest in both large and small companies, as deemed appropriate by Price-Fleming. This allows the Fund to benefit from the proven growth potential of established companies, as well as the enhanced growth potential of smaller companies. In making specific stock selections, Price-Fleming takes into account, among other factors, a company's size, financial condition, marketing and technical strengths, and competitive position within its industry. Because Japan represents approximately one- third of the world's market capitalization, the Fund's portfolio will normally be broadly diversified across industries and companies. Such broad diversification should help reduce volatility. The Fund will ordinarily invest at least 80% of its assets in Japanese securities. These will include securities issued by companies domiciled in Japan or companies that have at least half their assets in Japan, or derive at least half their revenues from Japan. Securities will be primarily common stocks. Other equity securities may include preferred stock, warrants and convertible debentures. The Fund may also invest in government and corporate debt securities, when Price-Fleming believes that the potential for capital appreciation in debt securities equals or exceeds that available in equity securities. For temporary defensive purposes, the Fund may invest up to 25% (measured at the time of purchase) of its total assets in high-grade Japanese debt securities. New Asia Fund Price-Fleming believes the rapidly growing economies in Asia and the Pacific Basin, including Australia and New Zealand, offer attractive opportunities for investment. In contrast to Japan's more developed economy, the newly industrialized nations of this region are in an earlier, more dynamic growth stage of their development. Price-Fleming believes that the continued growth opportunities exist due to structural changes taking place throughout the region. o The relaxation of trade barriers and the freer movement of capital are increasing the flow of commerce within the region and fostering economic independence. At the same time, growing trade with Japan, the United States and Europe is fueling rapid economic development. o Rising labor costs in more developed countries are making the large, lower-cost work force of Asia and the Pacific Basin PAGE 13 increasingly attractive, resulting in the dramatic growth of manufacturing industries. o As capital investment increases, many of the Asian and Pacific Basin countries are developing more efficient capital markets, for investment. The Fund may invest in the countries listed below, as well as other Asian and Pacific Basin countries and regions, such as China, Sri Lanka, Pakistan and Indochina, as their markets become more accessible. Australia Philippines# Hong Kong Singapore# India+# South Korea Indonesia# Taiwan+# Malaysia# Thailand# New Zealand ______________________________________________________________________________ + Indicates countries in which the Fund effectively may invest only or primarily through investment funds subject to the provisions of the Investment Company Act of 1940 relating to the purchase of securities of investment companies. See "Investment Restrictions Operating Policy No. 3." # Countries designated with a number sign (#) are emerging or less developed countries. Other Asian and Pacific Basin markets may become available at any time. The investment approach will primarily focus on identifying companies with attractive long-term growth potential. The Fund will normally have at least 65% of its assets in the equity securities of Asian companies, excluding Japan, and may also invest in companies in the Pacific Basin, including Australia and New Zealand. To help reduce investment risk, the Fund will diversify its investments among a minimum of five different countries. The Fund may also invest in any other type of security including, but not limited to, bonds, notes and other debt securities of foreign issuers. In determining the domicile or nationality of a company, the Fund would primarily consider the following factors: whether the company is organized under the laws of a particular country; or, whether the company derives a significant proportion (at least 50%) of its revenues or profits from goods produced or sold, investments made, or services performed in the country or has at least 50% of its assets situated in that country. In 1992, Asian and Pacific Basin countries, excluding Japan, represented over $730 billion of the world's market capitalization which was approximately one-fourth the size of the Japanese market and one-fifth the size of the U.S. market. Real Gross Domestic Product (GDP) growth for secondary and emerging Asian and Pacific countries was equal to that of Japan and seven times that of the U.S. A number of Asian and Pacific Basin countries are becoming increasingly important manufacturing centers. For example, Korea is now one of the world's largest producers of semiconductors, Hong Kong boasts one of PAGE 14 the world's busiest apparel industries, and Thailand has tripled its export rate in the 1980s. Latin America Fund Price-Fleming believes that the economic revitalization of the Latin American region will provide attractive investment opportunities. After the "lost years" of the 1970's and early 80's when economic stagnation and hyperinflation became commonplace, the governments of the region have embarked on a process of transformation: o rolling back the dominance of the state in favor of the private sector, encouraging privatizations of state owned companies, removing price controls and controlling public expenditure; and o lowering tariff barriers, promoting trade and encouraging both free trade blocks and investment by foreigners. As economies have been stabilized, capital flows into the country have picked up leading to increased investment and a revival of growth. Although countries such as Chile, Mexico and Argentina have made considerable progress, this economic catch-up is still at an early stage, while in countries such as Brazil and Peru the process is just beginning. The Fund may invest in the countries listed below, together with other countries in the region as their markets become accessible. The Latin America region includes Mexico, Central America, South America and the islands of the Caribbean. Argentina# Mexico# Brazil# Peru# Chile+# Venezuela# Colombia+# ______________________________________________________________________________ + Indicates countries in which the Fund effectively may invest only or primarily through investment funds subject to the provisions of the Investment Company Act of 1940 relating to the purchase of securities of investment companies. See "Investment Restrictions Operating Policy No. 3." # Countries designated with a number sign (#) are emerging or less developed countries. The investment approach is to focus on companies that have long term growth potential and including sectors such as telecommunications, retailers, energy and beverages. The fund will normally have at least 65% of its assets in the equity securities of Latin American companies, and to help diversify its investments, the Fund will normally invest among a minimum of four different countries. The Fund may also invest in any other type of security including but not limited to bonds, notes and other debt securities of foreign issuers. PAGE 15 European, New Asia and Latin America Funds In determining the domicile or nationality of a company, the Fund would primarily consider the following factors: whether the company is organized under the laws of a particular country; or, whether the company derives a significant proportion (at least 50%) of its revenues or profits from goods produced or sold, investments made, or services performed in the country or has at least 50% of its assets situated in that country. Risk Factors of Foreign Investing There are special risks in investing in the Funds. Certain of these risks are inherent in any international mutual fund while others relate more to the countries in which the Funds will invest. Many of the risks are more pronounced for investments in developing or emerging countries, such as many of the countries of Southeast Asia, Latin America, Eastern Europe and the Middle East. Although there is no universally accepted definition, a developing country is generally considered to be a country which is in the initial stages of its industrialization cycle with a per capita gross national product of less than $8,000. General. Investors should understand that all investments have a risk factor. There can be no guarantee against loss resulting from an investment in the Funds, and there can be no assurance that the Funds' investment policies will be successful, or that its investment objectives will be attained. The Funds are designed for individual and institutional investors seeking to diversify beyond the United States in actively researched and managed portfolios, and are 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. For example, in 1991, the existing government in Thailand was overthrown in a military coup. In 1992, there were two military coup attempts in Venezuela and in 1992 the President of Brazil was impeached. In addition, significant external political risks currently affect some foreign countries. Both Taiwan and China still claim sovereignty of one another and there is a demilitarized border between North and South Korea. Governments in certain foreign countries continue to participate to a significant degree, through ownership interest or regulation, in their respective economies. Action by these governments could have a significant effect on market prices of securities and payment of dividends. The economies of many foreign countries are heavily dependent upon international trade and are accordingly affected by protective trade barriers and economic conditions of their trading partners. The enactment by these trading partners of protectionist trade legislation could have a significant adverse effect upon the securities markets of such countries. Currency Fluctuations. The Funds will invest in securities denominated in the currencies specified elsewhere herein. Accordingly, a change in the value of any such currency against the U.S. dollar will result PAGE 16 in a corresponding change in the U.S. dollar value of the Funds' assets denominated in that currency. Such changes will also affect the Funds' income. Generally, when a given currency appreciates against the dollar (the dollar weakens) the value of the Fund's securities denominated in that currency will rise. When a given currency depreciates against the dollar (the dollar strengthens) the value of the Funds' securities denominated in that currency would be expected to decline. Investment and Repatriation of Restrictions. Foreign investment in the securities markets of certain foreign countries is restricted or controlled in varying degrees. These restrictions may limit at times and preclude investment in certain of such countries and may increase the cost and expenses of the Funds. Investments by foreign investors are subject to a variety of restrictions in many developing countries. These restrictions may take the form of prior governmental approval, limits on the amount or type of securities held by foreigners, and limits on the types of companies in which foreigners may invest. Additional or different restrictions may be imposed at any time by these or other countries in which the Funds invest. In addition, the repatriation of both investment income and capital from several foreign countries is restricted and controlled under certain regulations, including in some cases the need for certain government consents. For example, capital invested in Chile normally cannot be repatriated for one year. Market Characteristics. It is contemplated that most foreign securities, other than Latin American 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. Currently, it is anticipated that many Latin American investments will be made through ADRs traded in the United States. 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 Funds' portfolio securities may be less liquid and subject to more rapid and erratic price movements than securities of comparable U.S. companies. Equity securities may trade at price/earnings multiples higher than comparable United States securities and such levels may not be sustainable. Fixed commissions on foreign stock exchanges are generally higher than negotiated commissions on United States exchanges, although the Funds will endeavor to achieve the most favorable net results on their portfolio transactions. There is generally less government supervision and regulation of foreign stock exchanges, brokers and listed companies than in the United States. Moreover, settlement practices for transactions in foreign markets may differ from those in United States markets. Such differences may include delays beyond periods customary in the United States and practices, such as delivery of securities prior to receipt of payment, which increase the likelihood of a "failed settlement." Failed settlements can result in losses to a Fund. Investment Funds. The Funds may invest in investment funds which have been authorized by the governments of certain countries specifically to permit foreign investment in securities of companies listed and traded on the stock exchanges in these respective countries. The Funds' investment in these funds is subject to the provisions of the 1940 Act discussed on pages __ and __. If the Funds invest in such investment funds, the Funds' shareholders will bear not only their proportionate share of the expenses of the Funds (including operating expenses and the fees of the investment manager), but PAGE 17 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. It also may be more difficult to keep currently informed of corporate actions which affect the prices of portfolio securities. Taxes. The dividends and interest payable on certain of the Funds' foreign portfolio securities may be subject to foreign withholding taxes, thus reducing the net amount of income available for distribution to the Funds' shareholders. 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 Funds. (See "Tax Status," page __.) Costs. Investors should understand that the expense ratios of the Funds 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 Funds are higher. Small Companies. Small companies may have less experienced management and fewer management resources than larger firms. A smaller company may have greater difficulty obtaining access to capital markets, and may pay more for the capital it obtains. In addition, smaller companies are more likely to be involved in fewer market segments, making them more vulnerable to any downturn in a given segment. Some of these factors may also apply, to a lesser extent, to medium size companies. Some of the smaller companies in which the Funds will invest may be in major foreign markets; others may be leading companies in emerging countries outside the major foreign markets. Securities analysts generally do not follow such securities, which are seldom held outside of their respective countries and which may have prospects for long-term investment returns superior to the securities of well- established and well-known companies. Direct investment in such securities may be difficult for United States investors because, among other things, information relating to such securities is often not readily available. Of course, there are also risks associated with such investments, and there is no assurance that such prospects will be realized. Other. With respect to certain foreign countries, especially developing and emerging ones, there is the possibility of adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitations on the removal of funds or other assets of the Funds, political or social instability, or diplomatic developments which could affect investments by U.S. persons in those countries. International Stock, International Discovery and European Stock Funds Eastern Europe and Russia. Changes occurring in Eastern Europe and Russia today could have long-term potential consequences. As restrictions fall, this could result in rising standards of living, lower manufacturing PAGE 18 costs, growing consumer spending, and substantial economic growth. However, investment in the countries of Eastern Europe and Russia is highly speculative at this time. Political and economic reforms are too recent to establish a definite trend away from centrally-planned economies and state owned industries. In many of the countries of Eastern Europe and Russia, there is no stock exchange or formal market for securities. Such countries may also have government exchange controls, currencies with no recognizable market value relative to the established currencies of western market economies, little or no experience in trading in securities, no financial reporting standards, a lack of a banking and securities infrastructure to handle such trading, and a legal tradition which does not recognize rights in private property. In addition, these countries may have national policies which restrict investments in companies deemed sensitive to the country's national interest. Further, the governments in such countries may require governmental or quasi-governmental authorities to act as custodian of a Fund's assets invested in such countries and these authorities may not qualify as a foreign custodian under the Investment Company Act of 1940 and exemptive relief from such Act may be required. All of these considerations are among the factors which could cause significant risks and uncertainties to investment in Eastern Europe and Russia. Each Fund will only invest in a company located in, or a government of, Eastern Europe and Russia, if it believes the potential return justifies the risk. To the extent any securities issued by companies in Eastern Europe and Russia are considered illiquid, each Fund will be required to include such securities within its 10% restriction on investing in illiquid securities. Japan Fund The Fund's concentration of its investments in Japan means the Fund will be more dependent on the investment considerations discussed above and may be more volatile than a fund which is broadly diversified geographically. Additional factors relating to Japan include the following: In the past, Japan has experienced earthquakes and tidal waves of varying degrees of severity, and the risks of such phenomena, and damage resulting therefrom, continue to exist. Japan also has one of the world's highest population densities. Approximately 45% of the total population of Japan is concentrated in the metropolitan areas of Tokyo, Osaka and Nagoya. Since the end of World War II, Japan has experienced significant economic development and among the free industrial nations of the world is second only to the U.S. in terms of GNP. During the years of high economic growth in the 1960's and early 1970's, the expansion was based on the development of heavy industries such as steel and shipbuilding. In the 1970's Japan moved into assembly industries which employ high levels of technology and consume relatively low quantities of resources, and since then has become a major producer of electrical and electronic products and automobiles. Since the mid-1980's Japan has become a major creditor nation, with major trade surpluses. With the exception of periods associated with the oil crises of 1974 and 1978, Japan has generally experienced very low levels of inflation. There is, of course, no guarantee these favorable trends will continue. The Government of Japan has called for a transformation of the economy away from its high dependency on export-led growth towards greater stimulation of the domestic economy. This shift has already begun to take place. PAGE 19 Japan's economy is a market economy in which industry and commerce are predominantly privately owned and operated. However, the Government is involved in establishing and meeting objectives for developing the economy and improving the standard of living of the Japanese people. Energy. Japan has historically depended on oil for most of its energy requirements. Almost all of its oil is imported, the majority from the Middle East. In the past, oil prices have had a major impact on the domestic economy, but more recently Japan has worked to reduce its dependence on oil by encouraging energy conservation and use of alternative fuels. In addition, a restructuring of industry, with emphasis shifting from basic industries to processing and assembly type industries, has contributed to the reduction of oil consumption. However, there is no guarantee this favorable trend will continue. Foreign Trade. Overseas trade is important to Japan's economy. Japan has few natural resources and must export to pay for its imports of these basic requirements. Japan's principal export markets are the U.S., Canada, the United Kingdom, the Federal Republic of Germany, Australia, Korea, Taiwan, Hong Kong and the People's Republic of China. The principal sources of its imports are the U.S., South East Asia and the Middle East. Because of the concentration of Japanese exports in highly visible products such as automobiles, machine tools and semiconductors and the large trade surpluses ensuing therefrom, Japan has had difficult relations with its trading partners, particularly the U.S., where the trade imbalance is the greatest. It is possible trade sanctions or other protectionist measures could impact Japan adversely in both the short- and long-term. Latin America Fund The Fund's concentration of its investments in Latin America means the Fund will be more dependent on the investment considerations described above and can be expected to be more volatile than a fund which is more broadly diversified geographically. Additional factors relating to Latin America include the following: Inflation. Most Latin American countries have experienced, at one time or another, severe and persistent levels of inflation, including, in some cases, hyperinflation. This has, in turn, led to high interest rates, extreme measures by governments to keep inflation in check and a generally debilitating effect on economic growth. Although inflation in many countries has lessened, there is no guarantee it will remain at lower levels. Political Instability. The political history of certain Latin American countries has been characterized by political uncertainty, intervention by the military in civilian and economic spheres, and political corruption. Such developments, if they were to reoccur, could reverse favorable trends toward market and economic reform, privatization and removal of trade barriers and result in significant disruption in securities markets. Foreign Currency. Certain Latin American countries may have managed currencies which are maintained at artificial levels to the U.S. dollar rather than at levels determined by the market. This type of system can lead to sudden and large adjustments in the currency which, in turn, can have a disruptive and negative effect on foreign investors. Certain Latin PAGE 20 American countries also may restrict the free conversion of their currency into foreign currencies, including the U.S. dollar. There is no significant foreign exchange market for certain currencies and it would, as a result, be difficult for the Fund to engage in foreign currency transactions designed to protect the value of the Fund's interests in securities denominated in such currencies. Sovereign Debt. A number of Latin American countries are among the largest debtors of developing countries. There have been moratoria on, and reschedulings of, repayment with respect to these debts. Such events can restrict the flexibility of these debtor nations in the international markets and result in the imposition of onerous conditions on their economies. In addition to the investments described in the Fund's prospectus, the Fund may invest in the following: Options Writing Covered Call Options The Fund may write (sell) American or European style "covered" call options and purchase options to close out options previously written by a Fund. In writing covered call options, the Fund expects to generate additional premium income which should serve to enhance the Fund's total return and reduce the effect of any price decline of the security or currency involved in the option. Covered call options will generally be written on securities or currencies which, in Price-Fleming'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. Portfolio securities or currencies on which call options may be written will be purchased solely on the basis of investment considerations PAGE 21 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, Price- Fleming, 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 PAGE 22 transaction costs. The Fund will pay transaction costs in connection with the writing of options to close out previously written options. Such transaction costs are normally higher than those applicable to purchases and sales of portfolio securities. Call options written by the Fund will normally have expiration dates of less than nine months from the date written. The exercise price of the options may be below, equal to, or above the current market values of the underlying securities or currencies at the time the options are written. From time to time, the Fund may purchase an underlying security or currency for delivery in accordance with an exercise notice of a call option assigned to it, rather than delivering such security or currency from its portfolio. In such cases, additional costs may be incurred. The Fund will realize a profit or loss from a closing purchase transaction if the cost of the transaction is less or more than the premium received from the writing of the option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security or currency, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by appreciation of the underlying security or currency owned by the Fund. In order to comply with the requirements of several states, the Fund will not write a covered call option if, as a result, the aggregate market value of all portfolio securities or currencies covering call or put options exceeds 25% of the market value of the Fund's net assets. Should these state laws change or should the Fund obtain a waiver of its application, the Fund reserves the right to increase this percentage. In calculating the 25% limit, the Fund will offset, against the value of assets covering written calls and puts, the value of purchased calls and puts on identical securities or currencies with identical maturity dates. Writing Covered Put Options The Fund may write American or European style covered put options and purchase options to close out options previously written by the Fund. A put option gives the purchaser of the option the right to sell, and the writer (seller) has the obligation to buy, the underlying security or currency at the exercise price during the option period (American style) or at the expiration of the option (European style). So long as the obligation of the writer continues, he may be assigned an 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 Price-Fleming wishes to purchase the PAGE 23 underlying security or currency for the Fund's portfolio at a price lower than the current market price of the security or currency. In such event the Fund would write a put option at an exercise price which, reduced by the premium received on the option, reflects the lower price it is willing to pay. Since the Fund would also receive interest on debt securities or currencies maintained to cover the exercise price of the option, this technique could be used to enhance current return during periods of market uncertainty. The risk in such a transaction would be that the market price of the underlying security or currency would decline below the exercise price less the premiums received. Such a decline could be substantial and result in a significant loss to the Fund. In addition, the Fund, because it does not own the specific securities or currencies which it may be required to purchase in exercise of the put, cannot benefit from appreciation, if any, with respect to such specific securities or currencies. In order to comply with the requirements of several states, the Fund will not write a covered put option if, as a result, the aggregate market value of all portfolio securities or currencies covering put or call options exceeds 25% of the market value of the Fund's net assets. Should these state laws change or should the Fund obtain a waiver of its application, the Fund reserves the right to increase this percentage. In calculating the 25% limit, the Fund will offset, against the value of assets covering written puts and calls, the value of purchased puts and calls on identical securities or currencies with identical maturity dates. 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 Price-Fleming 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 PAGE 24 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. 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 PAGE 25 it inadvisable to realize such gains through a closing purchase transaction. Call options may also be purchased at times to avoid realizing losses. Dealer (Over-the-Counter) Options The Fund may engage in transactions involving dealer options. Certain risks are specific to dealer options. While the Fund would look to a clearing corporation to exercise exchange-traded options, if the Fund were to purchase a dealer option, it would rely on the dealer from whom it purchased the option to perform if the option were exercised. Failure by the dealer to do so would result in the loss of the premium paid by the Fund as well as loss of the expected benefit of the transaction. Exchange-traded options generally have a continuous liquid market while dealer options have none. Consequently, the Fund will generally be able to realize the value of a dealer option it has purchased only by exercising it or reselling it to the dealer who issued it. Similarly, when the Fund writes a dealer option, it generally will be able to close out the option prior to its expiration only by entering into a closing purchase transaction with the dealer to which the Fund originally wrote the option. While the Fund will seek to enter into dealer options only with dealers who will agree to and which are expected to be capable of entering into closing transactions with the Fund, there can be no assurance that the Fund will be able to liquidate a dealer option at a favorable price at any time prior to expiration. Until the Fund, as a covered dealer call option writer, is able to effect a closing purchase transaction, it will not be able to liquidate securities (or other assets) or currencies used as cover until the option expires or is exercised. In the event of insolvency of the contra party, the Fund may be unable to liquidate a dealer option. With respect to options written by the Fund, the inability to enter into a closing transaction may result in material losses to the Fund. For example, since the Fund must maintain a secured position with respect to any call option on a security it writes, the Fund may not sell the assets which it has segregated to secure the position while it is obligated under the option. This requirement may impair a Fund's ability to sell portfolio securities or currencies at a time when such sale might be advantageous. The Staff of the SEC has taken the position that purchased dealer options and the assets used to secure the written dealer options are illiquid securities. The Fund may treat the cover used for written OTC options as liquid if the dealer agrees that the Fund may repurchase the OTC option it has written for a maximum price to be calculated by a predetermined formula. In such cases, the OTC option would be considered illiquid only to the extent the maximum repurchase price under the formula exceeds the intrinsic value of the option. 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 futures contracts, including stock index, interest rate and currency futures ("futures or futures contracts"). The New Era Fund may also enter into futures on commodities related to the types of PAGE 26 companies in which it invests, such as oil and gold futures. The Equity Index Fund may only enter into stock index futures, such as the S&P 500 stock index, to provide an efficient means of maintaining liquidity while being invested in the market, to facilitate trading or to reduce transaction costs. It will not use futures for hedging purposes. 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 Price-Fleming to implement either an increase or decrease in portfolio market exposure in response to changing market conditions. The Fund may, purchase or sell futures contracts with respect to any stock index. Nevertheless, to hedge the Fund's portfolio successfully, the Fund must sell futures contacts with respect to indices or subindices whose movements will have a significant correlation with movements in the prices of the Fund's portfolio securities. Interest rate or currency futures contracts may be used as a hedge against changes in prevailing levels of interest rates or currency exchange rates in order to establish more definitely the effective return on securities or currencies held or intended to be acquired by the Fund. In this regard, the Fund could sell interest rate or currency futures as an offset against the effect of expected increases in interest rates or currency exchange rates and purchase such futures as an offset against the effect of expected declines in interest rates or currency exchange rates. The Fund will enter into futures contracts which are traded on national or foreign futures exchanges, and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the 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 and applicable state law. The Fund may not purchase or sell futures contracts or related options if, with respect to positions which do not qualify as bona fide hedging under applicable CFTC rules, the sum of the amounts of initial margin deposits and premiums paid on those portions would exceed 5% of the net asset value of the Fund after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; provided, however, that in the case of an option that is in-the-money at the time of purchase, the in- the-money amount may be excluded in calculating the 5% limitation. For purposes of this policy options on futures contracts and foreign currency options traded on a commodities exchange will be considered "related options". This policy may be modified by the Board of Directors/Trustees without a shareholder vote and does not limit the percentage of the Fund's assets at risk to 5%. PAGE 27 In accordance with the rules of the State of California, the Fund will apply above 5% test without excluding the value of initial margin and premiums paid for bona fide hedging portions. The Fund's use of futures contracts will not result in leverage. Therefore, to the extent necessary, in instances involving the purchase of futures contracts or the writing of call or put options thereon by the Fund, an amount of cash, U.S. government securities or other liquid, high-grade debt obligations, equal to the market value of the futures contracts and options thereon (less any related margin deposits), will be identified in an account with the Fund's custodian to cover (such as owning an offsetting position) the position, or alternative cover will be employed. Assets used as cover or held in an identified account cannot be old while the position in the corresponding option or future is open, unless they are replaced with similar assets. As a result, the commitment of a large portion of a Fund's assets to cover or identified accounts could impede portfolio management or the fund's ability to meet redemption requests or over current obligations. If the CFTC or other regulatory authorities adopt different (including less stringent) or additional restrictions, the Fund would comply with such new restrictions. Trading in Futures Contracts A futures contract provides for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument (e.g., units of a stock index) for a specified price, date, time and place designated at the time the contract is made. Brokerage fees are incurred when a futures contract is bought or sold and margin deposits must be maintained. Entering into a contract to buy is commonly referred to as buying or purchasing a contract or holding a long position. Entering into a contract to sell is commonly referred to as selling a contract or holding a short position. Unlike when the Fund purchases or sells a security, no price would be paid or received by the Fund upon the purchase or sale of a futures contract. Upon entering into a futures contract, and to maintain the Fund's open positions in futures contracts, the Fund would be required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash, U.S. government securities, suitable money market instruments, or liquid, high-grade debt securities, known as "initial margin." The margin required for a particular futures contract is set by the exchange on which the contract is traded, and may be significantly modified from time to time by the exchange during the term of the contract. Futures contracts are customarily purchased and sold on margins that may range upward from less than 5% of the value of the contract being traded. If the price of an open futures contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the futures contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the futures contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the Fund. PAGE 28 These subsequent payments, called "variation margin," to and from the futures broker, are made on a daily basis as the price of the underlying assets fluctuate making the long and short positions in the futures contract more or less valuable, a process known as "marking to the market." The Fund expects to earn interest income on its margin deposits. Although certain futures contracts, by their terms, require actual future delivery of and payment for the underlying instruments, in practice most futures contracts are usually closed out before the delivery date. Closing out an open futures contract purchase or sale is effected by entering into an offsetting futures contract sale or purchase, respectively, for the same aggregate amount of the identical securities and the same delivery date. If the offsetting purchase price is less than the original sale price, the Fund realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if it is less, the Fund realizes a loss. The transaction costs must also be included in these calculations. There can be no assurance, however, that the Fund will be able to enter into an offsetting transaction with respect to a particular futures contract at a particular time. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain the margin deposits on the futures contract. 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. 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 PAGE 29 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 short futures positions. The Fund may close its positions by taking opposite positions which would operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin would then be made, additional cash would be required to be paid by or released to the Fund, and the Fund would realize a loss or a gain. Futures contracts may be closed out only on the exchange or board of trade where the contracts were initially traded. Although the Fund intends to purchase or sell futures contracts only on exchanges or boards of trade where there appears to be an active market, there is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract at any particular time. In such event, it might not be possible to close a futures contract, and in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. However, in the event futures contracts have been used to hedge the underlying instruments, the Fund would continue to hold the underlying instruments subject to the hedge until the futures contracts could be terminated. In such circumstances, an increase in the price of underlying instruments, if any, might partially or completely offset losses on the futures contract. However, as described below, there is no guarantee that the price of the underlying instruments will, in fact, correlate with the price movements in the futures contract and thus provide an offset to losses on a futures contract. Hedging Risk. A decision of whether, when, and how to hedge involves skill and judgment, and even a well-conceived hedge may be PAGE 30 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. Price-Fleming 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 Price-Fleming's ability to correctly predict movements in the direction of the market. It is possible that, when the Fund has sold futures to hedge its portfolio against a decline in the market, the index, indices, or instruments underlying futures might advance and the value of the underlying instruments held in the Fund's portfolio might decline. If this were to occur, the Fund would lose money on the futures and also would experience a decline in value in its underlying instruments. However, while this might occur to a certain degree, Price-Fleming believes that over time the value of the Fund's portfolio will tend to move in the same direction as the market indices used to hedge the portfolio. It is also possible that if the Fund were to hedge against the possibility of a decline in the market (adversely affecting the underlying instruments held in its portfolio) and prices instead increased, the Fund would lose part or all of the benefit of increased value of those underlying instruments that it has hedged, because it would have offsetting losses in its futures positions. In addition, in such situations, if the Fund had insufficient cash, it might have to sell underlying instruments to meet daily variation margin requirements. Such sales of underlying instruments might be, but would not necessarily be, at increased prices (which would reflect the rising market). The Fund might have to sell underlying instruments at a time when it would be disadvantageous to do so. In addition to the possibility that there might be an imperfect correlation, or no correlation at all, between price movements in the futures contracts and the portion of the portfolio being hedged, the price movements of futures contracts might not correlate perfectly with price movements in the underlying instruments due to certain market distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors might close futures contracts through offsetting transactions, which could distort the normal relationship between the underlying instruments and futures markets. Second, the margin requirements in the futures market are less onerous than margin requirements in the securities markets, and as a result the futures market might attract more speculators than the securities markets do. Increased participation by speculators in the futures market might also cause temporary price distortions. Due to the possibility of price distortion in the futures market and also because of the imperfect correlation between price movements in the underlying instruments and movements in the prices of futures contracts, even a correct forecast of general market trends by Price-Fleming might not result in a successful hedging transaction over a very short time period. PAGE 31 Options on Futures Contracts The Fund may purchase and sell options on the same types of futures in which it may invest. Options on futures are similar to options on underlying instruments except that options on futures give the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put), rather than to purchase or sell the futures contract, at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by the delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid. As an alternative to writing or purchasing call and put options on 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 risks described under "Special Risks of Transactions on Futures Contracts" are substantially the same as the risks of using options on futures. In addition, where the Fund seeks to close out an option position by writing or buying an offsetting option covering the same index, underlying instrument or contract and having the same exercise price and expiration date, its ability to establish and close out positions on such options will be subject to the maintenance of a liquid secondary market. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options, or underlying instruments; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in the class or series of options) would cease to exist, although outstanding options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain of the facilities of any of the clearing corporations inadequate, and thereby result in the institution by an PGAE 32 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 foreign board of trade. Neither the National Futures Association nor any domestic exchange regulates activities of any foreign boards of trade, including the execution, delivery and clearing of transactions, or has the power to compel enforcement of the rules of a foreign board of trade or any applicable foreign law. This is true even if the exchange is formally linked to a domestic market so that a position taken on the market may be liquidated by a transaction on another market. Moreover, such laws or regulations will vary depending on the foreign country in which the foreign futures or foreign options transaction occurs. For these reasons, when the Fund trades foreign futures or foreign options contracts, it may not be afforded certain of the protective measures provided by the Commodity Exchange Act, the CFTC's regulations and the rules of the National Futures Association and any domestic exchange, including the right to use reparations proceedings before the Commission and arbitration proceedings provided by the National Futures Association or any domestic futures exchange. In particular, funds received from the Fund for foreign futures or foreign options transactions may not be provided the same protections as funds received in respect of transactions on United States futures exchanges. In addition, the price of any foreign futures or foreign options contract and, therefore, the potential profit and loss thereon may be affected by any variance in the foreign exchange rate between the time the Fund's order is placed and the time it is liquidated, offset or exercised. 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 PAGE 33 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 Price-Fleming believes that one currency may experience a substantial movement against another currency, including the U.S. dollar, it may enter into a forward contract to sell or buy the amount of the former foreign currency, approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. Alternatively, where appropriate, the Fund may hedge all or part of its foreign currency exposure through the use of a basket of currencies or a proxy currency where such currency or currencies act as an effective proxy for other currencies. In such a case, the Fund may enter into a forward contract where the amount of the foreign currency to be sold exceeds the value of the securities denominated in such currency. The use of this basket hedging technique may be more efficient and economical than entering into separate forward contracts for each currency held in the Fund. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movement is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. 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, Price-Fleming 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. 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 PAGE 34 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 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 Price-Fleming. 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. PAGE 35 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 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. 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 PAGE 36 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 Price-Fleming to be of good standing and will not be made unless, in the judgment of Price- Fleming, 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. 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 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 PAGE 37 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. 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 Price-Fleming'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 Price-Fleming. At that time, the bank or securities dealer agrees to repurchase the underlying security at the same price, plus specified interest. Repurchase agreements are generally for a short period of time, often less than a week. Repurchase agreements which do not provide for payment within seven days will be treated as illiquid securities. The Fund will only enter into repurchase agreements where (i) 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. Illiquid or Restricted Securities Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in accordance with procedures prescribed by the Fund's Board of Directors/Trustees. If through the appreciation of illiquid securities or the depreciation of liquid securities, the Fund should be in a position where more than 15% 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. Price-Fleming under the PAGE 38 supervision of the Fund's Board of Directors/Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's restriction of investing no more than 15% 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, Price-Fleming will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, Price-Fleming could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchases, (3) dealer undertakings to make a market, and (4) the nature of the security and of marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A securities would be monitored, and if as a result of changed conditions it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not invest more than 15% 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. INVESTMENT RESTRICTIONS Fundamental policies of each Fund other than Latin America 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 Funds' Board of Directors without shareholder approval. Any investment restriction which involves a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the percentage occurs immediately after, and is caused by, an acquisition of securities or assets of, or borrowings by, the Fund. Fundamental Policies As a matter of fundamental policy, the Fund may not: (1) Borrowing. Borrow money except that the Fund may (i) borrow for non-leveraging, temporary or emergency purposes and (ii) engage in reverse repurchase agreements and make other investments or engage in other transactions, which may involve a borrowing, in a manner consistent with the Fund's investment objective and program, provided that the combination of (i) and (ii) shall not exceed 33 1/3% of the value of the Fund's total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law. Any borrowings which come to exceed this amount will be reduced in accordance with applicable law. The Fund may borrow from banks, other Price Funds or other persons to the extent permitted by applicable law. PAGE 39 (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. For All Funds, Except Latin America Fund (8) Percent Limit on Assets Invested in Any One Issuer. Purchase a security if, as a result, with respect to 75% of the value of a Fund's total assets, more than 5% of the value of its total assets would be invested in the securities of any one issuer (other than obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities); (9) Percent Limit on Share Ownership of Any One Issuer. Purchase a security if, as a result, with respect to 75% of the value of a Fund's total assets, more than 10% of the outstanding voting securities of any issuer would be held by the Fund (other than obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities) provided that, as an operating policy, the Fund will not purchase a security if, as a result, more than 10% of the outstanding voting securities of any issuer would be held by the Fund; 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 PAGE 40 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 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; PAGE 41 (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 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. Each 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. PAGE 42 INVESTMENT PERFORMANCE Total Return Performance Each Fund's calculation of total return performance includes the reinvestment of all capital gain distributions and income dividends for the period or periods indicated, without regard to tax consequences to a shareholder in each Fund. Total return is calculated as the percentage change between the beginning value of a static account in each Fund and the ending value of that account measured by the then current net asset value, including all shares acquired through reinvestment of income and capital gains dividends. The results shown are historical and should not be considered indicative of the future performance of each Fund. Each average annual compound rate of return is derived from the cumulative performance of each Fund over the time period specified. The annual compound rate of return for each Fund over any other period of time will vary from the average. International Stock Fund Cumulative Performance Percentage Change Since 1 Year 5 Years 10 Years Inception Ended Ended Ended 5/9/80 to 12/31/93+ 12/31/93 12/31/93 12/31/93++ _________ ________ ___________ __________ International Stock 40.11% 76.63% 396.21% 678.83% Fund S&P 500 10.07 97.34 301.77 661.50 Dow Jones Industrial Average 16.99 105.25 333.86 732.91 Lipper International Funds Average 39.40 62.48 303.71 480.69+++ EAFE Index 32.94 12.19 417.77 592.40+++ CPI 2.75 21.00 43.93 80.00 Financial Times Actuaries World Index++++ 22.60 35.85 N/A N/A PAGE 43 Average Annual Compound Rates of Return Since 1 Year 5 Years 10 Years Inception Ended Ended Ended 5/9/80 to 12/31/93+ 12/31/93 12/31/93 12/31/93++ _________ ________ ____________ __________ International Stock 40.11% 12.05% 17.37% 16.23% Fund S&P 500 10.07 14.56 14.92 16.04 Dow Jones Industrial Average 16.99 15.47 15.81 16.80 Lipper International Funds Average 39.40 9.85 14.84 13.66+++ EAFE Index 32.94 2.33 17.87 15.40+++ CPI 2.75 3.89 3.71 4.40 Financial Times Actuaries World Index++++ 22.60 6.32 N/A N/A + If you invested $1,000 at the beginning of 1993, the total return on December 31, 1993 would be $1,401.10 ($1,000 x 1.4011). ++ Assumes purchase of one share of International Stock Fund at the public offering price of $5.00 on May 9, 1980. Over this time, stock prices in general have risen. +++ 06/30/80-12/31/93 ++++ The inception date of this index is 12/31/85. International Discovery Fund Cumulative Performance Percentage Change Since 1 Year 5 Years Inception Ended Ended 12/30/88 to 12/31/93+ 12/31/93 12/31/93++ __________ __________ ____________ International Discovery Fund 49.85% 87.99% 87.99% S&P 500 10.07 97.34 97.34+++ Dow Jones Industrial Average 16.99 105.25 105.25+++ Lipper International Funds Average 39.40 62.48 62.48+++ EAFE Index 32.94 12.19 12.19+++ CPI 2.75 21.00 21.00+++ PAGE 44 Average Annual Compound Rates of Return Since 1 Year 5 Years Inception Ended Ended 12/30/88 to 12/31/93+ 12/31/93 12/31/93++ __________ __________ ____________ International Discovery Fund 49.85% 13.46% 13.45% S&P 500 10.07 14.56 14.56+++ Dow Jones Industrial Average 16.99 15.47 15.47+++ Lipper International Funds Average 39.40 9.85 9.85+++ EAFE Index 32.94 2.33 2.33+++ CPI 2.75 3.89 3.89+++ Morgan Stanley Capital International World Index 23.13 6.44 6.44+++ + If you invested $1,000 at the beginning of 1993, the total return on December 31, 1993 would be $1,498.50 ($1,000 x 1.4985). ++ Assumes purchase of one share of International Discovery Fund at the public offering price of $10.00 on December 30, 1988. Over this time, stock prices in general have risen. +++ 12/31/88 - 12/31/93 Small company stocks achieved higher total annualized returns than large-cap stocks and long-term bonds for the 25 and 50-year periods ending December 31, 1993, as shown in the following table. The table shows the dramatic reversal of these trends during the past ten years. SMALL COMPANIES VS. LARGE COMPANIES AVERAGE ANNUAL RETURNS 1973 - 1993 Chart 1 Sources: Japan and Large U.K., Data Stream; Small U.K. Hoare Govette Small Cap. Index; Large U.S., S&P 500; Small U.S., Ibbotson Associates. Returns represent past performance and should not be considered indicative of an investment in the Fund. PAGE 45 European Stock Fund Cumulative Performance Percentage Change Since 1 Year 3 Years Inception Ended Ended 2/28/90+ to 12/31/93 12/31/93 12/31/93++ __________ __________ __________ European Stock Fund 27.24% 28.95% 24.86% S&P 500 10.07 54.48 58.93 Dow Jones Industrial Average 16.99 56.11 61.68 Lipper European Region Funds Average 25.96 23.28 19.81 EAFE Index 32.94 31.84 13.01 CPI 2.75 8.97 13.91 Average Annual Compound Rates of Return Since 1 Year 3 Years Inception Ended Ended 2/28/90+ to 12/31/93 12/31/93 12/31/93++ __________ ____________________ European Stock Fund 27.24% 8.84% 5.95% S&P 500 10.07 15.60 12.83 Dow Jones Industrial Average 16.99 16.01 13.33 Lipper European Region Funds Average 25.96 6.85 4.66 EAFE Index 32.94 9.65 3.24 CPI 2.75 2.90 3.45 Morgan Stanley Capital International Europe Index 29.79 12.209.18 + If you invested $1,000 at the beginning of 1993, the total return on December 31, 1993 would be $1,272.40 ($1,000 x 1.2724). ++ Assumes purchase of one share of European Stock Fund at the public offering price of $10.00 on February 28, 1990. Over this time, stock prices in general have risen. +++ 03/01/90-12/31/93 PAGE 46 Japan Fund Cumulative Performance Percentage Change Since 1 Year Inception Ended 12/27/91+ to 12/31/93 12/31/93++ __________ __________ Japan Fund 20.61% 4.45% Morgan Stanley Pacific Basin Index 35.97 11.23+++ Morgan Stanley Capital International World Index 23.13 17.39+++ EAFE Index 32.94 17.19+++ S&P 500 10.07 21.59 Topix Index 23.10 -6.12+++ Nikkei Average 14.88 -14.82+++ Morgan Stanley Japan Index 25.70 -1.06+++ Lipper Japanese Funds Average 22.94 -2.89+++ Average Annual Compound Rates of Return Since 1 Year Inception Ended 12/27/91+ to 12/31/93 12/31/93++ __________ __________ Japan Fund 20.61% 2.19% Morgan Stanley Pacific Basin Index 35.97 5.46+++ Morgan Stanley Capital International World Index 23.13 8.35+++ EAFE Index 32.94 8.26+++ S&P 500 10.07 10.21 Topix Index 23.10 -3.11+++ Nikkei Average 14.88 -7.71+++ Morgan Stanley Japan Index 25.70 -0.53+++ Lipper Japanese Funds Average 22.94 -1.55+++ + If you invested $1,000 at the beginning of 1993, the total return on December 31, 1993 would be $1,206.10 ($1,000 x 1.2061). ++ Assumes purchase of one share of Japan Fund at the public offering price of $10.00 on December 27, 1991. Over this time, stock prices in general have risen. +++ 12/31/91-12/31/93 One reason investors may find the Japanese market attractive is the proven competitiveness of Japanese companies within their industries. Due to a commitment to capital investment, technological expertise, and a highly productive workforce, Japanese companies dominate many of the world's key industries. Shown below are the number of Japanese companies within the top ten largest companies of the world+ for the industries indicated: PAGE 47 --- 9 of the top 10 banks --- 7 of the top 10 appliance/household durable companies --- 8 of the top 10 financial service companies --- 7 of the top 10 steel companies --- 4 of the top 10 automobile companies + Based on total market capitalization in U.S. dollars. Source: Morgan Stanley Capital International TOPIX VS. S&P 500 1980 -- 1993 Chart 2 Sources: Nikkei Needs; Bridge Information Systems Returns are measured in U.S. currency. Topix Index reflects the first section of the Tokyo Stock Exchange. The chart is for illustrative purposes only and should not be considered representative of an investment in the Fund or of the Fund's performance. Returns are measured in U.S. currency. Topix Index reflects the first section of the Tokyo Stock Exchange. Sources: Nikkei Needs; Bridge Information Systems Growth of Real GNP in the OECD area! Percentage changes from previous period 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ United States 2.8 5.0 5.2 -0.5 -1.3 4.9 4.7 5.3 2.5 -0.2 Japan 4.3 8.4 7.6 -0.8 2.9 4.2 4.8 5.0 5.6 3.5 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ United States 1.9 -2.5 3.6 6.8 3.4 2.7 3.4 4.5 2.5 0.9 Japan 3.4 3.4 2.8 4.3 5.2 2.6 4.3 6.2 4.7 5.6 ! Aggregates were computed on the basis of 1987 GNP/GDP weights expressed in 1987 U.S. dollars. Source: OECD Economic Outlook, July 1991 PAGE 48 New Asia Fund Cumulative Performance Percentage Change Since 1 Year 3 Years Inception Ended Ended 9/28/90+ to 12/31/93 12/31/93 12/31/93++ __________ __________ __________ New Asia Fund 78.76% 137.25% 141.05% S&P 500 10.07 54.48 68.65+++ Dow Jones Industrial Average 16.99 56.11 69.35+++ Lipper Pacific Region Funds Average 63.81 88.88 91.74+++ EAFE Index 32.94 31.84 45.85+++ CPI 2.75 8.97 9.87+++ Average Annual Compound Rates of Return Since 1 Year 3 Years Inception Ended Ended 9/28/90+ to 12/31/93 12/31/93 12/31/93++ __________ __________ __________ New Asia Fund 78.76% 33.37% 31.02% S&P 500 10.07 15.60 17.43+++ Dow Jones Industrial Average 16.99 16.01 17.59+++ Lipper Pacific Region Funds Average 63.91 22.63 21.33+++ EAFE Index 32.94 9.65 12.31+++ CPI 2.75 2.90 2.94+++ Financial Times Actuaries Pacific Excluding Japan 89.78 40.53 35.68+++ + If you invested $1,000 at the beginning of 1993, the total return on December 31, 1993 would be $1,787.60 ($1,000 x 1.7876). ++ Assumes purchase of one share of New Asia Fund at the public offering price of $10.00 on September 28, 1990. Over this time, stock prices in general have risen. +++ 09/30/90 - 12/31/93 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 49 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 Years 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) each 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, Inc., a widely used independent research firm which ranks mutual funds by overall performance, investment objectives, and assets which includes the Lipper Pacific Region Average which tracks the average performance of funds which concentrate investments in equity securities whose primary trading markets or operations are in the Western Pacific basin region, or a single country within this region; (B) Morningstar, Inc., another widely used independent research firm which rates 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, Japan 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) the Nikkei Average, a generally accepted benchmark for performance of the Japanese stock market; (viii) indices of stocks comparable to those in which each Fund invests including the Topix Index, which reflects the performance of the First Section of the Tokyo Stock PAGE 50 Exchange; and (ix) 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 each Fund; (3) other U.S. or foreign government statistics such as GNP, and net import and export figures derived from 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 each 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 each 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 each Fund invests may be compared to relevant indices or surveys (e.g. S&P Industry Surveys) in order to evaluate each Fund's historical performance or current or potential value with respect to the particular industry or sector. In connection with (4) above, information derived from the following chart may be used: IRA Versus Taxable Return Assuming 9% annual rate of return, $2,000 annual contribution and 28% tax bracket. Year Taxable Tax Deferred ____ _______ ____________ 10 $ 28,700 $ 33,100 15 51,400 64,000 20 82,500 111,500 25 125,100 184,600 30 183,300 297,200 IRAs An IRA is a long-term investment whose objective is to accumulate personal savings for retirement. Due to the long-term nature of the investment, even slight differences in performance will result in significantly different assets at retirement. Mutual funds, with their diversity of choice, can be used for IRA investments. Generally, individuals may need to adjust their underlying IRA investments as their time to retirement and tolerance for risk changes. Other Features and Benefits Each 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 PAGE 51 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. To assist investors in understanding the different returns and risk characteristics of various investments, the aforementioned guides will include presentation of historical returns of various investments using published indices. An example of this is shown on the next page. Historical Returns for Different Investments Annualized returns for periods ended 12/31/93 50 years 20 years 10 years 5 years Small-Company Stocks 15.3% 18.8% 10.0% 13.3% Large-Company Stocks 12.3 12.8 14.9 14.5 Foreign Stocks N/A 14.4 17.9 2.3 Long-Term Corporate Bonds 5.6 10.2 14.0 13.0 Intermediate-Term U.S. Gov't. Bonds 5.7 9.8 11.4 11.3 Treasury Bills 4.6 7.5 6.4 5.6 U.S. Inflation 4.3 5.9 3.7 3.9 Sources: Ibbotson Associates, Morgan Stanley. Foreign stocks reflect performance of The Morgan Stanley Capital International EAFE Index, which includes some 1,000 companies representing the stock markets of Europe, Australia, New Zealand, and the Far East. This chart is for illustrative purposes only and should not be considered as performance for, or the annualized return of, any T. Rowe Price Fund. Past performance does not guarantee future results. Also included will be various portfolios demonstrating how these historical indices would have performed in various combinations over a specified time period in terms of return. An example of this is shown below. PAGE 52 Performance of Retirement Portfolios* Asset Mix Average Annualized Value Returns 20 Years of Ended 12/31/93 $10,000 Investment After Period _____________________ ______________________ ____________ Nominal Real Best Worst Portfolio Growth Income Safety Return Return** Year Year I. Low Risk 40% 40% 20% 11.3% 5.4% 24.9% -9.3% $ 79,775 II. Moderate Risk 60% 30% 10% 12.1% 6.2% 29.1%-15.6% $ 90,248 III. High Risk 80% 20% 0% 12.9% 7.0% 33.4%-21.9% $100,031 Source: T. Rowe Price Associates; data supplied by Lehman Brothers, Wilshire Associates, and Ibbotson Associates. * Based on actual performance for the 20 years ended 1993 of stocks (85% Wilshire 5000 and 15% Europe, Australia, Far East [EAFE] Index), bonds (Lehman Brothers Aggregate Bond Index from 1976-93 and Lehman Brothers Government/Corporate Bond Index from 1974-75), and 30-day Treasury bills from January 1974 through December 1993. Past performance does not guarantee future results. Figures include changes in principal value and reinvested dividends and assume the same asset mix is maintained each year. This exhibit is for illustrative purposes only and is not representative of the performance of any T. Rowe Price fund. ** Based on inflation rate of 5.9% for the 20-year period ended 12/31/93. From time to time, Insights, a T. Rowe Price publication of reports on specific investment topics and strategies, may be included in the Fund's fulfillment kit. Such reports may include information concerning: calculating taxable gains and losses on mutual fund transactions, coping with stock market volatility, benefiting from dollar cost averaging, understanding international markets, investing in high-yield "junk" bonds, growth stock investing, conservative stock investing, value investing, investing in small companies, tax-free investing, fixed income investing, investing in mortgage- backed securities, as well as other topics and strategies. Redemptions in Kind In the unlikely event a shareholder in any of the International Funds were to receive an in kind redemption of portfolio securities of a 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 a Fund's shares for securities PAGE 53 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 objectives 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. MANAGEMENT OF FUNDS The officers and directors of the Funds 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 Funds' 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 asterisk (*). These directors are referred to as inside directors by virtue of their officership, directorship, and/or employment with T. Rowe Price. *M. DAVID TESTA, Chairman of the Board--Chairman of the Board, Price-Fleming; Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company; Chartered Financial Analyst *MARTIN G. WADE, President and Director--President, Price-Fleming; Director, Robert Fleming Holdings Limited; Address: 25 Copthall Avenue, London, EC2R 7DR, England LEO C. BAILEY, Director--Retired; Address: 3396 South Placita Fabula, Green Valley, Arizona 85614 ANTHONY W. DEERING, Director--Director, President and Chief Operating Officer, The Rouse Company, real estate developers, Columbia, Maryland; Advisory Director, Kleinwort, Benson (North America) Corporation, a registered broker-dealer; Address: 10275 Little Patuxent Parkway, Columbia, Maryland 21044 DONALD W. DICK, JR., Director--Principal, Overseas Partners, Inc., a financial investment firm; formerly (6/65-3/89) Director and Vice President-Consumer Products Division, McCormick & Company, Inc., international food processors; Director, Waverly Press, Inc., Baltimore, Maryland; Address: 375 Park Avenue, Suite 2201, New York, New York 10152 ADDISON LANIER, Director--Financial management; President and Director, Thomas Emery's Sons, Inc., and Emery Group, Inc.; Director, Scinet Development and Holdings, Inc.; Address: 441 Vine Street, #2310, Cincinnati, Ohio 45202-2913 DAVID P. BOARDMAN, Executive Vice President--Executive Vice President, Price- Fleming CHRISTOPHER D. ALDERSON, Vice President--Vice President, Price-Fleming PETER B. ASKEW, Vice President--Vice President, Price-Fleming RICHARD J. BRUCE, Vice President--Vice President of Price-Fleming; formerly (1985-1990) Investment Manager, Jardine Fleming Investment Advisers, Tokyo ROBERT P. CAMPBELL, Vice President--Vice President, T. Rowe Price and Rowe Price-Fleming International Inc.; formerly (4/80-5/90) Vice President and Director, Private Finance, New York Life Insurance Company, New York, New York MARK J. T. EDWARDS, Vice President--Vice President, Price-Fleming JOHN R. FORD, Vice President--Executive Vice President, Price-Fleming HENRY H. HOPKINS, Vice President--Vice President, Price-Fleming and T. Rowe Price Retirement Plan Services, Inc.; Managing Director, T. Rowe Price; PAGE 54 Vice President and Director, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc. and T. Rowe Price Trust Company ROBERT C. HOWE, Vice President--Vice President, Price-Fleming and T. Rowe Price STEPHEN ILOTT, Vice President--Employee, Price-Fleming; formerly (1988-1991) portfolio management, Fixed Income Portfolios Group, Robert Fleming Holdings Limited, London GEORGE A. MURNAGHAN, Vice President--Vice President, Price-Fleming, T. Rowe Price, T. Rowe Price Trust Company, and T. Rowe Price Investment Services, Inc. JAMES S. RIEPE, Vice President--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. CHRISTOPHER ROTHERY, Vice President--Employee, Price-Fleming; formerly (1987-1989) employee of Robert Fleming Holdings Limited, London CHARLES H. SALISBURY, JR., Vice President--Vice President and Director, Price-Fleming; Managing Director, T. Rowe Price; President, Trust Officer and Director, T. Rowe Price Trust Company; Director, T. Rowe Price Retirement Plan Services, Inc. JAMES B. M. SEDDON, Vice President--Vice President, Price-Fleming CHARLES P. SMITH, Vice President--Managing Director, T. Rowe Price; Vice President, Rowe Price-Fleming International, Inc. BENEDICT R. F. THOMAS, Vice President--Vice President, Price-Fleming PETER VAN DYKE, Vice President--Managing Director, T. Rowe Price; Vice President, Rowe Price-Fleming International, Inc. DAVID J. L. WARREN, Vice President--Executive Vice President, Price-Fleming WILLIAM F. WENDLER, II, Vice President--Vice President, Price-Fleming, T. Rowe Price and T. Rowe Price Investment Services, Inc. EDWARD A. WIESE, Vice President--Vice President, T. Rowe Price, Rowe Price- Fleming International, 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. LEAH P. HOLMES, Assistant Vice President--Vice President, Price-Fleming and Assistant Vice President of Price Associates EDWARD T. SCHNEIDER, Assistant Vice President--Vice President, T. Rowe Price Services, Inc. INGRID I. VORDEMBERGE, Assistant Vice President--Employee, T. Rowe Price The Funds' Executive Committee, comprised of Messrs. Testa and Wade, has been authorized by the Board of Directors to exercise all of the powers of the Board to manage the Funds in the intervals between meetings of the Board, except the powers prohibited by statute from being delegated. PRINCIPAL HOLDERS OF SECURITIES As of the date of the prospectus, the officers and directors of the Funds, as a group, owned less than 1% of the outstanding shares of each Fund. PAGE 55 As of December 31, 1993, each of the following shareholders beneficially owned more than 5% of the outstanding shares of the New Asia and European Stock Funds, respectively: Charles Scwab & Co. Inc., Reinvestment Account, Attn.: Mutual Fund Dept., 101 Montgomery Street, San Francisco, California 94104-4122; and United States Fidelity Guaranty Company, 100 Light Street, Baltimore, Maryland 21202-1004. INVESTMENT MANAGEMENT SERVICES Services Under the Management Agreement, Price-Fleming provides each Fund with discretionary investment services. Specifically, Price-Fleming is responsible for supervising and directing the investments of each 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 each Fund, including the negotiation of commissions and the allocation of principal business and portfolio brokerage. In addition to these services, Price-Fleming provides the Funds with certain corporate administrative services, including: maintaining the Funds' corporate existence, corporate records, and registering and qualifying Fund shares under federal and state laws; monitoring the financial, accounting, and administrative functions of each Fund; maintaining liaison with the agents employed by each Fund such as the Fund's custodian and transfer agent; assisting each Fund in the coordination of such agents' activities; and permitting Price-Fleming's employees to serve as officers, directors, and committee members of each 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 each 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 Funds 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 Funds. 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 PAGE 56 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 of .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 Each Fund pays Price-Fleming a fee ("Fee") which consists of two components: a Group Management Fee ("Group Fee") and an Individual Fund Fee ("Fund Fee"). The Fee is paid monthly to Price-Fleming on the first business day of the next succeeding calendar month and is calculated as described below. The monthly Group Fee ("Monthly Group Fee") is the sum of the daily Group Fee accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee Accrual for any particular day is computed by multiplying the Price Funds' group fee accrual as determined below ("Daily Price Funds' Group Fee Accrual") by the ratio of each Fund's net assets for that day to the sum of the aggregate net assets of the Price Funds for that day. The Daily Price Funds' Group Fee Accrual for any particular day is calculated by multiplying the fraction of one (1) over the number of calendar days in the year by the annualized Daily Price Funds' Group Fee Accrual for that day as determined in accordance with the following schedule: Price Funds' Annual Group Base Fee Rate for Each Level of Assets _________________________________ 0.480% First $1 billion 0.450% Next $1 billion 0.420% Next $1 billion 0.390% Next $1 billion 0.370% Next $1 billion 0.360% Next $2 billion 0.350% Next $2 billion 0.340% Next $5 billion 0.330% Next $10 billion 0.320% Next $10 billion 0.310% Thereafter PAGE 57 For the purpose of calculating the Group Fee, the Price Funds include all the mutual funds distributed by T. Rowe Price Investment Services, Inc. (excluding T. Rowe Price Spectrum Fund, Inc. and any institutional or private label mutual funds). For the purpose of calculating the Daily Price Funds' Group Fee Accrual for any particular day, the net assets of each Price Fund are determined in accordance with the Funds' prospectus as of the close of business on the previous business day on which the Fund was open for business. The monthly Fund Fee ("Monthly Fund Fee") is the sum of the daily Fund Fee accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any particular day is computed by multiplying the fraction of one (1) over the number of calendar days in the year by the Fund Fee Rate of 0.35% for the International Stock Fund, 0.50% each for the European Stock, Japan and New Asia Funds, 0.75% each for the International Discovery and Latin America Funds, and multiplying this product by the net assets of the Fund for that day, as determined in accordance with the Funds' prospectus as of the close of business on the previous business day on which the Fund was open for business. The following chart sets forth the total management fees if any, paid to Price-Fleming by the Funds, during the last three years: International Stock International Discovery Japan 1993 $14,955,000 1993 $1,982,000 1993 $458,000 1992 $12,522,000 1992 $1,798,000 1992 $ 19,000 1991 $ 9,233,000 1991 $1,549,000 1991 * European Stock New Asia Latin America 1993 $1,422,000 1993 $4,937,000 1993 * 1992 $1,198,000 1992 $1,954,000 1992 * 1991 $ 976,000 1991 $ 449,000 1991 * *Prior to commencement of Fund operations. Limitation on Fund Expenses The Management Agreement between each Fund and Price-Fleming provides that each Fund will bear all expenses of its operations not specifically assumed by Price-Fleming. However, in compliance with certain state regulations, Price-Fleming will reimburse each Fund for certain expenses which in any year exceed the limits prescribed by any state in which the Fund's shares are qualified for sale. Presently, the most restrictive expense ratio limitation imposed by any state is 2.5% of the first $30 million of a Fund's average daily net assets, 2% of the next $70 million of the average daily net assets, and 1.5% of net assets in excess of $100 million. For the purpose of determining whether a Fund is entitled to reimbursement, the expenses of each Fund are calculated on a monthly basis. If the Fund is entitled to reimbursement, that month's management fee will be reduced or postponed, with any adjustment made after the end of the year. International Discovery Fund In the interest of limiting the expenses of the Fund, Price-Fleming PAGE 58 agreed to bear any expenses through December 31, 1990, which would cause the Fund's ratio of expenses to average net assets to exceed 1.50%. Effective January 1, 1991, Price-Fleming agreed to extend the Fund's expense ratio for a period of two years through December 31, 1992. Effective January 1, 1993 Price-Fleming agreed to extend the 1.50% expense limitation through December 31, 1993. Expenses paid or assumed by Price-Fleming under each agreement, are subject to reimbursement to Price-Fleming the Fund whenever the Fund's expense ratio is below 1.50%; however, no reimbursement will be made after December 31, 1992 (for the initial agreement), December 31, 1994 (for the first extension), December 31, 1995 (for the second extension), or if it would result in the expense ratio exceeding 1.50%. The Management Agreement also provides that one or more additional expense limitation periods may be implemented after the expiration of the one on December 31, 1990, and that with respect to any additional limitation period (of the same or different time periods), the Fund may reimburse Price-Fleming, provided the reimbursement does not result in the Fund's aggregate expenses exceeding the additional expense limitation or any applicable state expense limitation. Pursuant to the first extension $185,000 of management fees were not accrued by the Fund for the year ended December 31, 1992. Additionally, $360,000 of unaccrued fees from 1991 are subject to reimbursement through December 31, 1994. Unpaid fees and expenses aggregating $1,312,000 from 1989 and 1990 were permanently waived by Price-Fleming at December 31, 1992. Japan Fund In the interest of limiting the expenses of the Fund during its initial period of operations, Price-Fleming agreed to bear any expenses through December 31, 1993, which would cause the Fund's ratio of expenses to average net assets to exceed 1.50%. Effective January 1, 1994 Price-Fleming agreed to extend the 1.50% expense limitation through October 31, 1995. Expenses paid or assumed by Price-Fleming under each agreement are subject to reimbursement to Price-Fleming by the Fund whenever the Fund's expense ratio is below 1.50%; however, no reimbursement will be made after December 31, 1995 (for the initial agreement), October 31, 1997 (for the second agreement), or if it would result in the expense ratio exceeding 1.50%. The Management Agreement also provides that one or more additional expense limitation periods (of the same or different time periods) may be implemented after the expiration of the one on December 31, 1993, and that with respect to any such additional limitation period, the Fund may reimburse Price-Fleming, provided the reimbursement does not result in the Fund's aggregate expenses exceeding the additional expense limitation. Pursuant to the initial agreement, $211,000 of management fees were not accrued by the Fund for the period ended December 31, 1992. Latin America Fund In the interest of limiting the expenses of the Fund during its initial period of operations, Price-Fleming agreed to bear any expenses through October 31, 1995, which would cause the Fund's ratio of expenses to average net assets to exceed 2.00%. Expenses paid or assumed under this agreement are subject to reimbursement to Price-Fleming by the Fund whenever the Fund's expense ratio is below 2.00%; however, no reimbursement will be made after October 31, 1997, or if it would result in the expense ratio exceeding 2.00%. The Management Agreement also provides that one or more additional expense limitation periods (of the same or different time periods) PAGE 59 may be implemented after the expiration of the current one on October 31, 1995, and that with respect to any such additional limitation period, the Fund's may reimburse Price-Fleming, provided the reimbursement does not result in the Fund's aggregate expenses exceeding the additional expense limitation or any applicable state expense limitation. T. Rowe Price Spectrum Fund, Inc. (International Stock Fund) The Fund is a party to a Special Servicing Agreement ("Agreement") between and among T. Rowe Price Spectrum Fund, Inc. ("Spectrum Fund"), T. Rowe Price, T. Rowe Price Services, Inc. and various other T. Rowe Price funds which, along with the Fund, are funds in which Spectrum Fund invests (collectively all such funds "Underlying Price Funds"). The Agreement provides that, if the Board of Directors/Trustees of any Underlying Price Fund determines that such Underlying Fund's share of the aggregate expenses of Spectrum Fund is less than the estimated savings to the Underlying Price Fund from the operation of Spectrum Fund, the Underlying Price Fund will bear those expenses in proportion to the average daily value of its shares owned by Spectrum Fund, provided further that no Underlying Price Fund will bear such expenses in excess of the estimated savings to it. Such savings are expected to result primarily from the elimination of numerous separate shareholder accounts which are or would have been invested directly in the Underlying Price Funds and the resulting reduction in shareholder servicing costs. Although such cost savings are not certain, the estimated savings to the Underlying Price Funds generated by the operation of Spectrum Fund are expected to be sufficient to offset most, if not all, of the expenses incurred by Spectrum Fund. DISTRIBUTOR FOR FUNDS 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 Funds' 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 each Fund's shares is continuous. Investment Services is located at the same address as the Funds and T. Rowe Price -- 100 East Pratt Street, Baltimore, Maryland 21202. Investment Services serves as distributor to the Funds pursuant to an Underwriting Agreement ("Underwriting Agreement"), which provides that each 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 PAGE 60 expenses specifically assumed by each Fund. Investment Services' expenses are paid by T. Rowe Price. Investment Services acts as the agent of each 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 Funds. CUSTODIAN State Street Bank and Trust Company (the "Bank") is the custodian for the Funds' securities and cash, but it does not participate in the Funds' 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 Funds have entered into a Custodian Agreement with The Chase Manhattan Bank, N.A., London, pursuant to which portfolio securities which are purchased outside the United States are maintained in the custody of various foreign branches of The Chase Manhattan Bank and such other custodians, including foreign banks and foreign securities depositories 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 Funds are 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 each 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, a Fund may pay higher brokerage commissions in return for brokerage and research services. In selecting broker-dealers to execute a 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 Funds. 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 PAGE 61 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 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, the 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 Funds 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 a 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 a 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 PAGE 62 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 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 a particular Fund will not necessarily be used by Price-Fleming exclusively in connection with the management of that Fund. Some of Price-Fleming's other clients have investment objectives and programs similar to those of the Funds. Price-Fleming may occasionally make recommendations to other clients which result in their purchasing or selling securities simultaneously with the Funds. 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. None of the Funds allocates 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. PAGE 63 Transactions with Related Brokers and Dealers As provided in the Investment Management Agreement between each 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 a 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 trading desks, although orders for a Fund's portfolio transactions may be placed with affiliates of Robert Fleming and JFG who may receive a commission. The Board of Directors of the Funds 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 Funds' independent directors to approve the procedures under which brokerage allocation to affiliates is to be made and to monitor such allocations on a continuing basis. 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 Funds. The directors have reviewed and from time to time may continue to review whether other recapture opportunities are legally permissible and available and, if they appear to be, determine whether it would be advisable for a Fund to seek to take advantage of them. During the year 1993, the International Stock, International Discovery, New Asia and Japan Funds paid $1,198,000, $245,000, $1,834,000, and $111,000, respectively, in total brokerage commissions in connection with their portfolio transactions. The brokerage commissions paid to JFS represented 22%, 19%, 27%, and 27%, respectively, of the Funds' aggregate brokerage commissions paid during 1993. The aggregate dollar amount of PAGE 64 transactions effected through JFS, involving the payment of commissions represented 18%, 13%, 28%, and 25%, respectively, of the aggregate dollar amount of all transactions involving the payment of commissions during 1993. International Stock and European Stock Funds paid to RF&Co., $100,000, and $1,000, respectively, in total brokerage commissions in connection with their portfolio transactions. The brokerage commissions paid to RF&Co. represented 2%, and 1%, respectively, of the Funds' aggregate brokerage commissions paid during 1993. The aggregate dollar amount of transactions effected through RF&Co., involving the payment of commissions represented 2%, and 1%, respectively, of the aggregate dollar amount of all transactions involving the payment of commissions during 1993. Japan Fund paid to Robert Fleming, Inc. (a New York brokerage firm), $1,000 in total brokerage commissions in connection with their portfolio transactions. The brokerage commissions paid to Robert Fleming, Inc. (a New York brokerage firm) represented 1%, of the Funds' aggregate brokerage commissions paid during 1993. The aggregate dollar amount of transactions effected through RF&Co., involving the payment of commissions represented 1%, of the aggregate dollar amount of all transactions involving the payment of commissions during 1993. In accordance with the written procedures adopted pursuant to Rule 17e-1, the independent directors of each Fund reviewed the 1993 transactions with affiliated brokers and determined that such transactions resulted in an economic advantage to the Funds either in the form of lower execution costs or otherwise. Other For the years 1993, 1992, and 1991, the total brokerage commissions paid by International Stock Fund, including the discounts received by securities dealers in connection with underwritings, were $5,419,000, $4,052,000, and $3,119,000, respectively. Of these commissions, approximately 76%, 85%, and 90%, respectively, were paid to firms which provided research, statistical, or other services to Price-Fleming in connection with the management of the Fund or, in some cases, to the Fund. The portfolio turnover rate of the International Stock Fund for each of the last three years has been as follows: 1993--29.8%, 1992--37.8%, and 1991--45.0%, respectively. For the years 1993, 1992, and 1991, the total brokerage commissions paid by the International Discovery Fund, including the discounts received by securities dealers in connection with underwritings, were $1,277,000, $458,000, and $778,000, respectively. Of these commissions, approximately 81%, 81%, and 78%, respectively, were paid to firms which provided research, statistical, or other services to Price-Fleming in connection with the management of the Fund or, in some cases, to the Fund. The portfolio turnover rate of the International Discovery Fund for each of the last three years has been as follows: 1993--71.8%, 1992--38.0%, and 1991--56.3%, respectively. For the years 1993, 1992, and 1991, the total brokerage commissions paid by the European Stock Fund, including the discounts received by securities dealers in connection with underwritings, were $182,000, $328,000, and $214,000, respectively. Of these commissions, approximately 99% was paid for 1993 and for 1992, and 1991, all commissions were paid to firms which provided research, statistical, or other services to Price-Fleming in connection with the management of the Fund or, in some cases, to the Fund. PAGE 65 The portfolio turnover rate of the European Stock Fund for each of the last three years has been as follows: 1993--21.3%, 1992--52.0%, and 1991- - -57.7%, respectively. For the years 1993, and 1992, the total brokerage commissions paid by the Japan Fund, including the discounts received by securities dealers in connection with underwritings, were $412,000, and $277,000, respectively. Of these commissions, approximately 73%, and 91% were paid to firms which provided research, statistical, or other services to Price-Fleming in connection with the management of the Fund or, in some cases, to the Fund. The portfolio turnover rate of the Japan Fund for the years 1993, and 1992, has been as follows: 1993--61.4%, and 1992--41.6%. For the years 1993, 1992, and 1991, the total brokerage commissions paid by the New Asia Fund, including the discounts received by securities dealers in connection with underwritings, were $6,642,000, $1,757,000, and $794,000, respectively. Of these commissions, approximately 72%, 64%, and 64%, respectively, were paid to firms which provided research, statistical, or other services to Price-Fleming in connection with the management of the Fund or, in some cases, to the Fund. The portfolio turnover rate of the New Asia Fund for each of the last three years has been as follows: 1993-40.4%, 1992--36.3%, and 1991-- 49.0%, respectively. PRICING OF SECURITIES Equity securities listed or regularly traded on a securities exchange (including NASDAQ) are valued at the last quoted sales price at the time 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 each 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 Funds, as authorized by the Board of Directors. Trading in the portfolio securities of each Fund may take place in various foreign markets on certain days (such as Saturday) when the Funds are PAGE 66 not open for business and do not calculate their net asset values. In addition, trading in a Fund's portfolio securities may not occur on days when the Fund is open. The calculation of each 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 securities that occur between the time their prices are determined and the time each 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 each Fund's shares is equal to that Fund's net asset value per share or share price. Each Fund determines its net asset value per share by subtracting its liabilities (including accrued expenses and dividends payable) from its total assets (the market value of the securities 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 each Fund, other than the Japan 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 net asset value per share of the Japan Fund is calculated as of the close of trading on the NYSE each day the NYSE and the Tokyo Stock Exchange ("TSE") are both open. 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. The TSE is scheduled to be closed on the following week days in 1993: January 1, 15; February 11; April 29; May 3, 4, 5; September 15, 23; October 11; November 3, 23; and December 23, 31, as well as the following week days in 1994: January 3; February 11; March 21; April 29; May 3, 4, 5; September 15, 23; October 10; November 3, 23; and December 23. If the TSE closes on any additional or different dates, the Japan Fund will be closed on such dates. Determination of net asset value (and the offering, sale, redemption and repurchase of shares) for a Fund may be suspended at times (a) during which the NYSE is closed, other than customary weekend and holiday closings, or in the case of the Japan Fund, either the NYSE or TSE is closed, (b) during which trading on any of such Exchanges is restricted (c) during which an emergency exists as a result of which disposal by a Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for 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. PAGE 67 TAX STATUS Each Fund intends to qualify as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended ("Code"). Dividends and distributions paid by the Funds are not eligible for the dividends-received deduction for corporate shareholders, if as expected, none of the Fund's income consists of dividends paid by United States corporations. Capital gain distributions paid from these Funds are never eligible for this deduction. For tax purposes, it does not make any difference whether dividends and capital gain distributions are paid in cash or in additional shares. Each Fund must declare 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. Foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to foreign exchange rate fluctuations are taxable as ordinary income. If the net effect of these transactions is a gain, the dividend paid by the fund will be increased; if the result is a loss, the income dividend paid by the Funds will be decreased. Adjustments, to reflect these gains and losses will be made at the end of each Fund's taxable year. At the time of your purchase, each Fund's net asset value may reflect undistributed income, capital gains or net unrealized appreciation or depreciation of securities held by each Fund. A subsequent distribution to you of such amounts, although constituting a return of your investment, would be taxable either as dividends or capital gain distributions. For federal income tax purposes, each Fund is permitted to carry forward its net realized capital losses, if any, for eight years, and realize net capital gains up to the amount of such losses without being required to pay taxes on, or distribute such gains. On March 31, 1994, the books of the International Stock Fund indicated that the Fund's aggregate net assets included undistributed net income of $___________, net realized capital losses of $__________ and unrealized appreciation of $____________. On March 31, 1994, the books of the International Discovery Fund's aggregate net assets included undistributed net income of $___________, net realized capital losses of $______________, and unrealized appreciation of $_____________. On March 31, 1994, the books of the European Stock Fund indicated that the Fund's aggregate net assets included undistributed net income of $_____________, net realized capital losses of $______________, and unrealized depreciation of $_____________. On March 31, 1994, the books of the Japan Fund indicated that the Fund's aggregate net assets included undistributed net income of $_________, net realized capital losses of $__________, and unrealized appreciation of $____________. On March 31, 1994, the books of the New Asia Fund indicated that the Fund's aggregate net assets included undistributed net income of $_____________, net realized capital losses of $______________, and unrealized appreciation of $________________. Income received by each Fund from sources within various foreign countries may be subject to foreign income taxes withheld at the source. Under the Code, if more than 50% of the value of a Fund's total assets at the close of its taxable year comprise securities issued by foreign corporations, PAGE 68 the Fund may file an election with the Internal Revenue Service to "pass through" to the Fund's shareholders the amount of any foreign income taxes paid by the Fund. Pursuant to this election, shareholders will be required to: (i) include in gross income, even though not actually received, their respective pro rata share of foreign taxes paid by the Fund; (ii) treat their pro rata share of foreign taxes as paid by them; and (iii) either deduct their pro rata share of foreign taxes in computing their taxable income, or use it as a foreign tax credit against U.S. income taxes (but not both). No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Each Fund intends to meet the requirements of the Code to "pass through" to its shareholders foreign income taxes paid, but there can be no assurance that a Fund will be able to do so. Each shareholder will be notified within 60 days after the close of each taxable year of a Fund, if that Fund will "pass through" foreign taxes paid for that year, and, if so, the amount of each shareholder's pro rata share (by country) of (i) the foreign taxes paid, and (ii) the Fund's gross income from foreign sources. Of course, shareholders who are not liable for federal income taxes, such as retirement plans qualified under Section 401 of the Code, will not be affected by any such "pass through" of foreign tax credits. If, in any taxable year, a Fund should not qualify as a regulated investment company under the Code: (i) the Fund would be taxed at normal corporate rates on the entire amount of its taxable income 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 the Funds may qualify for the 70% deduction for dividends received by corporations; and (iii) foreign tax credits would not "pass through" to shareholders. Taxation of Foreign Shareholders The Code provides that dividends from net income (which are deemed to include for this purpose each shareholder's pro rata share of foreign taxes paid by each Fund - see discussion of "pass through" of the foreign tax credit to U.S. shareholders), will be subject to U.S. tax. For shareholders who are not engaged in a business in the U.S., this tax would be imposed at the rate of 30% upon the gross amount of the dividend in the absence of a Tax Treaty providing for a reduced rate or exemption from U.S. taxation. Distributions of net long-term capital gains realized by each Fund are not subject to tax unless the foreign shareholder is a nonresident alien individual who was physically present in the U.S. during the tax year for more than 182 days. CAPITAL STOCK The T. Rowe Price International Funds, Inc. (the "Corporation") was originally organized in 1979 as a Maryland corporation under the name T. Rowe Price International Fund, Inc. ("the Old Corporation"). Pursuant to the Annual Meeting of Shareholders held on April 22, 1986, an Agreement and Plan of Reorganization and Liquidation was adopted in order to convert the Old Corporation from a Maryland corporation to a Massachusetts Business Trust, named the T. Rowe Price International Trust ("the Trust"). This conversion PAGE 69 became effective on May 1, 1986. Pursuant to the Annual Meeting of Shareholders held on April 19, 1990, an Agreement and Plan of Reorganization and Liquidation was adopted in order to convert the Trust from a Massachusetts Business Trust to a Maryland corporation. This conversion become effective May 1, 1990. The Corporation is registered with the Securities and Exchange Commission under the 1940 Act as a diversified, open-end investment company, commonly known as a "mutual fund." Currently, the Corporation consists of nine series, each of which represents a separate class of the Corporation's shares and has different objectives and investment policies. The International Bond Fund was added as a separate series of the Trust in 1986, and the designation of the existing series of the Trust was, at that time, changed to the International Stock Fund. In 1988 and 1990, respectively, the International Discovery and European Stock Funds were added as separate series of the Trust. Effective May 1, 1990, all series of the Trust became series of the Corporation. In the same year, after the May 1, 1990 reorganization, the New Asia and Global Government Bond Funds were added as separate series of the Corporation. The Japan, Short-Term Global Income and Latin America Funds were added as separate series of the Corporation in 1991, 1992, and 1993, respectively. The Short- Term Global Income, Global Government Bond and International Bond Funds are described in a separate Statement of Additional Information. The Charter also provides that the Board of Directors may issue additional series of shares. The Funds' Charter authorizes the Board of Directors to classify and reclassify any and all shares which are then unissued, including unissued shares of capital stock into any number of classes or series, each class or series consisting of such number of shares and having such designations, such powers, preferences, rights, qualifications, limitations, and restrictions, as shall be determined by the Board subject to the Investment Company Act and other applicable law. The shares of any such additional classes or series might therefore differ from the shares of the present class and series of capital stock and from each other as to preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption, subject to applicable law, and might thus be superior or inferior to the capital stock or to other classes or series in various characteristics. The Board of Directors may increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that each Fund has authorized to issue without shareholder approval. Each share of each series has equal voting rights with every other share of every other series, and all shares of all series vote as a single group except where a separate vote of any class or series is required by the 1940 Act, the laws of the State of Maryland, the Corporation's Articles of Incorporation, the By-Laws of the Corporation, or as the Board of Directors may determine in its sole discretion. Where a separate vote is required with respect to one or more classes or series, then the shares of all other classes or series vote as a single class or series, provided that, as to any matter which does not affect the interest of a particular class or series, only the holders of shares of the one or more affected classes or series is entitled to vote. The preferences, rights, and other characteristics attaching to any series of shares, including the present series of capital stock, might be altered or eliminated, or the series might be combined with another series, by action approved by the vote of the holders of a majority of all the shares of all series entitled to be voted on the proposal, without any additional right PAGE 70 to vote as a series by the holders of the capital stock or of another affected series. Shareholders are entitled to one vote for each full share held (and fractional votes for fractional shares held) and will vote in the election of or removal of directors (to the extent hereinafter provided) and on other matters submitted to the vote of shareholders. There will normally be no meetings of shareholders for the purpose of electing directors unless and until such time as less than a majority of the directors holding office have been elected by shareholders, at which time the directors then in office will call a shareholders' meeting for the election of directors. Except as set forth above, the directors shall continue to hold office and may appoint successor directors. Voting rights are not cumulative, so that the holders of more than 50% of the shares voting in the election of directors can, if they choose to do so, elect all the directors of the Fund, in which event the holders of the remaining shares will be unable to elect any person as a director. As set forth in the By-Laws of the 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 1940 Act. FEDERAL AND STATE REGISTRATION OF SHARES Each Fund's shares are registered for sale under the Securities Act of 1933, and the Funds or their 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 Funds. INDEPENDENT ACCOUNTANTS International Stock, International Discovery, European Stock, Japan and Latin America Funds Price Waterhouse, 7 St. Paul Street, Suite 1700, Baltimore, Maryland 21202, are independent accountants to each Fund. The financial statements of the International Stock, International Discovery, European Stock, and Japan Funds for the ten months ended October 31, 1993, and the report of independent accountants are included in each Fund's Annual Report for the ten months ended October 31, 1993, on pages 9-21, 7-21, 5-15, and 5- 12, respectively. A copy of each Annual Report accompanies this Statement of Additional Information. The following financial statements and the report of independent accountants appearing in each Annual Report for the ten months PAGE 71 ended October 31, 1993, are incorporated into this Statement of Additional Information by reference: International International Stock Discovery Fund Fund Annual Report Annual Report Page Page ___________ _____________ Report of Independent Accountants 21 21 Statement of Net Assets, October 31, 1993 9-14 7-14 Statement of Operations, ten months ended October 31, 1993 and year ended December 31, 1992 15 15 Statement of Changes in Net Assets, ten months ended October 31, 1993 and the years ended December 31, 1992 and December 31, 1991 1616 Notes to Financial Statements October 31, 1993 17-19 17-19 Financial Highlights 20 19 European Stock Fund Annual Report Page _____________ Report of Independent Accountants 15 Statement of Net Assets, October 31, 1993 5-9 Statement of Operations, ten months ended October 31, 1993 and year ended December 31, 1992 10 Statement of Changes in Net Assets, ten months ended October 31, 1993 and years ended December 31, 1992 and December 31, 1991 11 Notes to Financial Statements, October 31, 1993 12-13 Financial Highlights 14 Japan Fund Annual Report Page _____________ Report of Independent Accountants 12 Statement of Net Assets, October 31, 1993 5-6 Statement of Operations, ten months ended October 31, 1993 and December 30, 1991 (Commencement of Operations) to December 31, 1992 7 Statement of Changes in Net Assets, ten months ended October 31, 1993 and December 30, 1991 (Commencement of Operations) to December 31, 1992 8 Notes to Financial Statements, October 31, 1993 9-10 Financial Highlights, ten months ended October 31, 1993 December 30, 1991 (Commencement of Operations) to December 31, 1992 11 PAGE 72 New Asia Fund Coopers & Lybrand, 217 East Redwood Street, Baltimore, Maryland 21202, are independent accountants to the Fund. The financial statements of the New Asia Fund for the year ended October 31, 1993 and the report of independent accountants are included in the Fund's Annual Report on pages 9-15. A copy of the Annual Report accompanies this Statement of Additional Information. The following financial statements and the report of independent accountants appearing in the Annual Report for the ten months ended October 31, 1993, are incorporated into this Statement of Additional Information by reference: New Asia Fund Annual Report Page ___________ Report of Independent Accountants 15 Statement of Net Assets, October 31, 1993 9 Statement of Operations, ten months ended October 31, 1993 and year ended December 31, 1992 10 Statement of Changes in Net Assets, ten months ended October 31, 1993 and years ended December 31, 1992 and December 31, 1991 11 Notes to Financial Statements, October 31, 1993 12-13 Financial Highlights 13 PAGE 73 APPENDIX A Chart 1 Bar graph appears here comparing small companies of the U.S., Japan, U.K., and the U.S. to large companies in the same countries for the years 12-31-72 to 12/31/93. 8.5 6.0 17.0 15.0 15.0 12.0 Japan-Small Japan-Large U.K.-Small U.K.-Large U.S.-Small U.S.-Large Chart 2 A line graph with the vertical axis representing percent return+ ranging from - 0% to 1,000% and the horizontal axis indicating periods ended December 31 from 1980 to 1992. The Topix Index hovers around 0% from 1/1980 to 12/31/82, followed by increases to approximately 975% during 1989, and then declines to 450% during 1992. The chart is for illustrative purposes only and should not be considered representative of an investment in the Fund or of the Fund's performance. PAGE 74 T. ROWE PRICE GLOBAL GOVERNMENT BOND FUND T. ROWE PRICE INTERNATIONAL BOND FUNDR T. ROWE PRICE SHORT-TERM GLOBAL INCOME FUND CROSS REFERENCE SHEET N-1A Item No. Location _____________ ________ PART A Item 1. Cover Page Cover Page Item 2. Synopsis Summary of Funds' Fees and Expenses Item 3. Condensed Financial Information Financial Highlights Item 4. General Description of Registrant Introduction; Summary of Funds' Fees and Expenses; Investment Programs; Risk Factors; Investment Policies; Performance Information; Capital Stock; Debt Securities; Bond Characteristics Item 5. Management of the Fund Summary of Funds Fees' and Expenses; Management of the Funds; Expenses and Management Fee Item 6. Capital Stock and Other Securities Capital Stock; Dividends and Distributions; Taxes Item 7. Purchase of Securities Being NAV, Pricing, and Effective Offered Date; Shareholder Services; Conditions of Your Purchase; Completing the New Account Form; Opening a New Account; Purchasing Additional Shares Item 8. Redemption or Repurchase NAV, Pricing, and Effective Date; Receiving Your Proceeds; Conditions of Your Purchase; Exchanging and Redeeming Shares Item 9. Pending Legal Proceedings + PART B Item 10. Cover Page Cover Page Item 11. Table of Contents Table of Contents Item 12. General Information and History + Item 13. Investment Objectives and Policies Investment Objectives and Policies; Investment Objectives; Investment Programs; Investment Restrictions; Risk Factors of Investing in Debt Obligations; Investment Performance; Yield Information Item 14. Management of the Registrant Management of Funds Item 15. Control Persons and Principal Principal Holders of Holders of Securities Securities PAGE 75 Item 16. Investment Advisory and Other Investment Management Services; Services Custodian; Legal Counsel; Independent Accountants Item 17. Brokerage Allocation Portfolio Transactions Item 18. Capital Stock and Other Securities Dividends; Capital Stock Item 19. Purchase, Redemption and Pricing Redemptions in Kind; Pricing of of Securities Being Offered Securities; Net Asset Value Per Share; Federal and State Registration of Shares Item 20. Tax Status Tax Status Item 21. Underwriters Distributor for Funds Item 22. Calculation of Yield Quotations of Money Market Funds + Item 23. Financial Statements Incorporated by Reference from Annual Report PART C Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C to this Registration Statement ___________________________________ + Not applicable or negative answer PAGE 76 Prospectus for the T. Rowe Price International Fixed Income Funds, dated May 31, 1994, should be inserted here. PAGE 1 INTERNATIONAL FIXED Short-Term Global Income Fund seeks high INCOME FUNDS current income consistent with modest price fluctuation by investing primarily in high- quality, short-term U.S. and foreign fixed- income securities. Global Government Bond Fund seeks high current income and, secondarily, capital appreciation and protection of principal by investing primarily in high quality U.S. and foreign government bonds. Prospectus International Bond Fund seeks high current May 1, 1994 income by investing in a diversified T. Rowe Price portfolio of nondollar-denominated, high- International Funds, Inc. quality government and corporate bonds. The Fund also seeks capital appreciation and to moderate price fluctuation by actively managing its maturity structure and currency exposure. ___________________________________________ T. Rowe Price Table of Contents 100% No Load. The Funds have no sales charges, no redemption fees, and no 12b-1 Fund Information fees. 100% of your investment is credited Introduction to your account. Summary of Funds' Fees and Expenses Services. T. Rowe Price provides easy Financial Highlights access to your money through checkwriting, Investment Programs bank wires or telephone redemptions and Risk Factors offers easy exchange to other T. Rowe Price Investment Policies Funds. Performance Information Capital Stock Rowe Price-Fleming International, Inc. Debt Securities (Price-Fleming), the Funds' manager, was Bond Characteristics founded in 1979 as a joint venture between NAV, Pricing, and T. Rowe Price Associates, Inc. (T. Rowe Effective Date Price) and Robert Fleming Holdings Limited. Receiving Your Proceeds Price-Fleming is one of America's largest Dividends and international mutual fund asset managers Distribution with approximately $7.5 billion under Taxes management with offices in Baltimore, Management of the Funds London, Tokyo, and Hong Kong. Expenses and Management ___________________________________________ Fee This prospectus contains information you How to Invest should know about the Funds before you Shareholder Services invest. Please keep it for future PAGE 2 Conditions of Your reference. A Statement of Additional Purchase Information for the Funds (dated May 1, Completing the New 1994) has been filed with the Securities Account Form and Exchange Commission and is incorporated Opening A New Account by reference in this prospectus. It is Purchasing Additional available at no charge by calling: 1-800- Shares 638-5660. Exchanging and Redeeming Shares THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES 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. ________________________ ___________________________________________ INTRODUCTION Interest rates vary from country to country, depending on local economic conditions and government policies. By taking a global approach to bond investing, U.S. investors can access the highest yields available worldwide. Overseas investments can also help diversify a fixed income portfolio otherwise invested solely in U.S. securities. Since the performance of foreign bond markets is often different than the performance of U.S. markets, diversifying investments across several countries can help reduce portfolio volatility. Mutual Funds: A Sensible Way to Invest. For the individual investor, buying foreign bonds can be difficult. Access to international markets is complicated. Few individuals have the time or resources to evaluate foreign markets, and transaction costs are generally high. The simplicity, professional management, and broad diversification offered by mutual funds -- at a relatively low cost -- make them an excellent alternative. PAGE 3 Price-Fleming, the investment manager of all T. Rowe Price International Funds, makes use of a worldwide network of analysts to research opportunities in the U.S. and abroad. From its offices in Baltimore, London, Tokyo, and Hong Kong, Price-Fleming has access to the international research capabilities of London-based Robert Fleming Holdings Limited, a 100-year-old investment firm. Equally important, all T. Rowe Price International Funds have no sales charges of any kind, which means 100% of every dollar you invest goes to work for you. T. Rowe Price International Fixed Income Funds. The three T. Rowe Price international fixed income funds described in this prospectus offer a range of objectives and strategies designed to meet a variety of investor needs. All invest primarily in high-quality securities, but differ in terms of average portfolio maturity and level of currency exposure to allow investors to pursue a more conservative or aggressive investment approach. o Short-Term Global Income Fund is T. Rowe Price's most conservative international fixed income fund. It invests in short- term foreign and U.S. securities to provide a high level of income. The Fund seeks to reduce volatility stemming from currency exposure by hedging a substantial portion of its nondollar holdings back to the U.S. dollar. o Global Government Bond Fund invests in U.S. and foreign government bonds to provide a high level of income and, secondarily, capital appreciation. It is somewhat less conservative than the Short-Term Global Income Fund, and the average maturity of its portfolio is generally longer. The Fund has wide PAGE 4 flexibility to hedge all or a part of its nondollar holdings. o International Bond Fund takes an aggressive approach to investing for income and capital appreciation. It invests outside the U.S. in longer-term bonds, and normally does not hedge its nondollar holdings back to the dollar to allow the Fund to benefit from currency fluctuations which could enhance total return. (See Investment Programs for further details.) Risk Factors. International fixed income investments involve more risk than comparable domestic securities due to fluctuating currency values. Although Price-Fleming will attempt to manage this risk through foreign currency hedging, there is no guarantee the hedging will work and currency risk cannot be eliminated entirely. In addition, hedging costs, which are paid for out of a fund's capital and reflected in the fund's net asset value per share (not its yield), can be significant. In general, each Fund's share price will vary with market, economic and foreign exchange conditions, and investments may be worth more or less when redeemed than when purchased. The Funds should not be relied upon as a complete investment program, nor used to play short-term swings in foreign bond or exchange markets, and there is no assurance the Funds can achieve their investment objectives. For a more complete discussion of the risks of international fixed income investing, see the Risk Factors section, which begins on page 8. The following pages detail the expenses and investment programs for each T. Rowe Price international fixed income fund. If you have any questions, please call us at 1-800-638-5660. ________________________ ___________________________________________ SUMMARY OF FUNDS' FEES The Funds are 100% no-load . . . you pay no AND EXPENSES fees to purchase, exchange or redeem shares, nor any ongoing marketing (12b-1) expenses. Lower expenses benefit you by increasing your investment return from a Fund. PAGE 5 Shown below are all expenses and fees each Fund incurred during its fiscal year. Where applicable, expenses were restated to reflect current fees. Expenses are expressed as a percent of average Fund net assets. More information about these expenses may be found below and under Expenses and Management Fee and in the Statement of Additional Information under Management Fee and Limitation on Fund Expenses. Fund Expenses Shareholder Transaction Expenses Short- Global Term Govern- Inter- Global ment national Income Bond Bond ___________________________________________ Sales load "charge" on purchases None None None ___________________________________________ Sales load "charge" on reinvested dividends None None None ___________________________________________ Redemption fees None None None ___________________________________________ Exchange fees None None None ___________________________________________ Annual Fund Expenses Short- Global Term Govern- Inter- Global ment national Income Bond Bond ___________________________________________ Management fee (after reduction) 0.46%+ 0.51%++ 0.70% ___________________________________________ Total other (Shareholder servicing, custodial, auditing, etc.)+++ 0.54% 0.69% 0.29% PAGE 6 ___________________________________________ Distri- bution fees (12b-1) None None None ___________________________________________ Total Fund Expenses 1.00% 1.20% 0.99% ___________________________________________ + The Short-Term Global Income Fund's management fee and its total expense ratio would have been 0.60% and 1.14%, respectively, had Price-Fleming not agreed to reduce management fees in accordance with the expense limitation. ++ The Global Government Bond Fund's management fee and its total expense ratio would have been 0.70% and 1.39%, respectively, had Price-Fleming not agreed to reduce management fees in accordance with the expense limitation. +++ The Funds charge a $5.00 fee for wire redemptions under $5,000, subject to change without notice. Example of Fund expenses. The following example illustrates the expenses you would incur on a $1,000 investment, assuming a 5% annual rate of return and redemption at the end of each period shown. For example, expenses for the first year in the Short-Term Global Income Fund would be $10. This is an illustration only. Actual expenses and performance may be more or less than shown. Fund 1 Year 3 Years5 Years 10 Years ____ ______ ______________ ________ Short-Term Global Income $10 $32 $55 $122 Global Govern- ment Bond $12 $38 $66 $145 Interna- tional Bond$10 $32 $55 $121 PAGE 7 Management Fee. Each Fund pays Price- Fleming an investment management fee consisting of a flat Individual Fund Fee of each Fund's net assets, of 0.25% for the Short-Term Global Income Fund and 0.35% each for the Global Government Bond and International Bond Funds, and a Group Fee, defined on page __ under Expenses and Management Fee, of 0.35% as of December 31, 1993. Thus, the total combined management fee as of December 31, 1993, based on net assets would be 0.60% for the Short-Term Global Income Fund and 0.70% each for the Global Government Bond and International Bond Funds. The following chart sets forth expense ratio limitations and the periods for which they are effective. For each, Price- Fleming has agreed to bear any Fund expenses which would cause the Funds' ratio of expenses to average net assets to exceed the indicated percentage limitations. The expenses borne by Price-Fleming are subject to reimbursement by the Fund through the indicated reimbursement date, provided no reimbursement will be made if it would result in the Fund's expense ratio exceeding its applicable limitation. Expense Reim- Limita- Ratio burse- tion Limita- ment Period tion Date Short-Term Global Income+ January 1, 1994- 1.00% December December 31, 1995 31, 1997 Global Government Bond++ January 1, 1993- 1.20% December December 31, 1994 31, 1996 + The Short-Term Global Income Fund previously operated under a 1.00% limitation that expired December 31, 1993. The reimbursement period for this limitation extends through December 31, 1995. ++ The Global Government Bond Fund previously operated under a 1.20% limitation that expired December 31, PAGE 8 1992. The reimbursement period for this limitation extends through December 31, 1994. Transfer Agent, Shareholder Servicing, and Administrative Costs. The Funds paid fees to: (i) T. Rowe Price Services, Inc. (TRP Services) for transfer and dividend disbursing agent functions and shareholder services for all accounts; (ii) T. Rowe Price Retirement Plan Services, Inc. for subaccounting and recordkeeping services for certain retirement accounts; and (iii) T. Rowe Price for calculating the daily share price and maintaining the portfolio and general accounting records of each Fund. The approximate fees paid are set forth in the following chart: Transfer Subaccounting Agent Services Accounting Short-Term Global Income $107,000 $17 $100,000 Global Government Bond $64,000 $36,000 $100,000 Interna- tional Bond $627,000 $244,000 $112,000 ________________________ ___________________________________________ FINANCIAL HIGHLIGHTS The following table provides information about each Fund's financial history. It is based on a single share outstanding throughout each fiscal year (which ends on the last day of December). The respective table is part of each Fund's financial statements which are included in each Fund's annual report and incorporated by reference into the Statement of Additional Information, which is available to shareholders. The financial statements in the annual report have been audited by the Funds' independent accountants whose respective unqualified reports cover the periods shown. PAGE 9 Investment Activities Distributions Net Real- ized and Net Unreal- Total Asset ized Gain from Value, Net (Loss) Invest- Net Net Begin- Invest- on ment Invest-Real- Total Year Ended, ning of ment Invest- Activi- ment lized Distri- December 31 Period Income ments ties Income Gain butions _________________________________________________________________ Short-Term Global Income 1992+ $5.00 $ .20 $(.21) $(.01) $(.20)$(.01) $ (.21) 1993 4.78 .32* .04 .36 (.32) -- (.32) End of Period Ratio of Ratio Net of Invest- Net Total Expenses ment Port- Asset Return to Income folio Value, (Includes Net Average to Aver-Turn- Year Ended, End of Reinvested Assets ($ Net age Net over December 31 Period Dividends) Thousands) Assets Assets Rate _________________________________________________________________ Short-Term Global Income 1992+ $4.78 (.22)% $66,297 1.00%++o7.92%+ 334.1%+ 1993 4.82 7.87% 97,118 1.00%++ 6.74% 92.9% _________________________________________________________________ Investment Activities Distributions Net Real- ized and Net Unreal- Total Asset ized Gain from Value, Net (Loss) Invest- Net Net Begin- Invest- on ment Invest-Real- Total Year Ended, ning of ment Invest- Activi- ment lized Distri- December 31 Period Income ments ties Income Gain butions _________________________________________________________________ Global Government Bond 1991* $10.00 $ .77** $ .30 $1.07 $ (.77) -- $(.77) 1992 10.30 .76** (.44) .32 (.76) $(.01) (.77) 1993 9.85 .56** .51 1.07 (.56) (.28) (.84) PAGE 10 End of Period Ratio of Ratio Net of Invest- Net Total Expenses ment Port- Asset Return to Income folio Value, (Includes Net Average to Aver-Turn- Year Ended, End of Reinvested Assets ($ Net age Net over December 31 Period Dividends) Thousands)Assets Assets Rate _________________________________________________________________ Global Government Bond 1991* $10.30 11.31% $39,775 1.20%** 8.07% 93.6% 1992 9.85 3.26% 53,546 1.20%** 7.51% 236.6% 1993 10.08 11.15% 48,758 1.20%** 5.57% 134.0% Investment Activities Distributions Net Real- ized and Net Unreal- Total Asset ized Gain from Value, Net (Loss) Invest- Net Net Begin- Invest- on ment Invest-Real- Total Year Ended, ning of ment Invest- Activi- ment lized Distri- December 31 Period Income ments ties Income Gain butions _________________________________________________________________ International Bond Fund 1986! $10.00 $ .32 $(.04)!!$ .28 $ .01 $ .29 $ (.28) 1987 10.01 1.14 (.13)!! 1.01 1.64 2.65 (1.06) 1988 11.60 1.04 (.13) .91 (1.09) (.18) (1.17) 1989 10.25 .75 (1.10) (.35) (.75) -- (.75) 1990 9.15 .83 .55 1.38 (.83) (.17) (1.00) 1991 9.53 .77 .82 1.59 (.77) -- (.77) 1992 10.35 .87 (.63) .24 (.83) (.15) (.98) 1993 9.61 .69 1.18 1.87 (.69) (.45) (1.14) PAGE 11 End of Period Ratio of Ratio Net of Invest- Net Total Expenses ment Port- Asset Return to Income folio Value, (Includes Net Average to Aver-Turn- Year Ended, End of Reinvested Assets ($ Net age Net over December 31 Period Dividends) Thousands)Assets Assets Rate _________________________________________________________________ International Bond Fund 1986! $10.01 2.97% $ 70,022 1.25%!! 9.48% 217.7% 1987 11.60 27.57% 400,173 1.25%!! 9.47% 284.3% 1988 10.25 (1.27)% 407,021 1.20% 8.73% 368.1% 1989 9.15 (3.19)% 303,897 1.23% 8.11% 293.1% 1990 9.53 16.05% 430,386 1.15% 9.04% 211.4% 1991 10.35 17.75% 413,985 1.24% 8.11% 295.6% 1992 9.61 2.39% 513,927 1.08% 8.66% 357.7% 1993 10.34 20.00% 745,244 .99% 6.58% 395.7% _________________________________________________________________ + For the period June 30, 1992 (commencement of operations) to December 31, 1992. ++ Excludes expenses in excess of a 1.00% voluntary expense limitation in effect through December 31, 1993. * For the period December 28, 1990 (commencement of operations) to December 31, 1991. ** Excludes expenses in excess of a 1.20% voluntary expense limitation in effect through December 31, 1994. ! For the period September 10, 1986 (commencement of operations) to December 31, 1986. !! Excludes expenses in excess of a 1.25% voluntary expense limitation in effect through December 31, 1987. o Annualized. ________________________ ___________________________________________ INVESTMENT PROGRAMS Each T. Rowe Price international fixed income fund has a different investment program principally designed to deliver high current income and, in the case of International Bond Fund, capital appreciation. Portfolios vary in terms of average maturity and degree of currency exposure, providing each Fund with a unique balance of risk and return potential. Average Maturity: Bond prices fluctuate with changes in overall interest rates. Since prices of longer-term bonds tend to be more volatile than those of shorter-term bonds, portfolios with longer average maturities generally involve greater risk and provide higher reward potential. PAGE 12 Conversely, portfolios with shorter average maturities generally exhibit less share price fluctuation, but offer less return potential. By actively managing a portfolio's maturity (i.e., lengthening average maturity when lower rates are anticipated and shortening average maturity when rates are expected to rise), Price- Fleming seeks to limit the effect of -- or benefit from -- interest rate changes. Currency Exposure: Because of exchange rate movements, prices of international funds are likely to be more volatile than funds which invest only in U.S. dollar- denominated securities. As the U.S. dollar strengthens relative to a given foreign currency, the value of a portfolio security denominated in that currency will fall. Conversely, when the U.S. dollar weakens relative to a currency, the value of a portfolio security in that currency will rise. Therefore, the greater the level of a fund's currency exposure, the greater its risk and return potential. By actively managing currency exposure, Price-Fleming attempts to insulate portfolios from the effect of currency fluctuations, or profit from them. There is, of course, no guarantee Price-Fleming will be successful in this regard. As noted in the following chart, the Short-Term Global Bond and Global Government Bond Funds invest both in the United States and abroad, thereby limiting somewhat their overall currency exposure. Currency risk in these Funds may be further reduced by hedging through the use of foreign currency forward contracts ("forwards"). Of the two Funds, Short-Term Global Fund is the more conservative due to its shorter average maturity and more extensive use of hedging back to the U.S. dollar. International Bond Fund, our most aggressive foreign bond fund, invests nearly exclusively outside the U.S. and is normally heavily exposed to foreign currencies to provide maximum income and appreciation potential, although with greater price fluctuation. (See page 9 for an explanation of the types of foreign currency strategies the Funds use.) PAGE 13 All T. Rowe Price international fixed income funds concentrate investments in high-quality securities to minimize credit risk. However, the Funds may also invest to a limited extent in below investment grade ("junk") bonds. Each Fund normally invests in the bonds of a minimum of three countries, however each may invest in the bonds of only one country (including the U.S.) for temporary defensive purposes. Because of their concentration in foreign government securities, all Funds are considered "non-diversified" for purposes of the Investment Company Act of 1940. Summary of Fund Characteristics: Short- Global Term Govern- Interna- Global ment tional Income Bond Bond ___________________________________________ Objective Income & Income Income & principal growth preservation Geographic Focus World- World- Outside wide** wide** U.S.*** Primary Credit Quality* Investment High Investment grade quality grade Weighted Average Maturity Short (no Approx- Inter- more than imately mediate 3 years) 7 years to long Normal Level of Currency Exposure Low Varies High Relative Risk Lowest Moderate Highest Total Return Potential Lowest Moderate Highest PAGE 14 * As determined by at least one public rating agency (e.g., Standard & Poor's Corporation ("S&P")), or, if unrated, by Price-Fleming to be of equivalent quality. "Investment Grade" refers to the four highest credit categories (e.g., AAA, AA, A and BBB by S&P). "High Quality" refers to the two highest credit categories. ** Expects to invest primarily in the United States, the countries of Western Europe, Japan, Australia, New Zealand, and Canada. *** Expects to invest primarily in the countries of Western Europe, Japan, Australia, New Zealand, and Canada. Investing for income in Short-Term Global Income Fund. The Fund's short-term U.S. and investment objectives are to seek high foreign debt securities. current income consistent with modest price fluctuation by investing primarily in high- quality fixed-income securities. These include bonds, debentures, notes, mortgage or asset-backed securities, bank obligations such as certificates of deposit, and money market instruments of all types issued throughout the world. The Fund may also invest in securities which are convertible into equity securities or have attached warrants or rights to purchase equity securities. At least 65% of the Fund's assets will be invested in high quality securities. The Fund may also invest up to 10% of its total assets in below investment grade ("junk") bonds, including bonds which have received the lowest rating. To reduce the effect of interest rate changes on the Fund's share price, the dollar-weighted average maturity of the portfolio will not exceed three years, although the Fund may hold individual securities with longer maturities. To reduce the effect of currency exchange rate fluctuations on the Fund's share price, Price-Fleming will actively manage the Fund's foreign currency exposure. This may be done either through the use of PAGE 15 currency hedging strategies or by investing in securities whose foreign currencies are expected to be highly correlated to the U.S. dollar. Normally, the foreign currency strategies will involve hedging a substantial portion of currency back to the dollar, either through direct or proxy hedging. Due to costs associated with hedging, Price-Fleming will not try to eliminate all currency risk from the Fund's portfolio. Rather, it will hedge currency exposure to the extent deemed necessary to preserve capital, while at the same time providing high current income. Investing for income and Global Government Bond Fund. The Fund's appreciation in U.S. and investment objectives are to seek high foreign government bonds. current income and, secondarily, capital appreciation and protection of principal by investing primarily in high-quality U.S. and foreign government bonds. The Fund will invest primarily in debt securities that are considered high quality at the time of purchase, and will normally have at least 65% of its assets in bonds issued or guaranteed by the U.S. or foreign governments, their agencies and instrumentalities, as well as foreign authorities, provinces and municipalities. The Fund may also invest up to 10% of its total assets in below investment grade ("junk") bonds, including bonds which have received the lowest rating. To reduce the effect of interest rate changes on the Fund's share price while seeking higher yields, the weighted average maturity of the portfolio is likely to average around seven years, although the Fund may adopt a longer maturity in anticipation of falling yields and a shorter maturity in anticipation of rising yields. The Fund may hold individual securities with maturities both longer and shorter than seven years. The Fund has wide flexibility to engage in a variety of hedging strategies to reduce the effect of currency exchange rate fluctuations on the Fund's share price. PAGE 16 These may involve direct, cross and proxy hedges. Investing for income and International Bond Fund. The International appreciation in foreign Bond Fund's investment objective is to seek bonds. high current income by investing in an diversified portfolio of nondollar- denominated, high-quality government and corporate bonds. The Fund also seeks capital appreciation and to moderate price fluctuation by actively managing its maturity structure and currency exposure. The Fund will invest primarily (at least 65% of assets) in debt securities that are considered high quality at the time of purchase. The Fund may also invest up to 10% of its total assets in below investment grade ("junk") bonds, including bonds which have received the lowest rating. Price-Fleming will base its investment decisions on fundamental market attractiveness, currency trends, local market factors and credit quality. The Fund will generally invest in countries where the combination of fixed income market returns and currency exchange rate movements is attractive, or, if the currency trend is unfavorable, where the currency risk can be minimized through hedging. The Fund will generally have greater interest rate and foreign currency exposure than the other T. Rowe Price international fixed income funds. It will normally not hedge its foreign currency exposure back to the dollar and will normally have no more than 50% of the value of its total assets involved in cross hedging transactions. Therefore, its total return and, in particular, the principal value of its foreign currency-denominated debt securities, is likely to be significantly affected by changes in foreign interest rate levels and foreign currency exchange rates. These changes provide greater opportunity for capital gains as well as greater risks of capital loss. Exchange rate movements can be large and endure for extended periods of time. Price-Fleming will attempt to reduce the risks associated with investments in international fixed PAGE 17 income securities through portfolio diversification and active management of the Fund's maturity and currency exposure. Please see Investment Policies for a more complete discussion of each Fund's investments. ________________________ ___________________________________________ RISK FACTORS Investors should understand and consider carefully the special risks involved in foreign investing. Foreign Currency. Investments in foreign bonds will require the Funds to hold securities and funds denominated in foreign currencies. As a result, the value of the assets of the Funds as measured in U.S. dollars may be affected significantly, favorably or unfavorably, by changes in foreign currency exchange rates, currency restrictions, and exchange control regulations, and the Funds will incur costs in connection with conversions between various currencies. Exchange rate movements can be large and endure for extended periods of time. Generally, an increase in the value of a foreign currency versus the U.S. dollar will have a positive effect on the Fund's return; conversely, a decline in the value of a foreign currency versus the U.S. dollar would have a negative impact. Costs. The expenses to individual investors of investing directly in foreign securities are higher than investing in U.S. securities. While the Funds offer a very efficient way for individual investors to participate in foreign markets, their expenses, including advisory and custodial fees, are also higher than the typical domestic fixed income mutual fund. Economic and Trade Factors. The economies of the countries in which the Funds may invest (portfolio countries) may differ favorably or unfavorably from the U.S. economy and may be less developed or diverse. Certain of these countries, for example Japan, are heavily dependent upon international trade. Accordingly, they have been, and may continue to be, adversely affected by trade barriers and PAGE 18 other protectionist or retaliatory measures of, as well as economic conditions in, the U.S. and other countries with which they trade. Certain countries may be heavily dependent on a limited number of commodities and thus vulnerable to weaknesses in world prices for these commodities. Finally, there is no assurance that the pattern of growth exhibited by certain of the portfolio countries in the past will continue. Political Factors. The internal politics of certain of the portfolio countries are not as stable as in the United States. In addition, significant external political risks, including war, currently affect some of the countries. Finally, governments in certain of the countries continue to participate to a substantial degree, through ownership interests or regulation, in their respective economies and securities markets. Action by these governments could include restrictions on foreign investment, nationalization, expropriation of assets, or imposition of taxes. Any of these actions could have a significant effect on market prices of securities, the ability of the Funds to repatriate capital and income, and the value of the Funds' investments. Market Characteristics. Many of the securities markets of the portfolio countries have substantially less volume than comparable U.S. markets, and the securities of some companies in these countries may be less liquid and more volatile than securities of comparable U.S. companies. Many of these markets may be subject to greater volatility, be more influenced by adverse events generally affecting the market, and by large investors trading significant blocks of securities, than is usual in the United States. The settlement practices in portfolio countries may include delays and subject the Funds to risks of loss not customary in U.S. markets. Legal and Regulatory. Certain of the portfolio countries lack uniform accounting, auditing, and financial reporting standards, may have less PAGE 19 governmental supervision of securities markets, brokers, and issuers of securities, and less financial information available to investors than is usual in the United States. Finally, there may be difficulty in enforcing legal rights outside the United States. Eastern Europe. Each of the Funds may invest in securities of companies located in Eastern Europe and the former Soviet block. Reforms away from centrally planned economies and state owned industries are still in their infancy. As a result, investments in such countries would be highly speculative and could result in losses to the Funds. Although significant uncertainties for investment remain, Price- Fleming considers the current outlook for certain countries in this region to be positive and expects the Funds to be in a position to take advantage of opportunities as they arise. Foreign Exchanges and Markets. Each Fund's portfolio securities from time to time may be primarily listed on foreign exchanges or traded in foreign markets which are open on days (such as Saturday) when the Funds do not compute their prices or accept orders for the purchase, redemption or exchange of their shares. As a result, the net asset values of the Funds may be significantly affected by trading on days when shareholders cannot effect transactions. ________________________ ___________________________________________ INVESTMENT POLICIES This section takes a detailed look at some of the types of securities each Fund may hold in its portfolio and the various kinds of investment practices that may be used in day-to-day portfolio management. Each Fund's investment program is subject to further restrictions and risks described in the "Statement of Additional Information." Shareholder approval is required to substantively change each 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. PAGE 20 However, significant changes are discussed with shareholders in each Fund's report. Types of Portfolio Securities Fund managers have In seeking to meet their investment considerable leeway in objective, each Fund may invest in any type choosing investment of security whose investment strategies and selecting characteristics are consistent with each securities they believe Fund's investment program. These and some will help each Fund of the other investment techniques each achieve its objectives. Fund may use are described in the following pages. All Funds Fixed Income Securities. The Funds' investments may include but shall not be limited to: (1) Debt obligations issued or guaranteed by: (a) a foreign sovereign government or one of its agencies, authorities, instrumentalities or political subdivisions including a foreign state, province or municipality, and (b) supranational organizations such as the World Bank, Asian Development Bank, European Investment Bank, and European Economic Community; (2) Debt obligations: (a) of foreign banks and bank holding companies, (b) of domestic banks and corporations issued in foreign currencies, and (c) denominated in the European Currency Unit (ECU); and (3) Foreign corporate debt securities and commercial paper. The Short-Term Global Income and Global Government Bond Funds may also invest in: (1) Debt obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities; (2) Domestic corporate debt securities; (3) Domestic commercial paper, including commercial paper indexed to certain specific foreign currency exchange rates; (4) Debt obligations of domestic banks and bank holding companies; and (5) Collateralized mortgage obligations or asset-backed bonds. The Funds may from time to time purchase securities on a when-issued basis and invest in repurchase agreements. Non-diversified Investment Company. The Funds are able to invest more than 5% of their assets in the fixed-income securities of individual foreign governments; however, each will not invest more than 5% of its PAGE 21 assets in any individual corporate issuer. This policy does not prohibit a Fund from maintaining more than 5% of its assets, including cash or currency, in custodial accounts of a Fund's custodian or subcustodian. In addition, each Fund intends to qualify as a regulated investment company for purposes of the Internal Revenue Code. Such qualification requires each Fund to limit its investments so that, with respect to at least 50% of its total assets, not more than 5% of such assets are invested in the securities of a single issuer. Since, as a non-diversified investment company, each Fund is permitted to invest a greater proportion of its assets in the securities of a smaller number of issuers, the Funds may be subject to greater credit risk with respect to their portfolio securities than an investment company which is more broadly diversified. 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. Another type of hybrid instrument is a cross currency linked bond whose coupon yield varies based on the relationship between two currencies. 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. Each Fund may invest up to 10% of its total assets in hybrid instruments. 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, PAGE 22 the sale of others may involve substantial delays and additional costs. Operating Policy. Each Fund will not invest more than 15% of its net assets in illiquid securities. Loan Participations and Assignments. Large loans to corporations or governments, including governments of less developed countries (LDCs), may be shared or syndicated among several lenders, usually banks. The Fund could participate in such syndicates, or could buy part of a loan, becoming a direct lender. Participations and assignments involve special types of risk, including those of being a lender, but are not necessarily more risky than junk bonds. Operating policy: Each Fund may not invest more than 5% of total assets in loan participations. High Yield/High Risk Investing. The Funds may purchase bonds rated below investment grade. The total return and yield of lower quality (high yield/high risk) bonds, commonly referred to as "junk bonds," can be expected to fluctuate more than the total return and yield of higher quality, shorter-term bonds. Junk bonds are regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. Successful investment in low and lower- medium quality bonds involves greater investment risk and is highly dependent on Rowe Price-Fleming's credit analysis. A real or perceived economic downturn or higher interest rates could cause a decline in high yield bond prices, because such events could lessen the ability of issuers to make principal and interest payments. These bonds are thinly-traded and can be more difficult to sell and value accurately than high-quality bonds. Because objective pricing data may be less available, judgment may play a greater role in the valuation process. Each Fund may invest up to 10% of its total assets in below investment grade ("junk") bonds. PAGE 23 International Bond Fund Concentration in Banking Industry. When the Fund's position in issues maturing in one year or less equals 35% or more of the Fund's total assets, the Fund will, as a matter of fundamental policy, normally have 25% or more of its assets concentrated in securities in the banking industry. Investments in the banking industry may be affected by general economic conditions, exposure to credit losses arising from possible financial difficulties of borrowers, and the profitability of the banking industry is largely dependent on the availability and cost of funds for the purpose of financing lending operations under prevailing money market conditions. Types of Management Practices Use of Forwards. Foreign Currency Transactions. Each Fund may engage in foreign currency transactions either on a spot (cash) basis at the rate prevailing in the currency exchange market at the time or through forward currency contracts ("forwards") with terms generally of less than one year. Forwards will be used primarily to adjust the foreign exchange exposure of each Fund with a view to protecting the portfolio from adverse currency movements, based on Price- Fleming's outlook, and the Funds might be expected to enter into such contracts under the following circumstances: Lock In. When management desires to lock in the U.S. dollar price on the purchase or sale of a security denominated in a foreign currency. Cross Hedge. If a particular currency is expected to decrease against another currency, a Fund may sell the currency expected to decrease and purchase a currency which is expected to increase against the currency sold in an amount approximately equal to some or all of the Fund's portfolio holdings denominated in the currency sold. Direct Hedge. If Price-Fleming wants to eliminate substantially all of the risk of owning a particular currency, and/or if Price-Fleming expects the portfolio PAGE 24 can benefit from price appreciation in a given country's bonds but does not want to hold the currency, it may employ a direct hedge back into the U.S. dollar. In either case, the Fund would enter into a forward contract to sell the currency in which a portfolio security is denominated and purchase U.S. dollars at an exchange rate established at the time it initiated the contract. The cost of the direct hedge transaction may offset most, if not all, of the yield advantage offered by the foreign security but a Fund would hope to benefit from an increase (if any) in value of the bond. Under normal conditions, the International Bond Fund will not engage in direct hedges of this sort. Proxy Hedge. Price-Fleming might choose to use a proxy hedge, which is less costly than a direct hedge. In this case, the Fund, having purchased a bond, will sell a currency whose value is believed to be closely linked to the currency in which the bond is denominated. Interest rates prevailing in the country whose currency was sole would be expected to be closer to those in the U.S. and lower than those of bonds denominated in the currency of the original holding. This type of hedging entails greater risk than a direct hedge because it is dependent on a stable relationship between the two currencies paired as proxies and the relationships can be very unstable at times. Forward contracts do involve other risks, including, but not limited to, significant volatility in currency market. In addition, currency moves may not occur exactly as Price-Fleming expected, so use of forward contracts could adversely affect the Fund's total return. Costs of Hedging. When the Fund purchases a foreign bond with a higher interest rate than is available on U.S. bonds of a similar maturity, the additional yield on the foreign bond could be substantially lost if the Fund were to enter into a direct hedge by selling the foreign currency and purchasing the U.S. dollar. PAGE 25 This is what is known as the "cost" of hedging. Proxy hedging attempts to reduce this cost through an indirect hedge back to the U.S. dollar. It is important to note that hedging costs are treated as capital transactions and are not, therefore, deducted from the Fund's dividend distribution and are not reflected in its yield. Instead, such costs will, over time, be reflected in the Fund's net asset value per share. As a consequence, the Fund's yield may not be an accurate indicator of its total return. 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 Funds may not transfer as collateral any portfolio securities except as necessary in connection with permissible borrowings or investments, and then such transfers may not exceed 33 1/3% of the Fund's total assets. The Fund may not purchase additional securities when borrowings exceed 5% of total assets. Futures and Options. Futures are often used to manage risk, because they enable the investor to buy or sell an asset in the PAGE 26 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 Funds may buy and sell futures contracts (and options on such contracts) to manage exposure to changes in interest rates, securities prices and foreign currencies, as an efficient means of adjusting overall exposure to certain markets, and to adjust a Fund's duration. The Funds may purchase, sell, or write call and put options on securities, financial indices, and foreign currencies. Futures contracts and options may not always be successful hedges; their prices can be highly volatile; using them could lower a 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. A 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 Funds may lend securities to broker-dealers, other institutions, or other persons to earn additional income. The principal risk is the potential insolvency of the broker-dealer or other borrower. In this event, the Fund could experience delays in recovering its securities and possibly capital losses. Fundamental Policy. The value of loaned securities may not exceed 33 1/3% of a Fund's total assets. Portfolio Turnover. The Funds will not generally trade in securities for short- term profits but, when circumstances warrant, securities may be purchased and sold without regard to the length of time PAGE 27 held. As a result, short-term trading may cause the portfolio turnover of each Fund to be higher than that of other mutual funds will less aggressive trading strategies, which may, in turn, increase each Fund's transaction costs. To the extent that short-term trading results in the realization of short-term capital gains, shareholders will be taxed on such gains at ordinary income tax rates. The following chart sets forth each Fund's portfolio turnover rates for the last three years, if applicable. 1993 1992 1991 Short-Term Global Income 92.9% 334.1% * Global Government Bond 134.0% 236.6% 93.6% International Bond395.7% 357.7% 295.6% *Prior to commencement of Fund operations. ________________________ ___________________________________________ PERFORMANCE INFORMATION Total Return. The Funds 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. 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 a Fund's performance, derived from the cumulative total return. The annual compound rate of return for a Fund may vary from any average. Further information about a Fund's performance is contained in its annual report which is available free of charge. Yield. The Funds may advertise a yield figure derived by dividing each Fund's net investment income per share (as defined by applicable SEC regulations) during a 30-day base period by the per-share price on the last day of the base period. ________________________ ___________________________________________ CAPITAL STOCK The T. Rowe Price International Funds, Inc. (the Corporation) was originally organized PAGE 28 in 1979 as a Maryland corporation. Effective May 1, 1986, the Corporation converted from a Maryland corporation to a Massachusetts business trust known as the T. Rowe Price International Trust (Trust). On May 1, 1990, the Trust converted back to a Maryland corporation. The Corporation is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 as a diversified, open-end investment company, commonly known as a "mutual fund." Mutual funds, such as these, enable 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. Currently, the Corporation consists of nine series, each representing a separate class of shares and having different objectives and investment policies. The eight series and the years in which each was established are as follows: International Stock Fund, 1979; International Bond Fund, 1986; International Discovery Fund, 1988; European Stock Fund, New Asia Fund, Global Government Bond Fund, 1990; Japan Fund, 1991; and Short-Term Global Income Fund, 1992; and Latin America Fund, 1993. The International Stock, International Discovery, European Stock, Japan, New Asia, and Latin America Funds are described in a separate prospectus. The Corporation's Charter provides that the Board of Directors may issue additional series of shares and/or additional classes of shares for each series. Although each Fund is offering only its own shares, it is possible that a Fund might become liable for any misstatement in the prospectus about another Fund. The Funds' Board has considered this factor in approving the use of a single combined prospectus. Each Fund has an investment advisory group that has day-to-day responsibility for managing the portfolio and developing and PAGE 29 executing each Fund's investment program. The advisory group for each Fund consists of David Boardman, Peter Askew and Christopher Rothery. David Boardman joined Price-Fleming in 1988 and has 19 years experience in managing multicurrency fixed income portfolios. Peter Askew joined Price-Fleming in 1988 and has 19 years of experience managing multicurrency fixed income portfolios. Christopher Rothery joined Price-Fleming in ____ and has ____ years of experience managing multicurrency fixed income portfolios. Shareholder Rights. All shares of the Corporation 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 a Fund's shares are issued, they are fully paid and nonassessable. All shares of the Corporation may be voted in the election or removal of directors and on other matters submitted to the vote of shareholders of the Corporation. On matters affecting an individual series of the Corporation, a separate vote of the particular series is required. The individual series of the Corporation do not routinely hold annual meetings of shareholders. However, if shareholders representing at least 10% of all votes of the Corporation entitled to be cast so desire, they may call a special meeting of shareholders of the Corporation for the purpose of voting on the question of the removal of any director(s). The total authorized capital stock of the Corporation consists of 1,000,000,000 shares, each having a par value of $.01. As of December 31, 1993, there were 4,836 shareholders in the Short-Term Global Income Fund, 3,673 shareholders in the Global Government Bond Fund, 33,879 shareholders in the International Bond Fund, and a total of 3,050,533 shareholders in the other 54 T. Rowe Price Funds. PAGE 30 ________________________ ___________________________________________ DEBT SECURITIES Total Return Components. Each Fund's total return consists of (1) the change in its net asset value per share and (2) the income it generates. The net asset value of the Funds will be affected primarily by changes in interest rate levels, the maturity of individual portfolio holdings, the quality of the securities held, and changes in values of foreign currencies. A general explanation. Interest Rates. A bond is a contractual obligation to repay a stated debt amount (the principal) on a specified date (the maturity) plus a specified rate of interest for the use of the money. Most bonds pay a fixed rate of interest known as the coupon rate, which is fixed for the term of the bond. A bond's yield reflects the fixed annual interest as a percent of its current price. This price (the bond's market value) must increase or decrease in order to adjust an existing bond's yield to current interest rate levels. Therefore, bond prices generally move in the opposite direction of interest rates. Maturity. The maturity of debt securities may be considered long (10 years or greater), intermediate (1 to 10 years), or short-term (12 months or less). Under normal circumstances, at least 65% of the Short-Term Global Income Fund's total assets will be invested in short-term debt securities. The proportion invested by the Global Government and International Bond Funds in each category can be expected to vary depending upon the evaluation of market patterns and trends by Price- Fleming. The dollar-weighted average maturity for the Short-Term Global Income Fund will not exceed three years, but the Fund may hold individual securities with longer maturities, and the dollar-weighted average maturity for the Global Government Bond Fund is expected to average around seven years, although it may vary with market conditions. Movements in interest rates typically have a greater effect on the prices of longer term bonds than on those with shorter maturities. The following table illustrates the effect of a one percentage PAGE 31 point change in interest rates on a $1,000 bond with a 7% coupon. Principal value if rates: _________________________ Increase Decrease ___________ ___________ Bond--Maturity 1% 1% ___________________________________________ Short- intermediate - 2 years $982 $1,019 Intermediate - 5 years $959 $1,043 Long-term - 20 years $901 $1,116 ___________________________________________ This table is for illustrative purposes only and should not be taken as representative of expected changes in the share price of the Fund. Credit Quality. The quality of a bond is measured by credit risk -- the ability of the issuer to meet interest and principal payments on a timely basis. Issuers who are believed to be good credit risks receive high-quality ratings, and those believed to be poor credit risks receive low-quality ratings. High-quality bonds involve less credit risk and typically offer a lower yield than bonds of low quality. Foreign Currencies. See Foreign Currency under Risk Factors on page 8. ________________________ ___________________________________________ BOND CHARACTERISTICS Yield. The yield on fixed-income securities may vary greatly from one country to another. Price-Fleming will attempt to concentrate its assets in countries where the combination of yield and potential price appreciation is most attractive. Consequently, Price-Fleming may, from time to time, invest in lower yielding fixed-income securities having a higher potential for capital appreciation in order to maximize the Fund's total return. ________________________ ___________________________________________ NAV, PRICING, AND Net Asset Value Per Share (NAV). The NAV EFFECTIVE DATE per share, or share price, for each Fund, is normally determined as of 4:00 pm Eastern Time (ET) each day the New York PAGE 32 Stock Exchange (NYSE) is open. Each 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, each 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. If your order is received Purchased shares are priced at that day's in good order before 4:00 NAV if your request is received before 4:00 pm ET, you will receive pm ET in good order. (See Completing the that day's NAV. New Account Form and Opening a New Account.) If received later than 4:00 pm ET, shares will be priced at the next business day's NAV. Redemptions are priced at that day's NAV if your request is received before 4:00 pm ET in good order at the transfer agent's offices at T. Rowe Price Account Services, P.O. Box 89000, Baltimore, MD 21289-0220. If received after 4:00 pm ET, shares will be priced at the next business day's NAV. Also, we cannot accept requests which specify a particular date for a purchase or redemption or which specify any special conditions. If your redemption request cannot be accepted, you will be notified and given further instructions. Exchanges are normally priced in the same manner as purchases and redemptions. However, if you are exchanging into a bond or money fund and the release of your exchange proceeds is delayed for the allowable five business days (see Receiving Your Proceeds), you will not begin to earn dividends until the sixth business day after the exchange. The Funds reserve the right to change the time at which purchases, redemptions, and exchanges are priced if the NYSE closes at a time other than 4:00 pm ET or an emergency exists. ________________________ ___________________________________________ RECEIVING YOUR PROCEEDS Redemption proceeds are mailed to the address, or sent by wire or ACH transfer to the bank account, designated on your New Account Form. They are generally sent the PAGE 33 next business day after your redemption request is received in good order. Proceeds sent by bank wire should be credited to your bank account the next business day and proceeds sent by ACH transfer should be credited the second day after the sale. In addition, under unusual conditions, or when deemed to be in the best interests of the Funds, redemption proceeds may not be sent for up to five business days after your request is received to allow for the orderly liquidation of securities. Requests by mail for wire redemptions (unless previously authorized) must have a signature guarantee. ________________________ ___________________________________________ DIVIDENDS AND The Funds distribute all net investment DISTRIBUTIONS income and capital gains to shareholders. Dividends are declared daily and paid monthly. Capital gains, if any, are normally declared in December and paid in January. Dividends and distributions declared by the Funds will be reinvested unless you choose an alternative payment option on the New Account Form. Dividends not reinvested are paid by check or transmitted to your bank account via ACH. If the U.S. Postal Service cannot deliver your check, or if your check remains uncashed for six months, the Fund reserves the right to reinvest your distribution check in your account at the then current NAV and to reinvest all subsequent distributions in shares of the Fund. Purchases. Each day each Fund declares a dividend to shareholders of record as of 4:00 pm ET on the previous day. You will begin to earn dividends on the first business day after shares are purchased unless shares were not paid for, in which case dividends are not earned until the next business day after payment is received. Redemptions. Shares will earn dividends through the date of redemption; also, shares redeemed on a Friday or prior to a holiday will continue to earn dividends until the next business day. Generally, if you redeem all of your shares at any time during the month, you will also receive all dividends earned through the date of PAGE 34 redemption in the same check. When you redeem only a portion of your shares, all dividends accrued on those shares will be reinvested, or paid in cash, on the next dividend payment date. ________________________ ___________________________________________ TAXES Dividends and Distributions. In January, the Funds will mail you Form 1099-DIV indicating the federal tax status of your Form 1099-DIV dividends and capital gain distributions. will be mailed to you in Generally, dividends and distributions are January. taxable in the year they are paid. However, any dividends and distributions paid in January but declared during the prior three months are taxable in the year they are declared. Dividends and distributions are taxable to you regardless of whether they are taken in cash or reinvested. Dividends and short-term capital gain distributions are taxable as ordinary income; long-term capital gain distributions are taxable as long-term capital gains. The capital gain holding period is determined by the length of time a Fund has held the securities, not the length of time you have owned Fund shares. Foreign Transactions. Distributions resulting from the sale of foreign currencies and debt securities, to the extent of foreign exchange gains, are taxed as ordinary income or loss. If these transactions result in reducing that Fund's net income, a portion of the dividends may be classified as a return of capital (which lowers your tax base). If any Fund pays nonrefundable taxes to foreign governments during the year, the taxes will reduce that Fund's dividends but will still be included in your taxable income. However, you may be able to claim an offsetting credit or deduction on your tax return for your portion of foreign taxes paid by the Fund. Shares Sold. A redemption or exchange of Fund shares is treated as a sale for tax purposes which will result in a short or long-term capital gain or loss, depending on how long you have owned the shares. In January, the Funds will mail you Form 1099- B indicating the date of and proceeds from all sales and exchanges. PAGE 35 Undistributed Gains. At the time of purchase, the share price of each Fund may reflect undistributed capital gains or unrealized appreciation of securities. Any capital gains from these amounts which are later distributed to you are fully taxable. Tax-Qualified Retirement Plans. Tax- qualified retirement plans generally will not be subject to federal tax liability on either distributions from each Fund or redemption of shares of the Funds. Rather, participants in such plans will be taxed when they begin taking distributions from the plans. Tax Consequences of Hedging. Under applicable tax law, each Fund may be required to limit its gains from hedging in foreign currency forwards, futures and options. Although it is anticipated the Funds will comply with such limits, each Fund's extensive use of these hedging techniques involves greater risk of unfavorable tax consequences than funds not engaging in such techniques. 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 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 Funds as well as affect whether dividends paid by the Funds are classified as capital gain or ordinary income. ________________________ ___________________________________________ MANAGEMENT OF THE FUNDS Investment Manager. Price-Fleming is responsible for selection and management of each 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, PAGE 36 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 $41.4 billion of assets and Flemings managed the U.S. equivalent of approximately $45 billion. Board of Directors. The management of each Fund's business and affairs is the responsibility of the Funds' 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 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 equity accounts under Price-Fleming's management. FIM and PAGE 37 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 such market value in passive fixed income accounts under Price-Fleming's management. Portfolio Transactions. Decisions with respect to the purchase and sale of a Fund's portfolio securities on behalf of each Fund are made by Price-Fleming. The Funds' 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 a 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 these Funds 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 Funds as transfer and dividend disbursing agent. T. Rowe Price Retirement Plan Services, Inc., a wholly-owned subsidiary of T. Rowe Price, performs subaccounting and recordkeeping services for shareholder accounts in certain retirement plans investing in the Price Funds. T. Rowe Price calculates the daily share price and maintains the portfolio and general accounting records of each Fund. The address for TRP Services PAGE 38 and T. Rowe Price Retirement Plan Services, Inc. is 100 East Pratt Street, Baltimore, Maryland 21202. ________________________ ___________________________________________ EXPENSES AND MANAGEMENT Each Fund bears all expenses of its FEE operations other than those incurred by Price-Fleming under its Investment Management Agreement with Price-Fleming. Fund expenses include: the management fee; shareholder servicing fees and expenses; custodian and accounting fees and expenses; legal and auditing fees; expenses of preparing and printing prospectuses and shareholder reports; registration fees and expenses; proxy and annual meeting expenses, if any; and directors' fees and expenses. Management Fee. Each Fund pays Price- Fleming an investment management fee consisting of an Individual Fund Fee and a Group Fee. See Summary of Funds' Fees and Expenses for the Individual Fund Fee. The Group Fee varies and is based on the combined net assets of all mutual funds sponsored and managed by Price-Fleming and T. Rowe Price, excluding T. Rowe Price Spectrum Fund, Inc., and any institutional or private label mutual funds, and distributed by T. Rowe Price Investment Services, Inc. Each Fund pays, as its portion of the Group Fee, an amount equal to the ratio of its daily net assets to the daily net assets of all the Price Funds. The table below shows the annual Group Fee rate at various asset levels of the combined Price Funds: 0.480% First $1 billion 0.450% Next $1 billion 0.420% Next $1 billion 0.390% Next $1 billion 0.370% Next $1 billion 0.360% Next $2 billion 0.350% Next $2 billion 0.340% Next $5 billion 0.330% Next $10 billion 0.320% Next $10 billion 0.310% Thereafter PAGE 39 Based on combined Price Funds' assets of approximately $34.7 billion at December 31, 1993, the Group Fee was 0.35%. ________________________ ___________________________________________ SHAREHOLDER SERVICES The following is a brief summary of services available to shareholders in the T. Rowe Price Funds, some of which may be restricted or unavailable to retirement plan accounts. You must authorize most of these services on a New Account or Shareholder Services Form. Services may be modified or withdrawn at any time without notice. Please verify all transactions on your confirmation statements promptly after receiving them. Any discrepancies must be reported to Shareholder Services immediately. Automatic Asset Builder. You can have us move $50 or more on the same day each month from your bank account or invest $50 or more from your paycheck into any T. Rowe Price Fund. Checkwriting Service. There is no charge for this service and you may write an unlimited number of checks. Minimum check amount is $500. Remember that a checkwriting redemption in the Funds will be treated as a capital gain or loss transaction for tax purposes. This service is subject to State Street Bank's rules and regulations and is governed by Massachusetts Uniform Commercial Code. Stop payment instructions should be given by calling Shareholder Services at 1-800-225-5132. Investor Services Discount Brokerage Service. You can trade 1-800-638-5660 stocks, bonds, options, CDs, Treasury 1-410-547-2308 Bills, and precious metals at substantial savings through our Discount Brokerage Service. Call Investor Services for more information. Exchange Service. You can move money from one account to an existing identically registered account or open a new identically registered account. Remember that, for tax purposes, an exchange is treated as a redemption and a new purchase. Exchanges into a state tax-free fund are limited to investors residing in states PAGE 40 where those funds are qualified for sale. Some of the T. Rowe Price Funds may impose a redemption fee of .50-2%, payable to such Funds, on shares held for less than 12 months, or in some Funds, six months. Retirement Plans. For details on IRAs, please call Investor Services. For details on all other retirement plans, please call our Trust Company at 1-800-492-7670. Shareholder Services Telephone Services. The following services 1-800-225-5132 are explained fully in the Services Guide, 1-410-625-6500 which is mailed to new T. Rowe Price investors. If you don't have a copy, please call Shareholder Services. (All telephone calls to Shareholder Services and Investor Services are recorded in order to protect you, each Fund, and its agents.) 24-Hour Service. Tele*Access(registered trademark) provides information on yields, prices, latest dividends, account balances, and last transaction as well as the ability to request prospectuses account forms, duplicate statements and initiate purchase, redemption and exchange orders (if you have established Telephone Services). Just call 1-800- 638-2587 and press the appropriate codes into your touch-tone phone. PC*Access(registered trademark) provides the same information as Tele*Access, but on a personal computer. Electronic Transfers. We offer three free methods for purchasing or redeeming Fund shares in amounts of $100 to $100,000 through ACH transfers between your bank checking and Fund accounts: -- By calling Shareholder Services during business hours (Tele- Connect(registered trademark); -- By touch-tone phone any day, any time (Tele*Access); -- By personal computer any day, any time (PC*Access). If your bank checking and fund account are not identically registered, you will need a signature guarantee to establish this service. PAGE 41 ACH: (Automated Clearing House) is an automated method of initiating payments from and receiving payments in your financial institution account. ACH is a payment system supported by over 20,000 credit unions, banks and savings banks which electronically exchange the transactions primarily through the Federal Reserve Banks. Wire Transfers. Wire transfers can be processed through bank wires (a $5 charge applies to redemption amounts under $5,000, and your bank may charge you for receiving wires). While this is usually the quickest transfer method, the Funds reserve the right to temporarily suspend wires under unusual circumstances. ________________________ ___________________________________________ CONDITIONS OF YOUR Account Balance. If your account drops PURCHASE below $1,000 for three months or more, each Fund has the right to close your account, after giving 60 days' notice, unless you make additional investments to bring your account value to $1,000 or more. Broker-Dealers. Purchases or redemptions through broker-dealers, banks, and other institutions may be subject to service fees imposed by those entities. No such fees are charged by T. Rowe Price Investment Services or the Funds if shares are purchased or redeemed directly from the Funds. Excessive Trading and Exchange Limitations. To protect Fund shareholders against disruptions in portfolio management which might occur as a result of too frequent buy and sell activity and to minimize Fund expenses associated with such transaction activity, each Fund prohibits excessive trading in any account (or group of accounts managed by the same person). Within any 120 consecutive-day period, investors may not exchange between Price Funds more than twice or buy and sell the Price Funds more than once, if the transactions involve substantial assets or a substantial portion of the assets in the account or accounts. This policy is applied on a multi-fund basis. Any transactions above and beyond these guidelines will be considered to be PAGE 42 excessive trading, and the investor may be prohibited from making additional purchases or exercising the exchange privilege. This policy does not apply to exchanges solely between, or purchases and sales solely of, the Price Money Funds, nor does it apply to simple redemptions from any Fund. Nonpayment. If your check, wire or ACH transfer does not clear, or if payment is not received for any telephone purchase, the transaction will be cancelled and you will be responsible for any loss the Funds or Investment Services incurs. If you are already a shareholder, each Fund can redeem shares from any identically registered account in each of these Funds or any other T. Rowe Price Fund as reimbursement for any loss incurred. You may be prohibited or restricted from making future purchases in any of the T. Rowe Price Funds. U.S. Dollars. All purchases must be paid for in U.S. dollars, and checks must be drawn on U.S. banks. Redemptions in Excess of $250,000. Redemption proceeds are normally paid in cash. However, if you redeem more than $250,000, or 1% of the Fund's net assets, in any 90-day period, the Fund may in its discretion: (1) pay the difference between the redemption amount and the lesser of these two figures with securities of the Fund or (2) delay the transmission of your proceeds for up to five business days after your request is received. Signature Guarantees. A signature guarantee is designed to protect you and the Funds by verifying your signature. You will need one to: (1) Establish certain services after the account is opened. (2) Redeem over $50,000 by written request (unless you have authorized Telephone Services). (3) Redeem or exchange shares when proceeds are: (i) being mailed to an address other than the address of record, (ii) made payable to other PAGE 43 than the registered owner(s), or (iii) being sent to a bank account other than the bank account listed on your fund account. (4) Transfer shares to another owner. (5) Send us written instructions asking us to wire redemption proceeds (unless previously authorized). (6) Establish Electronic Transfers when your bank checking and fund account are not identically registered. These requirements may be waived or modified in certain instances. Acceptable guarantors are all eligible guarantor institutions as defined by the Securities Exchange Act of 1934 such as: commercial banks which are FDIC members, trust companies, firms which are members of a domestic stock exchange, and foreign branches of any of the above. We cannot accept guarantees from institutions or individuals who do not provide reimbursement in the case of fraud, such as notaries public. Telephone Exchange and Redemption. Telephone exchange and redemption are established automatically when you sign the New Account Form unless you check the box which states that you do not want these services. The Fund uses reasonable procedures (including shareholder identity verification) to confirm that instructions given by telephone are genuine. If these procedures are not followed, it is the opinion of certain regulatory agencies that the Fund may be liable for any losses that may result from acting on the instructions given. All conversations are recorded, and a confirmation is sent within five business days after the telephone transaction. Ten-Day Hold. The mailing of proceeds for redemption requests involving any shares purchased by personal, corporate or government check, or ACH transfer is generally subject to a 10-day delay to allow the check or transfer to clear. The 10-day clearing period does not affect the trade date on which your purchase or redemption order is priced, or any PAGE 44 dividends and capital gain distributions to which you may be entitled through the date of redemption. If your redemption request was sent by mail or mailgram, proceeds will be mailed no later than the seventh calendar day following receipt unless the check or ACH transfer has not cleared. The 10-day hold does not apply to purchases made by wire, Automatic Asset Builder- Paycheck, or cashier's, treasurer's, or certified checks. Each Fund and its agents reserve the right to: (1) reject any purchase or exchange, cancel any purchase due to nonpayment, or reject any exchange or redemption where the Fund has not received payment; (2) waive or lower the investment minimums; (3) accept initial purchases by telephone or mailgram; (4) waive the limit on subsequent purchases by telephone; (5) reject any purchase or exchange prior to receipt of the confirmation statement; (6) redeem your account (see Tax Identification Number); (7) modify the conditions of purchase at any time; and (8) reject any check not made directly payable to the Fund or T. Rowe Price (call Shareholder Services for more information). ________________________ ___________________________________________ COMPLETING THE NEW Tax Identification Number. We must have ACCOUNT FORM your correct social security or corporate tax identification number and a signed New Account Form or W-9 Form. Otherwise, federal law requires the Funds to withhold You must provide your tax a percentage (currently 31%) of your ID number and sign the dividends, capital gain distributions, and New Account Form. redemptions, and may subject you to an IRS fine. You also will be prohibited from opening another account by exchange. If this information is not received within 60 days after your account is established, your account may be redeemed, priced at the NAV on the date of redemption. Unless you otherwise request, one shareholder report will be mailed to multiple account owners with the same tax identification number and same zip code and to those shareholders who have requested that their accounts be combined with someone else's for financial reporting. PAGE 45 Account Registration. If you own other T. Rowe Price Funds, make certain the registration (name and account type) is identical to your other funds for easy exchange. Remember to sign the form exactly as the name appears in the registration section. Services. By signing up for services on the New Account Form, rather than after the account is opened, you will avoid having to complete a separate form and obtain a signature guarantee (see Conditions of Your Purchase). ________________________ ___________________________________________ OPENING A NEW ACCOUNT Minimum initial investment: $2,500 ($1,000 for retirement plans and gifts or transfers to minors (UGMA/UTMA accounts); $50 per month for Automatic Asset Builder accounts--see Shareholder Services) By Mail Send your New Account Form and check to: Checks payable to T. Rowe Regular Mail Mailgram, Price Funds. Express, Registered, or Certified Mail T. Rowe Price T. Rowe Price Account Services Account Services P.O. Box 17300 10090 Red Run Baltimore, MD Boulevard 21298-9353 Owings Mills, MD 21117 ___________________________________________ Investor Services By Wire Call Investor Services for an 1-800-638-5660 account number and use Wire Address 1-410-547-2308 below. Then, complete the New Account Form and mail it to one of the above addresses. (Not applicable to retirement plans.) Wire Address Morgan Guaranty (to give to your Trust Company bank): of New York ABA #021000238 PAGE 46 T. Rowe Price (fund name)/ AC-00153938 Account name(s) and account number ___________________________________________ Shareholder Services By Exchange Call Shareholder Services. The 1-800-225-5132 new account will have the same 1-410-625-6500 registration as the account from which you are exchanging. Services for the new account may be carried over by telephone request if preauthorized on the existing account. See Excessive Trading and Exchange Limitations under Conditions of Your Purchase. ___________________________________________ In Person Drop off your New Account Form and obtain a receipt at a T. Rowe Price Investor Center: 101 East T. Rowe Price Lombard StreetFinancial Center First Floor First Floor Baltimore, MD 10090 Red Run Boulevard Owings Mills, MD Farragut ARCO Tower Square 31st Floor First Floor 515 South 900 17th Flower Street Street, NW Los Angeles, Washington, CA DC _________________________ ___________________________________________ PURCHASING ADDITIONAL Minimum: $100 ($50 for retirement plans SHARES and Automatic Asset Builder) By Wire Call Shareholder Services or use the Wire Address in Opening a New Account. ___________________________________________ By Mail Indicate your account number and the Fund name on your check. Mail it to us at the address below Shareholder with Shareholder Services the stub from a statement 1-800-225-5132 confirming a prior Services 1-410-625-6500 transaction or a note stating that you want to purchase PAGE 47 shares in that Fund and giving us the account number. T. Rowe Price Funds Account Services P.O. Box 89000 Baltimore, MD 21289-1500 ___________________________________________ By ACH Use Tele*Access, PC*Access or Transfer call Shareholder Services (if you have established Telephone Services) for ACH transfers. ___________________________________________ By Automatic Fill out the Automatic Asset Asset Builder section on the New Builder Account or Shareholder Services Form. ___________________________________________ Minimum: $5,000 By Phone Call Shareholder Services. ________________________ ___________________________________________ EXCHANGING AND REDEEMING By Phone Call Shareholder Services. If SHARES you find our phones busy during unusually volatile markets, please consider placing your order by express mail, mailgram, Tele*Access or PC*Access. For exchange policy, see Excessive Trading and Exchange Limitations under Conditions of Your Purchase. Redemption proceeds can be mailed, sent by ACH transfer, or wired to your bank. The Funds charge a $5.00 fee for wire redemptions under $5,000, subject to change without notice. Your bank may also charge you for receiving wires. ___________________________________________ By Mail Indicate account name(s) and numbers, fund name(s), and Shareholder Services exchange or redemption amount. 1-800-225-5132 For exchanges, indicate the 1-410-625-6500 accounts you are exchanging from and to along with the amount. We require the signature of all owners exactly as registered, and possibly a signature guarantee (see Signature Guarantees under Conditions of Your Purchase). PAGE 48 Note: Distributions from retirement accounts, including IRAs, must be in writing. Please call Shareholder Services to obtain an IRA Distribution Request Form. For employer-sponsored retirement accounts, call T. Rowe Price Trust Company or your plan administrator for instructions. Shareholders holding previously issued certificates must conduct transactions by mail. T. Rowe Price Trust If you lose a stock Company certificate, you may incur an 1-800-492-7670 expense to replace it. Call 1-410-625-6585 Shareholder Services for further information. Mailing addresses: Regular Mail Mailgram, Express, Registered, or Certified Mail Non-Retirement and IRA Accounts All Accounts T. Rowe Price T. Rowe Price Account ServicesAccount P.O. Box 89000 Services Baltimore, MD 10090 Red Run 21289-0220 Boulevard Owings Mills, MD 21117 Employer-Sponsored Retirement Accounts T. Rowe Price Trust Company P.O. Box 89000 Baltimore, MD 21289-0300 PAGE 49 Prospectus To Open an Account: Investor Services T. Rowe Price International 1-800-638-5660 Fixed Income Funds 547-2308 in Baltimore Yields & Prices: May 1, 1994 Tele*AccessR 24 hours, 7 days a week 1-800-638-2587 625-7676 in Baltimore Existing Account: Shareholder Services 1-800-225-5132 625-6500 in Baltimore Investor Centers: 101 East Lombard Street First Floor Baltimore, Maryland Farragut Square First Floor 900 17th Street, NW Washington, DC T. Rowe Price Financial Center First Floor 10090 Red Run Boulevard Owings Mills, Maryland ARCO Tower 31st Floor 515 South Flower Street Los Angeles, California T. ROWE PRICE Invest With ConfidenceR PAGE 77 STATEMENT OF ADDITIONAL INFORMATION T. Rowe Price International Funds, Inc. (the "Corporation") Short-Term Global Income Fund Global Government Bond Fund International Bond FundR (the "Funds") This Statement of Additional Information is not a prospectus but should be read in conjunction with the Fund's prospectus dated May 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 May 1, 1994. PAGE 78 TABLE OF CONTENTS Page Page Call and Put Options . . . . . . . Investment Programs. . . . . . . . . Capital Stock. . . . . . . . . . . (pages __-__ in Prospectus) Custodian. . . . . . . . . . . . . Investment Restrictions. . . . . . . Dealer Options . . . . . . . . . . Legal Counsel. . . . . . . . . . . . Distributor for Funds. . . . . . . Lending of Portfolio Securities. . . Dividends. . . . . . . . . . . . . Management of Funds. . . . . . . . . Federal and State Registration Net Asset Value Per Share . . . . . . of Shares. . . . . . . . . . . . Portfolio Transactions . . . . . . . Foreign Currency Transactions. . . Pricing of Securities. . . . . . . . Foreign Futures and Options. . . . Principal Holders of Securities. . . Futures Contracts. . . . . . . . . Ratings of Corporate Debt Hybrid Commodity and Security Securities . . . . . . . . . . . . . Instruments . . . . . . . . . . . Repurchase Agreements. . . . . . . . Illiquid Securities. . . . . . . . Risk Factors of Foreign Investing. . Independent Accountants. . . . . . Risk Factors of Investing in Debt Investment Management Services . . Obligations. . . . . . . . . . . . (pages __-__ in Prospectus) Tax Status. . . . . . . . . . . . . . Investment Objectives. . . . . . . (pages __ and __ in Prospectus) (page __ in Prospectus) Taxation of Foreign Shareholder . . . Investment Objectives and When-Issued Securities. . . . . . . . Policies . . . . . . . . . . . . Yield Information. . . . . . . . . . Investment Performance . . . . . . INVESTMENT OBJECTIVES AND POLICIES The following information supplements the discussion of each Fund's investment objectives and policies discussed on pages __, __ through __ of the prospectus. Unless otherwise specified, the investment program and restrictions of each Fund are not fundamental policies. The operating policies of each 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 each Fund may not be changed without the approval of at least a majority of the outstanding shares of each 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 OBJECTIVES Short-Term Global Income Fund The Fund's investment objective is to seek to provide high current income consistent with modest share price fluctuation by investing primarily in high quality, short-term U.S. and foreign fixed income securities. Global Government Bond Fund The Fund's investment objective is to seek to provide a high level of current income and, secondarily, capital appreciation and protection of PAGE 79 principal by investing primarily in high-quality U.S. and foreign government bonds. International Bond Fund The Fund's investment objective is to seek to provide a high current income by investing in a diversified portfolio of non dollar-denominated, high-quality government and corporate bonds. The Fund also seeks capital appreciation and to moderate price fluctuation by actively managing its maturity structure and currency exposure. All Funds The Funds' 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 a high level of current income may be achieved by investing in high quality international fixed income securities, high quality, short-term U.S. and foreign fixed income securities, or high quality U.S. and foreign government bonds. 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 Funds. Each 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 Funds should not be relied upon as a complete investment program, nor used to play short-term swings in the global bond or foreign exchange markets. The Funds are 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 Funds cannot guarantee they will achieve their objectives. INVESTMENT PROGRAMS Short-Term Global Income and Global Government Bond Funds The Short-Term Global Income Fund invests primarily in a globally diversified portfolio of high quality, short-term U.S. and foreign bonds. The Fund will normally have at least 65% of its assets in high quality, short-term U.S. or foreign fixed income securities. The Global Government Bond Fund invests primarily in a globally diversified portfolio of U.S. and foreign government bonds. The Fund will normally have at least 65% of its assets in bonds issued or guaranteed by the U.S. or foreign governments, their agencies and instrumentalities, as well as foreign authorities, provinces and municipalities. The securities of U.S. issuers in which both Funds may invest include, but are not limited to, the following: U.S. Government Obligations. Debt securities issued by the U.S. Treasury. These are direct obligations of the U.S. Government and differ mainly in the PAGE 80 length of their maturities. U.S. Government Agency Securities. Issued or guaranteed by U.S. Government sponsored enterprises and federal agencies. These include securities issued by the Federal National Mortgage Association, Government National Mortgage Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home Administration, Banks for Cooperatives, Federal Intermediate Credit Banks, Federal Financing Bank, Farm Credit Banks, the Small Business Association, and the Tennessee Valley Authority. Some of these securities are supported by the full faith and credit of the U.S. Treasury, and the remainder are supported only by the credit of the instrumentality, which may or may not include the right of the issuer to borrow from the Treasury. Bank Obligations. Certificates of deposit, bankers' acceptances, and other short-term debt obligations. Certificates of deposit are short-term obligations of commercial banks. A bankers' acceptance is a time draft drawn on a commercial bank by a borrower, usually in connection with international commercial transactions. Certificates of deposit may have fixed or variable rates. Savings and Loan Obligations. Negotiable certificates of deposit and other short-term debt obligations of savings and loan associations. Collateralized Mortgage Obligations (CMOs). CMOs are obligations fully collateralized by a portfolio of mortgages or mortgage-related securities. Payments of principal and interest on the mortgages are passed through to the holders of the CMOs on the same schedule as they are received, although certain classes of CMOs have priority over others with respect to the receipt of prepayments on the mortgages. Therefore, depending on the type of CMOs in which a Fund invests, the investment may be subject to a greater or lesser risk of prepayment than other types of mortgage-related securities. Asset Backed Receivables. The asset-backed securities that may be purchased include, but are not limited to, Certificates for Automobile Receivables (CARSsm) and Credit Card Receivable Securities. CARSsm represent undivided fractional interests in a trust whose assets consist of a pool of motor vehicle retail installment sales contracts and security interests in the vehicles securing these contracts. In addition to the general risks pertaining to all asset-backed securities, CARSsm are subject to the risks of delayed payments or losses if the full amounts due on underlying sales contracts are not realized by the trust due to unanticipated legal or administrative costs of enforcing the contracts, or due to depreciation, damage or loss of the vehicles securing the contracts. Credit Card Receivable Securities are backed by receivables from revolving credit card accounts. Since balances on revolving credit card accounts are generally paid down more rapidly than CARSsm, issuers often lengthen the maturity of these securities by providing for a fixed period during which interest payments are passed through and principal payments are used to fund the transfer of additional receivables to the underlying pool. The failure of the underlying receivables to generate principal payments may therefore shorten the maturity of these securities. In addition, unlike most other asset-backed securities, Credit Card Receivable Securities are backed by obligations that are not secured by an interest in personal or real property. After purchase by a Fund, a security may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither PAGE 81 event will require a sale of such security by a Fund. However, Price-Fleming will consider such event in its determination of whether a Fund should continue to hold the security. To the extent that the ratings given by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P") may change as a result of changes in such organizations or their rating systems, the Funds will attempt to use comparable ratings as standards for investments in accordance with the investment policies contained in the prospectus. International Bond Fund The Fund will invest primarily in an international diversified portfolio of nondollar-denominated, high-quality fixed income securities. Price-Fleming will base its investment decisions on fundamental market attractiveness, currency trends, local market factors and credit quality. The Fund will generally invest in countries where the combination of fixed income market returns and currency exchange rate movements is attractive, or, if the currency trend is unfavorable, where the currency risk can be minimized through hedging. The Fund intends to invest in at least three countries under ordinary circumstances. However, under unusual circumstances, it may invest substantially all of its assets in one or two countries. Because Price- Fleming currently expects to invest a large percentage of assets in foreign government securities in order to maintain liquidity and to reduce credit risk, the Fund has registered as a "non-diversified" investment company. The Fund may, for temporary defensive purposes, invest, without limitation, in U.S. dollar-denominated debt securities. Risk Factors of Foreign Investing There are special risks in investing in the Funds. Certain of these risks are inherent in any international mutual fund while others relate more to the countries in which the Funds will invest. Many of the risks are more pronounced for investments in developing or emerging countries, such as many of the countries of Southeast Asia, Latin America, Eastern Europe and the Middle East. Although there is no universally accepted definition, a developing country is generally considered to be a country which is in the initial stages of its industrialization cycle with a per capita gross national product of less than $8,000. General. Investors should understand that all investments have a risk factor. There can be no guarantee against loss resulting from an investment in the Funds, and there can be no assurance that the Funds' investment policies will be successful, or that its investment objectives will be attained. The Funds are designed for individual and institutional investors seeking to diversify beyond the United States in actively researched and managed portfolios, and are 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. For example, in 1991, the existing government in Thailand was overthrown in a military coup. In 1992, there were two military coup attempts in Venezuela and in 1992 the President of Brazil was PAGE 82 impeached. In addition, significant external political risks currently affect some foreign countries. Both Taiwan and China still claim sovereignty of one another and there is a demilitarized border between North and South Korea. Governments in certain foreign countries continue to participate to a significant degree, through ownership interest or regulation, in their respective economies. Action by these governments could have a significant effect on market prices of securities and payment of dividends. The economies of many foreign countries are heavily dependent upon international trade and are accordingly affected by protective trade barriers and economic conditions of their trading partners. The enactment by these trading partners of protectionist trade legislation could have a significant adverse effect upon the securities markets of such countries. Currency Fluctuations. The Funds will invest in securities denominated in 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 Funds' assets denominated in that currency. Such changes will also affect the Funds' income. Generally, when a given currency appreciates against the dollar (the dollar weakens) the value of the Fund's securities denominated in that currency will rise. When a given currency depreciates against the dollar (the dollar strengthens) the value of the Funds' securities denominated in that currency would be expected to decline. Investment and Repatriation of Restrictions. Foreign investment in the securities markets of certain foreign countries is restricted or controlled in varying degrees. These restrictions may limit at times and preclude investment in certain of such countries and may increase the cost and expenses of the Funds. Investments by foreign investors are subject to a variety of restrictions in many developing countries. These restrictions may take the form of prior governmental approval, limits on the amount or type of securities held by foreigners, and limits on the types of companies in which foreigners may invest. Additional or different restrictions may be imposed at any time by these or other countries in which the Funds invest. In addition, the repatriation of both investment income and capital from several foreign countries is restricted and controlled under certain regulations, including in some cases the need for certain government consents. For example, capital invested in Chile normally cannot be repatriated for one year. Market Characteristics. It is contemplated that most foreign securities, other than Latin American 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. Currently, it is anticipated that many Latin American investments will be made through ADRs traded in the United States. 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 Funds' portfolio securities may be less liquid and subject to more rapid and erratic price movements than securities of comparable U.S. companies. Equity securities may trade at price/earnings multiples higher than comparable United States securities and such levels may not be sustainable. Fixed commissions on foreign stock exchanges are generally higher than negotiated commissions on United States exchanges, although the Funds will endeavor to achieve the most favorable net results on their portfolio transactions. There is generally PAGE 83 less government supervision and regulation of foreign stock exchanges, brokers and listed companies than in the United States. Moreover, settlement practices for transactions in foreign markets may differ from those in United States markets. Such differences may include delays beyond periods customary in the United States and practices, such as delivery of securities prior to receipt of payment, which increase the likelihood of a "failed settlement." Failed settlements can result in losses to a Fund. Investment Funds. The Funds may invest in investment funds which have been authorized by the governments of certain countries specifically to permit foreign investment in securities of companies listed and traded on the stock exchanges in these respective countries. The Funds' investment in these funds is subject to the provisions of the 1940 Act discussed on pages __ and __. If the Funds invest in such investment funds, the Funds' shareholders will bear not only their proportionate share of the expenses of the Funds (including operating expenses and the fees of the investment manager), but also will bear indirectly similar expenses of the underlying investment funds. In addition, the securities of these investment funds may trade at a premium over their net asset value. Information and Supervision. There is generally less publicly available information about foreign companies comparable to reports and ratings that are published about companies in the United States. Foreign companies are also generally not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to United States companies. It also may be more difficult to keep currently informed of corporate actions which affect the prices of portfolio securities. Taxes. The dividends and interest payable on certain of the Funds' foreign portfolio securities may be subject to foreign withholding taxes, thus reducing the net amount of income available for distribution to the Funds' shareholders. 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 Funds. (See "Tax Status," page __.) Costs. Investors should understand that the expense ratios of the Funds 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 Funds are higher. Small Companies. Small companies may have less experienced management and fewer management resources than larger firms. A smaller company may have greater difficulty obtaining access to capital markets, and may pay more for the capital it obtains. In addition, smaller companies are more likely to be involved in fewer market segments, making them more vulnerable to any downturn in a given segment. Some of these factors may also apply, to a lesser extent, to medium size companies. Some of the smaller companies in which the Funds will invest may be in major foreign markets; others may be leading companies in emerging countries outside the major foreign markets. Securities analysts generally do not follow such securities, which are seldom held outside of their respective countries and which may have prospects for long-term investment returns superior to the securities of well-established and well- known companies. Direct investment in such securities may be difficult for United States investors because, among other things, information relating to such securities is often not readily available. Of course, there are also PAGE 84 risks associated with such investments, and there is no assurance that such prospects will be realized. Other. With respect to certain foreign countries, especially developing and emerging ones, there is the possibility of adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitations on the removal of funds or other assets of the Funds, political or social instability, or diplomatic developments which could affect investments by U.S. persons in those countries. Risk Factors of Investing in Debt Obligations Because of their investment policies, the Bond Funds may or may not be suitable or appropriate for all investors. The Funds are not money market funds and are not appropriate investments for those whose primary objective is principal stability. There is risk in all investment. The Short-Term Global Income Fund is designed for the investor, who is willing to accept the risks of international investing in seeking to participate in a diversified portfolio of U.S. and foreign government short-term high quality bonds and other debt securities which provide greater stability in the rate of income than a money market fund (average weighted maturity of less than 90 days) and less risk of capital fluctuation than a portfolio of long-term debt securities. The value of the portfolio securities of each Fund will fluctuate based upon market, economic and foreign exchange conditions. Although each Fund seeks to reduce risk by investing in a diversified portfolio, such diversification does not eliminate all risk. There can, of course, be no assurance that the Funds will achieve these results. Yields on short, intermediate, and long-term securities are dependent on a variety of factors, including the general conditions of the money, bond and foreign exchange markets, the size of a particular offering,the maturity of the obligation, and the rating of the issue. Debt securities with longer maturities tend to produce higher yields and are generally subject to potentially greater capital appreciation and depreciation than obligations with shorter maturities and lower yields. The market prices of debt securities usually vary, depending upon available yields. An increase in interest rates will generally reduce the value of portfolio investments, and a decline in interest rates will generally increase the value of portfolio investments. The ability of each Fund to achieve its investment objective is also dependent on the continuing ability of the issuers of the debt securities in which each Fund invests to meet their obligations for the payment of interest and principal when due. Special Risks of High Yield Investing The Fund may invest up to 10% of its assets in low quality bonds commonly referred to as "junk bonds." Junk bonds are regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. Because investment in low and lower-medium quality bonds involves greater investment risk, to the extent the Fund invests in such bonds, achievement of its investment objective will be more dependent on T. Rowe Price's credit analysis than would be the case if the Fund was investing in higher quality bonds. High yield bonds may be more susceptible to real or perceived adverse economic conditions than investment grade bonds. A projection of an economic downturn, or higher interest rates, for example, could cause a decline in high yield bond prices because the advent of such PAGE 85 events could lessen the ability of highly leverage issuers to make principal and interest payments on their debt securities. In addition, the secondary trading market for high yield bonds may be less liquid than the market for higher grade bonds, which can adversely affect the ability of a Fund to dispose of its portfolio securities. Bonds for which there is only a "thin" market can be more difficult to value inasmuch as objective pricing data may be less available and judgment may play a greater role in the valuation process. In addition to the investments described in the Funds' prospectus, the Funds may invest in the following: Options Writing Covered Call Options The Fund may write (sell) American or European style "covered" call options and purchase options to close out options previously written by a Fund. In writing covered call options, the Fund expects to generate additional premium income which should serve to enhance the Fund's total return and reduce the effect of any price decline of the security or currency involved in the option. Covered call options will generally be written on securities or currencies which, in Price-Fleming'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. 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 PAGE 86 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, Price- Fleming, 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 costs are normally higher than those applicable to purchases and sales of portfolio securities. PAGE 87 Call options written by the Fund will normally have expiration dates of less than nine months from the date written. The exercise price of the options may be below, equal to, or above the current market values of the underlying securities or currencies at the time the options are written. From time to time, the Fund may purchase an underlying security or currency for delivery in accordance with an exercise notice of a call option assigned to it, rather than delivering such security or currency from its portfolio. In such cases, additional costs may be incurred. The Fund will realize a profit or loss from a closing purchase transaction if the cost of the transaction is less or more than the premium received from the writing of the option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security or currency, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by appreciation of the underlying security or currency owned by the Fund. In order to comply with the requirements of several states, the Fund will not write a covered call option if, as a result, the aggregate market value of all portfolio securities or currencies covering call or put options exceeds 25% of the market value of the Fund's net assets. Should these state laws change or should the Fund obtain a waiver of its application, the Fund reserves the right to increase this percentage. In calculating the 25% limit, the Fund will offset, against the value of assets covering written calls and puts, the value of purchased calls and puts on identical securities or currencies with identical maturity dates. Writing Covered Put Options The Fund may write American or European style covered put options and purchase options to close out options previously written by the Fund. A put option gives the purchaser of the option the right to sell, and the writer (seller) has the obligation to buy, the underlying security or currency at the exercise price during the option period (American style) or at the expiration of the option (European style). So long as the obligation of the writer continues, he may be assigned an 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 Price-Fleming 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 PAGE 88 exercise price of the option, this technique could be used to enhance current return during periods of market uncertainty. The risk in such a transaction would be that the market price of the underlying security or currency would decline below the exercise price less the premiums received. Such a decline could be substantial and result in a significant loss to the Fund. In addition, the Fund, because it does not own the specific securities or currencies which it may be required to purchase in exercise of the put, cannot benefit from appreciation, if any, with respect to such specific securities or currencies. In order to comply with the requirements of several states, the Fund will not write a covered put option if, as a result, the aggregate market value of all portfolio securities or currencies covering put or call options exceeds 25% of the market value of the Fund's net assets. Should these state laws change or should the Fund obtain a waiver of its application, the Fund reserves the right to increase this percentage. In calculating the 25% limit, the Fund will offset, against the value of assets covering written puts and calls, the value of purchased puts and calls on identical securities or currencies with identical maturity dates. 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 Price-Fleming deems it desirable to continue to hold the security or currency because of tax considerations. The premium paid for the put option and any transaction costs would reduce any capital gain otherwise available for distribution when the security or currency is eventually sold. The Fund may also purchase put options at a time when the Fund does not own the underlying security or currency. By purchasing put options on a security or currency it does not own, the Fund seeks to benefit from a decline in the market price of the underlying security or currency. If the put option is not sold when it has remaining value, and if the market price of the underlying security or currency remains equal to or greater than the exercise price during the life of the put option, the Fund will lose its entire investment in the put option. In order for the purchase of a put option to be profitable, the market price of the underlying security or currency must decline sufficiently below the exercise price to cover the premium and transaction costs, unless the put option is sold in a closing sale transaction. PAGE 89 To the extent required by the laws of certain states, the Fund may not be permitted to commit more than 5% of its assets to premiums when purchasing put and call options. Should these state laws change or should the Fund obtain a waiver of its application, the Fund may commit more than 5% of its assets to premiums when purchasing call and put options. The premium paid by the Fund when purchasing a put option will be recorded as an asset of the Fund. This asset will be adjusted daily to the option's current market value, which will be the latest sale price at the time at which the net asset value per share of the Fund is computed (close of New York Stock Exchange), or, in the absence of such sale, the latest bid price. This asset will be terminated upon expiration of the option, the selling (writing) of an identical option in a closing transaction, or the delivery of the underlying security or currency upon the exercise of the option. Purchasing Call Options The Fund may purchase American or European style call options. As the holder of a call option, the Fund has the right to purchase the underlying security or currency at the exercise price at any time during the option period (American style) or at the expiration of the option (European style). The Fund may enter into closing sale transactions with respect to such options, exercise them or permit them to expire. The Fund may purchase call options for the purpose of increasing its current return or avoiding tax consequences which could reduce its current return. The Fund may also purchase call options in order to acquire the underlying securities or currencies. Examples of such uses of call options are provided below. Call options may be purchased by the Fund for the purpose of acquiring the underlying securities or currencies for its portfolio. Utilized in this fashion, the purchase of call options enables the Fund to acquire the securities or currencies at the exercise price of the call option plus the premium paid. At times the net cost of acquiring securities or currencies in this manner may be less than the cost of acquiring the securities or currencies directly. This technique may also be useful to the Fund in purchasing a large block of securities or currencies that would be more difficult to acquire by direct market purchases. So long as it holds such a call option rather than the underlying security or currency itself, the Fund is partially protected from any unexpected decline in the market price of the underlying security or currency and in such event could allow the call 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 PAGE 90 risks are specific to dealer options. While the Fund would look to a clearing corporation to exercise exchange-traded options, if the Fund were to purchase a dealer option, it would rely on the dealer from whom it purchased the option to perform if the option were exercised. Failure by the dealer to do so would result in the loss of the premium paid by the Fund as well as loss of the expected benefit of the transaction. Exchange-traded options generally have a continuous liquid market while dealer options have none. Consequently, the Fund will generally be able to realize the value of a dealer option it has purchased only by exercising it or reselling it to the dealer who issued it. Similarly, when the Fund writes a dealer option, it generally will be able to close out the option prior to its expiration only by entering into a closing purchase transaction with the dealer to which the Fund originally wrote the option. While the Fund will seek to enter into dealer options only with dealers who will agree to and which are expected to be capable of entering into closing transactions with the Fund, there can be no assurance that the Fund will be able to liquidate a dealer option at a favorable price at any time prior to expiration. Until the Fund, as a covered dealer call option writer, is able to effect a closing purchase transaction, it will not be able to liquidate securities (or other assets) or currencies used as cover until the option expires or is exercised. In the event of insolvency of the contra party, the Fund may be unable to liquidate a dealer option. With respect to options written by the Fund, the inability to enter into a closing transaction may result in material losses to the Fund. For example, since the Fund must maintain a secured position with respect to any call option on a security it writes, the Fund may not sell the assets which it has segregated to secure the position while it is obligated under the option. This requirement may impair a Fund's ability to sell portfolio securities or currencies at a time when such sale might be advantageous. The Staff of the SEC has taken the position that purchased dealer options and the assets used to secure the written dealer options are illiquid securities. The Fund may treat the cover used for written OTC options as liquid if the dealer agrees that the Fund may repurchase the OTC option it has written for a maximum price to be calculated by a predetermined formula. In such cases, the OTC option would be considered illiquid only to the extent the maximum repurchase price under the formula exceeds the intrinsic value of the option. 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 Each Fund may enter into financial futures contracts, including stock index, interest rate and currency futures ("futures or futures contracts"); however, the Funds have no current intention of entering into interest rate futures. The Funds, however, reserve the right to trade in financial futures of any kind. 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 Price-Fleming to implement either an increase or decrease in portfolio market PAGE 91 exposure in response to changing market conditions. The Fund may, purchase or sell futures contracts with respect to any stock index. Nevertheless, to hedge the Fund's portfolio successfully, the Fund must sell futures contacts with respect to indices or subindices whose movements will have a significant correlation with movements in the prices of the Fund's portfolio securities. Interest rate or currency futures contracts may be used as a hedge against changes in prevailing levels of interest rates or currency exchange rates in order to establish more definitely the effective return on securities or currencies held or intended to be acquired by the Fund. In this regard, the Fund could sell interest rate or currency futures as an offset against the effect of expected increases in interest rates or currency exchange rates and purchase such futures as an offset against the effect of expected declines in interest rates or currency exchange rates. The Fund will enter into futures contracts which are traded on national or foreign futures exchanges, and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the 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 and applicable state law. The Fund may not purchase or sell futures contracts or related options if, with respect to positions which do not qualify as bona fide hedging under applicable CFTC rules, the sum of the amounts of initial margin deposits and premiums paid on those portions would exceed 5% of the net asset value of the Fund after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; provided, however, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in calculating the 5% limitation. For purposes of this policy options on futures contracts and foreign currency options traded on a commodities exchange will be considered "related options". This policy may be modified by the Board of Directors/Trustees without a shareholder vote and does not limit the percentage of the Fund's assets at risk to 5%. In accordance with the rules of the State of California, the Fund will apply above 5% test without excluding the value of initial margin and premiums paid for bona fide hedging portions. The Fund's use of futures contracts will not result in leverage. Therefore, to the extent necessary, in instances involving the purchase of futures contracts or the writing of call or put options thereon by the Fund, an amount of cash, U.S. government securities or other liquid, high-grade debt obligations, equal to the market value of the futures contracts and options thereon (less any related margin deposits), will be identified in an account PAGE 92 with the Fund's custodian to cover (such as owning an offsetting position) the position, or alternative cover will be employed. Assets used as cover or held in an identified account cannot be old while the position in the corresponding option or future is open, unless they are replaced with similar assets. As a result, the commitment of a large portion of a Fund's assets to cover or identified accounts could impede portfolio management or the fund's ability to meet redemption requests or over current obligations. If the CFTC or other regulatory authorities adopt different (including less stringent) or additional restrictions, the Fund would comply with such new restrictions. Trading in Futures Contracts A futures contract provides for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument (e.g., units of a stock index) for a specified price, date, time and place designated at the time the contract is made. Brokerage fees are incurred when a futures contract is bought or sold and margin deposits must be maintained. Entering into a contract to buy is commonly referred to as buying or purchasing a contract or holding a long position. Entering into a contract to sell is commonly referred to as selling a contract or holding a short position. Unlike when the Fund purchases or sells a security, no price would be paid or received by the Fund upon the purchase or sale of a futures contract. Upon entering into a futures contract, and to maintain the Fund's open positions in futures contracts, the Fund would be required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash, U.S. government securities, suitable money market instruments, or liquid, high- grade debt securities, known as "initial margin." The margin required for a particular futures contract is set by the exchange on which the contract is traded, and may be significantly modified from time to time by the exchange during the term of the contract. Futures contracts are customarily purchased and sold on margins that may range upward from less than 5% of the value of the contract being traded. If the price of an open futures contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the futures contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the futures contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the Fund. These subsequent payments, called "variation margin," to and from the futures broker, are made on a daily basis as the price of the underlying assets fluctuate making the long and short positions in the futures contract more or less valuable, a process known as "marking to the market." The Fund expects to earn interest income on its margin deposits. Although certain futures contracts, by their terms, require actual future delivery of and payment for the underlying instruments, in practice most futures contracts are usually closed out before the delivery date. Closing out an open futures contract purchase or sale is effected by entering into an offsetting futures contract sale or purchase, respectively, for the same PAGE 93 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. 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 PAGE 94 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 short futures positions. The Fund may close its positions by taking opposite positions which would operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin would then be made, additional cash would be required to be paid by or released to the Fund, and the Fund would realize a loss or a gain. Futures contracts may be closed out only on the exchange or board of trade where the contracts were initially traded. Although the Fund intends to purchase or sell futures contracts only on exchanges or boards of trade where there appears to be an active market, there is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract at any particular time. In such event, it might not be possible to close a futures contract, and in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. However, in the event futures contracts have been used to hedge the underlying instruments, the Fund would continue to hold the underlying instruments subject to the hedge until the futures contracts could be terminated. In such circumstances, an increase in the price of underlying instruments, if any, might partially or completely offset losses on the futures contract. However, as described below, there is no guarantee that the price of the underlying instruments will, in fact, correlate with the price movements in the futures contract and thus provide an offset to losses on a futures contract. Hedging Risk. A decision of whether, when, and how to hedge involves skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of unexpected market behavior, market or interest rate trends. There are several risks in connection with the use by the Fund of futures contracts as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the futures contracts and movements in the prices of the underlying instruments which are the subject of the hedge. Price-Fleming 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 Price-Fleming'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 PAGE 95 instruments underlying futures might advance and the value of the underlying instruments held in the Fund's portfolio might decline. If this were to occur, the Fund would lose money on the futures and also would experience a decline in value in its underlying instruments. However, while this might occur to a certain degree, Price-Fleming believes that over time the value of the Fund's portfolio will tend to move in the same direction as the market indices used to hedge the portfolio. It is also possible that if the Fund were to hedge against the possibility of a decline in the market (adversely affecting the underlying instruments held in its portfolio) and prices instead increased, the Fund would lose part or all of the benefit of increased value of those underlying instruments that it has hedged, because it would have offsetting losses in its futures positions. In addition, in such situations, if the Fund had insufficient cash, it might have to sell underlying instruments to meet daily variation margin requirements. Such sales of underlying instruments might be, but would not necessarily be, at increased prices (which would reflect the rising market). The Fund might have to sell underlying instruments at a time when it would be disadvantageous to do so. In addition to the possibility that there might be an imperfect correlation, or no correlation at all, between price movements in the futures contracts and the portion of the portfolio being hedged, the price movements of futures contracts might not correlate perfectly with price movements in the underlying instruments due to certain market distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors might close futures contracts through offsetting transactions, which could distort the normal relationship between the underlying instruments and futures markets. Second, the margin requirements in the futures market are less onerous than margin requirements in the securities markets, and as a result the futures market might attract more speculators than the securities markets do. Increased participation by speculators in the futures market might also cause temporary price distortions. Due to the possibility of price distortion in the futures market and also because of the imperfect correlation between price movements in the underlying instruments and movements in the prices of futures contracts, even a correct forecast of general market trends by Price-Fleming might not result in a successful hedging transaction over a very short time period. Options on Futures Contracts The Fund may purchase and sell options on the same types of futures in which it may invest. Options on futures are similar to options on underlying instruments except that options on futures give the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put), rather than to purchase or sell the futures contract, at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by the delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid. PAGE 96 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 risks described under "Special Risks of Transactions on Futures Contracts" are substantially the same as the risks of using options on futures. In addition, where the Fund seeks to close out an option position by writing or buying an offsetting option covering the same index, underlying instrument or contract and having the same exercise price and expiration date, its ability to establish and close out positions on such options will be subject to the maintenance of a liquid secondary market. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options, or underlying instruments; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in the class or series of options) would cease to exist, although outstanding options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain of the facilities of any of the clearing corporations inadequate, and thereby result in the institution by an exchange of special procedures which may interfere with the timely execution of customers' orders. Additional Futures and Options Contracts Although the Fund has no current intention of engaging in futures or options transactions other than those described above, it reserves the right to do so. Such futures and options trading might involve risks which differ from those involved in the futures and options described above. Foreign Futures and Options Participation in foreign futures and foreign options transactions involves the execution and clearing of trades on or subject to the rules of a foreign board of trade. Neither the National Futures Association nor any domestic exchange regulates activities of any foreign boards of trade, including the execution, delivery and clearing of transactions, or has the power to compel enforcement of the rules of a foreign board of trade or any applicable foreign law. This is true even if the exchange is formally linked to a domestic market so that a position taken on the market may be liquidated by a PAGE 97 transaction on another market. Moreover, such laws or regulations will vary depending on the foreign country in which the foreign futures or foreign options transaction occurs. For these reasons, when the Fund trades foreign futures or foreign options contracts, it may not be afforded certain of the protective measures provided by the Commodity Exchange Act, the CFTC's regulations and the rules of the National Futures Association and any domestic exchange, including the right to use reparations proceedings before the Commission and arbitration proceedings provided by the National Futures Association or any domestic futures exchange. In particular, funds received from the Fund for foreign futures or foreign options transactions may not be provided the same protections as funds received in respect of transactions on United States futures exchanges. In addition, the price of any foreign futures or foreign options contract and, therefore, the potential profit and loss thereon may be affected by any variance in the foreign exchange rate between the time the Fund's order is placed and the time it is liquidated, offset or exercised. 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 Price-Fleming believes that one currency may experience a substantial movement against another currency, including the U.S. dollar, it may enter into a forward contract to sell or buy the amount of the former foreign currency, approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. Alternatively, where appropriate, the Fund may hedge all or part of its foreign currency exposure through the use of a basket of currencies or a proxy currency where such currency or currencies act as an effective proxy for other currencies. In such a case, the Fund may enter into a forward contract where the amount of the foreign currency to be sold exceeds the value of the securities denominated in such currency. The use of this basket hedging technique may be more efficient and economical than entering into separate forward contracts for each currency held in the Fund. The precise matching of the forward PAGE 98 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. 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, Price-Fleming 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. 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 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 PAGE 99 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 Price-Fleming. 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 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. PAGE 100 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. Under certain circumstances, each Fund, with the exception of International Bond Fund, may commit a substantial portion or the entire value of its assets to the consummation of these contracts. Price-Fleming will consider the effect a substantial commitment of its assets to forward contracts would have on the investment program of the Fund and the flexibility of the Fund to purchase additional securities. In regard to International Bond Fund, Price-Fleming does not intend to enter into such forward contracts if, as a result, the Fund will have more than 50% of the value of its total assets committed to the consummation of such contracts. 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 PAGE 101 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 Price-Fleming to be of good standing and will not be made unless, in the judgment of Price- Fleming, 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. 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 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. 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 Price-Fleming's PAGE 102 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 Price-Fleming. At that time, the bank or securities dealer agrees to repurchase the underlying security at the same price, plus specified interest. Repurchase agreements are generally for a short period of time, often less than a week. Repurchase agreements which do not provide for payment within seven days will be treated as illiquid securities. The Fund will only enter into repurchase agreements where (i) 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. Illiquid or Restricted Securities Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in accordance with procedures prescribed by the Fund's Board of Directors/Trustees. If through the appreciation of illiquid securities or the depreciation of liquid securities, the Fund should be in a position where more than 15% 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. Price-Fleming under the supervision of the Fund's Board of Directors/Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's restriction of investing no more than 15% 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, Price-Fleming will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, Price-Fleming 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 PAGE 103 transfer). The liquidity of Rule 144A securities would be monitored, and if as a result of changed conditions it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not invest more than 15% 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. When-Issued Securities and Forward Commitment Contracts The Fund may purchase securities on a "when-issued" or delayed delivery basis ("When-Issueds") and may purchase securities on a forward commitment basis ("Forwards"). The Fund may invest without limitation in When-Issueds and Forwards. The price of such securities, which may be expressed in yield terms, is fixed at the time the commitment to purchase is made, but delivery and payment take place at a later date. Normally, the settlement date occurs within 90 days of the purchase for When-Issueds, but may be substantially longer for Forwards. During the period between purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund. The purchase of these securities will result in a loss if their value declines prior to the settlement date. This could occur, for example, if interest rates increase prior to settlement. The longer the period between purchase and settlement, the greater the risks are. At the time the Fund makes the commitment to purchase these securities, it will record the transaction and reflect the value of the security in determining its net asset value. The Fund will cover these securities by maintaining cash and/or liquid, high-grade debt securities with its custodian bank equal in value to commitments for them during the time between the purchase and the settlement. Therefore, the longer this period, the longer the period during which alternative investment options are not available to the Fund (to the extent of the securities used for cover). Such securities either will mature or, if necessary, be sold on or before the settlement date. To the extent the Fund remains fully or almost fully invested (in securities with a remaining maturity of more than one year) at the same time it purchases these securities, there will be greater fluctuations in the Fund's net asset value than if the Fund did not purchase them. INVESTMENT RESTRICTIONS The investment restrictions described below have been adopted by each Fund. Fundamental policies of each 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 Funds' Board of Directors without shareholder approval. Any investment restriction which involves a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the percentage occurs immediately after, and is caused by, an acquisition of PAGE 104 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 each 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 each Fund's investment objective and program, provided that the combination of (i) and (ii) shall not exceed 33 1/3% of the value of each 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. Each 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 (Global Government Bond and Short-Term Global Income Funds). Purchase the securities of any issuer if, as a result, more than 25% of the value of a Fund's total assets would be invested in the securities of issuers having their principal business activities in the same industry; Industry Concentration (International Bond Fund). Purchase the securities of any issuer if, as a result, more than 25% of the value of a Fund's total assets would be invested in the securities of issuers having their principal business activities in the same industry; provided, however, that the Fund will normally concentrate 25% or more of its assets in securities of the banking industry when the Fund's position in issues maturing in one year or less equals 35% or more of the Fund's total assets; (4) Loans. Make loans, although each 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 a 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 a 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 a Fund may be deemed to be an underwriter PAGE 105 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), each 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. Each Fund has no current intention of engaging in any such activity and there is no assurance the SEC would grant any order requested by a 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 Funds may not: (1) Borrowing. Each 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 initial margin and premiums on such positions would exceed 5% of each 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 a 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 a 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 a Fund's total assets at the time of PAGE 106 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 a Fund's management, those officers and directors of a 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 each 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 each Fund would be invested in warrants which are not listed on the New York Stock Exchange, the American Stock Exchange, or a recognized foreign exchange, or more than 5% of the value of the total assets of each 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. Each 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. PAGE 107 INVESTMENT PERFORMANCE Total Return Performance Each Fund's calculation of total return performance includes the reinvestment of all capital gain distributions and income dividends for the period or periods indicated, without regard to tax consequences to a shareholder in each Fund. Total return is calculated as the percentage change between the beginning value of a static account in each Fund and the ending value of that account measured by the then current net asset value, including all shares acquired through reinvestment of income and capital gains dividends. The results shown are historical and should not be considered indicative of the future performance of each Fund. Each average annual compound rate of return is derived from the cumulative performance of each Fund over the time period specified. The annual compound rate of return for each Fund over any other period of time will vary from the average. International Bond Fund Cumulative Performance Percentage Change Since 1 Year 5 Years Inception Ended Ended 9/10/86- 12/31/93+ 12/31/93 12/31/93++ _________ __________ __________ International Bond Fund 20.00% 62.55% 110.82% International Stock Fund 40.11 76.63 137.57 Fidelity Global Bond Fund 21.88 73.92 N/A Massachusetts Financial World Wide Government Trust "A" 18.10 71.85 N/A Merrill Lynch Retirement Global Bond Fund "B" 12.39 69.53 128.47 Paine Webber Master Global Income Fund "B"13.43 56.68 N/A J.P. Morgan Non-U.S. Dollar Gov't. Bond Index 14.53 52.04 N/A Salomon Brothers Non-U.S. Dollar World Gov't. Bond Index 15.12 56.09 122.15* Lipper General World Income Funds Avg. 17.03 64.86 102.91 *Since 9/30/86 PAGE 108 Average Annual Compound Rates of Return Since 1 Year 5 Years Inception Ended Ended 9/10/86- 12/31/93+ 12/31/93 12/31/93++ _________ __________ _________ International Bond Fund 20.00% 10.20% 10.75% International Stock Fund 40.11 12.05 12.56 Fidelity Global Bond Fund 21.88 11.70 N/A Massachusetts Financial World Wide Government Trust "A" 18.10 11.43 N/A Merrill Lynch Retirement Global Bond Fund "B" 12.39 11.13 12.06 Paine Webber Master Global Income Fund "B"13.43 9.39 N/A J.P. Morgan Non-U.S. Dollar Gov't. Bond Index 14.53 8.74 11.19* Salomon Brothers Non-U.S. Dollar World Gov't. Bond Index 15.12 9.31 11.63* Lipper General World Income Funds Avg. 17.03 10.51 10.24* + If you invested $1,000 at the beginning of 1993, the total return on December 31, 1993 would be $1,200 ($1,000 X .20). ++ Assumes purchase of one share of the International Bond Fund at the inception price of $10.00 on 9/10/86. +++ Since September 30, 1986 * Since 9/30/86 Global Government Bond Fund Cumulative Performance Percentage Change Since 1 Year Inception Ended 12/28/90- 12/31/93+ 12/31/93++ _________ __________ Global Government Bond Fund 11.15% 27.48% International Bond Fund 20.00 44.68 International Stock Fund 40.11 56.71 Fidelity Global Bond Fund 21.88 43.52 Massachusetts Financial World Wide Government Trust "A" 18.10 35.75 Merrill Lynch Retirement Global Bond Fund "B" 12.39 38.79 Paine Webber Master Global Income Fund "B" 13.43 26.20 J.P. Morgan Global (50%) and Global Hedged (50%) Gov't. Bond Index 12.59 38.52 J.P. Morgan Global Gov't. Bond Index 12.27 35.50 J.P. Morgan Global Gov't. Bond Hedged Index 12.16 35.28 Lipper General World Income Funds Avg. 17.03 10.90 PAGE 109 Average Annual Compound Rates of Return Since 1 Year Inception Ended 12/28/90- 12/31/93+ 12/31/93++ _________ __________ Global Government Bond Fund 11.15% 8.51% International Bond Fund 20.00 13.10 International Stock Fund 40.11 16.15 Fidelity Global Bond Fund 21.88 12.79 Massachusetts Financial World Wide Government Trust "A" 18.10 10.71 Merrill Lynch Retirement Global Bond Fund "B" 12.39 11.53 Paine Webber Master Global Income Fund "B" 13.43 8.06 J.P. Morgan Global (50%) and Global Hedged (50%) Gov't. Bond Index 12.59 11.46 J.P. Morgan Global Gov't. Bond Index 12.27 10.65 J.P. Morgan Global Gov't. Bond Hedged Index 12.16 10.59 Lipper General World Income Funds Avg. 17.03 10.90 + If you invested $1,000 at the beginning of 1993, the total return on December 31, 1993 would be $1,111 ($1,000 X .111). ++ Assumes purchase of one share of the Global Government Bond Fund at the inception price of $10.00 on 12/28/90. Short-Term Global Income Fund Cumulative Performance Percentage Change Since 1 Year Inception Ended 06/30/92- 12/31/93+ 12/31/93++ _________ __________ Short-Term Global Income Fund 7.87% 7.63% Alliance Short-Term Multi-Market Trust "A" 7.79 4.95 Blanchard Short-Term Global Income Fund 8.53 9.47 Fidelity Short-Term World Income Fund 12.59 13.09 Scudder Short-Term Global Income Fund 6.74 8.18 Lipper Short World Multi-Market Income Funds Average 5.41 1.28 PAGE 110 Average Annual Compound Rates of Return Since 1 Year Inception Ended 06/30/92- 12/31/93+ 12/31/93++ _________ __________ Short-Term Global Income Fund 7.87% 5.01% Alliance Short-Term Multi-Market Trust "A" 7.79 3.26 Blanchard Short-Term Global Income Fund 8.53 6.20 Fidelity Short-Term World Income Fund 12.59 8.52 Scudder Short-Term Global Income Fund 6.74 5.37 Lipper Short World Multi-Market Income Funds Average 5.41 0.85 + If you invested $1,000 at the beginning of 1993, the total return on December 31, 1993 would be $1,079 ($1,000 X .07870). ++ Assumes purchase of one share of the Short-Term Global Income Fund at the inception price of $10.00 on 06/30/92. Short-Term Global Income, Global Government Bond, and International Bond Funds From time to time, in reports and promotional literature, one or more of the T. Rowe Price funds, including these Funds, may compare its performance to Overnight Government Repurchase Agreements, Treasury bills, notes, and bonds, certificates of deposit, and six-month money market certificates. Performance may also be compared to (1) indices of broad groups of managed and unmanaged securities considered to be representative of or similar to Fund portfolio holdings (2) other mutual funds or (3) other measures of performance set forth in publications such as: Advertising News Service, Inc., "Bank Rate Monitor+ - The Weekly Financial Rate Reporter" is a weekly publication which lists the yields on various money market instruments offered to the public by 100 leading banks and thrift institutions in the U.S., including loan rates offered by these banks. Bank certificates of deposit differ from mutual funds in several ways: the interest rate established by the sponsoring bank is fixed for the term of a CD; there are penalties for early withdrawal from CDs; and the principal on a CD is insured. Consumer Price Index - prepared monthly by the Department of Commerce, this index is based on the price of selected consumer goods and is widely accepted as an indicator of U.S. price levels in general. Donoghue Organization, Inc., "Donoghue's Money Fund Report" is a weekly publication which tracks net assets, yield, maturity and portfolio holdings on approximately 380 money market mutual funds offered in the U.S. These funds are broken down into various categories such as U.S. Treasury, Domestic Prime and Euros, Domestic Prime and Euros and Yankees, and Aggressive. First Boston High Yield Index shows statistics on the Composite Index and analytical data on new issues in the marketplace and low-grade issuers. PAGE 111 International Bond Fund Major Competitors - the average of the following mutual funds: Massachusetts Financial Global Bond Fund, Merrill-Lynch Retirement Global Bond Fund, Prudential-Bache Global Yield Fund, or other similar mutual funds; Lipper Analytical Services, Inc. Average of World Income Funds - a widely used independent research firm which ranks mutual funds by overall performance, investment objectives, and assets. Lipper Analytical Services, Inc., "Lipper-Fixed Income Fund Performance Analysis" is a monthly publication which tracks net assets, total return, principal return and yield on approximately 950 fixed income mutual funds offered in the United States. Merrill Lynch Global Government Bond Indices - provides detailed compound returns for individual countries and a market weighted index beginning in 1986. Returns are broken down into local market and currency components. Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices" is a monthly publication which lists principal, coupon and total return on over 100 different taxable bond indices which Merrill Lynch tracks, together with the par weighted characteristics of each Index. The index used as a benchmark for the High Yield Fund is the High Yield Index. The two indices used as benchmarks for the Short-Term Bond Fund are the 91- Day Treasury Bill Index and the 1-2.99 Year Treasury Note Index. Morningstar, Inc. is a widely used independent research firm which rates mutual funds by overall performance, investment objectives, and assets. Reuters Reports. Reuters is a news and information organization which provides statistics and analytical data on yields available in various countries. Salomon Brothers Broad Investment Grade Index - a widely used index composed of U.S. domestic government, corporate, and mortgage-backed fixed income securities. Salomon Brothers Inc. "Bond Market Round-up" is a weekly publication which tracks the yields and yield spreads on a large, but select, group of money market instruments, public corporate debt obligations, and public obligations of the U.S. Treasury and agencies of the U.S. Government. Salomon Brothers Inc. "Market Performance" is a monthly publication which tracks principal return, total return and yield on the Salomon Brothers Broad investment - Grade Bond Index and the components of the Index. Salomon Brothers World Bond Index and related subindices - provides detailed compound returns for individual countries and a market-weighted index beginning in 1978. Returns are broken down into local market and currency components. Salomon Brothers World Government Bond Index and related subindices - provides detailed compound returns for individual countries and a market weighted index beginning in 1985. Returns are broken down into local market and currency components. PAGE 112 Shearson Lehman American Express Government/Corporate Bond Index - a widely used index composed of U.S. domestic government and corporate fixed income securities. Shearson Lehman Brothers, Inc. "The Bond Market Report" is a monthly publication which tracks principal, coupon and total return on the Shearson Lehman Govt./Corp. Index and Shearson Lehman Aggregate Bond Index, as well as all the components of these Indices. Standard & Poor's "500" Index - a widely recognized index composed of the capitalization-weighted average of the price of 500 of the largest publicly traded stocks. Telerate Systems, Inc., a computer system to which we subscribe which tracks the daily rates on money market instruments, public corporate debt obligations and public obligations of the U.S. Treasury and agencies of the U.S. Government. Wall Street Journal, a daily newspaper publication which lists the yields and current market values on money market instruments, public corporate debt obligations, public obligations of the U.S. Treasury and agencies of the U.S. Government as well as common stocks, preferred stocks, convertible preferred stocks, options and commodities; in addition to indices prepared by the research departments of such financial organizations as Shearson Lehman/American Express Inc. and Merrill Lynch, Pierce, Fenner and Smith, Inc., including information provided by the Federal Reserve Board. Indices prepared by the research departments of such financial organizations as Salomon Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., Bear Stearns & Co., Inc., and Ibbotson Associates will be used, as well as information provided by the Federal Reserve Board. Performance rankings and ratings reported periodically in national financial publications such as MONEY, FORBES, BUSINESS WEEK, and BARRON'S, etc. may also be used. Benefits of Investing in High-Quality Bond Funds o Higher Income Bonds have generally provided a higher income than money market securities because yields have usually increased with longer maturities. For instance, the yield on the 30-year Treasury bond usually exceeds the yield on the 1-year Treasury bill or 5-year Treasury note. However, securities with longer maturities fluctuate more in price than those with shorter maturities. Therefore, the investor must weigh the advantages of higher yields against the possibility of greater fluctuation in the principal value of your investment. o Income Compounding Investing in bond mutual funds allows investors to benefit from easy and convenient compounding, because you can automatically reinvest monthly dividends in additional fund shares. Each month investors earn interest PAGE 113 on a larger number of shares. Also, reinvesting dividends removes the temptation to spend the income. o Broad Diversification Each share of a mutual fund represents an interest in a large pool of securities, so even a small investment is broadly diversified by maturity. Since most bonds trade efficiently only in very large blocks, mutual funds provide a degree of diversification that may be difficult for individual investors to achieve on their own. o Lower Portfolio Volatility Investing a portion of one's assets in longer term, high-quality bonds can help smooth out the fluctuations in your overall investment results, because bond prices do not necessarily move with stock prices. Also, bonds usually have higher income yields than stocks, thus increasing the total income component of your portfolio. This strategy should also add stability to overall results, as income is always a positive component of total return. o Liquidity A bond fund can supplement a money market fund or bank account as a source of capital for unexpected contingencies. T. Rowe Price fixed- income funds offer you easy access to money through free checkwriting and convenient redemption or exchange features. Of course, the value of a bond fund's shares redeemed through checkwriting may be worth more or less than their value at the time of their original purchase. Suitability High-quality bond funds are most suitable for the following objectives: obtaining a higher current income with minimal credit risk; compounding of income over time; or diversifying overall investments to reduce volatility. GOVERNMENT BOND YIELDS+ The Fund can invest in the world's highest yielding government bonds, wherever they are found. Chart 1 Global Government Bond Fund + Semiannual equivalent yields on 10-year government bonds, January 1, 1988 through March 11, 1993. Source: Salomon Brothers. PAGE 114 IRAs An IRA is a long-term investment whose objective is to accumulate personal savings for retirement. Due to the long-term nature of the investment, even slight differences in performance will result in significantly different assets at retirement. Mutual funds, with their diversity of choice, can be used for IRA investments. Generally, individuals may need to adjust their underlying IRA investments as their time to retirement and tolerance for risk changes. Other Features and Benefits Each 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. To assist investors in understanding the different returns and risk characteristics of various investments, the aforementioned guides will include presentation of historical returns of various investments using published indices. An example of this is shown below. PAGE 115 Historical Returns for Different Investments Annualized returns for periods ended 12/31/93 50 years 20 years 10 years 5 years Small-Company Stocks 15.3% 18.8% 10.0% 13.3% Large-Company Stocks 12.3 12.8 14.9 14.5 Foreign Stocks N/A 14.4 17.9 2.3 Long-Term Corporate Bonds 5.6 10.2 14.0 13.0 Intermediate-Term U.S. Gov't. Bonds 5.7 9.8 11.4 11.3 Treasury Bills 4.6 7.5 6.4 5.6 U.S. Inflation 4.3 5.9 3.7 3.9 Sources: Ibbotson Associates, Morgan Stanley. Foreign stocks reflect performance of The Morgan Stanley Capital International EAFE Index, which includes some 1,000 companies representing the stock markets of Europe, Australia, New Zealand, and the Far East. This chart is for illustrative purposes only and should not be considered as performance for, or the annualized return of, any T. Rowe Price Fund. Past performance does not guarantee future results. Also included will be various portfolios demonstrating how these historical indices would have performed in various combinations over a specified time period in terms of return. An example of this is shown below. Performance of Retirement Portfolios* Asset Mix Average Annualized Value Returns 20 Years of Ended 12/31/93 $10,000 Investment After Period _____________________ ______________________ ____________ Nominal Real Best Worst Portfolio Growth Income Safety Return Return** Year Year I. Low Risk 40% 40% 20% 11.3% 5.4% 24.9% -9.3% $ 79,775 II. Moderate Risk 60% 30% 10% 12.1% 6.2% 29.1%-15.6% $ 90,248 III. High Risk 80% 20% 0% 12.9% 7.0% 33.4%-21.9% $100,031 PAGE 116 Source: T. Rowe Price Associates; data supplied by Lehman Brothers, Wilshire Associates, and Ibbotson Associates. * Based on actual performance for the 20 years ended 1993 of stocks (85% Wilshire 5000 and 15% Europe, Australia, Far East [EAFE] Index), bonds (Lehman Brothers Aggregate Bond Index from 1976-93 and Lehman Brothers Government/Corporate Bond Index from 1974-75), and 30-day Treasury bills from January 1974 through December 1993. Past performance does not guarantee future results. Figures include changes in principal value and reinvested dividends and assume the same asset mix is maintained each year. This exhibit is for illustrative purposes only and is not representative of the performance of any T. Rowe Price fund. ** Based on inflation rate of 5.9% for the 20-year period ended 12/31/93. From time to time, Insights, a T. Rowe Price publication of reports on specific investment topics and strategies, may be included in the Fund's fulfillment kit. Such reports may include information concerning: calculating taxable gains and losses on mutual fund transactions, coping with stock market volatility, benefiting from dollar cost averaging, understanding international markets, investing in high-yield "junk" bonds, growth stock investing, conservative stock investing, value investing, investing in small companies, tax-free investing, fixed income investing, investing in mortgage- backed securities, as well as other topics and strategies. YIELD INFORMATION From time to time, the Funds may advertise a yield figure calculated in the following manner: In conformity with regulations of the Securities and Exchange Commission, an income factor is calculated for each security in the portfolio, based upon the security's market value at the beginning of the period and expected yield- to-maturity. The income factors are then totalled for all securities in the portfolio. Next, expenses of the Fund for the period, net of expected reimbursements, are deducted from the income to arrive at net income, which is then converted to a per-share amount by dividing net income by the average number of shares outstanding during the period. The net income per share is divided by the net asset value on the last day of the period to produce a monthly yield which is then annualized. Quoted yield factors are for comparison purposes only, and are not intended to indicate future performance or forecast the dividend per share of the Fund. Global Government Bond Fund The Fund's yield calculated as set forth above for the month ended March 31, 1994 was ___%. Short-Term Global Income Fund The Fund's yield calculated as set forth above for the month ended March 31, 1994 was ___%. PAGE 117 International Bond Fund The Fund's yield calculated as set forth above for the month ended March 31, 1994 was ___%. Redemptions in Kind In the unlikely event a shareholder in any of the International Funds were to receive an in kind redemption of portfolio securities of a 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 a fund's 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 objectives and policies of the Funds; (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. MANAGEMENT OF FUNDS The officers and directors of the Funds 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 Funds' 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 asterisk (*). These directors are referred to as inside directors by virtue of their officership, directorship, and/or employment with T. Rowe Price. *M. DAVID TESTA, Chairman of the Board--Chairman of the Board, Price-Fleming; Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company; Chartered Financial Analyst *MARTIN G. WADE, President and Director--President, Price-Fleming; Director, Robert Fleming Holdings Limited; Address: 25 Copthall Avenue, London, EC2R 7DR, England LEO C. BAILEY, Director--Retired; Address: 3396 South Placita Fabula, Green Valley, Arizona 85614 ANTHONY W. DEERING, Director--Director, President and Chief Operating Officer, The Rouse Company, real estate developers, Columbia, Maryland; Advisory Director, Kleinwort, Benson (North America) Corporation, a registered broker- dealer; Address: 10275 Little Patuxent Parkway, Columbia, Maryland 21044 DONALD W. DICK, JR., Director--Principal, Overseas Partners, Inc., a financial investment firm; formerly (6/65-3/89) Director and Vice President-Consumer Products Division, McCormick & Company, Inc., international food processors; Director, Waverly Press, Inc., Baltimore, Maryland; Address: 375 Park Avenue, Suite 2201, New York, New York 10152 ADDISON LANIER, Director--Financial management; President and Director, Thomas Emery's Sons, Inc., and Emery Group, Inc.; Director, Scinet Development and Holdings, Inc.; Address: 441 Vine Street, #2310, Cincinnati, Ohio 45202-2913 PAGE 118 DAVID P. BOARDMAN, Executive Vice President--Executive Vice President, Price- Fleming CHRISTOPHER D. ALDERSON, Vice President--Vice President, Price-Fleming PETER B. ASKEW, Vice President--Vice President, Price-Fleming RICHARD J. BRUCE, Vice President--Vice President of Price-Fleming; formerly (1985-1990) Investment Manager, Jardine Fleming Investment Advisers, Tokyo ROBERT P. CAMPBELL, Vice President--Vice President, T. Rowe Price and Rowe Price-Fleming International Inc.; formerly (4/80-5/90) Vice President and Director, Private Finance, New York Life Insurance Company, New York, New York MARK J. T. EDWARDS, Vice President--Vice President, Price-Fleming JOHN R. FORD, Vice President--Executive Vice President, Price-Fleming 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 ROBERT C. HOWE, Vice President--Vice President, Price-Fleming and T. Rowe Price STEPHEN ILOTT, Vice President--Employee, Price-Fleming; formerly (1988-1991) portfolio management, Fixed Income Portfolios Group, Robert Fleming Holdings Limited, London GEORGE A. MURNAGHAN, Vice President--Vice President, Price-Fleming, T. Rowe Price, T. Rowe Price Trust Company, and T. Rowe Price Investment Services, Inc. JAMES S. RIEPE, Vice President--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. CHRISTOPHER ROTHERY, Vice President--Employee, Price-Fleming; formerly (1987-1989) employee of Robert Fleming Holdings Limited, London CHARLES H. SALISBURY, JR., Vice President--Vice President and Director, Price-Fleming; Managing Director, T. Rowe Price; President, Trust Officer and Director, T. Rowe Price Trust Company; Director, T. Rowe Price Retirement Plan Services, Inc. JAMES B. M. SEDDON, Vice President--Vice President, Price-Fleming CHARLES P. SMITH, Vice President--Managing Director, T. Rowe Price; Vice President, Rowe Price-Fleming International, Inc. BENEDICT R. F. THOMAS, Vice President--Vice President, Price-Fleming PETER VAN DYKE, Vice President--Managing Director, T. Rowe Price; Vice President, Rowe Price-Fleming International, Inc. DAVID J. L. WARREN, Vice President--Executive Vice President, Price-Fleming WILLIAM F. WENDLER, II, Vice President--Vice President, Price-Fleming, T. Rowe Price and T. Rowe Price Investment Services, Inc. EDWARD A. WIESE, Vice President--Vice President, T. Rowe Price, Rowe Price- Fleming International, 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. LEAH P. HOLMES, Assistant Vice President--Vice President, Price-Fleming and Assistant Vice President of Price Associates EDWARD T. SCHNEIDER, Assistant Vice President--Vice President, T. Rowe Price Services, Inc. PAGE 119 INGRID I. VORDEMBERGE, Assistant Vice President--Employee, T. Rowe Price The Funds' Executive Committee, comprised of Messrs. Testa and Wade, has been authorized by the Board of Directors to exercise all of the powers of the Board to manage the Funds in the intervals between meetings of the Board, except the powers prohibited by statute from being delegated. PRINCIPAL HOLDERS OF SECURITIES As of the date of the prospectus, the officers and directors of the Funds, as a group, owned less than 1% of the outstanding shares of each Fund. As of December 31, 1993, the following shareholders beneficially owned more than 5% of the outstanding shares of the Short-Term Global Income Fund: The Challenge Fund, 11 Magnolia Parkway, Chevy Chase, Maryland 20815-4206; and the International Bond Fund: Charles Scwab & Co. Inc., Reinvest Account, Attn.: Mutual Fund Dept., 101 West Montgomery Street, San Francisco, California 94104-4122; and Yachtcrew & Co., Attn.: Mark White, Spectrum Income Account, State Street Bank and Trust Co., 1776 Heritage Drive - 4W, North Quincy, Massachusetts 02171-2101. INVESTMENT MANAGEMENT SERVICES Services Under the Management Agreement, Price-Fleming provides each Fund with discretionary investment services. Specifically, Price-Fleming is responsible for supervising and directing the investments of each 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 each Fund, including the negotiation of commissions and the allocation of principal business and portfolio brokerage. In addition to these services, Price- Fleming provides the Funds with certain corporate administrative services, including: maintaining the Funds' corporate existence, corporate records, and registering and qualifying Fund shares under federal and state laws; monitoring the financial, accounting, and administrative functions of each Fund; maintaining liaison with the agents employed by each Fund such as the Fund's custodian and transfer agent; assisting each Fund in the coordination of such agents' activities; and permitting Price-Fleming's employees to serve as officers, directors, and committee members of each 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 each 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 Funds 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, PAGE 120 appropriate, or convenient for the discharge of its obligations under the Management Agreement or otherwise helpful to the Funds. 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 of .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 Each Fund pays Price-Fleming a fee ("Fee") which consists of two components: a Group Management Fee ("Group Fee") and an Individual Fund Fee ("Fund Fee"). The Fee is paid monthly to Price-Fleming on the first business day of the next succeeding calendar month and is calculated as described below. The monthly Group Fee ("Monthly Group Fee") is the sum of the daily Group Fee accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee Accrual for any particular day is computed by multiplying the Price Funds' group fee accrual as determined below ("Daily Price Funds' Group Fee Accrual") by the ratio of each Fund's net assets for that day to the sum of the aggregate net assets of the Price Funds for that day. The Daily Price Funds' Group Fee Accrual for any particular day is calculated by multiplying the fraction of one (1) over the number of calendar days in the year by the annualized Daily Price Funds' Group Fee Accrual for that day as determined in accordance with the following schedule: PAGE 121 Price Funds' Annual Group Base Fee Rate for Each Level of Assets _________________________________ 0.480% First $1 billion 0.450% Next $1 billion 0.420% Next $1 billion 0.390% Next $1 billion 0.370% Next $1 billion 0.360% Next $2 billion 0.350% Next $2 billion 0.340% Next $5 billion 0.330% Next $10 billion 0.320% Next $10 billion 0.310% Thereafter For the purpose of calculating the Group Fee, the Price Funds include all the mutual funds distributed by T. Rowe Price Investment Services, Inc. (excluding T. Rowe Price Spectrum Fund, Inc. and any institutional or private label mutual funds). For the purpose of calculating the Daily Price Funds' Group Fee Accrual for any particular day, the net assets of each Price Fund are determined in accordance with the Funds' prospectus as of the close of business on the previous business day on which the Fund was open for business. The monthly Fund Fee ("Monthly Fund Fee") is the sum of the daily Fund Fee accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any particular day is computed by multiplying the fraction of one (1) over the number of calendar days in the year by the Fund Fee Rate of 0.25% for the Short-Term Global Income Fund and 0.35% each for the Global Government Bond and International Bond Funds, and multiplying this product by the net assets of the Fund for that day, as determined in accordance with the Funds' prospectus as of the close of business on the previous business day on which the Fund was open for business. The Short-Term Global Income Fund paid management fees for the year 1993, $341,000 and did not pay any management fees to Price-Fleming for the fiscal year ended 1992, Global Government Bond Fund paid management fees for the years 1993, and 1992, $269,000, $253,000 and did not pay any management fees to Price-Fleming for the fiscal year ended 1991. The management fees paid by the International Bond Fund for the years 1993, 1992, and 1991, were $4,363,000, $3,567,000, and $2,502,000, respectively. Limitation on Fund Expenses The Management Agreement between each Fund and Price-Fleming provides that each Fund will bear all expenses of its operations not specifically assumed by Price-Fleming. However, in compliance with certain state regulations, Price- Fleming will reimburse each Fund for certain expenses which in any year exceed the limits prescribed by any state in which the Fund's shares are qualified for sale. Presently, the most restrictive expense ratio limitation imposed by any state is 2.5% of the first $30 million of a Fund's average daily net assets, 2% of the next $70 million of the average daily net assets, and 1.5% of net assets in excess of $100 million. For the purpose of determining whether a Fund is entitled to reimbursement, the expenses of each Fund are calculated on a monthly basis. If the Fund is entitled to reimbursement, that month's management fee will be reduced or postponed, with any adjustment made PAGE 122 after the end of the year. Short-Term Global Income Fund In the interest of limiting the expenses of the Fund during its initial period of operations, Price-Fleming agreed to bear any expenses through December 31, 1993, which would cause the Fund's ratio of expenses to average net assets to exceed 1.00%. Expenses paid or assumed under this agreement are subject to reimbursement to Price-Fleming by the Fund whenever the Fund's expense ratio is below 1.00%; however no reimbursement will be made to Price- Fleming after December 31, 1995, or if it would result in the expense ratio exceeding 1.00%. The Management Agreement also provides that one or more additional expense limitation periods (of the same or different levels and time periods) may be implemented after the expiration of the current one on December 31, 1993, and that with respect to any such additional limitation period, the Fund may reimburse Price-Fleming, provided the reimbursement does not result in the Fund's aggregate expenses exceeding the additional expense limitation. Pursuant to this agreement, $149,000 of management fees were not accrued by the Fund for the period ended December 31, 1992, and $37,000 of other expenses were borne by Price-Fleming. Global Government Bond Fund In the interest of limiting the expenses of the Fund during its initial period of operations, Price-Fleming agreed to bear any expenses through December 31, 1992, which would cause the Fund's ratio of expenses to average net assets to exceed 1.20%. Effective January 1, 1993 Price-Fleming agreed to extend the Fund's existing expense limitation of 1.20% for a period of two years through December 31, 1994. The Management Agreement also provides that one or more additional expense limitation periods (of the same or different time periods) may be implemented after the expiration of the current one on December 31, 1992, and that with respect to any such additional limitation period, the Fund may reimburse Price-Fleming, provided the reimbursement does not result in the Fund's aggregate expenses exceeding the additional expense limitation or any applicable state expense limitation. Expenses paid or assumed under each agreement are subject to reimbursement to Price-Fleming by the Fund whenever the Fund's expense ratio is below 1.20%; however, no reimbursement will be made after December 31, 1994 (for the initial agreement) or December 31, 1996 (for the second agreement), or if it would result in the expense ratio exceeding 1.50%. Pursuant to the first agreement, $148,000 of management fees were not accrued by the Fund for the year ended December 31, 1992. Additionally, $240,000 of unaccrued fees and other expenses borne by Price-Fleming in 1991 are subject to reimbursement through December 31, 1994. International Bond Fund The Fund is a party to a Special Servicing Agreement ("Agreement") between and among T. Rowe Price Spectrum Fund, Inc. ("Spectrum Fund"), T. Rowe Price, T. Rowe Price Services, Inc. and various other T. Rowe Price funds which, along with the Funds, are funds in which Spectrum Fund invests (collectively all such funds "Underlying Price Funds"). The Agreement provides that, if the Board of Directors/Trustees of any Underlying Price Fund determines that such Underlying Fund's share of the PAGE 123 aggregate expenses of Spectrum Fund is less than the estimated savings to the Underlying Price Fund from the operation of Spectrum Fund, the Underlying Price Fund will bear those expenses in proportion to the average daily value of its shares owned by Spectrum Fund, provided further that no Underlying Price Fund will bear such expenses in excess of the estimated savings to it. Such savings are expected to result primarily from the elimination of numerous separate shareholder accounts which are or would have been invested directly in the Underlying Price Funds and the resulting reduction in shareholder servicing costs. Although such cost savings are not certain, the estimated savings to the Underlying Price Funds generated by the operation of Spectrum Fund are expected to be sufficient to offset most, if not all, of the expenses incurred by Spectrum Fund. DISTRIBUTOR FOR FUNDS 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 Funds' 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 each Fund's shares is continuous. Investment Services is located at the same address as the Funds and T. Rowe Price -- 100 East Pratt Street, Baltimore, Maryland 21202. Investment Services serves as distributor to the Funds pursuant to an Underwriting Agreement ("Underwriting Agreement"), which provides that each 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 each Fund. Investment Services' expenses are paid by T. Rowe Price. Investment Services acts as the agent of each 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 Funds. CUSTODIAN State Street Bank and Trust Company (the "Bank") is the custodian for the Funds' securities and cash, but it does not participate in the Funds' 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 PAGE 124 Trust Corporation. The Bank and Funds have 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 Funds are 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 each 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, a Fund may pay higher brokerage commissions in return for brokerage and research services. In selecting broker-dealers to execute a 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 Funds. 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 undisclosed commission or markup. In underwritten offerings, the price includes a disclosed, fixed commission or discount. PAGE 125 Fixed Income Securities For fixed income securities, it is expected that purchases and sales will ordinarily be transacted with the issuer, the 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 Funds 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. 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 a 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 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 PAGE 126 Price-Fleming, Conversely, research services received from brokers which execute transactions for a particular Fund will not necessarily be used by Price-Fleming exclusively in connection with the management of that Fund. Some of Price-Fleming's other clients have investment objectives and programs similar to those of the Funds. Price-Fleming may occasionally make recommendations to other clients which result in their purchasing or selling securities simultaneously with the Funds. 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. None of the Funds allocates 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 each 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 a 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 trading desks, although orders for a Fund's portfolio transactions may be placed with affiliates of Robert Fleming and JFG who may receive a commission. PAGE 127 The Board of Directors of the Funds 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 Funds' independent directors to approve the procedures under which brokerage allocation to affiliates is to be made and to monitor such allocations on a continuing basis. 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 Funds. The directors have reviewed and from time to time may continue to review whether other recapture opportunities are legally permissible and available and, if they appear to be, determine whether it would be advisable for a Fund to seek to take advantage of them. Other For the fiscal years ended December 31, 1993, December 31, 1992 and December 31, 1991, the Global Government Bond Fund engaged in portfolio transactions involving broker-dealers totaling $144,423,000, $129,060,000 and $174,169,000, respectively. The entire amounts for each year represented principal transactions as to which the Global Government Bond Fund has no knowledge of the profits or losses realized by the respective broker-dealers. For the fiscal years ended December 31, 1993, December 31, 1992 and December 31, 1991, approximately 0%, 0% and 30%, respectively, were placed with firms which provided research, statistical, or other services to Price-Fleming in connection with the management of the Global Government Bond Fund or, in some cases, to the Global Government Bond Fund. For the fiscal year ended December 31, 1993 and fiscal period ended December 31, 1992, the Short-Term Global Income Fund engaged in portfolio transactions involving broker-dealers totaling $4,780,555,000 and $582,425,000, respectively. The entire amount for the period represented principal transactions as to which the Short-Term Global Income Fund had no knowledge of the profits or losses realized by the respective dealers. Of these portfolio transactions, approximately 0%, was paid to firms which provided research, statistical, or other services to Price-Fleming in connection with the management of the Short-Term Global Income Fund or, in some cases, to the Short-Term Global Income Fund. For the fiscal years ended December 31, 1993, December 31, 1992 and December 31, 1991, the International Bond Fund engaged in portfolio transactions involving broker-dealers totaling $157,373,000, $6,813,188,000 and $5,874,607,000, respectively. The entire amounts for each year represented principal transactions as to which the International Bond Fund has no knowledge of the profits or losses realized by the respective broker- dealers. Of all such portfolio transactions, 0%, 0% and 33%, respectively, were placed with firms which provided research, statistical, or other services to Price-Fleming in connection with the management of the International Bond PAGE 128 Fund or, in some cases, to the International Bond Fund. PRICING OF SECURITIES Fixed income securities are generally traded in the over-the-counter market and are valued at a price deemed best to reflect a fair value as quoted by dealers who make markets in these securities or by an independent pricing service. For purposes of determining each Fund's net asset value per share, all assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at the mean of the bid and offer prices of such currencies against U.S. dollars quoted by any major bank. If such quotations are not available, the rate of exchange will be determined in accordance with policies established in good faith by the Board of Directors. Securities or other assets for which the above valuation procedures are deemed not to reflect fair value will be appraised at prices deemed best to reflect their fair value. Such determinations will be made in good faith by or under the supervision of the officers of the Fund, as authorized by the Board of Directors. Trading in the portfolio securities of each Fund may take place in various foreign markets on certain days (such as Saturday) when the Funds are not open for business and do not calculate their net asset values. In addition, trading in a Fund's portfolio securities may not occur on days when the Fund is open. The calculation of each 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 securities that occur between the time their prices are determined and the time each 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 each Fund's shares is equal to that Fund's net asset value per share or share price. Each Fund determines its net asset value per share by subtracting its liabilities (including accrued expenses and dividends payable) from its total assets (the market value of the securities 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 each Fund is calculated as of the close of trading on the New York Stock Exchange ("NYSE") every day the NYSE is open for trading. The NYSE is closed on the following days: New Year's Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Determination of net asset value (and the offering, sale, redemption and repurchase of shares) for a Fund may be suspended at times (a) during which the NYSE is closed, other than customary weekend and holiday closings, (b) during which trading on any of such Exchanges is restricted (c) during which an emergency exists as a result of which disposal by a Fund of securities PAGE 129 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, the Fund's annual capital gain distributions, if any, will be reinvested on the reinvestment date using the NAV per share of that date. The reinvestment date normally precedes the payment date by about 10 days although the exact timing is subject to change. TAX STATUS Each Fund intends to qualify as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended ("Code"). Dividends and distributions paid by the Funds are not eligible for the dividends-received deduction for corporate shareholders, if as expected, none of the Fund's income consists of dividends paid by United States corporations. Capital gain distributions paid from these Funds are never eligible for this deduction. For tax purposes, it does not make any difference whether dividends and capital gain distributions are paid in cash or in additional shares. Each Fund must declare 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. Foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to foreign exchange rate fluctuations are taxable as ordinary income. If the net effect of these transactions is a gain, the dividend paid by the fund will be increased; if the result is a loss, for the Funds, a portion of the income dividends paid could be classified as a return of capital. Adjustments, to reflect these gains and losses will be made at the end of each Fund's taxable year. At the time of your purchase, each Bond Fund's net asset value may reflect undistributed capital gains or net unrealized appreciation of securities held by the Fund. A subsequent distribution to you of such amounts, although constituting a return of your investment, would be taxable either as dividends or capital gain distributions. For federal income tax purposes, each Fund is permitted to carry forward its net realized capital losses, if any, for eight years, and realize net capital gains up to the amount of such losses without being required to pay taxes on, or distribute such gains. On March 31, 1994, the books of the Short-Term Global Income Fund indicated that the Fund's aggregate net assets included net realized capital losses of $_________, and unrealized depreciation of $_________. On March 31, 1994, the books of the Global Government Bond Fund indicated that the Fund's aggregate net assets included net realized capital losses of $___________, and unrealized appreciation of $____________. On March 31, 1994, the books of the International Bond Fund indicated that the Fund's aggregate net assets PAGE 130 included net realized capital losses of $____________, and unrealized appreciation of $_____________. Income received by each Fund from sources within various foreign countries may be subject to foreign income taxes withheld at the source. Under the Code, if more than 50% of the value of a Fund's total assets at the close of its taxable year comprise securities issued by foreign corporations, the Fund may file an election with the Internal Revenue Service to "pass through" to the Fund's shareholders the amount of any foreign income taxes paid by the Fund. Pursuant to this election, shareholders will be required to: (i) include in gross income, even though not actually received, their respective pro rata share of foreign taxes paid by the Fund; (ii) treat their pro rata share of foreign taxes as paid by them; and (iii) either deduct their pro rata share of foreign taxes in computing their taxable income, or use it as a foreign tax credit against U.S. income taxes (but not both). No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Each Fund intends to meet the requirements of the Code to "pass through" to its shareholders foreign income taxes paid, but there can be no assurance that a Fund will be able to do so. Each shareholder will be notified within 60 days after the close of each taxable year of a Fund, that Fund will "pass through" foreign taxes paid for that year, and, if so, the amount of each shareholder's pro rata share (by country) of (i) the foreign taxes paid, and (ii) the Fund's gross income from foreign sources. Of course, shareholders who are not liable for federal income taxes, such as retirement plans qualified under Section 401 of the Code, will not be affected by any such "pass through" of foreign tax credits. If, in any taxable year, a Fund should not qualify as a regulated investment company under the Code: (i) the Fund would be taxed at normal corporate rates on the entire amount of its taxable income 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 the Funds would qualify for the 70% deduction for dividends received by corporations; and (iii) foreign tax credits would not "pass through" to shareholders. Taxation of Foreign Shareholders The Code provides that dividends from net income (which are deemed to include for this purpose each shareholder's pro rata share of foreign taxes paid by each Fund - see discussion of "pass through" of the foreign tax credit to U.S. shareholders), will be subject to U.S. tax. For shareholders who are not engaged in a business in the U.S., this tax would be imposed at the rate of 30% upon the gross amount of the dividend in the absence of a Tax Treaty providing for a reduced rate or exemption from U.S. taxation. Distributions of net long-term capital gains realized by each Fund are not subject to tax unless the foreign shareholder is a nonresident alien individual who was physically present in the U.S. during the tax year for more than 182 days. PAGE 131 CAPITAL STOCK The T. Rowe Price International Funds, Inc. (the "Corporation") was originally organized in 1979 as a Maryland corporation under the name T. Rowe Price International Fund, Inc. ("the Old Corporation"). Pursuant to the Annual Meeting of Shareholders held on April 22, 1986, an Agreement and Plan of Reorganization and Liquidation was adopted in order to convert the Old Corporation from a Maryland corporation to a Massachusetts Business Trust, named the T. Rowe Price International Trust ("the Trust"). This conversion became effective on May 1, 1986. Pursuant to the Annual Meeting of Shareholders held on April 19, 1990, an Agreement and Plan of Reorganization and Liquidation was adopted in order to convert the Trust from a Massachusetts Business Trust to a Maryland corporation. This conversion become effective May 1, 1990. The Corporation is registered with the Securities and Exchange Commission under the 1940 Act as a diversified, open-end investment company, commonly known as a "mutual fund." Currently, the Corporation consists of nine series, each of which represents a separate class of the Corporation's shares and has different objectives and investment policies. The International Bond Fund was added as a separate series of the Trust in 1986, and the designation of the existing series of the Trust was, at that time, changed to the International Stock Fund. In 1988 and 1990, respectively, the International Discovery and European Stock Funds were added as separate series of the Trust. Effective May 1, 1990, all series of the Trust became series of the Corporation. In the same year, after the May 1, 1990 reorganization, the New Asia and Global Government Bond Funds were added as separate series of the Corporation. The Japan, Short-Term Global Income and Latin America Funds were added as separate series of the Corporation in 1991, 1992, and 1993, respectively. The International Stock, International Discovery, European Stock, Japan and New Asia Funds are described in a separate Statement of Additional Information. The Charter also provides that the Board of Directors may issue additional series of shares. The Funds' Charter authorizes the Board of Directors to classify and reclassify any and all shares which are then unissued, including unissued shares of capital stock into any number of classes or series, each class or series consisting of such number of shares and having such designations, such powers, preferences, rights, qualifications, limitations, and restrictions, as shall be determined by the Board subject to the Investment Company Act and other applicable law. The shares of any such additional classes or series might therefore differ from the shares of the present class and series of capital stock and from each other as to preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption, subject to applicable law, and might thus be superior or inferior to the capital stock or to other classes or series in various characteristics. The Board of Directors may increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that each Fund has authorized to issue without shareholder approval. Each share of each series has equal voting rights with every other share of every other series, and all shares of all series vote as a single group except where a separate vote of any class or series is required by the 1940 Act, the laws of the State of Maryland, the Corporation's Articles of Incorporation, the By-Laws of the Corporation, or as the Board of Directors PAGE 132 may determine in its sole discretion. Where a separate vote is required with respect to one or more classes or series, then the shares of all other classes or series vote as a single class or series, provided that, as to any matter which does not affect the interest of a particular class or series, only the holders of shares of the one or more affected classes or series is entitled to vote. The preferences, rights, and other characteristics attaching to any series of shares, including the present series of capital stock, might be altered or eliminated, or the series might be combined with another series, by action approved by the vote of the holders of a majority of all the shares of all series entitled to be voted on the proposal, without any additional right to vote as a series by the holders of the capital stock or of another affected series. Shareholders are entitled to one vote for each full share held (and fractional votes for fractional shares held) and will vote in the election of or removal of directors (to the extent hereinafter provided) and on other matters submitted to the vote of shareholders. There will normally be no meetings of shareholders for the purpose of electing directors unless and until such time as less than a majority of the directors holding office have been elected by shareholders, at which time the directors then in office will call a shareholders' meeting for the election of directors. Except as set forth above, the directors shall continue to hold office and may appoint successor directors. Voting rights are not cumulative, so that the holders of more than 50% of the shares voting in the election of directors can, if they choose to do so, elect all the directors of the Fund, in which event the holders of the remaining shares will be unable to elect any person as a director. As set forth in the By-Laws of the 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 1940 Act. FEDERAL AND STATE REGISTRATION OF SHARES Each Fund's shares are registered for sale under the Securities Act of 1933, and the Funds or their 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 Funds. INDEPENDENT ACCOUNTANTS International Bond Fund Price Waterhouse, 7 St. Paul Street, Suite 1700, Baltimore, Maryland PAGE 133 21202, are independent accountants to the Fund. The financial statements of the International Bond Fund for the year ended December 31, 1993, and the report of independent accountants are included in the Fund's Annual Report for the year ended December 31, 1993, on pages 6-15. A copy of the Annual Report accompanies this Statement of Additional Information. The following financial statements and the report of independent accountants appearing in the Annual Report for the year ended December 31, 1993, are incorporated into this Statement of Additional Information by reference: International Bond Fund Annual Report Page ___________ Report of Independent Accountants 15 Statement of Assets and Liabilities, December 31, 1993 6-8 Statement of Operations, year ended December 31, 1993 9 Statement of Changes in Net Assets, years ended December 31, 1993 and December 31, 1992 10 Notes to Financial Statements, December 31, 1993 11-13 Financial Highlights 14 Short-Term Global Income and Global Government Bond Funds Coopers & Lybrand, 217 East Redwood Street, Baltimore, Maryland 21202, are independent accountants to each Fund. The financial statements of the Short- Term Global Income and Global Government Bond Funds for the year ended December 31, 1993, and the report of independent accountants are included in each Fund's Annual Report for the year ended December 31, 1993, on pages 8-19 and 10-19, respectively. A copy of each Annual Report accompanies this Statement of Additional Information. The following financial statements and the report of independent accountants appearing in each Annual Report for the year ended December 31, 1993, are incorporated into this Statement of Additional Information by reference: Short-Term Global Income Fund Annual Report Page ___________ Report of Independent Accountants 19 Portfolio of Investments, December 31, 1993 8-9 Statement of Assets and Liabilities, December 31, 1993 12 Statement of Operations, December 31, 1993 13 Statement of Changes in Net Assets, year ended December 31, 1993 and June 30, 1992 (Commencement of Operations) to December 31, 1992 14 Notes to Financial Statements, December 31, 1993 15-17 Financial Highlights, year ended December 31, 1993 and June 30, 1992 (Commencement of Operations) to December 31, 1992 18 PAGE 134 Global Government Bond Fund Annual Report Page ___________ Report of Independent Accountants 19 Statement of Net Assets, December 31, 1993 10-11 Statement of Operations, year ended December 31, 1993 13 Statement of Changes in Net Assets, year ended December 31, 1993 and December 28, 1992 14 Notes to Financial Statements, December 31, 1993 15-17 Financial Highlights 18 RATINGS OF CORPORATE DEBT SECURITIES Moody's Investors Services, Inc. Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Aa - Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. A - Bonds rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Baa - Bonds rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Standard & Poor's Corporation AAA - This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay principal and interest. AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong. A - Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. BBB - Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more PAGE 135 likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in the A category. PAGE 136 APPENDIX A Chart 1 A line graph follows which plots semiannual equivalent yields on 10-year government bonds from January 1, 1988, to March 11, 1993. The yields for the United Kingdom, France, Germany, United States and Japan, during this time period, are graphed on a scale of 4% to 14%. PAGE 137 T. ROWE PRICE INTERNATIONAL STOCK FUNDR 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 Financial Highlights Item 4. General Description of Registrant Introduction, Investment Objective and Program; Summary of Fund Fees and Expenses; Risk Factors; Investing in International Stocks; Investment Policies; 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 Capital Stock; Dividends and Distributions; Taxes Item 7. Purchase of Securities Being NAV, Pricing, and Effective Offered Date; Shareholder Services; Conditions of Your Purchase; Completing the New Account Form; Opening a New Account; Purchasing Additional Shares Item 8. Redemption or Repurchase NAV, Pricing, and Effective Date; Receiving Your Proceeds; Conditions of Your Purchase; Exchanging and Redeeming Shares Item 9. Pending Legal Proceedings + PART B Item 10. Cover Page Cover Page Item 11. Table of Contents Table of Contents Item 12. General Information and History + Item 13. Investment Objectives and Policies Investment Objectives and Policies; Investment Objective and Program; Investment Restrictions; Risk Factors of Foreign Investing; 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; Legal Counsel; Independent Accountants Item 17. Brokerage Allocation Portfolio Transactions Item 18. Capital Stock and Other Securities Dividends; Capital Stock Item 19. Purchase, Redemption and Pricing Redemptions in Kind; Pricing of of Securities Being Offered Securities; Net Asset Value Per Share; Federal and State Registration of Shares PAGE 138 Item 20. Tax Status Tax Status Item 21. Underwriters Distributor for Fund Item 22. Calculation of Yield Quotations of Money Market Funds + Item 23. Financial Statements Incorporated by Reference from Annual Report PART C Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C to this Registration Statement ___________________________________ + Not applicable or negative answer PAGE 139 Prospectus for the T. Rowe Price International Stock Fund, dated May 31, 1994, should be inserted here. PAGE 1 INTERNATIONAL STOCK FUND Investment Summary The Fund's objective is capital appreciation through investment primarily in established, non-U.S. companies. Prospectus ___________________________________________ May 1, 1994 T. Rowe Price T. Rowe Price 100% No Load. This Fund has no sales International Funds, Inc. charges, no redemption fees, and no 12b-1 fees. 100% of your investment is credited to your account. Services. T. Rowe Price provides easy access to your money through bank wires or telephone redemptions and offers easy exchange to other T. Rowe Price Funds. Table of Contents Rowe Price-Fleming International, Inc. (Price-Fleming), the Fund's manager, was Fund Information founded in 1979 as a joint venture between Investment Objective and T. Rowe Price Associates, Inc. (T. Rowe Program Price) and Robert Fleming Holdings Limited. Summary of Fund Fees Price-Fleming is one of America's largest and Expenses international mutual fund asset managers Financial Highlights with approximately $7.5 billion under Risk Factors management in its offices in Baltimore, Investing in London, Tokyo, and Hong Kong. International Stocks ___________________________________________ Investment Policies This prospectus contains information you Performance Information should know about the Fund before you Capital Stock invest. Please keep it for future NAV, Pricing, and reference. A Statement of Additional Effective Date Information for the Fund (dated May 1, Receiving Your Proceeds 1994) has been filed with the Securities Dividends and and Exchange Commission and is incorporated Distributions by reference in this prospectus. It is Taxes available at no charge by calling: 1-800- Management of the Fund 638-5660. Expenses and Management Fee THESE SECURITIES HAVE NOT BEEN APPROVED OR How to Invest DISAPPROVED BY THE SECURITIES AND EXCHANGE Shareholder Services COMMISSION, OR ANY STATE SECURITIES Conditions of Your COMMISSION, NOR HAS THE SECURITIES AND Purchase EXCHANGE COMMISSION, OR ANY STATE Completing the New SECURITIES COMMISSION, PASSED UPON THE Account Form ACCURACY OR ADEQUACY OF THIS PROSPECTUS. Opening a New Account ANY REPRESENTATION TO THE CONTRARY IS Purchasing Additional A CRIMINAL OFFENSE. PAGE 2 Shares Exchanging and Redeeming Shares ________________________ ___________________________________________ INVESTMENT OBJECTIVE AND The Fund's investment objective is to seek PROGRAM a total return on its assets from long-term growth of capital and income, principally through investments in common stocks of 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. 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. 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 Investing overseas exceeded the return on similar investments for growth and income. in the United States. Moreover, there has 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 Fund's investment manager, Rowe Price-Fleming International, Inc. (Price- Fleming), within the framework of PAGE 3 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 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 or income or both. 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 securities); and obligations of domestic or foreign governments and their political subdivisions. PAGE 4 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 The Fund is 100% no-load . . . you pay no EXPENSES fees to purchase, exchange, or redeem shares, nor any ongoing marketing (12b-1) expenses. Lower expenses benefit you by increasing your investment return from the Fund. Shown below are all expenses and fees the Fund incurred during its fiscal year. Where applicable, expenses were restated to reflect current fees. Expenses are expressed as a percent of average Fund net assets. More information about these expenses may be found below and under Expenses and Management Fee and in the Statement of Additional Information under Management Fee and Limitation on Fund Expenses. Shareholder Annual Fund Expenses Transaction Expenses Sales load None Management fee 0.70% "charge" on purchases Total other Sales load None (Shareholder 0.31% "charge" on reinvested servicing, dividends custodial, Redemption fees None auditing, etc.)+ Exchange fees None Distribution None fees (12b-1) _____ Total Fund 1.01% Expenses PAGE 5 + The Fund charges a $5.00 fee for wire redemptions under $5,000, subject to change without notice. Example of Fund expenses. The following example illustrates the expenses you would incur on a $1,000 investment, assuming a 5% annual rate of return and redemption at the end of each period shown. For example, expenses for the first year in the Fund would be $10. This is an illustration only. Actual expenses and performance may be more or less than shown. 1 Year--$10 3 Years--$32 5 Years--$56 10 Years--$124 Management Fee. The Fund pays Price- Fleming an investment management fee consisting of a flat Individual Fund Fee of 0.35% of the Fund's net assets and a Group Fee, defined on page __ under Expenses and Management Fee of 0.35% as of December 31, 1993. Thus, the total combined management fee for the Fund would be 0.70% of net assets. Transfer Agent, Shareholder Servicing, and Administrative Costs. The Fund paid fees to: (i) T. Rowe Price Services, Inc. (TRP Services) for transfer and dividend disbursing agent functions and shareholder services for all accounts; (ii) T. Rowe Price Retirement Plan Services, Inc. for subaccounting and recordkeeping services for certain retirement accounts; and (iii) T. Rowe Price for calculating the daily share price and maintaining the portfolio and general accounting records of the Fund. These fees totaled approximately $2,374,000, $1,252,000, and $92,000, respectively. _________________________ ___________________________________________ FINANCIAL HIGHLIGHTS The following table provides information about the Fund's financial history. It is based on a single share outstanding PAGE 6 throughout each fiscal period (which ends on the last day of December for the years 1984-1992 and the last day of October for 1993). The most recent five years and the period ended October 31, 1993 of the table are part of the Fund's financial statements which are included in the Fund's annual report and incorporated by reference into the Statement of Additional Information, which is available to shareholders. The financial statements in the annual report have been audited by Price Waterhouse, independent accountants, whose unqualified report covers periods shown. Investment Activities Distributions Net Real- ized and Net Unreal- Total Asset ized Gain from Value, Net (Loss) Invest- Net Net Begin- Invest- on ment Invest-Real- Total Year Ended, ning of ment Invest- Activi- ment lized Distri- December 31+Period Income ments ties Income Gain butions _________________________________________________________________ 1984 $ 7.16 $.15 $(.56) $(.41) $(.08) $ (.08) $(.16) 1985 6.59 .11 2.71 2.82 (.15) (.22) (.37) 1986 9.04 .11 5.23 5.34 (.11) (1.38) (1.49) 1987 12.89 .12 .74 .86 (.23) (4.98) (5.21) 1988 8.54 .16 1.36 1.52 (.16) (.93) (1.09) 1989 8.97 .16 1.94 2.10 (.16) (.67) (.83) 1990 10.24 .22 (1.13) (.91)(.16) (.36) (.52) 1991 8.81 .15 1.22 1.37 (.15) (.49) (.64) 1992 9.54 .14 (.47) (.33)(.16) (.16) (.32) 1993+++ 8.89 .10 2.75 2.85 -- -- -- PAGE 7 End of Period Ratio of Ratio Net of Invest- Net Expenses ment Port- Asset to Income folio Value, Net Average to Aver- Turn- Year Ended, End of Total Assets (in Net age Net over December 31+ Period Return thousands) Assets Assets Rate _________________________________________________________________ 1984 $6.59 (5.9)% $180,705 1.11% 2.29% 37.7% 1985 9.04 45.3% 376,843 1.11% 1.54% 61.9% 1986 12.89 61.3% 790,020 1.10% 0.89% 56.4% 1987 8.54 8.0% 642,463 1.14% 0.93% 76.5% 1988 8.97 17.9% 630,114 1.16% 1.78% 42.4% 1989 10.24 23.7% 970,214 1.10% 1.63% 47.8% 1990 8.81 (8.9)% 1,030,848 1.09% 2.16% 47.1% 1991 9.54 15.9% 1,476,309 1.10% 1.51% 45.0% 1992 8.89 (3.5)% 1,949,631 1.05% 1.49% 37.8% 1993+++ 11.74 32.1%! 3,746,055 1.01%++1.52%++ 29.8%++ _________________________________________________________________ + All share and per-share figures reflect the 2-for-1 stock split effective August 31, 1987. ++ Annualized. +++ The Fund's fiscal year-end was changed to October 31. ! Not annualized. ________________________ ___________________________________________ 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 Currency. Investments in foreign companies will require the Fund to hold securities and funds denominated in foreign currencies. As a result, the value of the assets of the Fund as measured in U.S. dollars may be affected significantly, favorably or unfavorably, by changes in foreign currency exchange rates, currency restrictions, and exchange control regulations, and the Fund may incur costs in connection with conversions between various currencies. Exchange rate PAGE 8 movements can be large and endure for extended periods of time. For example, the Japanese yen has been appreciating against the U.S. dollar since 1985. This has increased the returns of persons purchasing Japanese securities with U.S. dollars. However, there is no guarantee this trend will continue, and its reversal would adversely affect such returns. Costs. The expense to individual investors of investing directly in foreign securities are higher than investing in U.S. securities. While the Fund offers a very efficient way for individual investors to participate in foreign markets, its expenses, including advisory and custodial fees, are also higher than the typical domestic equity mutual fund. Economic and Trade Factors. The economies of the countries in which the Fund may invest (portfolio countries) may differ favorably or unfavorably from the U.S. economy and may be less developed or diverse. Certain of these countries, for example Japan, are heavily dependent upon international trade. Accordingly, they have been and may continue to be adversely affected by trade barriers and other protectionist or retaliatory measures of, as well as economic conditions in, the U.S. and other countries with which they trade. Certain countries may be heavily dependent on a limited number of commodities and thus vulnerable to weaknesses in world prices for these commodities. Finally, there is no assurance that the pattern of growth exhibited by certain of the portfolio countries in the past will continue. Political Factors. The internal politics of certain of the portfolio countries are not as stable as in the United States. In addition, significant external political risks, including war, currently affect some of the countries. Finally, governments in PAGE 9 certain of the countries continue to participate to a substantial degree, through ownership interests or regulation, in their respective economies and securities markets. Action by these governments could include restrictions on foreign investment, nationalization, expropriation of assets, or imposition of taxes. Any of these actions could have a significant effect on market prices of securities, the ability of the Fund to repatriate capital and income, and the value of the Fund's investments. Market Characteristics. Many of the securities markets of the portfolio countries have substantially less volume than comparable U.S. markets, and the securities of some companies in these countries may be less liquid and more volatile than securities of comparable U.S. companies. In certain markets, for example in Japan, common stocks may trade at considerably higher valuation levels than U.S. common stocks. Accordingly, many of these markets may be subject to a greater volatility, be more influenced by adverse events generally affecting the market and by large investors trading significant blocks of securities, than is usual in the United States. The settlement practices of the portfolio countries may include delays and otherwise differ from those customary in U.S. markets. Legal and Regulatory. Certain of the portfolio countries lack uniform accounting, auditing, and financial reporting standards, may have less governmental supervision of securities markets, brokers, and issuers of securities, and less financial information available to investors than is usual in the United States. For example, there have been revelations that major broker-dealers in Japan have engaged in a variety of fraudulent and manipulative practices. PAGE 10 Finally, there may be difficulty in enforcing legal rights outside the United States. Eastern Europe. The Fund may from time to time invest up to 5% of its assets in securities of companies located in Eastern Europe and the former Soviet block. Reforms away from centrally planned economies and state owned industries are still in their infancy. As a result, investments in such countries would be highly speculative and could result in losses to the Fund. Although significant uncertainties for investment remain, Price- Fleming considers the current outlook for certain countries in this region to be positive and expects the Fund to be in a position to take advantage of opportunities as they arise. 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. ________________________ ___________________________________________ 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 PAGE 11 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 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 PAGE 12 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. ________________________ ___________________________________________ INVESTMENT POLICIES The Fund's investment program and policies are subject to further restrictions and risks which are described in the Statement of Additional Information. The investment objective of the Fund is a fundamental policy and may be changed only with shareholder approval. The Fund's investment program, unless otherwise specified, is not a fundamental policy and may be changed without shareholder approval. Shareholders will be notified of any material change in the investment program. In addition to the investments described below, the Fund's investments may include, but are not limited to, American Depository Receipts (ADRs), European Depository Receipts (EDRs), American Depository Shares (ADSs), bonds, notes, other debt securities of foreign issuers, securities of foreign investment funds or trusts (including passive foreign investment companies), and the investments described under Investment Program. Cash Reserves. While the Fund will remain primarily invested in common stocks, it may, for temporary defensive purposes, invest in reserves without limitation. The Fund may also establish and maintain reserves as Price-Fleming believes is advisable to facilitate the Fund's cash flow needs (e.g., redemptions, expenses, and purchases of portfolio securities). The Fund's reserves will be invested in PAGE 13 domestic and foreign money market instruments rated within the top two credit categories by a national rating organization or, if unrated, the T. Rowe Price equivalent. Convertible Securities, Preferred Stocks, and Warrants. The Fund may invest in debt or preferred equity securities convertible into or exchangeable for equity securities. Preferred stocks are securities that represent an ownership interest in a corporation providing the owner with claims on the company's earnings and assets before common stock owners, but after bond owners. 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). 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 generally not enter into a forward contract 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 PAGE 14 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 predicted and the Fund's total return could be adversely affected as a result. Futures Contracts and Options. The Fund may enter into stock index or currency futures contracts (or options thereon) to hedge a portion of the Fund's portfolio, to provide an efficient means of regulating the Fund's exposure to the equity markets, or as a hedge against changes in prevailing levels of currency exchange rates. The Fund will not use futures contracts for speculation. The Fund will limit its use of futures contracts so that no more than 5% of its total assets would be committed to initial margin deposits or premiums on such contracts. Such contracts may be traded on U.S. or foreign exchanges. The Fund may write covered call options and purchase put and call options on foreign currencies, securities, and stock indices. The aggregate market value of the Fund's currencies or portfolio securities covering call or put options will not exceed 25% of the Fund's net assets. Futures contracts and options can be highly volatile and could reduce the Fund's total return, and the Fund's attempt to use such investments for hedging purposes may not be successful. Successful futures strategies require the ability to predict future movements in PAGE 15 securities prices, interest rates and other economic factors. The Fund's potential losses from the use of futures extends beyond its initial investment in such contracts. Also, losses from options and futures could be significant if the Fund is unable to close out its position due to disruptions in the market or lack of liquidity. Hybrid Investments. As part of its investment program and to maintain greater flexibility, the Fund may invest in instruments which have the characteristics of futures and securities. Such instruments may take a variety of forms, such as debt instruments with interest or principal payments determined by reference to the value of a currency or commodity at a future point in time. The risks of such investments would reflect both the risks of investing in futures, currencies, and securities, including volatility and illiquidity. Illiquid Securities. The Fund may acquire illiquid securities (no more than 10% of net assets). Because an active trading market does not exist for such securities, the sale of such securities may be subject to delay and additional costs. The Fund will not invest more than 5% of its total assets in restricted securities (other than securities eligible for resale under Rule 144A of the Securities Act of 1933). Lending of Portfolio Securities. As a fundamental policy, for the purpose of realizing additional income, the Fund may lend securities with a value of up to 30% of its total assets to broker-dealers, institutional investors, or other persons. Any such loan will be continuously secured by collateral at least equal to the value of the security loaned. Such lending could result in delays in receiving additional collateral or in the recovery of the PAGE 16 securities or possible loss of rights in the collateral should the borrower fail financially. Repurchase Agreements. The Fund may enter into repurchase agreements with a well- established securities dealer or a bank which is a member of the Federal Reserve System. In the event of a bankruptcy or default of certain sellers of repurchase agreements, the Fund could experience costs and delays in liquidating the underlying security, which is held as collateral, and the Fund might incur a loss if the value of the collateral held declines during this period. Portfolio Turnover. The Fund will not generally trade in securities for short- term profits but, when circumstances warrant, securities may be purchased and sold without regard to the length of time held. The Fund's portfolio turnover rates for the years 1993, 1992, and 1991, were 29.8%, 37.8%, and 45.0%, respectively. Fundamental Investment Policies. As a matter of fundamental policy, the Fund will not, among other things: (1) purchase a security of any issuer if, as a result, it would: (a) cause the Fund to have more than 25% of its total assets concentrated in any one industry, provided that, as a matter of operating policy, the Fund will not invest more than 25% of its total assets in securities issued by any one foreign government or (b) with respect to 75% of its assets, cause the Fund's holdings of that issuer to amount to more than 5% of the Fund's total assets or cause the Fund to own more than 10% of the outstanding voting securities of the issuer provided that, as an operating policy, the Fund will not purchase a security if, as a result, more than 10% of the outstanding voting securities of any issuer would be held by the Fund; (2) borrow money except PAGE 17 temporarily from banks to facilitate redemption requests in amounts not exceeding 30% of its total assets valued at market; or (3) in any manner transfer as collateral for indebtedness any security of the Fund except in connection with permissible borrowings, which in no event will exceed 30% of the Fund's total assets valued at market. Other Investment Policies. As a matter of operating policy, the Fund will not, among other things: (1) purchase a security of any issuer if, as a result, more than 5% of the value of the Fund's total assets would be invested in the securities of unseasoned issuers which at the time of purchase have been in operation for less than three years, including predecessors and unconditional guarantors; and (2) purchase additional securities when money borrowed exceeds 5% of the Fund's total assets. ________________________ ___________________________________________ 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. PAGE 18 ________________________ ___________________________________________ CAPITAL STOCK The T. Rowe Price International Funds, Inc. (the Corporation) was originally organized in 1979 as a Maryland corporation. Effective May 1, 1986, the Corporation converted from a Maryland corporation to a Massachusetts business trust known as the T. Rowe Price International Trust (Trust). On May 1, 1990, the Trust converted back to a Maryland corporation. The Corporation is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 as a diversified, open-end investment company, commonly known as a "mutual fund." 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. Currently, the Corporation consists of nine series, each representing a separate class of shares having different objectives and investment policies. The nine series and the years in which each was established are as follows: International Stock Fund, 1979; International Bond Fund, 1986; International Discovery Fund, 1988; European Stock Fund, New Asia Fund, and Global Government Bond Fund, 1990; Japan Fund, 1991; Short-Term Global Income Fund, 1992; and Latin America Fund, 1993. The Corporation's Charter provides that the Board of Directors may issue additional series of shares and/or additional classes of shares for each series. The Fund has an investment advisory group that has day-to-day responsibility for managing the portfolio and developing and executing the Fund's investment program. PAGE 19 The Fund's advisory group is 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. Shareholder Rights. All shares of the Corporation 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. All shares of the Corporation may be voted in the election or removal of directors and on other matters submitted to the vote of shareholders of the Corporation. On matters affecting an individual series of the Corporation, a separate vote of the particular series is required. The individual series of the Corporation do not routinely hold annual meetings of shareholders. However, if shareholders representing at least 10% of all votes of the Corporation entitled to be cast so desire, they may call a special meeting of shareholders of the Corporation for the purpose of voting on the question of the removal of any director(s). The total authorized capital stock of the Corporation consists of 1,000,000,000 shares, each having a par value of $.01. As of December 31, 1993, there were 301,837 shareholders in the Fund and a total of 2,791,184 shareholders in the other 56 T. Rowe Price Funds. ________________________ ___________________________________________ 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 PAGE 20 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. Purchased shares are priced at that day's If your order is received NAV if your request is received before 4:00 in good order before 4:00 pm ET in good order. (See Completing the pm ET, you will receive New Account Form and Opening a New that day's NAV. Account). If received later than 4:00 pm ET, shares will be priced at the next business day's NAV. Redemptions are priced at that day's NAV if your request is received before 4:00 pm ET in good order at the transfer agent's offices at T. Rowe Price Account Services, P.O. Box 89000, Baltimore, MD 21289-0220. If received after 4:00 pm ET, shares will be priced at the next business day's NAV. Also, we cannot accept requests which specify a particular date for purchase or redemption or which specify any special conditions. If your redemption request cannot be accepted, you will be notified and given further instructions. Exchanges are normally priced in the same manner as purchases and redemptions. However, if you are exchanging into a bond or money fund and the release of your exchange proceeds is delayed for the allowable five business days (see Receiving Your Proceeds), you will not begin to earn dividends until the sixth business day after the exchange. The Fund reserves the right to change the time at which purchases, redemptions, and exchanges are priced if the New York Stock PAGE 21 Exchange closes at a time other than 4:00 pm ET or an emergency exists. ________________________ ___________________________________________ RECEIVING YOUR PROCEEDS Redemption proceeds are mailed to the address, or sent by wire or ACH transfer to the bank account, designated on your New Account Form. They are generally sent the next business day after your redemption request is received in good order. Proceeds sent by bank wire should be credited to your bank account the next business day and proceeds sent by ACH transfer should be credited the second day after the sale. In addition, under unusual conditions, or when deemed to be in the best interests of the Fund, redemption proceeds may not be sent for up to five business days after your request is received to allow for the orderly liquidation of securities. Requests by mail for wire redemptions (unless previously authorized) must have a signature guarantee. ________________________ ___________________________________________ DIVIDENDS AND The Fund distributes all net investment DISTRIBUTIONS income and capital gains to shareholders. Dividends from net investment income and distributions from capital gains, if any, are normally declared and paid in December. Dividends and distributions declared by the Fund will be reinvested unless you choose an alternative payment option on the New Account Form. Dividends not reinvested are paid by check or transmitted to your bank account via ACH. If the U.S. Postal Service cannot deliver your check, or if your check remains uncashed for six months, the Fund reserves the right to reinvest your distribution check in your account at the then current NAV and to reinvest all subsequent distributions in shares of the Fund. ________________________ ___________________________________________ TAXES Dividends and Distributions. In January, the Fund will mail you Form 1099-DIV indicating the federal tax status of your dividends and capital gain distributions. PAGE 22 Form 1099-DIV will be Generally, dividends and distributions are mailed to you in January. taxable in the year they are paid. However, any dividends and distributions paid in January but declared during the prior three months are taxable in the year they are declared. Dividends and distributions are taxable to you regardless of whether they are taken in cash or reinvested. Dividends and short-term capital gain distributions are taxable as ordinary income; long-term capital gain distributions are taxable as long-term capital gains. The capital gain holding period is determined by the length of time the Fund has held the securities, not the length of time you have owned Fund shares. Foreign Transactions. Distributions resulting from the sale of foreign currencies and debt securities, to the extent of foreign exchange gains, are taxed as ordinary income or loss. If the Fund pays nonrefundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. However, you may be able to claim an offsetting credit or deduction on your tax return for your portion of foreign taxes paid by the Fund. Shares Sold. A redemption or exchange of Fund shares is treated as a sale for tax purposes which will result in a short or long-term capital gain or loss, depending on how long you have owned the shares. In January, the Fund will mail you Form 1099-B indicating the trade date and proceeds from all sales and exchanges. Undistributed Income and Gains. At the time of purchase, the share price of the Fund may reflect undistributed income, capital gains or unrealized appreciation of securities. Any income or capital gains from these amounts which are later distributed to you are fully taxable. PAGE 23 Corporations. The Fund's dividends will not be eligible for the 70% deduction for dividends received by corporations if, as expected, none of the Fund's income consists of dividends paid by U.S. corporations. Passive Foreign Investment Companies. The Fund may purchase the securities of certain foreign investment funds or trusts called passive foreign investment companies. Although the situation could change at any time, such funds are the only or primary means by which the Fund may invest in Taiwan and India. 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-Qualified Retirement Plans. Tax- qualified retirement plans generally will not be subject to federal tax liability on either distributions from the Fund or redemption of shares of the Fund. Rather, participants in such plans will be taxed PAGE 24 when they begin taking distributions from the plans. 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 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 PAGE 25 affiliates managed more than $41.4 billion of assets and Flemings managed the U.S. equivalent of approximately $45 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 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 equity 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- PAGE 26 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 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, Shareholder Servicing and Administrative. TRP Services, a wholly-owned subsidiary of T. Rowe Price, serves the Fund as transfer and dividend disbursing agent. T. Rowe Price Retirement Plan Services, Inc., a wholly-owned subsidiary of T. Rowe Price, performs subaccounting and recordkeeping services for shareholder accounts in certain retirement plans investing in the Price Funds. T. Rowe Price calculates the daily share price and maintains the PAGE 27 portfolio and general accounting records of the Fund. The address for TRP Services and T. Rowe Price Retirement Plan Services, Inc. is 100 East Pratt Street, Baltimore, Maryland 21202. ________________________ ___________________________________________ EXPENSES AND MANAGEMENT The Fund bears all expenses of its FEE operations other than those incurred by Price-Fleming under its Investment Management Agreement with Price-Fleming. Fund expenses include: the management fee; shareholder servicing fees and expenses; custodian and accounting fees and expenses; legal and auditing fees; expenses of preparing and printing prospectuses and shareholder reports; registration fees and expenses; proxy and annual meeting expenses, if any; and directors' fees and expenses. Management Fee. The Fund pays Price- Fleming an investment management fee consisting of an Individual Fund Fee and a Group Fee. See Summary of Fund Fees and Expenses for the Individual Fund Fee. The Group Fee varies and is based on the combined net assets of all mutual funds sponsored and managed by Price-Fleming and T. Rowe Price, excluding T. Rowe Price Spectrum Fund, Inc., and any institutional or private label mutual funds, and distributed by T. Rowe Price Investment Services, Inc. The Fund pays, as its portion of the Group Fee, an amount equal to the ratio of its daily net assets to the daily net assets of all the Price Funds. The table below shows the annual Group Fee rate at various asset levels of the combined Price Funds: 0.480% First 0.350% Next $1 billion $2 billion 0.450% Next 0.340% Next $1 billion $5 billion 0.420% Next 0.330% Next PAGE 28 $1 billion $10 billion 0.390% Next 0.320% Next $1 billion $10 billion 0.370% Next 0.310% Thereafter $1 billion 0.360% Next $2 billion Based on combined Price Funds' assets of approximately $34.7 billion at December 31, 1993, the Group Fee was 0.35%. ________________________ ___________________________________________ SHAREHOLDER SERVICES The following is a brief summary of services available to shareholders in the T. Rowe Price Funds, some of which may be restricted or unavailable to retirement plan accounts. You must authorize most of these services on a New Account or Shareholder Services Form. Services may be modified or withdrawn at any time without notice. Please verify all transactions on your confirmation statements promptly after receiving them. Any discrepancies must be reported to Shareholder Services immediately. Automatic Asset Builder. You can have us move $50 or more on the same day each month from your bank account or invest $50 or more from your paycheck into any T. Rowe Price Fund. Investor Services Discount Brokerage Service. You can trade 1-800-638-5660 stocks, bonds, options, CDs, Treasury 1-410-547-2308 Bills, and precious metals at substantial savings through our Discount Brokerage Service. Call Investor Services for more information. Exchange Service. You can move money from one account to an existing identically registered account or open a new identically registered account. Remember that, for tax purposes, an exchange is treated as a redemption and a new purchase. Exchanges into a state tax-free fund are limited to investors residing in states PAGE 29 where those funds are qualified for sale. Some of the T. Rowe Price Funds may impose a redemption fee of .50-2%, payable to such Funds, on shares held for less than 12 months, or in some funds, six months. Retirement Plans. For details on IRAs, please call Investor Services. For details on all other retirement plans, please call our Trust Company at 1-800-492-7670. Shareholder Telephone Services. The following services Services are explained fully in the Services Guide, 1-800-225-5132 which is mailed to new T. Rowe Price 1-410-625-6500 investors. If you don't have a copy, please call Shareholder Services. (All telephone calls to Shareholder Services and Investor Services are recorded in order to protect you, the Fund, and its agents.) 24-Hour Service. Tele*Access(registered trademark) provides information on yields, prices, latest dividends, account balances, and last transaction as well as the ability to request prospectuses, account forms, duplicate statements and initiate purchase, redemption and exchange orders (if you have established Telephone Services). Just call 1-800- 638-2587 and press the appropriate codes into your touch-tone phone. PC*Access(registered trademark) provides the same information as Tele*Access, but on a personal computer. Electronic Transfers. We offer three free methods for purchasing or redeeming Fund shares in amounts of $100 to $100,000 through ACH transfers between your bank checking and Fund accounts: -- By calling Shareholder Services during business hours (Tele- Connect(registered trademark); -- By touch-tone phone any day, any time (Tele*Access); PAGE 30 -- By personal computer any day, any time (PC*Access). If your bank checking and fund account are not identically registered, you will need a signature guarantee to establish this service. ACH: (Automated Clearing House) is an automated method of initiating payments from and receiving payments in your financial institution account. ACH is a payment system supported by over 20,000 credit unions, banks and savings banks which electronically exchange the transactions primarily through the Federal Reserve Banks. Wire Transfers. Wire transfers can be processed through bank wires (a $5 charge applies to redemption amounts under $5,000, and your bank may charge you for receiving wires). While this is usually the quickest transfer method, the Fund reserves the right to temporarily suspend wires under unusual circumstances. ________________________ ___________________________________________ CONDITIONS OF YOUR Account Balance. If your account drops PURCHASE below $1,000 for three months or more, the Fund has the right to close your account, after giving 60 days' notice, unless you make additional investments to bring your account value to $1,000 or more. Broker-Dealers. Purchases or redemptions through broker-dealers, banks, and other institutions may be subject to service fees imposed by those entities. No such fees are charged by T. Rowe Price Investment Services or the Fund if shares are purchased or redeemed directly from the Fund. Excessive Trading and Exchange Limitations. To protect Fund shareholders against disruptions in portfolio management which PAGE 31 might occur as a result of too frequent buy and sell activity and to minimize Fund expenses associated with such transaction activity, the Fund prohibits excessive trading in any account (or group of accounts managed by the same person). Within any 120 consecutive-day period, investors may not exchange between Price Funds more than twice or buy and sell the Price Funds more than once, if the transactions involve substantial assets or a substantial portion of the assets in the account or accounts. This policy is applied on a multi-fund basis. Any transactions above and beyond these guidelines will be considered to be excessive trading, and the investor may be prohibited from making additional purchases or exercising the exchange privilege. This policy does not apply to exchanges solely between, or purchases and sales solely of, the Price Money Funds, nor does it apply to simple redemptions from any Fund. Nonpayment. If your check, wire or ACH transfer does not clear, or if payment is not received for any telephone purchase, the transaction will be cancelled and you will be responsible for any loss the Fund or Investment Services incurs. If you are already a shareholder, the Fund can redeem shares from any identically registered account in this Fund or any other T. Rowe Price Fund as reimbursement for any loss incurred. You may be prohibited or restricted from making future purchases in any of the T. Rowe Price Funds. U.S. Dollars. All purchases must be paid for in U.S. dollars, and checks must be drawn on U.S. banks. Redemptions in Excess of $250,000. Redemption proceeds are normally paid in cash. However, if you redeem more than PAGE 32 $250,000, or 1% of the Fund's net assets, in any 90-day period, the Fund may in its discretion: (1) pay the difference between the redemption amount and the lesser of these two figures with securities of the Fund or (2) delay the transmission of your proceeds for up to five business days after your request is received. Signature Guarantees. A signature guarantee is designed to protect you and the Fund by verifying your signature. You will need one to: (1) Establish certain services after the account is opened. (2) Redeem over $50,000 by written request (unless you have authorized Telephone Services). (3) Redeem or exchange shares when proceeds are: (i) being mailed to an address other than the address of record, (ii) made payable to other than the registered owner(s), or (iii) being sent to a bank account other than the bank account listed on your fund account. (4) Transfer shares to another owner. (5) Send us written instructions asking us to wire redemption proceeds (unless previously authorized). (6) Establish Electronic Transfers when your bank checking and fund account are not identically registered. These requirements may be waived or modified in certain instances. Acceptable guarantors are all eligible guarantor institutions as defined by the Securities Exchange Act of 1934 such as: commercial banks which are FDIC members, trust companies, firms which are members of a domestic stock exchange, and foreign branches of any of the above. We cannot accept guarantees from institutions or individuals who do not provide PAGE 33 reimbursement in the case of fraud, such as notaries public. Telephone Exchange and Redemption. Telephone exchange and redemption are established automatically when you sign the New Account Form unless you check the box which states that you do not want these services. The Fund uses reasonable procedures (including shareholder identity verification) to confirm that instructions given by telephone are genuine. If these procedures are not followed, it is the opinion of certain regulatory agencies that the Fund may be liable for any losses that may result from acting on the instructions given. All conversations are recorded, and a confirmation is sent within five business days after the telephone transaction. Ten-Day Hold. The mailing of proceeds for redemption requests involving any shares purchased by personal, corporate or government check, or ACH transfer is generally subject to a 10-day delay to allow the check or transfer to clear. The 10-day clearing period does not affect the trade date on which your purchase or redemption order is priced, or any dividends and capital gain distributions to which you may be entitled through the date of redemption. If your redemption request was sent by mail or mailgram, proceeds will be mailed no later than the seventh calendar day following receipt unless the check or ACH transfer has not cleared. The 10-day hold does not apply to purchases made by wire, Automatic Asset Builder- Paycheck, or cashier's, treasurer's, or certified checks. The Fund and its agents reserve the right to: (1) reject any purchase or exchange, cancel any purchase due to nonpayment, or reject any exchange or redemption where the Fund has not received payment; (2) waive or lower the investment minimums; (3) accept PAGE 34 initial purchases by telephone or mailgram; (4) waive the limit on subsequent purchases by telephone; (5) reject any purchase or exchange prior to receipt of the confirmation statement; (6) redeem your account (see Tax Identification Number); (7) modify the conditions of purchase at any time; and (8) reject any check not made directly payable to the Fund or T. Rowe Price (call Shareholder Services for more information). ________________________ ___________________________________________ COMPLETING THE NEW Tax Identification Number. We must have ACCOUNT FORM your correct social security or corporate tax identification number and a signed New Account Form or W-9 Form. Otherwise, federal law requires the Fund to withhold a You must provide your tax percentage (currently 31%) of your ID number and sign the dividends, capital gain distributions, and New Account Form. redemptions, and may subject you to an IRS fine. You also will be prohibited from opening another account by exchange. If this information is not received within 60 days after your account is established, your account may be redeemed, priced at the NAV on the date of redemption. Unless you otherwise request, one shareholder report will be mailed to multiple account owners with the same tax identification number and same zip code and to those shareholders who have requested that their accounts be combined with someone else's for financial reporting. Account Registration. If you own other T. Rowe Price Funds, make certain the registration (name and account type) is identical to your other funds for easy exchange. Remember to sign the form exactly as the name appears in the registration section. Services. By signing up for services on the New Account Form, rather than after the account is opened, you will avoid having to complete a separate form and obtain a PAGE 35 signature guarantee (see Conditions of Your Purchase). ________________________ ___________________________________________ OPENING A NEW ACCOUNT Minimum initial investment: $2,500 ($1,000 for retirement plans and gifts or transfers to minors (UGMA/UTMA accounts); $50 per month for Automatic Asset Builder accounts--see Shareholder Services) By Mail Send your New Account Form and check to: Checks payable to T. Rowe Regular Mail Mailgram, Price Funds. Express, Registered, or Certified Mail T. Rowe Price T. Rowe Price Account Services Account Services P.O. Box 17300 10090 Red Run Baltimore, MD Boulevard 21298-9353 Owings Mills, MD 21117 ___________________________________________ Investor Services By Wire Call Investor Services for an 1-800-638-5660 account number and use Wire Address 1-410-547-2308 below. Then, complete the New Account Form and mail it to one of the above addresses. (Not applicable to retirement plans.) Wire Address Morgan Guaranty (to give to your Trust Company of bank): New York ABA #021000238 T. Rowe Price (fund name)/ AC-00153938 Account name(s) PAGE 36 and account number ___________________________________________ Shareholder Services By Exchange Call Shareholder Services. The 1-800-225-5132 new account will have the same 1-410-625-6500 registration as the account from which you are exchanging. Services for the new account may be carried over by telephone request if preauthorized on the existing account. See Excessive Trading and Exchange Limitations under Conditions of Your Purchase. ___________________________________________ In Person Drop off your New Account Form and obtain a receipt at a T. Rowe Price Investor Center: 101 East T. Rowe Price Lombard StreetFinancial Center First Floor First Floor Baltimore, MD 10090 Red Run Boulevard Owings Mills, MD Farragut ARCO Tower Square 31st Floor First Floor 515 South 900 17th Flower Street Street, NW Los Angeles, Washington, CA DC ________________________ ___________________________________________ PURCHASING ADDITIONAL Minimum: $100 ($50 for retirement plans SHARES and Automatic Asset Builder) By Wire Call Shareholder Services or use the Wire Address in Opening a New Account. ___________________________________________ By Mail Indicate your account number and the Fund name on your check. Mail it to us at the address below with the stub from a statement confirming a prior transaction or a note PAGE 37 stating that you want to purchase shares in that Fund and giving us the account number. T. Rowe Price Funds Account Services P.O. Box 89000 Baltimore, MD 21289-1500 ___________________________________________ By ACH Use Tele*Access, PC*Access or Transfer call Shareholder Services (if you have established Telephone Services) for ACH transfers. ___________________________________________ By Automatic Fill out the Automatic Asset Asset Builder section on the New Builder Account or Shareholder Services Form. ___________________________________________ Minimum: $5,000 By Phone Call Shareholder Services. ________________________ ___________________________________________ EXCHANGING AND REDEEMING By Phone Call Shareholder Services. If SHARES you find our phones busy during unusually volatile markets, please consider placing your order by express mail, mailgram, Tele*Access or PC*Access. For exchange policy, see Excessive Trading and Exchange Limitations under Conditions of Your Purchase. Redemption proceeds can be mailed, sent by ACH transfer, or wired to your bank. The Fund charges a $5.00 fee for wire redemptions under $5,000, subject to change without notice. Your bank may also charge you for receiving wires. ___________________________________________ Shareholder Services By Mail Indicate account name(s) and 1-800-225-5132 numbers, fund name(s), and 1-410-625-6500 exchange or redemption amount. For exchanges, indicate the PAGE 38 accounts you are exchanging from and to along with the amount. We require the signature of all owners exactly as registered, and possibly a signature guarantee (see Signature Guarantees under Conditions of Your Purchase). Note: Distributions from T. Rowe Price Trust retirement accounts, including Company IRAs, must be in writing. 1-800-492-7670 Please call Shareholder 1-410-625-6585 Services to obtain an IRA Distribution Request Form. For employer-sponsored retirement accounts, call T. Rowe Price Trust Company or your plan administrator for instructions. Shareholders holding previously issued certificates must conduct transactions by mail. If you lose a stock certificate, you may incur an expense to replace it. Call Shareholder Services for further information. Mailing addresses: Regular Mail Mailgram, Express, Registered, or Certified Mail Non-Retirement and IRA Accounts All Accounts T. Rowe Price T. Rowe Price Account ServicesAccount P.O. Box 89000 Services Baltimore, MD 10090 Red Run 21289-0220 Boulevard Owings Mills, MD 21117 PAGE 39 Employer-Sponsored Retirement Accounts T. Rowe Price Trust Company P.O. Box 89000 Baltimore, MD 21289-0300 PAGE 40 Prospectus To Open an Account: Investor Services T. Rowe Price International 1-800-638-5660 Stock FundR 547-2308 in Baltimore Yields & Prices: May 1, 1994 Tele*AccessR 24 hours, 7 days a week 1-800-638-2587 625-7676 in Baltimore Existing Account: Shareholder Services 1-800-225-5132 625-6500 in Baltimore Investor Centers: 101 East Lombard Street First Floor Baltimore, Maryland Farragut Square First Floor 900 17th Street, NW Washington, DC T. Rowe Price Financial Center First Floor 10090 Red Run Boulevard Owings Mills, Maryland ARCO Tower 31st Floor 515 South Flower Street Los Angeles, California T. ROWE PRICE Invest With ConfidenceR PAGE 140 STATEMENT OF ADDITIONAL INFORMATION T. Rowe Price International Funds, Inc. (the "Corporation") International Stock Fund (the "Fund") This Statement of Additional Information is not a prospectus but should be read in conjunction with the Fund's prospectus dated May 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 May 1, 1994. PAGE 141 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 long-term growth of capital by investing primarily in the common stocks of established, non-U.S. companies. 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 142 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" below. Further, there is no assurance that the favorable trends discussed below will continue, and the Fund cannot guarantee it will achieve its objective. RISK FACTORS Risk Factors of Foreign Investing There are special risks in investing in a 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. Many of the risks are more pronounced for investments in developing or emerging countries, such as many of the countries of Southeast Asia, Latin America, Eastern Europe and the Middle East. Although there is no universally accepted definition, a developing country is generally considered to be a country which is in the initial stages of its industrialization cycle with a per capita gross national product of less than $8,000. 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 objectives will be attained. The Fund is designed for individual and institutional investors seeking to diversify beyond the United States in actively researched and managed portfolios, and are 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. For example, in 1991, the existing government in Thailand was overthrown in a military coup. In 1992, there were two military coup attempts in Venezuela and in 1992 the President of Brazil was impeached. In addition, significant external political risks currently affect some foreign countries. Both Taiwan and China still claim sovereignty of one another and there is a demilitarized border between North and South Korea. Governments in certain foreign countries continue to participate to a significant degree, through ownership interest or regulation, in their respective economies. Action by these governments could have a significant effect on market prices of securities and payment of dividends. The economies of many foreign countries are heavily dependent upon international trade and are accordingly affected by protective trade barriers and economic conditions of their trading partners. The enactment by these trading partners of protectionist trade legislation could have a significant adverse effect upon the securities markets of such countries. PAGE 143 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. 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. For example, capital invested in Chile normally cannot be repatriated for one year. Market Characteristics. It is contemplated that most foreign securities, other than Latin American 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. Currently, it is anticipated that many Latin American investments will be made through ADRs traded in the United States. 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 subject to more rapid and erratic price movements than securities of comparable U.S. companies. Equity securities may trade at price/earnings multiples higher than comparable United States securities and such levels may not be sustainable. Fixed commissions on foreign stock exchanges are generally higher than negotiated commissions on United States exchanges, although the Fund will endeavor to achieve the most favorable net results on their portfolio transactions. There is generally less government supervision and regulation of foreign stock exchanges, brokers and listed companies than in the United States. Moreover, settlement practices for transactions in foreign markets may differ from those in United States markets. Such differences may include delays beyond periods customary in the United States and practices, such as delivery of securities prior to receipt of payment, which increase the likelihood of a "failed settlement." Failed settlements can result in losses to the Fund. 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 on pages __ and __. If PAGE 144 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. It also may be more difficult to keep currently informed of corporate actions which affect the prices of portfolio securities. Taxes. The dividends and interest payable on certain of the 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 ratios 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. Small Companies. Small companies may have less experienced management and fewer management resources than larger firms. A smaller company may have greater difficulty obtaining access to capital markets, and may pay more for the capital it obtains. In addition, smaller companies are more likely to be involved in fewer market segments, making them more vulnerable to any downturn in a given segment. Some of these factors may also apply, to a lesser extent, to medium size companies. Some of the smaller companies in which the Fund will invest may be in major foreign markets; others may be leading companies in emerging countries outside the major foreign markets. Securities analysts generally do not follow such securities, which are seldom held outside of their respective countries and which may have prospects for long-term investment returns superior to the securities of well-established and well- known companies. Direct investment in such securities may be difficult for United States investors because, among other things, information relating to such securities is often not readily available. Of course, there are also risks associated with such investments, and there is no assurance that such prospects will be realized. Other. With respect to certain foreign countries, especially developing and emerging ones, there is the possibility of adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitations on the removal of funds or other assets of the Fund, political or social instability, or diplomatic developments which could affect investments by U.S. persons in those countries. Eastern Europe and Russia. Changes occurring in Eastern Europe and Russia today could have long-term potential consequences. As restrictions PAGE 145 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. 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. PAGE 146 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, over one-half 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 practically the opposite is true. 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. Types of Securities In addition to the investments described in the Fund's prospectus, the Fund may invest in the following: Illiquid or Restricted Securities Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in accordance with procedures prescribed by the Fund's Board of Directors/Trustees. If through the appreciation of illiquid securities or the depreciation of liquid securities, the Fund should be in a position where more than 15% 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. Price-Fleming under the supervision of the Fund's Board of Directors/Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's restriction of investing no more than 15% 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, Price-Fleming will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, Price-Fleming 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 PAGE 147 is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not invest more than 15% 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. 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 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. When-Issued Securities and Forward Commitment Contracts The Fund may purchase securities on a "when-issued" or delayed delivery basis ("When-Issueds") and may purchase securities on a forward commitment basis ("Forwards"). The Fund may invest without limitation in When-Issueds and Forwards. The price of such securities, which may be expressed in yield terms, is fixed at the time the commitment to purchase is made, but delivery and payment take place at a later date. Normally, the settlement date occurs within 90 days of the purchase for When-Issueds, but may be substantially longer for Forwards. During the period between purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund. The purchase of these securities will result in a loss if their value declines PAGE 148 prior to the settlement date. This could occur, for example, if interest rates increase prior to settlement. The longer the period between purchase and settlement, the greater the risks are. At the time the Fund makes the commitment to purchase these securities, it will record the transaction and reflect the value of the security in determining its net asset value. The Fund will cover these securities by maintaining cash and/or liquid, high-grade debt securities with its custodian bank equal in value to commitments for them during the time between the purchase and the settlement. Therefore, the longer this period, the longer the period during which alternative investment options are not available to the Fund (to the extent of the securities used for cover). Such securities either will mature or, if necessary, be sold on or before the settlement date. To the extent the Fund remains fully or almost fully invested (in securities with a remaining maturity of more than one year) at the same time it purchases these securities, there will be greater fluctuations in the Fund's net asset value than if the Fund did not purchase them. 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 Price-Fleming to be of good standing and will not be made unless, in the judgment of Price- Fleming, 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. PAGE 149 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 Price-Fleming'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 Price-Fleming. At that time, the bank or securities dealer agrees to repurchase the underlying security at the same price, plus specified interest. Repurchase agreements are generally for a short period of time, often less than a week. Repurchase agreements which do not provide for payment within seven days will be treated as illiquid securities. The Fund will only enter into repurchase agreements where (i) 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) American or European style "covered" call options and purchase options to close out options previously written by a Fund. In writing covered call options, the Fund expects to generate additional premium income which should serve to enhance the Fund's total return and reduce the effect of any price decline of the security or currency involved in the option. Covered call options will generally be written on securities or currencies which, in Price-Fleming'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 PAGE 150 or currency or other assets in accordance with the rules of a clearing corporation. The Fund will write only covered call options. This means that the Fund will own the security or currency subject to the option or an option to purchase the same underlying security or currency, having an exercise price equal to or less than the exercise price of the "covered" option, or will establish and maintain with its custodian for the term of the option, an account consisting of cash, U.S. government securities or other liquid high- grade debt obligations having a value equal to the fluctuating market value of the optioned securities or currencies. Portfolio securities or currencies on which call options may be written will be purchased solely on the basis of investment considerations consistent with the Fund's investment objective. The writing of covered call options is a conservative investment technique believed to involve relatively little risk (in contrast to the writing of naked or uncovered options, which the Fund will not do), but capable of enhancing the Fund's total return. When writing a covered call option, a Fund, in return for the premium, gives up the opportunity for profit from a price increase in the underlying security or currency above the exercise price, but conversely retains the risk of loss should the price of the security or currency decline. Unlike one who owns securities or currencies not subject to an option, the Fund has no control over when it may be required to sell the underlying securities or currencies, since it may be assigned an exercise notice at any time prior to the expiration of its obligation as a writer. If a call option which the Fund has written expires, the Fund will realize a gain in the amount of the premium; however, such gain may be offset by a decline in the market value of the underlying security or currency during the option period. If the call option is exercised, the Fund will realize a gain or loss from the sale of the underlying security or currency. The Fund does not consider a security or currency covered by a call to be "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, Price- Fleming, 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. PAGE 151 Furthermore, effecting a closing transaction will permit the Fund to write another call option on the underlying security or currency with either a different exercise price or expiration date or both. If the Fund desires to sell a particular security or currency from its portfolio on which it has written a call option, or purchased a put option, it will seek to effect a closing transaction prior to, or concurrently with, the sale of the security or currency. There is, of course, no assurance that the Fund will be able to effect such closing transactions at favorable prices. If the Fund cannot enter into such a transaction, it may be required to hold a security or currency that it might otherwise have sold. When the Fund writes a covered call option, it runs the risk of not being able to participate in the appreciation of the underlying securities or currencies above the exercise price, as well as the risk of being required to hold on to securities or currencies that are depreciating in value. This could result in higher transaction costs. The Fund will pay transaction costs in connection with the writing of options to close out previously written options. Such transaction costs are normally higher than those applicable to purchases and sales of portfolio securities. Call options written by the Fund will normally have expiration dates of less than nine months from the date written. The exercise price of the options may be below, equal to, or above the current market values of the underlying securities or currencies at the time the options are written. From time to time, the Fund may purchase an underlying security or currency for delivery in accordance with an exercise notice of a call option assigned to it, rather than delivering such security or currency from its portfolio. In such cases, additional costs may be incurred. The Fund will realize a profit or loss from a closing purchase transaction if the cost of the transaction is less or more than the premium received from the writing of the option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security or currency, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by appreciation of the underlying security or currency owned by the Fund. In order to comply with the requirements of several states, the Fund will not write a covered call option if, as a result, the aggregate market value of all portfolio securities or currencies covering call or put options exceeds 25% of the market value of the Fund's net assets. Should these state laws change or should the Fund obtain a waiver of its application, the Fund reserves the right to increase this percentage. In calculating the 25% limit, the Fund will offset, against the value of assets covering written calls and puts, the value of purchased calls and puts on identical securities or currencies with identical maturity dates. Writing Covered Put Options The Fund may write American or European style covered put options and purchase options to close out options previously written by the Fund. A put option gives the purchaser of the option the right to sell, and the writer (seller) has the obligation to buy, the underlying security or currency at the exercise price during the option period (American style) or at the expiration of the option (European style). So long as the obligation of the writer continues, he may be assigned an exercise notice by the broker-dealer through whom such option was sold, requiring him to make payment of the exercise price PAGE 152 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 Price-Fleming wishes to purchase the underlying security or currency for the Fund's portfolio at a price lower than the current market price of the security or currency. In such event the Fund would write a put option at an exercise price which, reduced by the premium received on the option, reflects the lower price it is willing to pay. Since the Fund would also receive interest on debt securities or currencies maintained to cover the exercise price of the option, this technique could be used to enhance current return during periods of market uncertainty. The risk in such a transaction would be that the market price of the underlying security or currency would decline below the exercise price less the premiums received. Such a decline could be substantial and result in a significant loss to the Fund. In addition, the Fund, because it does not own the specific securities or currencies which it may be required to purchase in exercise of the put, cannot benefit from appreciation, if any, with respect to such specific securities or currencies. In order to comply with the requirements of several states, the Fund will not write a covered put option if, as a result, the aggregate market value of all portfolio securities or currencies covering put or call options exceeds 25% of the market value of the Fund's net assets. Should these state laws change or should the Fund obtain a waiver of its application, the Fund reserves the right to increase this percentage. In calculating the 25% limit, the Fund will offset, against the value of assets covering written puts and calls, the value of purchased puts and calls on identical securities or currencies with identical maturity dates. 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 PAGE 153 value. For example, a put option may be purchased in order to protect unrealized appreciation of a security or currency where Price-Fleming 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. 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 PAGE 154 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 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 PAGE 155 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 futures contracts, including stock index, interest rate and currency futures ("futures or futures contracts"). The New Era Fund may also enter into futures on commodities related to the types of companies in which it invests, such as oil and gold futures. The Equity Index Fund may only enter into stock index futures, such as the S&P 500 stock index, to provide an efficient means of maintaining liquidity while being invested in the market, to facilitate trading or to reduce transaction costs. It will not use futures for hedging purposes. 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 Price-Fleming to implement either an increase or decrease in portfolio market exposure in response to changing market conditions. The Fund may, purchase or sell futures contracts with respect to any stock index. Nevertheless, to hedge the Fund's portfolio successfully, the Fund must sell futures contacts with respect to indices or subindices whose movements will have a significant correlation with movements in the prices of the Fund's portfolio securities. Interest rate or currency futures contracts may be used as a hedge against changes in prevailing levels of interest rates or currency exchange rates in order to establish more definitely the effective return on securities or currencies held or intended to be acquired by the Fund. In this regard, the Fund could sell interest rate or currency futures as an offset against the effect of expected increases in interest rates or currency exchange rates and purchase such futures as an offset against the effect of expected declines in interest rates or currency exchange rates. The Fund will enter into futures contracts which are traded on national or foreign futures exchanges, and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the 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 and applicable state law. PAGE 156 The Fund may not purchase or sell futures contracts or related options if, with respect to positions which do not qualify as bona fide hedging under applicable CFTC rules, the sum of the amounts of initial margin deposits and premiums paid on those portions would exceed 5% of the net asset value of the Fund after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; provided, however, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in calculating the 5% limitation. For purposes of this policy options on futures contracts and foreign currency options traded on a commodities exchange will be considered "related options". This policy may be modified by the Board of Directors/Trustees without a shareholder vote and does not limit the percentage of the Fund's assets at risk to 5%. In accordance with the rules of the State of California, the Fund will apply above 5% test without excluding the value of initial margin and premiums paid for bona fide hedging portions. The Fund's use of futures contracts will not result in leverage. Therefore, to the extent necessary, in instances involving the purchase of futures contracts or the writing of call or put options thereon by the Fund, an amount of cash, U.S. government securities or other liquid, high-grade debt obligations, equal to the market value of the futures contracts and options thereon (less any related margin deposits), will be identified in an account with the Fund's custodian to cover (such as owning an offsetting position) the position, or alternative cover will be employed. Assets used as cover or held in an identified account cannot be old while the position in the corresponding option or future is open, unless they are replaced with similar assets. As a result, the commitment of a large portion of a Fund's assets to cover or identified accounts could impede portfolio management or the fund's ability to meet redemption requests or over current obligations. If the CFTC or other regulatory authorities adopt different (including less stringent) or additional restrictions, the Fund would comply with such new restrictions. Trading in Futures Contracts A futures contract provides for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument (e.g., units of a stock index) for a specified price, date, time and place designated at the time the contract is made. Brokerage fees are incurred when a futures contract is bought or sold and margin deposits must be maintained. Entering into a contract to buy is commonly referred to as buying or purchasing a contract or holding a long position. Entering into a contract to sell is commonly referred to as selling a contract or holding a short position. Unlike when the Fund purchases or sells a security, no price would be paid or received by the Fund upon the purchase or sale of a futures contract. Upon entering into a futures contract, and to maintain the Fund's open positions in futures contracts, the Fund would be required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash, 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 PAGE 157 contract is traded, and may be significantly modified from time to time by the exchange during the term of the contract. Futures contracts are customarily purchased and sold on margins that may range upward from less than 5% of the value of the contract being traded. If the price of an open futures contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the futures contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the futures contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the Fund. These subsequent payments, called "variation margin," to and from the futures broker, are made on a daily basis as the price of the underlying assets fluctuate making the long and short positions in the futures contract more or less valuable, a process known as "marking to the market." The Fund expects to earn interest income on its margin deposits. Although certain futures contracts, by their terms, require actual future delivery of and payment for the underlying instruments, in practice most futures contracts are usually closed out before the delivery date. Closing out an open futures contract purchase or sale is effected by entering into an offsetting futures contract sale or purchase, respectively, for the same aggregate amount of the identical securities and the same delivery date. If the offsetting purchase price is less than the original sale price, the Fund realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if it is less, the Fund realizes a loss. The transaction costs must also be included in these calculations. There can be no assurance, however, that the Fund will be able to enter into an offsetting transaction with respect to a particular futures contract at a particular time. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain the margin deposits on the futures contract. 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). PAGE 158 Special Risks of Transactions in Futures Contracts Volatility and Leverage. The prices of futures contracts are volatile and are influenced, among other things, by actual and anticipated changes in the market and interest rates, which in turn are affected by fiscal and monetary policies and national and international political and economic events. Most United States futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of futures contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses. Because of the low margin deposits required, futures trading involves an extremely high degree of leverage. As a result, a relatively small price movement in a futures contract may result in immediate and substantial loss, as well as gain, to the investor. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit, if the contract were closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract. However, the Fund would presumably have sustained comparable losses if, instead of the futures contract, it had invested in the underlying financial instrument and sold it after the decline. Furthermore, in the case of a futures contract purchase, in order to be certain that the Fund has sufficient assets to satisfy its obligations under a futures contract, the Fund earmarks to the futures contract money market instruments equal in value to the current value of the underlying instrument less the margin deposit. Liquidity. The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The Fund would do so to reduce exposure represented by long futures positions or short futures positions. The Fund may close its positions by taking opposite positions which would operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin would then be made, additional cash would be required to be paid by or released to the Fund, and the Fund would realize a loss or a gain. Futures contracts may be closed out only on the exchange or board of trade where the contracts were initially traded. Although the Fund intends to purchase or sell futures contracts only on exchanges or boards of trade where there appears to be an active market, there is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract at any particular time. In such event, it might not be possible to close a futures contract, and in the event of adverse price movements, the Fund would PAGE 159 continue to be required to make daily cash payments of variation margin. However, in the event futures contracts have been used to hedge the underlying instruments, the Fund would continue to hold the underlying instruments subject to the hedge until the futures contracts could be terminated. In such circumstances, an increase in the price of underlying instruments, if any, might partially or completely offset losses on the futures contract. However, as described below, there is no guarantee that the price of the underlying instruments will, in fact, correlate with the price movements in the futures contract and thus provide an offset to losses on a futures contract. Hedging Risk. A decision of whether, when, and how to hedge involves skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of unexpected market behavior, market or interest rate trends. There are several risks in connection with the use by the Fund of futures contracts as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the futures contracts and movements in the prices of the underlying instruments which are the subject of the hedge. Price-Fleming 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 Price-Fleming's ability to correctly predict movements in the direction of the market. It is possible that, when the Fund has sold futures to hedge its portfolio against a decline in the market, the index, indices, or instruments underlying futures might advance and the value of the underlying instruments held in the Fund's portfolio might decline. If this were to occur, the Fund would lose money on the futures and also would experience a decline in value in its underlying instruments. However, while this might occur to a certain degree, Price-Fleming believes that over time the value of the Fund's portfolio will tend to move in the same direction as the market indices used to hedge the portfolio. It is also possible that if the Fund were to hedge against the possibility of a decline in the market (adversely affecting the underlying instruments held in its portfolio) and prices instead increased, the Fund would lose part or all of the benefit of increased value of those underlying instruments that it has hedged, because it would have offsetting losses in its futures positions. In addition, in such situations, if the Fund had insufficient cash, it might have to sell underlying instruments to meet daily variation margin requirements. Such sales of underlying instruments might be, but would not necessarily be, at increased prices (which would reflect the rising market). The Fund might have to sell underlying instruments at a time when it would be disadvantageous to do so. In addition to the possibility that there might be an imperfect correlation, or no correlation at all, between price movements in the futures contracts and the portion of the portfolio being hedged, the price movements of futures contracts might not correlate perfectly with price movements in the underlying instruments due to certain market distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors might close futures contracts through offsetting transactions, which could distort the normal relationship between the underlying instruments and futures markets. Second, the margin requirements in the futures market are less onerous than margin requirements in the securities markets, and as a result the futures market might attract more PAGE 160 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 Price-Fleming might not result in a successful hedging transaction over a very short time period. Options on Futures Contracts The Fund may purchase and sell options on the same types of futures in which it may invest. Options on futures are similar to options on underlying instruments except that options on futures give the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put), rather than to purchase or sell the futures contract, at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by the delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid. As an alternative to writing or purchasing call and put options on 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 risks described under "Special Risks of Transactions on Futures Contracts" are substantially the same as the risks of using options on futures. In addition, where the Fund seeks to close out an option position by writing or buying an offsetting option covering the same index, underlying instrument or contract and having the same exercise price and expiration date, its ability to establish and close out positions on such options will be subject to the maintenance of a liquid secondary market. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options, or underlying instruments; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the PAGE 161 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 foreign board of trade. Neither the National Futures Association nor any domestic exchange regulates activities of any foreign boards of trade, including the execution, delivery and clearing of transactions, or has the power to compel enforcement of the rules of a foreign board of trade or any applicable foreign law. This is true even if the exchange is formally linked to a domestic market so that a position taken on the market may be liquidated by a transaction on another market. Moreover, such laws or regulations will vary depending on the foreign country in which the foreign futures or foreign options transaction occurs. For these reasons, when the Fund trades foreign futures or foreign options contracts, it may not be afforded certain of the protective measures provided by the Commodity Exchange Act, the CFTC's regulations and the rules of the National Futures Association and any domestic exchange, including the right to use reparations proceedings before the Commission and arbitration proceedings provided by the National Futures Association or any domestic futures exchange. In particular, funds received from the Fund for foreign futures or foreign options transactions may not be provided the same protections as funds received in respect of transactions on United States futures exchanges. In addition, the price of any foreign futures or foreign options contract and, therefore, the potential profit and loss thereon may be affected by any variance in the foreign exchange rate between the time the Fund's order is placed and the time it is liquidated, offset or exercised. 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. PAGE 162 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 Price-Fleming believes that one currency may experience a substantial movement against another currency, including the U.S. dollar, it may enter into a forward contract to sell or buy the amount of the former foreign currency, approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. Alternatively, where appropriate, the Fund may hedge all or part of its foreign currency exposure through the use of a basket of currencies or a proxy currency where such currency or currencies act as an effective proxy for other currencies. In such a case, the Fund may enter into a forward contract where the amount of the foreign currency to be sold exceeds the value of the securities denominated in such currency. The use of this basket hedging technique may be more efficient and economical than entering into separate forward contracts for each currency held in the Fund. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movement is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. 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, Price-Fleming believes that it is important to have the flexibility to enter into such forward contracts when it determines that the best interests of the Fund will be served. PAGE 163 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 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 Price-Fleming. It also should be realized that this method of hedging against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange at a future date. Additionally, although such contracts tend to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time, they tend to limit any potential gain which might result from an increase in the value of that currency. Although the Fund values its assets daily in terms of U.S. dollars, it does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. It will do so from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. PAGE 164 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 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. PAGE 165 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 which involves a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the percentage occurs immediately after, and is caused by, an acquisition of securities or assets of, or borrowings by, the Fund. Fundamental Policies As a matter of fundamental policy, the Fund may not: (1) Borrowing. Borrow money except that the Fund may (i) borrow for non-leveraging, temporary or emergency purposes and (ii) engage in reverse repurchase agreements and make other investments or engage in other transactions, which may involve a borrowing, in a manner consistent with the Fund's investment objective and program, provided that the combination of (i) and (ii) shall not exceed 33 1/3% of the value of the Fund's total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law. Any borrowings which come to exceed this amount will be reduced in accordance with applicable law. The Fund may borrow from banks, other Price Funds or other persons to the extent permitted by applicable law. (2) Commodities. Purchase or sell physical commodities; except that 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) Percent Limit on Assets Invested in Any One Issuer. Purchase a security if, as a result, with respect to 75% of the value of the Fund's total assets, more than 5% of the value of its total assets would be invested in the securities of any one issuer (other than obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities); PAGE 166 (6) Percent Limit on Share Ownership of Any One Issuer. Purchase a security if, as a result, with respect to 75% of the value of the Fund's total assets, more than 10% of the outstanding voting securities of any issuer would be held by the Fund (other than obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities) provided that, as an operating policy, the Fund will not purchase a security if, as a result, more than 10% of the outstanding voting securities of any issuer would be held by the Fund; (7) Real Estate. Purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business; (8) Senior Securities. Issue senior securities except in compliance with the Investment Company Act of 1940; or (9) Underwriting. Underwrite securities issued by other persons, except to the extent that the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933 in connection with the purchase and sale of its portfolio securities in the ordinary course of pursuing its investment program. 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 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 PAGE 167 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 168 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. Each 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. 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. PAGE 169 Cumulative Performance Percentage Change Since 1 Year 5 Years 10 Years Inception Ended Ended Ended 5/9/80 to 12/31/93+ 12/31/93 12/31/93 12/31/93++ _________ ________ ___________ __________ International Stock 40.11% 76.63% 396.21% 678.83% Fund S&P 500 10.07 97.34 301.77 661.50 Dow Jones Industrial Average 16.99 105.25 333.86 732.91 Lipper International Funds Average 39.40 62.48 303.71 480.69+++ EAFE Index 32.94 12.19 417.77 592.40+++ CPI 2.75 21.00 43.93 80.00 Financial Times Actuaries World Index++++ 22.60 35.85 N/A N/A Average Annual Compound Rates of Return Since 1 Year 5 Years 10 Years Inception Ended Ended Ended 5/9/80 to 12/31/93+ 12/31/93 12/31/93 12/31/93++ _________ ________ ____________ __________ International Stock 40.11% 12.05% 17.37% 16.23% Fund S&P 500 10.07 14.56 14.92 16.04 Dow Jones Industrial Average 16.99 15.47 15.81 16.80 Lipper International Funds Average 39.40 9.85 14.84 13.66+++ EAFE Index 32.94 2.33 17.87 15.40+++ CPI 2.75 3.89 3.71 4.40 Financial Times Actuaries World Index++++ 22.60 6.32 N/A N/A + If you invested $1,000 at the beginning of 1993, the total return on December 31, 1993 would be $1,401.10 ($1,000 x 1.4011). ++ Assumes purchase of one share of International Stock Fund at the public offering price of $5.00 on May 9, 1980. Over this time, stock prices in general have risen. +++ 06/30/80-12/31/91 ++++ The inception date of this index is 12/31/85. 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 170 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 PAGE 171 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 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. In connection with (4) above, information derived from the following chart may be used: IRA Versus Taxable Return Assuming 9% annual rate of return, $2,000 annual contribution and 28% tax bracket. Year Taxable Tax Deferred ____ _______ ____________ 10 $ 28,700 $ 33,100 15 51,400 64,000 20 82,500 111,500 25 125,100 184,600 30 183,300 297,200 IRAs An IRA is a long-term investment whose objective is to accumulate personal savings for retirement. Due to the long-term nature of the investment, even slight differences in performance will result in significantly different assets at retirement. Mutual funds, with their diversity of choice, can be used for IRA investments. Generally, individuals may need to adjust their underlying IRA investments as their time to retirement and tolerance for risk changes. Other Features and Benefits The Fund is a member of the T. Rowe Price Family of Funds and may help investors achieve various long-term investment goals, such as investing money for retirement, saving for a down payment on a home, or paying college costs. To explain how the Fund could be used to assist investors in planning for these goals and to illustrate basic principles of investing, various worksheets and guides prepared by T. Rowe Price Associates, Inc. and/or T. Rowe Price Investment Services, Inc. may be made available. These currently include: the Asset Mix Worksheet 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 PAGE 172 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. To assist investors in understanding the different returns and risk characteristics of various investments, the aforementioned guides will include presentation of historical returns of various investments using published indices. An example of this is shown on the next page. Historical Returns for Different Investments Annualized returns for periods ended 12/31/93 50 years 20 years 10 years 5 years Small-Company Stocks 15.3% 18.8% 10.0% 13.3% Large-Company Stocks 12.3 12.8 14.9 14.5 Foreign Stocks N/A 14.4 17.9 2.3 Long-Term Corporate Bonds 5.6 10.2 14.0 13.0 Intermediate-Term U.S. Gov't. Bonds 5.7 9.8 11.4 11.3 Treasury Bills 4.6 7.5 6.4 5.6 U.S. Inflation 4.3 5.9 3.7 3.9 Sources: Ibbotson Associates, Morgan Stanley. Foreign stocks reflect performance of The Morgan Stanley Capital International EAFE Index, which includes some 1,000 companies representing the stock markets of Europe, Australia, New Zealand, and the Far East. This chart is for illustrative purposes only and should not be considered as performance for, or the annualized return of, any T. Rowe Price Fund. Past performance does not guarantee future results. Also included will be various portfolios demonstrating how these historical indices would have performed in various combinations over a specified time period in terms of return. An example of this is shown below. PAGE 173 Performance of Retirement Portfolios* Asset Mix Average Annualized Value Returns 20 Years of Ended 12/31/93 $10,000 Investment After Period _____________________ ______________________ ____________ Nominal Real Best Worst Portfolio Growth Income Safety Return Return** Year Year I. Low Risk 40% 40% 20% 11.3% 5.4% 24.9% -9.3% $ 79,775 II. Moderate Risk 60% 30% 10% 12.1% 6.2% 29.1%-15.6% $ 90,248 III. High Risk 80% 20% 0% 12.9% 7.0% 33.4%-21.9% $100,031 Source: T. Rowe Price Associates; data supplied by Lehman Brothers, Wilshire Associates, and Ibbotson Associates. * Based on actual performance for the 20 years ended 1993 of stocks (85% Wilshire 5000 and 15% Europe, Australia, Far East [EAFE] Index), bonds (Lehman Brothers Aggregate Bond Index from 1976-93 and Lehman Brothers Government/Corporate Bond Index from 1974-75), and 30-day Treasury bills from January 1974 through December 1993. Past performance does not guarantee future results. Figures include changes in principal value and reinvested dividends and assume the same asset mix is maintained each year. This exhibit is for illustrative purposes only and is not representative of the performance of any T. Rowe Price fund. ** Based on inflation rate of 5.9% for the 20-year period ended 12/31/93. From time to time, Insights, a T. Rowe Price publication of reports on specific investment topics and strategies, may be included in the Fund's fulfillment kit. Such reports may include information concerning: calculating taxable gains and losses on mutual fund transactions, coping with stock market volatility, benefiting from dollar cost averaging, understanding international markets, investing in high-yield "junk" bonds, growth stock investing, conservative stock investing, value investing, investing in small companies, tax-free investing, fixed income investing, investing in mortgage- backed securities, as well as other topics and strategies. 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) PAGE 174 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. 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. *M. DAVID TESTA, Chairman of the Board--Chairman of the Board, Price-Fleming; Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company; Chartered Financial Analyst *MARTIN G. WADE, President and Director--President, Price-Fleming; Director, Robert Fleming Holdings Limited; Address: 25 Copthall Avenue, London, EC2R 7DR, England LEO C. BAILEY, Director--Retired; Address: 3396 South Placita Fabula, Green Valley, Arizona 85614 ANTHONY W. DEERING, Director--Director, President and Chief Operating Officer, The Rouse Company, real estate developers, Columbia, Maryland; Advisory Director, Kleinwort, Benson (North America) Corporation, a registered broker-dealer; Address: 10275 Little Patuxent Parkway, Columbia, Maryland 21044 DONALD W. DICK, JR., Director--Principal, Overseas Partners, Inc., a financial investment firm; formerly (6/65-3/89) Director and Vice President-Consumer Products Division, McCormick & Company, Inc., international food processors; Director, Waverly Press, Inc., Baltimore, Maryland; Address: 375 Park Avenue, Suite 2201, New York, New York 10152 ADDISON LANIER, Director--Financial management; President and Director, Thomas Emery's Sons, Inc., and Emery Group, Inc.; Director, Scinet Development and Holdings, Inc.; Address: 441 Vine Street, #2310, Cincinnati, Ohio 45202- 2913 DAVID P. BOARDMAN, Executive Vice President--Executive Vice President, Price- Fleming CHRISTOPHER D. ALDERSON, Vice President--Vice President, Price-Fleming PETER B. ASKEW, Vice President--Vice President, Price-Fleming RICHARD J. BRUCE, Vice President--Vice President of Price-Fleming; formerly (1985-1990) Investment Manager, Jardine Fleming Investment Advisers, Tokyo ROBERT P. CAMPBELL, Vice President--Vice President, T. Rowe Price and Rowe Price-Fleming International Inc.; formerly (4/80-5/90) Vice President and Director, Private Finance, New York Life Insurance Company, New York, New York MARK J. T. EDWARDS, Vice President--Vice President, Price-Fleming JOHN R. FORD, Vice President--Executive Vice President, Price-Fleming PAGE 175 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 ROBERT C. HOWE, Vice President--Vice President, Price-Fleming and T. Rowe Price STEPHEN ILOTT, Vice President--Employee, Price-Fleming; formerly (1988-1991) portfolio management, Fixed Income Portfolios Group, Robert Fleming Holdings Limited, London GEORGE A. MURNAGHAN, Vice President--Vice President, Price-Fleming, T. Rowe Price, T. Rowe Price Trust Company, and T. Rowe Price Investment Services, Inc. JAMES S. RIEPE, Vice President--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. CHRISTOPHER ROTHERY, Vice President--Employee, Price-Fleming; formerly (1987-1989) employee of Robert Fleming Holdings Limited, London CHARLES H. SALISBURY, JR., Vice President--Vice President and Director, Price-Fleming; Managing Director, T. Rowe Price; President, Trust Officer and Director, T. Rowe Price Trust Company; Director, T. Rowe Price Retirement Plan Services, Inc. JAMES B. M. SEDDON, Vice President--Vice President, Price-Fleming CHARLES P. SMITH, Vice President--Managing Director, T. Rowe Price; Vice President, Rowe Price-Fleming International, Inc. BENEDICT R. F. THOMAS, Vice President--Vice President, Price-Fleming PETER VAN DYKE, Vice President--Managing Director, T. Rowe Price; Vice President, Rowe Price-Fleming International, Inc. DAVID J. L. WARREN, Vice President--Executive Vice President, Price-Fleming WILLIAM F. WENDLER, II, Vice President--Vice President, Price-Fleming, T. Rowe Price and T. Rowe Price Investment Services, Inc. EDWARD A. WIESE, Vice President--Vice President, T. Rowe Price, Rowe Price- Fleming International, 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. LEAH P. HOLMES, Assistant Vice President--Vice President, Price-Fleming and Assistant Vice President of Price Associates 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 Messrs. Testa and Wade, 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 PAGE 176 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 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 PAGE 177 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 a fee ("Fee") which consists of two components: a Group Management Fee ("Group Fee") and an Individual Fund Fee ("Fund Fee"). The Fee is paid monthly to Price-Fleming on the first business day of the next succeeding calendar month and is calculated as described below. The monthly Group Fee ("Monthly Group Fee") is the sum of the daily Group Fee accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee Accrual for any particular day is computed by multiplying the Price Funds' group fee accrual as determined below ("Daily Price Funds' Group Fee Accrual") by the ratio of the Fund's net assets for that day to the sum of the aggregate net assets of the Price Funds for that day. The Daily Price Funds' Group Fee Accrual for any particular day is calculated by multiplying the fraction of one (1) over the number of calendar days in the year by the annualized Daily Price Funds' Group Fee Accrual for that day as determined in accordance with the following schedule: Price Funds' Annual Group Base Fee Rate for Each Level of Assets _________________________________ 0.480% First $1 billion 0.450% Next $1 billion 0.420% Next $1 billion 0.390% Next $1 billion 0.370% Next $1 billion 0.360% Next $2 billion 0.350% Next $2 billion 0.340% Next $5 billion 0.330% Next $10 billion 0.320% Next $10 billion 0.310% Thereafter For the purpose of calculating the Group Fee, the Price Funds include all the mutual funds distributed by T. Rowe Price Investment Services, Inc. (excluding T. Rowe Price Spectrum Fund, Inc. and any institutional or private PAGE 178 label mutual funds). For the purpose of calculating the Daily Price Funds' Group Fee Accrual for any particular day, the net assets of each Price Fund are determined in accordance with the Fund's prospectus as of the close of business on the previous business day on which the Fund was open for business. The monthly Fund Fee ("Monthly Fund Fee") is the sum of the daily Fund Fee accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any particular day is computed by multiplying the fraction of one (1) over the number of calendar days in the year by the Fund Fee Rate of 0.35% and multiplying this product by the net assets of the Fund for that day, as determined in accordance with the Fund's prospectus as of the close of business on the previous business day on which the Fund was open for business. The management fees paid by the Fund for the years 1993, 1992, and 1991, were $14,955,000, $12,522,000, and $9,233,000, respectively. Limitation on Fund Expenses The Management Agreement between the Fund and Price-Fleming provides that the Fund will bear all expenses of its operations not specifically assumed by Price-Fleming. However, in compliance with certain state regulations, Price-Fleming will reimburse the Fund for certain expenses which in any year exceed the limits prescribed by any state in which the Fund's shares are qualified for sale. Presently, the most restrictive expense ratio limitation imposed by any state is 2.5% of the first $30 million of a Fund's average daily net assets, 2% of the next $70 million of the average daily net assets, and 1.5% of net assets in excess of $100 million. For the purpose of determining whether the Fund is entitled to reimbursement, the expenses of the Fund are calculated on a monthly basis. If the Fund is entitled to reimbursement, that month's management fee will be reduced or postponed, with any adjustment made after the end of the year. T. Rowe Price Spectrum Fund, Inc. The Fund is a party to a Special Servicing Agreement ("Agreement") between and among T. Rowe Price Spectrum Fund, Inc. ("Spectrum Fund"), T. Rowe Price, T. Rowe Price Services, Inc. and various other T. Rowe Price funds which, along with the Fund, are funds in which Spectrum Fund invests (collectively all such funds "Underlying Price Funds"). The Agreement provides that, if the Board of Directors/Trustees of any Underlying Price Fund determines that such Underlying Fund's share of the aggregate expenses of Spectrum Fund is less than the estimated savings to the Underlying Price Fund from the operation of Spectrum Fund, the Underlying Price Fund will bear those expenses in proportion to the average daily value of its shares owned by Spectrum Fund, provided further that no Underlying Price Fund will bear such expenses in excess of the estimated savings to it. Such savings are expected to result primarily from the elimination of numerous separate shareholder accounts which are or would have been invested directly in the Underlying Price Funds and the resulting reduction in shareholder servicing costs. Although such cost savings are not certain, the estimated savings to the Underlying Price Funds generated by the operation of Spectrum Fund are expected to be sufficient to offset most, if not all, of the expenses incurred by Spectrum Fund. PAGE 179 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. 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. PAGE 180 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 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 PAGE 181 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 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. PAGE 182 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 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 PAGE 183 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. During the year 1993, the Fund paid JFS and RF&Co. $1,198,000 and $100,000, respectively, in total brokerage commissions in connection with their portfolio transactions. The brokerage commissions paid to JFS and RF&Co. represented 22%, and 1%, respectively, of the Fund's aggregate brokerage commissions paid during 1993. The aggregate dollar amount of transactions effected through JFS and RF&Co., involving the payment of commissions, represented 18% and 2%, respectively, of the aggregate dollar amount of all transactions involving the payment of commissions during 1993. In accordance with the written procedures adopted pursuant to Rule 17e-1, the independent directors of the Fund reviewed the 1993 transactions with affiliated brokers and determined that such transactions resulted in an economic advantage to the Fund either in the form of lower execution costs or otherwise. Other For the years 1993, 1992, and 1991, the total brokerage commissions paid by the Fund, including the discounts received by securities dealers in connection with underwritings, were $5,419,000, $4,052,000, and $3,119,000, respectively. Of these commissions, approximately 76%, 85%, and 90%, respectively, were paid to firms which provided research, statistical, or other services to Price-Fleming in connection with the management of the Fund or, in some cases, to the Fund. The portfolio turnover rate of the Fund for each of the last three years has been as follows: 1993--29.8%, 1992--37.8%, and 1991--45.0%, respectively. 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. PAGE 184 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 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 its liabilities (including accrued expenses and dividends payable) from its total assets (the market value of the securities the Fund holds plus cash and other assets, including income accrued but not yet received) and dividing the result by the total number of shares outstanding. The net asset value per share of the Fund is 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. PAGE 185 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"). Dividends and distributions paid by the Fund are not eligible for the dividends-received deduction for corporate shareholders, if as expected, none of the Fund's income consists of dividends paid by United States corporations. Capital gain distributions paid from the Fund are never eligible for this deduction. For tax purposes, it does not make any difference whether dividends and capital gain distributions are paid in cash or in additional shares. The Fund must declare dividends equal to at least 98% of ordinary income (as of December 31) and capital gains (as of October 31) in order to avoid a federal excise tax and distribute 100% of ordinary income and capital gains as of December 31 to avoid federal income tax. Foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to foreign exchange rate fluctuations are taxable as ordinary income. If the net effect of these transactions is a gain, the dividend paid by the Fund will be increased; if the result is a loss, the income dividend paid by the Fund will be decreased. Adjustments, to reflect these gains and losses will be made at the end of the Fund's taxable year. 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. A subsequent distribution to you of such amounts, although constituting a return of your investment, would be taxable 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. On March 31, 1994, the books of the Fund indicated that the Fund's aggregate net assets included undistributed net income of $__________, net realized capital losses of $_________, and unrealized appreciation of $___________. Income received by the Fund from sources within various foreign countries will be subject to foreign income taxes withheld at the source. Under the Code, if more than 50% of the value of the Fund's total assets at the close of its taxable year comprise securities issued by foreign corporations, the Fund may file an election with the Internal Revenue Service to "pass through" to the Fund's shareholders the amount of any foreign income taxes paid by the Fund. Pursuant to this election, shareholders will be required to: (i) include in gross income, even though not actually received, their respective pro rata share of foreign taxes paid by the Fund; (ii) treat their pro rata share of foreign taxes as paid by them; and (iii) either deduct their pro rata share of foreign taxes in computing their taxable income, or PAGE 186 use it as a foreign tax credit against U.S. income taxes (but not both). No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. The Fund intends to meet the requirements of the Code to "pass through" to its shareholders foreign income taxes paid, but there can be no assurance that the Fund will be able to do so. Each shareholder will be notified within 60 days after the close of each taxable year of the Fund, if the Fund will "pass through" foreign taxes paid for that year, and, if so, the amount of each shareholder's pro rata share (by country) of (i) the foreign taxes paid, and (ii) the Fund's gross income from foreign sources. Of course, shareholders who are not liable for federal income taxes, such as retirement plans qualified under Section 401 of the Code, will not be affected by any such "pass through" of foreign tax credits. 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. Taxation of Foreign Shareholders The Code provides that dividends from net income (which are deemed to include for this purpose each shareholder's pro rata share of foreign taxes paid by the Fund - see discussion of "pass through" of the foreign tax credit to U.S. shareholders), will be subject to U.S. tax. For shareholders who are not engaged in a business in the U.S., this tax would be imposed at the rate of 30% upon the gross amount of the dividend in the absence of a Tax Treaty providing for a reduced rate or exemption from U.S. taxation. Distributions of net long-term capital gains realized by the Fund are not subject to tax unless the foreign shareholder is a nonresident alien individual who was physically present in the U.S. during the tax year for more than 182 days. CAPITAL STOCK The T. Rowe Price International Funds, Inc. (the "Corporation") was originally organized in 1979 as a Maryland corporation under the name T. Rowe Price International Fund, Inc. ("the Old Corporation"). Pursuant to the Annual Meeting of Shareholders held on April 22, 1986, an Agreement and Plan of Reorganization and Liquidation was adopted in order to convert the Old Corporation from a Maryland corporation to a Massachusetts Business Trust, named the T. Rowe Price International Trust ("the Trust"). This conversion became effective on May 1, 1986. Pursuant to the Annual Meeting of Shareholders held on April 19, 1990, an Agreement and Plan of Reorganization and Liquidation was adopted in order to convert the Trust from a Massachusetts Business Trust to a Maryland corporation. This conversion become effective May 1, 1990. The Corporation is registered with the Securities and Exchange Commission under the 1940 Act as a diversified, open-end investment company, commonly known as a "mutual fund." PAGE 187 Currently, the Corporation consists of nine series, each of which represents a separate class of the Corporation's shares and has different objectives and investment policies. The International Bond Fund was added as a separate series of the Trust in 1986, and the designation of the existing series of the Trust was, at that time, changed to the International Stock Fund. In 1988 and 1990, respectively, the International Discovery and European Stock Funds were added as separate series of the Trust. Effective May 1, 1990, all series of the Trust became series of the Corporation. In the same year, after the May 1, 1990 reorganization, the New Asia and Global Government Bond Funds were added as separate series of the Corporation. The Japan, Short-Term Global Income and Latin America Funds were added as separate series of the Corporation in 1991, 1992, and 1993, respectively. The Short- Term Global Income, Global Government Bond and International Bond Funds are described in a separate Statement of Additional Information. The Charter also provides that the Board of Directors may issue additional series of shares. The Fund's Charter authorizes the Board of Directors to classify and reclassify any and all shares which are then unissued, including unissued shares of capital stock into any number of classes or series, each class or series consisting of such number of shares and having such designations, such powers, preferences, rights, qualifications, limitations, and restrictions, as shall be determined by the Board subject to the Investment Company Act and other applicable law. The shares of any such additional classes or series might therefore differ from the shares of the present class and series of capital stock and from each other as to preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption, subject to applicable law, and might thus be superior or inferior to the capital stock or to other classes or series in various characteristics. The Board of Directors may increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the Fund has authorized to issue without shareholder approval. Each share of each series has equal voting rights with every other share of every other series, and all shares of all series vote as a single group except where a separate vote of any class or series is required by the 1940 Act, the laws of the State of Maryland, the Corporation's Articles of Incorporation, the By-Laws of the Corporation, or as the Board of Directors may determine in its sole discretion. Where a separate vote is required with respect to one or more classes or series, then the shares of all other classes or series vote as a single class or series, provided that, as to any matter which does not affect the interest of a particular class or series, only the holders of shares of the one or more affected classes or series is entitled to vote. The preferences, rights, and other characteristics attaching to any series of shares, including the present series of capital stock, might be altered or eliminated, or the series might be combined with another series, by action approved by the vote of the holders of a majority of all the shares of all series entitled to be voted on the proposal, without any additional right to vote as a series by the holders of the capital stock or of another affected series. Shareholders are entitled to one vote for each full share held (and fractional votes for fractional shares held) and will vote in the election of or removal of directors (to the extent hereinafter provided) and on other matters submitted to the vote of shareholders. There will normally be no meetings of shareholders for the purpose of electing directors unless and PAGE 188 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 1940 Act. 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 Price Waterhouse, 7 St. Paul Street, Suite 1700, Baltimore, Maryland 21202, are independent accountants to the Fund. The financial statements of the Fund for the ten months ended October 31, 1993, and the report of independent accountants are included in the Fund's Annual Report for the ten months ended October 31, 1993, on pages 9-21. A copy of the Annual Report accompanies this Statement of Additional Information. The following financial statements and the report of independent accountants appearing in the Annual Report for the ten months ended October 31, 1993, are incorporated into this Statement of Additional Information by reference: PAGE 189 Annual Report Page _______________ Report of Independent Accountants 21 Statement of Net Assets, October 31, 1993 9-14 Statement of Operations, ten months ended October 31, 1993 and year ended December 31, 1992 15 Statement of Changes in Net Assets, ten months ended October 31, 1993 and years ended December 31, 1992 and December 31, 1991 16 Notes to Financial Statements, October 31, 1993 17-19 Financial Highlights 20 PAGE 190 PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Financial Statements. International Stock, International Discovery, European Stock, New Asia and Japan Funds Condensed Financial Information (Financial Highlights) for the Funds is included in Part A of the Registration Statement. Statement of Net Assets, Statement of Operations, and Statement of Changes in Net Assets of the International Stock, International Discovery, European Stock, New Asia and Japan Funds are included in each Fund's Annual Report to Shareholders, the pertinent portions of which are incorporated by reference in Part B of the Registration Statement. Latin America Fund: Inapplicable. International Bond, Global Government Bond and Short-Term Global Income Funds Condensed Financial Information (Financial Highlights) for the Funds is included in Part A of the Registration Statement. Portfolio of Investments, Statement of Assets and Liabilities, Statement of Operations, and Statement of Changes in Net Assets of the Global Government Bond, International Bond and Short-Term Global Income Funds are included in each Fund's Annual Report to Shareholders, the pertinent portions of which are incorporated by reference in Part B of the Registration Statement. (b) Exhibits. (1)(a) Articles of Amendment and Restatement of T. Rowe Price International Funds, Inc., dated February 16, 1990 (filed with Amendment No. 19) (1)(b) Articles Supplementary of T. Rowe Price International Funds, Inc., dated March 4, 1991 (filed with Amendment No. 30) (1)(c) Articles of Amendment of T. Rowe Price International Funds, Inc., dated May 1, 1991 (filed with Amendment No. 30) (1)(d) Articles Supplementary of T. Rowe Price International Funds, Inc., dated October 18, 1991 (filed with Amendment No. 30) PAGE 191 (1)(e) Articles Supplementary of T. Rowe Price International Funds, Inc., dated May 4, 1992 (filed with Amendment No. 35) (1)(f) Articles Supplementary of T. Rowe Price International Funds, Inc., dated November 4, 1993 (1)(g) Articles Supplementary of T. Rowe Price International Funds, Inc. dated February 18, 1994 (2) By-Laws of Registrant, as amended to May 1, 1991 and September 30, 1993 (3) Inapplicable (4)(a) Specimen Stock Certificate for International Bond Fund (filed with Amendment No. 10) (4)(b) Specimen Stock Certificate for International Stock Fund (filed with Amendment No. 10) (4)(c) Specimen Stock Certificate for International Discovery Fund (filed with Amendment No. 14) (4)(d) Specimen Stock Certificate for European Stock Fund (filed with Amendment No. 18) (4)(e) Specimen Stock Certificate for New Asia Fund (filed with Amendment No. 21) (4)(f) Specimen Stock Certificate for Global Government Bond Fund (filed with Amendment No. 24) (4)(g) T. Rowe Price Japan Fund and T. Rowe Price Short-Term Global Income Fund. See Article FIFTH, Capital Stock, Paragraphs (A)-(E) of the Articles of Amendment and Restatement filed with Amendment No. 19, Article II, Shareholders, Sections 2.01-2.11 and Article VIII, Capital Stock, Sections 8.01-8.06 of the Bylaws filed as an Exhibit to this Registration Statement. (5)(a) Investment Management Agreement between Registrant and Rowe Price-Fleming International, Inc., on behalf of T. Rowe Price International Bond Fund, dated May 1, 1990 (filed with Amendment No. 33) (5)(b) Investment Management Agreement between Registrant and Rowe Price-Fleming International, Inc., on behalf of T. Rowe Price International Stock Fund, dated May 1, 1990 (filed with Amendment No. 33) (5)(c) Investment Management Agreement between Registrant and Rowe Price-Fleming International, Inc., on behalf of T. Rowe Price International Discovery Fund, dated May 1, 1991 (filed with Amendment No. 33) PAGE 192 (5)(d) Investment Management Agreement between Registrant and Rowe Price-Fleming International, Inc., on behalf of T. Rowe Price European Stock Fund, dated May 1, 1990 (filed with Amendment No. 27) (5)(e) Investment Management Agreement between Registrant and Rowe Price-Fleming International, Inc., on behalf of T. Rowe Price New Asia Fund, dated May 1, 1991 (filed with Amendment No. 33) (5)(f) Investment Management Agreement between Registrant and Rowe Price-Fleming International, Inc., on behalf of T. Rowe Price Global Government Bond Fund, dated November 7, 1990 (filed with Amendment No. 25) (5)(g) Investment Management Agreement between Registrant and Rowe Price-Fleming International, Inc., on behalf of T. Rowe Price Japan Fund, dated November 6, 1991 (filed with Amendment No. 31) (5)(h) Investment Management Agreement between Registrant and Rowe Price-Fleming International, Inc., on behalf of T. Rowe Price Short-Term Global Income Fund, dated April 23, 1992 (filed with Amendment No. 36) (5)(i) Investment Management Agreement between Registrant and Rowe Price-Fleming International, Inc., on behalf of T. Rowe Price Latin America Fund, dated November 3, 1993 (6) Underwriting Agreement between Registrant and T. Rowe Price Investment Services, Inc. (filed with Amendment No. 10) (7) Inapplicable (8)(a) Custodian Agreement between T. Rowe Price Funds and State Street Bank and Trust Company dated September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, February 13, 1991, March 6, 1991, September 12, 1991, November 6, 1991, April 23, 1992, September 2, 1992, November 3, 1992, December 16, 1992, December 21, 1992, January 28, 1993, April 22, 1993, September 16, 1993, and November 3, 1993 (8)(b) Subcustodian Agreement between The Chase Manhattan Bank, N.A., and State Street Bank and Trust Company, dated September 1, 1985 (filed with Amendment No. 7) (8)(c) Subcustodian Agreement between Registrant, on behalf of T. Rowe Price International Bond Fund, T. Rowe Price International Discovery Fund, European Stock Fund, New Asia Fund, Global Government Bond Fund, Japan Fund, Short-Term Global Income Fund and Latin America Fund PAGE 193 State Street Bank and Trust Company, and The Chase Manhattan Bank, N.A. dated January 1, 1989 as amended February 12, 1990, July 18, 1990, October 15, 1990, November 6, 1991, April 23, 1992, and November 3, 1993 (9)(a) Transfer Agency and Service Agreement between T. Rowe Price Services, Inc. and T. Rowe Price Funds, dated January 1, 1994 (9)(b) Agreement between T. Rowe Price Associates, Inc. and T. Rowe Price Funds for Fund Accounting Services, dated January 1, 1994 (9)(c) Agreement between T. Rowe Price Retirement Plan Services, Inc. and the Taxable Funds, dated January 1, 1994 (10) Inapplicable (11) Consents of Independent Accountants (12) Inapplicable (13) Inapplicable (14) Inapplicable (15) Inapplicable (16)(a) Total Return Performance Methodology (16)(b) T. Rowe Price Global Government Bond Fund; T. Rowe Price International Bond Fund; and T. Rowe Price Short-Term Global Income Fund. The Registrant hereby incorporates by reference the methodology used in calculating the performance information included in Post-Effective Amendment No. 34 and Amendment No. 12 of the T. Rowe Price New Income Fund, Inc. (SEC. File Nos. 2-48848 and 811-2396) dated April 27, 1988. Item 25. Persons Controlled by or Under Common Control With Registrant. None. Item 26. Number of Holders of Securities As of October 31, 1993, there were 189,000 shareholders in the T. Rowe Price International Stock Fund. As of October 31, 1993, there were 27,000 shareholders in the T. Rowe Price International Discovery Fund. As of October 31, 1993, there were 27,000 shareholders in the T. Rowe Price European Stock Fund. PAGE 194 As of October 31, 1993, there were 106,000 shareholders in the T. Rowe Price New Asia Fund. As of December 31, 1993, there were 3,000 shareholders in the T. Rowe Price Global Government Bond Fund. As of December 31, 1993, there were 31,000 shareholders in the T. Rowe Price International Bond Fund. As of December 31, 1993, there were 5,000 shareholders in the T. Rowe Price Short-Term Global Income Fund. As of October 31, 1993, there were 9,000 shareholders in the T. Rowe Price Japan Fund. As of December 15, 1993, there were zero shareholders in the T. Rowe Price Latin America Fund. Item 27. Indemnification The Registrant maintains comprehensive Errors and Omissions and Officers and Directors insurance policies written by the Evanston Insurance Company, The Chubb Group and ICI Mutual. These policies provide coverage for the named insureds, which include T. Rowe Price Associates, Inc. ("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-three 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 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 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-three investment companies listed above, with the exception of T. Rowe Price Index Trust, Inc. and Institutional International Funds, Inc., will be collectively referred to as the Price Funds. With respect to all such Price Funds excluding the Registrant and Institutional International Funds, Inc., their investment manager is Price Associates. The investment manager to the Registrant, 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 Price Associates, 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 PAGE 195 insureds, the policies also cover the officers, directors, and employees of each of the named insureds. The premium is allocated among the named corporate insureds in accordance with the provisions of Rule 17d-1(d)(7) under the Investment Company Act of 1940. Article 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"). Anything in this Article X to the contrary notwithstanding, no indemnification shall be made by the Corporation to any Indemnitee unless: (a) there is a final decision on the merits by a court or other body before whom the Proceeding was brought that the Indemnitee was not liable by reason of Disabling Conduct; or (b) in the absence of such a decision, there is a reasonable determination, based upon a review of the facts, that the Indemnitee was not liable by reason of Disabling Conduct, which determination shall be made by: (i) the vote of a majority of a quorum of directors who are neither "interested persons" of the Corporation as defined in Section 2(a)(19) of the Investment Company Act of 1940, nor parties to the Proceeding; or (ii) an independent legal counsel in a written opinion. PAGE 196 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 arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. PAGE 197 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 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. PAGE 198 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-three Price Funds. Investment Services is a wholly-owned subsidiary of the Manager, is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. Investment Services has been formed for the limited purpose of distributing the shares of the Price Funds and will not engage in the general securities business. Since the Price Funds are sold on a no-load basis, Investment Services will not receive any commissions or other compensation for acting as principal underwriter. (b) The address of each of the directors and officers of Investment Services listed below is 100 East Pratt Street, Baltimore, Maryland 21202. Name and Principal Positions and Offices Positions and Offices Business Address With Underwriter With Registrant ___________________ _____________________ _____________________ James S. Riepe President and Director Vice President Henry H. 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 Thomas Grizzard Vice President None David J. Healy Vice President None Joseph P. Healy Vice President None Walter J. Helmlinger Vice President None PAGE 199 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 Vice President 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 Vice President 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 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 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 Funds, Inc. under Section 31(a) of the Investment Company Act of 1940 and the rules thereunder will be maintained by T. Rowe Price International Funds, Inc. at its offices at 100 East Pratt Street, Baltimore, Maryland 21202. Transfer, dividend disbursing, and shareholder service activities are performed by T. Rowe Price Services, Inc., at 100 East Pratt Street, Baltimore, Maryland 21202. Custodian activities for T. Rowe Price International Funds, Inc. are performed at State Street Bank and Trust Company's Service Center (State Street South), 1776 Heritage Drive, Quincy, Massachusetts 02171. Custody of Fund portfolio securities which are purchased outside the United States is maintained by The Chase Manhattan Bank, N.A., PAGE 200 London in its foreign branches or with other U.S. banks. The Chase Manhattan Bank, N.A., London is located at Woolgate House, Coleman Street, London EC2P 2HD, England. Item 31. Management Services. Registrant is not a party to any management related service contract, other than as set forth in the Prospectus. Item 32. Undertakings. (a) Inapplicable. (b) The Latin America 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) Each series of the Registrant agrees to furnish, upon request and without change, a copy of its latest Annual Report to each person to whom its prospectus is delivered. PAGE 201 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 28th day of February, 1994. T. ROWE PRICE INTERNATIONAL FUNDS, INC. /s/M. David Testa By: M. David Testa Chairman of the Board Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated: SIGNATURE TITLE DATE _________ ______ _____ /s/M. David Testa M. David Testa Chairman of the Board February 28, 1994 (Chief Executive Officer) /s/Carmen F. Deyesu Carmen F. Deyesu Treasurer (Chief Financial February 28, 1994 Officer) /s/Martin G. Wade Martin G. Wade President and Director February 28, 1994 /s/Leo C. Bailey Leo C. Bailey Director February 28, 1994 /s/Anthony W. Deering Anthony W. Deering Director February 28, 1994 /s/Donald W. Dick, Jr. Donald W. Dick, Jr. Director February 28, 1994 /s/Addison Lanier Addison Lanier Director February 28, 1994 EX-99.B1A-CHARTER/A 2 PAGE 1 ARTICLES OF AMENDMENT AND RESTATEMENT OF T. ROWE PRICE INTERNATIONAL FUND, INC. T. Rowe Price International Fund, Inc., a Maryland corporation (the "Corporation") having its principal office at Baltimore City, Maryland, hereby certifies to the State Department of Assessments and Taxation that: FIRST: The Corporation desires to amend and restate its charter. SECOND: The amendment and restatement of the Corporation's charter was approved by a majority of the entire Board of Directors and no stock entitled to be voted on the amendment was outstanding or subscribed for at the time of approval. THIRD: (a) The total number of shares of all classes of stock of the Corporation heretofore authorized, and the number and par value of the shares of each class are as follows: [ 200,000,000 shares of a single class of the par value of One Dollar ($1.00) per share, having an aggregate par value of Two Hundred Million Dollars ($200,000,000 ] (b) The total number of shares of all classes of stock of the Corporation is hereby increased, and the number and par value of the shares of each class are as follows: One Billion (1,000,000,000) shares, par value One Cent ($0.01) per share, having an aggregate par value of Ten Million Dollars ($10,000,000), of common stock, subject to the authority of the Board of Directors to classify or reclassify any such shares. FOURTH: The current address of the principal office of the Corporation in the State of Maryland is 100 East Pratt Street, Baltimore, Maryland 21202. FIFTH: The Corporation currently has one director director in office, M. David Testa. SIXTH: The Articles of Amendment and Restatement are as follows: PAGE 2 ARITICLES OF AMENDMENT AND RESTATEMENT OF T. ROWE PRICE INTERNATIONAL FUNDS, INC. FIRST: The undersigned, Henry H. Hopkins and Lenora V. Hornung, each of whose post office address is 100 East Pratt Street, Baltimore, Maryland 21202, do hereby file Articles of Amendment and Restatement of said corporation as set forth below. SECOND: The name of the Corporation is: T. ROWE PRICE INTERNATIONAL FUNDS, INC." THIRD: The purposes for which the Corporation is formed are as follows: (A) To operate as and carry on the business of an investment company, and exercise all the powers necessary and appropriate to the conduct of such operations. (B) In general, to carry on any other business in connection with or incidental to the foregoing purpose, to have and exercise all the powers conferred upon corporations by the laws of the State of Maryland as in force from time to time, to do everything necessary, suitable or proper for the accomplishment of any purpose or the attainment of any object or the furtherance of any power not inconsistent with Maryland law, either alone or in association with others, and to take any action incidental or appurtenant to or growing out of or connected with the Corporation's business or purposes, objects, or powers. The Corporation shall have the power to conduct and carry on its business, or any part thereof, and to have one or more offices, and to exercise any or all of its corporate powers and rights, in the State of Maryland, in any other states, territories, districts, colonies, and dependencies of the United States, and in any or all foreign countries. The foregoing clauses shall be construed both as objects and powers, and the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the general powers of the Corporation. FOURTH: The post office address of the principal office of the Corporation in the State of Maryland is: 100 East Pratt Street Baltimore, Maryland 21202. The name and post office address of the resident agent of the Corporation in the State of Maryland is: Henry H. Hopkins 100 East Pratt Street Baltimore, Maryland 21202 PAGE 3 Said resident agent is a citizen of the State of Maryland, and actually resides therein. FIFTH: Capital Stock. (A) General. The total number of shares of stock which the Corporation, by resolution or resolutions of the Board of Directors, shall have authority to issue is One Billion (1,000,000,000) shares, par value One Cent ($0.01) per share, such shares having an aggregate par value of Ten Million Dollars ($10,000,000). All such shares are herein classified as "Common Stock" subject, however, to the authority hereinafter granted to the Board of Directors to classify or reclassify any such shares, to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class that the Corporation has authority to issue, and to authorize that all such shares of stock be issued as shares of one or more series or one or more classes designated as the Board of Directors may determine. (B) Creation of Series. The balance of shares of stock now or hereafter authorized but unissued may be issued as Common Stock or in one or more new series or one or more new classes, each consisting of such number of shares and having such designations, powers, preferences, rights, qualifications, limitations and restrictions as shall be fixed and determined from time to time by resolution or resolutions providing for the issuance of such shares adopted by the Board of Directors, to whom authority so to fix and determine the same is hereby expressly granted. (C) Dividends and Distributions. Without limiting the generality of the foregoing, the dividends and distributions of investment income and capital gains with respect to Common Stock and any series or class that may hereafter be created shall be in such amount as may be declared from time to time by the Board of Directors, and such dividends and distributions may vary from series to series or class to class to such extent and for such purposes as the Board of Directors may deem appropriate, including, but not limited to, the purpose of complying with requirements of regulatory or legislative authorities. (D) Classification. The Board of Directors is hereby expressly granted authority to (1) classify or reclassify any unissued stock (whether now or hereafter authorized) from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption of the stock and (2) pursuant to such classification or reclassification to increase or decrease the number of authorized shares of any series or class, but the number of shares of any series or class shall not be decreased by the Board of Directors below the number of shares thereof then outstanding, or increased above the number of shares then authorized, provided however, that nothing herein shall prohibit the Board of Directors from increasing or decreasing the aggregate number of shares of stock or the number of shares of stock of any class or series that the Corporation has authority to issue. (E) Provisions for Series. In addition to other provisions of these Articles, the following provisions are PAGE 4 applicable regarding any series of shares of stock of the Corporation established and designated by paragraph (a) of this Article FIFTH and shall be applicable if the Board of Directors shall establish and designate additional series as provided in that paragraph: (i) Classification.The Board of Directors may classify or reclassify any unissued shares or any shares previously issued and reacquired of any series into one or more series that may be established and designated from time to time. The Corporation may hold as treasury shares (of the same or some other series), reissue for such consideration not less than the greater of the par value and the net asset value per share (as described in paragraph (A)(ii) of Article SEVENTH hereof) and on such terms as they may determine, or cancel any shares of any series reacquired by the Corporation from time to time. (ii) Assets Belonging to Series. All consideration received by the Corporation for 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 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. In the event that there are any assets, income, earnings, profits, and proceeds thereof, funds or payments which are not readily identifiable as belonging to any particular series, the Board of Directors shall allocate them among any one or more of the series established and designated from time to time in such manner and on such basis as they, in their sole discretion, deem fair and equitable. Each such allocation by the Board of Directors shall be conclusive and binding upon the shareholders of all series for all purposes. (iii) Liabilities Belonging to 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 and reserves of the Corporation that are not readily identifiable as belonging to any particular series shall be allocated, and charged by 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 their sole discretion deem fair and equitable. Each allocation of liabilities, expenses, costs, charges and reserves by the Board of Directors shall be conclusive and binding upon the holders of all series for all purposes. PAGE 5 (iv) Dividends and Distributions. The power of the Corporation to pay dividends and make distributions shall be governed by paragraph (C) of this Article FIFTH with respect to any one or more series which represents the interests in separately managed components of the Corporation's assets. Dividends and distributions on shares of a particular series may be paid with such frequency as the Board of Directors may determine, which may be daily or otherwise, pursuant to a standing resolution or resolutions adopted only once or with such frequency as the Board of Directors may determine, to the holders of shares of that series, from such of the income and capital gains, accrued or realized, attributable to the assets belonging to that series as the Board of Directors may determine, after providing for actual and accrued liabilities 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. (v) Equality. Subject to the provisions of this Article FIFTH, all shares of all series shall have identical rights and privileges, except insofar as variations thereof among series shall have been determined and fixed by the Board of Directors. Each share of any series shall represent an equal proportionate share in the assets of that series with each other share of that series. The Board of Directors may divide or combine the shares of any series into a greater or lesser number of shares of the series without thereby changing the proportionate interests of the holders of such shares in the assets of that series. (vi) Conversion or Exchange Rights. Subject to the compliance with the requirements of the Investment Company Act of 1940, the Board of Directors shall have the authority to provide that the holders of shares of any series shall have the right to convert or exchange said shares for or into shares of one or more other series in accordance with such requirements and procedures as may be established by the Board of Directors. (vii) Liquidation. In the event of the liquidation of a particular series, the shareholders of the series that has been established and designated and that is being liquidated shall be entitled to receive, when and as declared by the Board of Directors, the excess of the assets belonging to that series over the liabilities belonging to that series. The holders of shares of any series shall not be entitled thereby to any distribution upon liquidation of any other series. The assets that may be distributed to the shareholders of any series shall be distributed among such shareholders in proportion to the number of shares of that series held by each such shareholder 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 an instrument in writing, without a meeting, signed by a PAGE 6 majority of the Directors then in office, subject to the affirmative vote of "a majority of the outstanding voting securities" of that series, as the quoted phrase is defined in the Investment Company Act of 1940. (viii) Voting. Each share of each series shall have equal voting rights with every other share of every other series, and all shares of all series shall vote as a single group except where a separate vote of any class or series is required by the Investment Company Act of 1940, the laws of the State of Maryland, these Articles of Incorporation, the By-Laws of the Corporation, or as the Board of Directors may determine in its sole discretion. Where a separate vote is required with respect to one or more classes or series, then the shares of all other classes or series shall vote as a single class or series, provided that, as to any matter which does not affect the interest of a particular class or series, only the holders of shares of the one or more affected classes or series shall be entitled to vote. SIXTH: Number of Directors. The number of directors of the Corporation shall be three (3), or such other number as may from time to time be fixed by the By-Laws of the Corporation, or pursuant to authorization contained in such By-Laws, but the number of directors shall never be less than (i) three (3) or (ii) the number of shareholders of the Corporation, whichever is less. M. David Testa shall serve as director until the first meeting of shareholders or until his successors are duly chosen and qualify. SEVENTH: Regulation of the Powers of the Corporation and Its Directors and Shareholders. (A) Issue of the Corporation's Shares (i) General. All corporate powers and authority of the Corporation (except as at the time otherwise provided by statute, by these Articles of Incorporation or the By-Laws of the Corporation) shall be vested in and exercised by the Board of Directors. The Board of Directors shall have the power to determine or cause to be determined the nature, quality, character and composition of the portfolio of securities and investments of the Corporation or any series thereof, but the foregoing shall not limit the ability of the Board of Directors to delegate such power to a Committee of the Board of Directors or to an officer of the Corporation, or to enter into an investment advisory or management contract as described in paragraph (E)(vi) of this Article SEVENTH. The Board of Directors may from time to time issue and sell or cause to be issued and sold any of the Corporation's authorized shares, including any additional shares which it hereafter authorizes and any shares redeemed or repurchased by the Corporation, except that only shares previously contracted to be sold may be issued during any period when the determination of net asset value is suspended pursuant to the provisions of paragraph (C)(iii) of this Article SEVENTH. All such authorized shares, when issued in accordance with the terms of this paragraph (A) shall be fully paid and nonassessable. No holder of any shares PAGE 7 of the Corporation shall be entitled, by reason of holding or owning such shares, to any prior, preemptive or other right to subscribe to, purchase or otherwise acquire any additional shares of the Corporation subsequently issued for cash or other consideration or by way of a dividend or otherwise; and any or all of such shares of the Corporation, whether now or hereafter authorized or created, may be issued, or may be reissued or transferred if the same have been reacquired and have treasury status to such persons, firms, corporations and associations, and for such lawful consideration, and on such terms as the Board of Directors in its discretion may determine, without first offering the same, or any portion thereof, to any said holder. Voting power in the election of directors and for all other purposes shall be vested exclusively in the holders of the Corporation's authorized and issued shares. (ii) Price. No shares of the Corporation shall be issued or sold by the Corporation, except as a stock dividend distributed to shareholders, for less than an amount which would result in proceeds to the Corporation, before taxes payable by the Corporation in connection with such transaction, of at least the net asset value per share determined as set forth in paragraph (C) of this Article SEVENTH as of such time as the Board of Directors shall have by resolution theretofore prescribed. In the absence of a resolution of the Board of Directors applicable to the transaction, such net asset value shall be that next determined after receipt of an unconditional purchase order. (iii) On Merger or Consolidation. The Board of Directors, in its sole discretion, may permit shares of the Corporation to be issued for stock or assets of any kind. In this regard, in connection with the acquisition of any assets or stock of another person (as such term is defined in Section 2(a)(28) of the Investment Company Act of 1940), the Board of Directors may issue or cause to be issued shares of the Corporation and accept in payment therefor, in lieu of cash, such assets at their market value, or such stock at the market value of the assets held by such person, either with or without adjustment for contingent costs or liabilities, provided that the funds of the Corporation are permitted by law to be invested in such assets or stock. (iv) Fractional Shares. The Board of Directors may issue and sell fractions of shares having pro rata all the rights of full shares, including, without limitation, the right to vote and to receive dividends. (B) Redemption and Repurchase of the Corporation's Shares (i) Redemption of Shares. The Corporation shall redeem its shares, subject to the conditions and at the price determined as hereinafter set forth, upon proper application of the record holder thereof at such office or agency as may be designated from time to time for that purpose by the Board of Directors. Any such application must be accompanied by the PAGE 8 certificate or certificates, if any, evidencing such shares, duly endorsed or accompanied by a proper instrument of transfer. The Board of Directors shall have power to determine or to delegate to the proper officers of the Corporation the power to determine from time to time the form and the other accompanying documents which shall be necessary to constitute a proper application for redemption. (ii) Price. Such shares shall be redeemed at their net asset value determined as set forth in paragraph (C) of this Article SEVENTH as of such time as the Board of Directors shall have theretofore prescribed by resolution. In the absence of such resolution, the redemption price of shares deposited shall be the net asset value of such shares next determined as set forth in paragraph (C) of this Article SEVENTH after receipt of such application. (iii) Payment. Payment for such shares shall be made to the shareholder of record within seven (7) days after the date upon which proper application is received, subject to the provisions of paragraph (B)(iv) of this Article SEVENTH. Such payment shall be made in cash or other assets of the Corporation or both, as the Board of Directors shall prescribe. (iv) Effect of Suspension of Determination of Net Asset Value. If, pursuant to paragraph (C)(iii) of this Article Seventh the Board of Directors shall declare a suspension of the determination of net asset value, the rights of shareholders (including those who shall have applied for redemption pursuant to paragraph (B)(i) of Article SEVENTH but who shall not yet have received payment) to have shares redeemed and paid for by the Corporation shall be suspended until the termination of such suspension is declared. Any record holder whose redemption right is so suspended may, during the period of such suspension, by appropriate written notice of revocation to the office or agency where application was made, revoke his application and withdraw any share certificates which accompanied such application. The redemption price of shares for which redemption applications have not been revoked shall be the net asset value of such shares next determined as set forth in paragraph (C) of this Article SEVENTH after the termination of such suspension, and payment shall be made within seven (7) days after the date upon which the proper application was made plus the period after such application during which the determination of net asset value was suspended. (v) Repurchase by Agreement. The Corporation may repurchase shares of the Corporation directly, or through its principal underwriter or other agent designated for the purpose, by agreement with the owner thereof, at a price not exceeding the net asset value per share determined as of the time when the purchase or contract of purchase is made or the net asset value as of any time which may be later determined pursuant to paragraph (C) of this Article SEVENTH, provided PAGE 9 payment is not made for the shares prior to the time as of which such net asset value is determined. (vi) Corporation's Option to Redeem Shares. (a) Small Account. The Corporation shall have the right at any time and without prior notice to the shareholder to redeem for their then-current net asset value per share all shares that are held by a shareholder whose shares of the Corporation or of any and all series have an aggregate net asset value of less than $10,000, or such other amount as the Board of Directors may from time to time determine; (b) Reimbursement. The Corporation shall have the right at any time and without prior notice to the shareholder to redeem shares in any account, including any account of any series, for their then-current net asset value per share if and to the extent it shall be necessary to reimburse the Corporation or its principal underwriter or distributor for any loss sustained by the Corporation by reason of the failure of the shareholder in whose name such account is registered to make full payment for shares of the Corporation, or of any series thereof, purchased by such shareholder. (c) Personal Holding Company. The Corporation shall have the right at any time and without prior notice to the shareholder to redeem shares in any account for their then-current net asset value per share if such redemption is, in the opinion of the Board of Directors, desirable in order to avoid the Corporation being taxed as a "personal holding company" within the meaning of the Internal Revenue Code of 1986, as amended. (d) Notice. The right of redemption provided by each of the foregoing subsections of this paragraph (B)(vi) of this Article SEVENTH shall be subject to such terms and conditions as the Board of Directors may from time to time approve, and subject to the Corporation's giving general notice of its intention to avail itself of such right, either by publication in the Corporation's prospectus or by such means as the Board of Directors shall determine. (C) Net Asset Value of Shares (i) By Whom Determined. The Board of Directors shall have the power and duty to determine from time to time the net asset value per share of the outstanding shares of the Corporation and of any such series of the Corporation. It may delegate such power and duty to one or more of the directors and officers of the Corporation, to the custodian or depository of the Corporation's assets, or to another agent of the PAGE 10 Corporation appointed for such purpose. Any determination made pursuant to this section by the Board of Directors, or its delegate, shall be binding on all parties concerned. (ii) When Determined. The net asset value shall be determined at such times as the Board of Directors shall prescribe by resolution, provided that such net asset value shall be determined at least once each week as of the close of business on a business day. In the absence of a resolution of the Board of Directors, the net asset value shall be determined as of the close of trading on the New York Stock Exchange on each business day. (iii) Suspension of Determination of Net Asset Value. The Board of Directors may declare a suspension of the determination of net asset value for the whole or any part of any period (a) during which the New York Stock Exchange is closed other than customary weekend and holiday closings, (b) during which trading on the New York Stock Exchange is restricted, (c) during which an emergency exists as a result of which disposal by the Corporation of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Corporation fairly to determine the value of its net assets, or (d) during which a governmental body having jurisdiction over the Corporation may by order permit for the protection of the security holders of the Corporation. Such suspension shall take effect at such time as the Board of Directors shall specify, which shall not be later than the close of business on the business day next following the declaration, and thereafter there shall be no determination of net asset value until the Board of Directors shall declare the suspension at an end, except that the suspension shall terminate in any event on the first day on which (1) the condition giving rise to the suspension shall have ceased to exist and (2) no other condition exists under which suspension is authorized under this paragraph (C)(iii) of Article SEVENTH. Each declaration by the Board of Directors pursuant to this paragraph (C)(iii) of Article SEVENTH shall be consistent with such official rules and regulations, if any, relating to the subject matter thereof as shall have been promulgated by the Securities and Exchange Commission or any other governmental body having jurisdiction over the Corporation and as shall be in effect at the time. To the extent not inconsistent with such official rules and regulations, the determination of the Board of Directors shall be conclusive. (iv) Computation of Net Asset Value. (a) Net Asset Value Per Share. The net asset value of each share of the Corporation (or, where applicable, of any series thereof) as of any particular time shall be the quotient obtained by dividing the value of the net assets of the Corporation (or, where applicable, such series) by the total number of shares of the Corporation (or, where applicable, such series) outstanding. Notwithstanding the above, the Board of PAGE 11 Directors may determine to maintain the net asset value per share of any class or series at a designated constant dollar amount and in connection therewith may adopt procedures not inconsistent with the Investment Company Act of 1940 for the continuing declarations of income attributable to that class or series as dividends payable in additional shares of that class or series at the designated constant dollar amount and for the handling of any losses attributable to that class or 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 class or series his pro rata portion of the total number of shares required to be cancelled in order to permit the net asset value per share of that class or 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 class or 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. (b) Net Asset Value of Corporation or Series The value of the net assets of the Corporation (or of any series thereof) as of any particular time shall be the value of the assets of the Corporation (or of any such series) less its liabilities, determined and computed as prescribed by the Board of Directors. (D) Compliance With Investment Company Act of 1940 Notwithstanding any of the foregoing provisions of this Article SEVENTH, the Board of Directors may prescribe, in its absolute discretion, such other bases and times for determining the per share net asset value of the shares of the Corporation (or any series thereof) as it shall deem necessary or desirable to enable the Corporation to comply with any provision of the Investment Company Act of 1940, or any rule or regulation thereunder, including any rule or regulation adopted pursuant to Section 22 of the Investment Company Act of 1940 by the Securities and Exchange Commission or any securities association registered under the Securities Exchange Act of 1934, all as in effect now or as hereafter amended or added. (E) Miscellaneous (i) Compensation of Directors. The Board of Directors shall have power from time to time to authorize payment of compensation to the directors for services to the Corporation, including fees for attendance at meetings of the Board of Directors and of committees. (ii) Inspection of Corporation's Books. The Board of Directors shall have power from time to time to determine whether and to what extent, and at what times and places, and PAGE 12 under what conditions and regulations the accounts and books of the Corporation (other than the stock ledger) or any of them shall be open to the inspection of shareholders; and no shareholder shall have any right of inspecting any account, book or document of the Corporation except as at the time and to the extent required by applicable law, unless authorized by a resolution of the shareholders or the Board of Directors. (iii) Name. The Corporation acknowledges that it is adopting its corporate name through permission of T. Rowe Price Associates, Inc., a Maryland corporation, and agrees that T. Rowe Price Associates, Inc. reserves to itself and any successor to its business the right to grant the nonexclusive right to use the name "T. Rowe Price" or any similar name to any other corporation or entity, including, but not limited to, any other corporation or entity including, but not limited to, any investment company of which T. Rowe Price Associates, Inc. or any subsidiary or affiliate thereof or any successor to the business of any thereof shall be the investment adviser. (iii) Reservation of Right to Amend. The Corporation reserves the right to make any amendment of its charter, now or hereafter authorized by law, including any amendment which alters the contract rights, as expressly set forth in its charter, of any outstanding stock, and all rights herein conferred upon shareholders are granted subject to such reservation. The Board of Directors shall have the power to adopt, alter or repeal the By-Laws of the Corporation, except to the extent that the By-Laws otherwise provide, or as otherwise provided by applicable law. (iv) Determination of Net Profits Dividends, Etc. The Board of Directors is expressly authorized to determine in accordance with generally accepted accounting principles and practices what constitutes net profits, earnings, surplus, or net assets in excess of capital, and to determine what accounting periods shall be used by the Corporation or any series thereof for any purpose, whether annual or any other period, including daily; to set apart out of any funds of the Corporation or any series thereof such reserves for such purposes as it shall determine and to abolish the same; to declare and pay dividends and distributions in cash, securities, or other property from surplus or any funds legally available therefor, in such amounts and at such intervals (which may be as frequently as daily) or on such other periodic basis, as it shall determine; to declare such dividends or distributions by means of a formula or other method of determination, at meetings held less frequently than the frequency of the effectiveness of such declarations; to establish payment dates for dividends or any other distributions on any basis, including dates occurring less frequently than the effectiveness of the declaration thereof; and to provide for the payment of declared dividends on a date earlier than the specified payment date in the case of shareholders of the Corporation redeeming their entire ownership of shares of the Corporation. PAGE 13 The Corporation intends to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, or any successor or comparable statute thereto, and regulations promulgated thereunder. Inasmuch as the computation of net income and gains for Federal income tax purposes may vary from the computation thereof on the books of the Corporation, the Board of Directors shall have the power, in its sole discretion, to distribute in any fiscal year as dividends, including dividends designated in whole or in part as capital gains distributions, amounts sufficient, in the opinion of the Board of Directors, to enable the Corporation to qualify as a regulated investment company and to avoid liability of the Corporation for Federal income tax in respect of that year. However, nothing in the foregoing shall limit the authority of the Board of Directors to make distributions greater than or less than the amount necessary to qualify as a regulated investment company and to avoid liability of the Corporation for such tax. (v) Contracts. The Board of Directors may in its discretion from time to time enter into an exclusive or nonexclusive underwriting contract or contracts providing for the sale of the shares of Common Stock of the Corporation to net the Corporation not less than the amount provided for in paragraph (A)(ii) of this Article SEVENTH, whereby the Corporation may either agree to sell the shares to the other party to the contract or appoint such other party its sales agent for such shares (such other party being herein sometimes called the "underwriter"), and in either case, on such terms and conditions as may be prescribed in the By-Laws, if any, and such further terms and conditions as the Board of Directors may in its discretion determine not inconsistent with the provisions of this Article SEVENTH or of the By-Laws; and such contract may also provide for the repurchase of shares of the Corporation by such other party as agent of the Corporation. The Board of Directors may in its discretion from time to time enter into an investment advisory or management contract whereby the other party to such contract shall undertake to furnish to the Corporation or any series thereof such management, investment advisory, statistical and research facilities and services and such other facilities and services, if any, and all upon such terms and conditions, as the Board of Directors may in its discretion determine. Any contract of the character described in the paragraphs above or for services as custodian, transfer agent, or disbursing agent or related services may be entered into with any corporation, firm, trust, or association, although one or more of the directors or officers of the Corporation may be an officer, director, trustee, shareholder, or member of such other party to the contract, and no such contract shall be invalidated or rendered voidable by reason of the existence of any such relationship, nor shall any person holding such relationship be liable merely by reason of such relationship PAGE 14 for any loss or expense to the Corporation under or by reason of said contract or accountable for any profit realized directly or indirectly therefrom, except as otherwise provided by applicable law. The same person (including a firm, corporation, trust, or association) may be the other party to contracts entered into pursuant to the above paragraphs, and any individual may be financially interested or otherwise affiliated with persons who are parties to any or all of the contracts mentioned in this paragraph. Any contract entered into pursuant to the first two paragraphs of this paragraph (E)(vi) of Article SEVENTH shall be consistent with and subject to the requirements of Section 15 of the Investment Company Act of 1940 (including any amendment thereof or other applicable Act of Congress hereafter enacted) with respect to its continuance in effect, its termination and the method of authorization and approval of such contract or renewal thereof. (vi) Shareholder Voting. On each matter submitted to a vote of the shareholders, each holder of a share shall be entitled to one vote for each whole share and to a proportionate fractional vote for each fractional share standing in his name on the books of the Corporation, except as otherwise provided in paragraph (E)(ix) of Article FIFTH. Notwithstanding any provision of the laws of the State of Maryland requiring a greater proportion than a majority of the votes of all classes or series or of any class or series of stock entitled to be cast, to take or authorize any action, such action may, subject to other applicable provisions of law, these Articles of Incorporation and the By-Laws of the Corporation, be taken or authorized upon the concurrence of a majority of the aggregate number of the votes entitled to be cast thereon. (vii) Certificates. A shareholder shall be entitled to stock certificates which represent and certify the shares of stock he holds in the Corporation upon written request in accordance with procedures established in the By-Laws or by the Board of Directors, but in the absence of such a request, the Corporation shall not be obligated to issue such certificates. EIGHTH: References in these Articles of Amendment and Restatement to the Investment Company Act of 1940 shall mean the published statute, the rules thereunder, and, where applicable, published cases and interpretative letters of the Securities and Exchange Commission. PAGE 15 IN WITNESS WHEREOF, T. Rowe Price International Funds, Inc. has caused these presents to be signed in its name and on its behalf by one of its Vice Presidents and attested by its Secretary. Attest: Henry H. Hopkins, Vice President Lenora V. Hornung, Secretary STATE OF MARYLAND ) ) ss: CITY OF BALTIMORE ) I HEREBY CERTIFY, that on this 16th, day of February, 1990, before me, the subscriber, a Notary Public of the State of Maryland, in and for the City of Baltimore, personally appeared HENRY H. HOPKINS and LENORA V. HORNUNG, and they acknowledged the foregoing Articles of Amendment and Restatement to be their act. WITNESS my hand and Notarial Seal this 16th day of February, 1990. Notary Public My Commission expires: EX-99.B1G-CHARTER/S 3 PAGE 1 T. ROWE PRICE INTERNATIONAL FUNDS, INC. ARTICLES SUPPLEMENTARY INCREASING AUTHORIZED STOCK AS AUTHORIZED BY SECTION 2-105(c) OF THE MARYLAND GENERAL CORPORATION LAW T. Rowe Price International Funds, Inc., a Maryland corporation, having its principal office in Baltimore City, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: In accordance with Section 2-105(c) of the Maryland General Corporation Law, the Board of Directors has increased the authorized capital stock of the Corporation to 2 billion shares of common stock (par value $0.01 per share). SECOND: The Corporation is registered as an open-end investment company under the Investment Company Act of 1940. THIRD: (a) As of immediately before the increase, the total number of shares of stock of all classes which the Corporation has authority to issue is 1 billion shares of common stock (par value $0.01 per share). (b) As increased the total number of shares of stock of all classes which the Corporation has authority to issue is 2 billion shares of common stock (par value $0.01 per share). (c) The aggregate par value of all shares having a par value is $10 million before the increase and $20 million as increased. IN WITNESS WHEREOF, T. Rowe Price International Funds, Inc. has caused these presents to be signed in its name and on its behalf by its Vice President and witnessed by its Secretary on February 18, 1994. WITNESS: T. ROWE PRICE INTERNATIONAL FUNDS, INC. ______________________________ By: __________________________________ Lenora V. Hornung, Secretary Henry H. Hopkins, Vice President PAGE 2 THE UNDERSIGNED, Vice President of T. Rowe Price International Funds, Inc., who executed on behalf of the Corporation Articles Supplementary of which this Certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles Supplementary to be the corporate act of said Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. ________________________________________ Henry H. Hopkins, Vice President EX-99.B5A-MGTAGMT 4 PAGE 1 INVESTMENT MANAGEMENT AGREEMENT Between T. ROWE PRICE INTERNATIONAL FUNDS, INC. and ROWE PRICE-FLEMING INTERNATIONAL, INC. INVESTMENT MANAGEMENT AGREEMENT, made as of the 1st day of May, 1990, by and between T. ROWE PRICE INTERNATIONAL FUNDS, INC., a Maryland Corporation (hereinafter called the "Corporation"), and ROWE PRICE-FLEMING INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Maryland (hereinafter called the "Manager"). W I T N E S S E T H: WHEREAS, the Corporation is engaged in business as an open-end management investment company and to register as such under the federal Investment Company Act of 1940, as amended (the "Act"); and WHEREAS, the Corporation is authorized to issue shares of capital stock ("Shares") in the T. Rowe Price International Bond Fund (the "Fund"), a separate series of the Corporation whose Shares represent interests in a separate portfolio of securities and other assets ("Fund Shares"); and WHEREAS, the Manager is engaged principally in the business of rendering investment supervisory services and is registered as an investment adviser under the federal Investment Advisers Act of 1940, as amended; and WHEREAS, the Fund desires the Manager to render investment supervisory services to the Fund in the manner and on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. Duties and Responsibilities of Manager. A. Investment Advisory Services. The Manager shall act as investment manager and shall supervise and direct the investments of the Fund in accordance with the Fund's investment objective, program and restrictions as provided in the Corporation's prospectus, on behalf of the Fund, as amended from time to time, and such other limitations as the Corporation may impose by notice in writing to the Manager. The Manager shall obtain and evaluate such information relating to the economy, industries, businesses, securities markets and securities as it may deem necessary or useful in the discharge of its obligations hereunder and shall formulate and implement a continuing program for the management of the assets and resources of the Fund in a manner PAGE 2 consistent with its investment objective. In furtherance of this duty, the Manager, as agent and attorney-in-fact with respect to the Corporation, is authorized, in its discretion and without prior consultation with the Corporation, to: (i) buy, sell, exchange, convert, lend, and otherwise trade in any stocks, bonds, and other securities or assets; and (ii) directly or through the trading desks of T. Rowe Price Associates, Inc. ("Price Associates"), Robert Fleming Holdings Limited ("Holdings") and their affiliates place orders and negotiate the commissions (if any) for the execution of transactions in securities with or through such brokers, dealers, underwriters or issuers as the Manager may select. B. Financial, Accounting, and Administrative Services. The Manager shall maintain the existence and records of the Corporation; maintain the registrations and qualifications of Fund Shares under federal and state law; monitor the financial, accounting, and administrative functions of the Fund; maintain liaison with the various agents employed for the benefit of the Fund by the Corporation (including the Corporation's transfer agent, custodian, independent accountants and legal counsel) and assist in the coordination of their activities on behalf of the Fund. C. Reports to Fund. The Manager shall furnish to or place at the disposal of the Corporation or Fund, as appropriate, such information, reports, evaluations, analyses and opinions as they may, at any time or from time to time, reasonably request or as the Manager may deem helpful. D. Reports and Other Communications to Shareholders. The Manager shall assist in developing all general shareholder communications, including regular shareholder reports. E. Fund Personnel. The Manager agrees to permit individuals who are officers or employees of the Manager to serve (if duly elected or appointed) as officers, directors, members of any committee of directors, members of any advisory board, or members of any other committee of the Corporation, without remuneration or other cost to the Fund or the Corporation. F. Personnel, Office Space, and Facilities of Manager. The Manager at its own expense shall furnish or provide and pay the cost of such office space, office equipment, office personnel, and office services as the Manager requires in the performance of its investment advisory and other obligations under this Agreement. 2. Allocation of Expenses. A. Expenses Paid by Manager. (1) Salaries and Fees of Officers. The Manager shall pay all salaries, expenses, and fees of the officers and directors of the Corporation who are affiliated with the Manager. (2) Assumption of Expenses by Manager. The payment or assumption by the Manager of any expense of the Corporation or PAGE 3 Fund, as appropriate, that the Manager is not required by this Agreement to pay or assume shall not obligate the Manager to pay or assume the same or any similar expense on any subsequent occasion. B. Expenses Paid by Fund. The Corporation or Fund, as appropriate, shall bear all expenses of its organization, operations, and business not specifically assumed or agreed to be paid by the Manager as provided in this Agreement. In particular, but without limiting the generality of the foregoing, the Corporation or Fund, as appropriate, shall pay: (1) Custody and Accounting Services. All expenses of the transfer, receipt, safekeeping, servicing and accounting for the cash, securities, and other property of the Corporation, for the benefit of the Fund, including all charges of depositories, custodians, and other agents, if any; (2) Shareholder Servicing. All expenses of maintaining and servicing shareholder accounts, including all charges for transfer, shareholder recordkeeping, dividend disbursing, redemption, and other agents for the benefit of the Fund, if any; (3) Shareholder Communications. All expenses of preparing, setting in type, printing, and distributing reports and other communications to shareholders; (4) Shareholder Meetings. All expenses incidental to holding meetings of shareholders, including the printing of notices and proxy material, and proxy solicitation therefor; (5) Prospectuses. All expenses of preparing, setting in type, and printing of annual or more frequent revisions of the prospectus and of mailing them to shareholders; (6) Pricing. All expenses of computing the Fund's net asset value per share, including the cost of any equipment or services used for obtaining price quotations; (7) Communication Equipment. All charges for equipment or services used for communication between the Manager or the Corporation or Fund and the custodian, transfer agent or any other agent selected by the Corporation; (8) Legal and Accounting Fees and Expenses. All charges for services and expenses of the Corporation's legal counsel and independent auditors for the benefit of the Fund; (9) Directors' Fees and Expenses. All compensation of directors, other than those affiliated with the Manager, and all expenses incurred in connection with their service; (10) Federal Registration Fees. All fees and expenses of registering and maintaining the registration of the Corporation under the Act and the registration of Fund Shares under the PAGE 4 Securities Act of 1933, as amended (the "'33 Act"), including all fees and expenses incurred in connection with the preparation, setting in type, printing, and filing of any registration statement and prospectus under the '33 Act or the Act, and any amendments or supplements that may be made from time to time; (11) State Registration Fees. All fees and expenses of qualifying and maintaining qualification of the Corporation or Fund, as appropriate, and of Fund Shares for sale under securities laws of various states or jurisdictions, and of registration and qualification of the Corporation or Fund, as appropriate, under all other laws applicable to the Corporation or Fund, as appropriate, or its business activities (including registering the Corporation as a broker-dealer, or any officer of the Corporation or any person as agent or salesman of the Corporation in any state); (12) Issue and Redemption of Fund Shares. All expenses incurred in connection with the issue, redemption, and transfer of Fund Shares, including the expense of confirming all Fund Share transactions, and of preparing and transmitting the Fund's stock certificates; (13) Bonding and Insurance. All expenses of bond, liability, and other insurance coverage required by law or deemed advisable by the board of directors; (14) Brokerage Commissions. All brokers' commissions and other charges incident to the purchase, sale, or lending of the Fund's portfolio securities; (15) Taxes. All taxes or governmental fees payable by or with respect of the Corporation or Fund, as appropriate, to federal, state, or other governmental agencies, domestic or foreign, including stamp or other transfer taxes; (16) Trade Association Fees. All fees, dues, and other expenses incurred in connection with the Corporation's or Fund's, as appropriate, membership in any trade association or other investment organization; and (17) Nonrecurring and Extraordinary Expenses. Such nonrecurring expenses as may arise, including the costs of actions, suits, or proceedings to which the Corporation or Fund, as appropriate, is a party and the expenses the Corporation or Fund, as appropriate, may incur as a result of its legal obligation to provide indemnification to its officers, directors, and agents. 3. Management Fee. The Fund shall pay the Manager a fee ("Fee") which will consist of two components: a Group Management Fee ("Group Fee"), and an Individual Fund Fee ("Fund Fee"). The Fee shall be paid monthly to the Manager on the first business day of the next succeeding calendar month and shall be calculated as follows: PAGE 5 A. Group Fee. The monthly Group Fee ("Monthly Group Fee") shall be the sum of the daily Group Fee accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee Accrual for any particular day will be computed by multiplying the Price Funds' group fee accrual as determined below ("Daily Price Funds' Group Fee Accrual") by the ratio of the Fund's net assets for that day to the sum of the aggregate net assets of the Price Funds for that day. The Daily Price Funds' Group Fee Accrual for any particular day shall be calculated by multiplying the fraction of one (1) over the number of calendar days in the year by the annualized Daily Price Funds' Group Fee Accrual for that day as determined in accordance with the following schedule: Price Funds Annual Group Base Fee Rate for Each Level of Assets ______________________________________ 0.480% First $1 billion 0.450% Next $1 billion 0.420% Next $1 billion 0.390% Next $1 billion 0.370% Next $1 billion 0.360% Next $2 billion 0.350% Next $2 billion 0.330% Next $5 billion 0.340% Next $10 billion 0.320% Thereafter The Price Funds shall include all the mutual funds distributed by T. Rowe Price Investment Services, Inc. (except for any institutional or private label mutual funds). For the purposes of calculating the Daily Price Funds' Group Fee Accrual for any particular day, the net assets of each Price Fund shall be determined in accordance with the prospectus, on behalf of the Fund, as of the close of business on the previous business day on which the Fund was open for business. B. Fund Fee. The monthly Fund Fee ("Monthly Fund Fee") shall be the sum of the daily Fund Fee accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any particular day will be computed by multiplying the fraction of one (1) over the number of calendar days in the year by the Fund Fee Rate of .35% and multiplying this product by the net assets of the Fund for that day, as determined in accordance with the Corporation's prospectus as of the close of business on the previous business day on which the Fund was open for business. C. Expense Limitation. To the extent that the aggregate expenses of every character incurred by the Fund in any fiscal year, including but not limited to fees of the Manager computed as hereinabove set forth, but excluding interest, taxes, brokerage, and other expenditures which are capitalized in accordance with generally accepted accounting principles and extraordinary expenses, shall exceed the limit ("State Expense Limit") prescribed by any state in which the Fund's Shares are qualified for sale, such excess amount shall be the liability of the Manager to pay in the manner specified below. To determine the Manager's liability for the Fund's expenses, the expenses of the Fund shall be annualized monthly as of the last day of the month. If the annualized expenses for any month exceed the State Expense Limit, the payment of the Fee for such month (if there be any) shall be reduced by such excess ("Excess Amount") and in the event the Excess Amount exceeds the amount due as the Fee, the Manager shall remit to the Fund the PAGE 6 difference between the Excess Amount and the amount due as the Fee; provided, however, that an adjustment shall be made on or before the last day of the first month of the next succeeding fiscal year if the aggregate expenses for the fiscal year do not exceed the State Expense Limit. D. Proration of Fee. If this Agreement becomes effective or terminates before the end of any month, the Fee for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 4. Brokerage. Subject to the approval of the board of directors, the Manager, in carrying out its duties under Paragraph 1.A., may cause the Corporation, with respect to the Fund, to pay a broker-dealer which furnishes brokerage or research services [as such services are defined under Section 28(e) of the Securities Exchange Act of 1934, as amended (the "'34 Act")] a higher commission than that which might be charged by another broker-dealer 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-dealer, viewed in terms of either that particular transaction or the overall responsibilities of the Manager with respect to the accounts as to which it exercises investment discretion (as such term is defined under Section 3(a)(35) of the '34 Act). 5. Manager's Use of the Services of Others. The Manager may (at its cost except as contemplated by Paragraph 4 of this Agreement) employ, retain or otherwise avail itself of the services or facilities of other persons or organizations for the purpose of providing the Manager or the Corporation or Fund, as appropriate, with such statistical and other factual information, such advice regarding economic factors and trends, such advice as to occasional transactions in specific securities or such other information, advice or assistance as the Manager may deem necessary, appropriate or convenient for the discharge of its obligations hereunder or otherwise helpful to the Corporation or Fund, as appropriate, or in the discharge of Manager's overall responsibilities with respect to the other accounts which it serves as investment manager. 6. Ownership of Records. All records required to be maintained and preserved by the Corporation or Fund pursuant to the provisions of rules or regulations of the Securities and Exchange Commission under Section 31(a) of the Act and maintained and preserved by the Manager on behalf of the Corporation or Fund, as appropriate, are the property of the Corporation or Fund, as appropriate, and will be surrendered by the Manager promptly on request by the Corporation or Fund, as appropriate. 7. Reports to Manager. The Corporation or Fund, as appropriate, shall furnish or otherwise make available to the Manager such prospectuses, financial statements, proxy statements, reports, and other information relating to the business and affairs of the Corporation or Fund, as appropriate, as the Manager may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement. 8. Services to Other Clients. Nothing herein contained shall limit the freedom of the Manager or any affiliated person of the Manager to render PAGE 7 investment supervisory and corporate administrative services to other investment companies, to act as investment manager or investment counselor to other persons, firms or corporations, or to engage in other business activities; but so long as this Agreement or any extension, renewal or amendment hereof shall remain in effect or until the Manager shall otherwise consent, the Manager shall be the only investment manager to the Fund. 9. Limitation of Liability of Manager. Neither the Manager nor any of its officers, directors, or employees, nor any person performing executive, administrative, trading, or other functions for the Corporation or Fund (at the direction or request of the Manager) or the Manager in connection with the Manager's discharge of its obligations undertaken or reasonably assumed with respect to this Agreement, shall be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or Fund in connection with the matters to which this Agreement relates, except for loss resulting from willful misfeasance, bad faith, or gross negligence in the performance of its or his duties on behalf of the Corporation or Fund or from reckless disregard by the Manager or any such person of the duties of the Manager under this Agreement. 10. Use of Manager's Name. The Corporation or Fund may use the name "T. Rowe Price International Funds, Inc." or any other name derived from the name "T. Rowe Price" only for so long as this Agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the Manager as investment manager. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, the Corporation or Fund will (by corporate action, if necessary) cease to use any name derived from the name "T. Rowe Price," any name similar thereto or any other name indicating that it is advised by or otherwise connected with the Manager, or with any organization which shall have succeeded to the Manager's business as investment manager. 11. Term of Agreement. The term of this Agreement shall begin on the date first above written, and unless sooner terminated as hereinafter provided, this Agreement shall remain in effect through April 30, 1991. Thereafter, this Agreement shall continue in effect from year to year, with respect to the Fund, subject to the termination provisions and all other terms and conditions hereof, so long as such continuation shall be specifically approved at least annually (a) by either the board of directors of the Corporation, or by vote of a majority of the outstanding voting securities of the Fund; (b) in either event by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the directors of the Corporation, with respect to the Fund, who are not parties to this Agreement or interested persons of any such party; and (c) the Manager shall not have notified the Corporation, in writing, at least 60 days prior to April 30, 1991 or prior to April 30th of any year thereafter, that it does not desire such continuation. The Manager shall furnish to the Corporation, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal or amendment hereof. 12. Amendment and Assignment of Agreement. This Agreement may not be amended or assigned without the affirmative vote of a majority of the outstanding voting securities of the Fund, and this Agreement shall automatically and immediately terminate in the event of its assignment. PAGE 8 13. Termination of Agreement. This Agreement may be terminated by either party hereto, without the payment of any penalty, upon 60 days' prior notice in writing to the other party; provided, that in the case of termination by the Corporation, with respect to the Fund, such action shall have been authorized by resolution of a majority of the directors who are not parties to this Agreement or interested persons of any such party, or by vote of a majority of the outstanding voting securities of the Fund. 14. Miscellaneous. A. Captions. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. B. Interpretation. Nothing herein contained shall be deemed to require the Corporation to take any action contrary to its Articles of Incorporation or By-Laws, or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the board of directors of the Corporation of its responsibility for and control of the conduct of the affairs of the Fund. C. Definitions. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Act shall be resolved by reference to such term or provision of the Act and to interpretations thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission validly issued pursuant to the Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested person," "assignment," and "affiliated person," as used in Paragraphs 2, 8, 11, 12, and 13 hereof, shall have the meanings assigned to them by Section 2(a) of the Act. In addition, where the effect of a requirement of the Act reflected in any provision of this Agreement is relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective seals to be hereunto affixed, as of the day and year first above written. Attest: T. ROWE PRICE INTERNATIONAL FUNDS, INC. ______________________________ By:______________________________________ Secretary Attest: ROWE PRICE-FLEMING INTERNATIONAL, INC. _______________________________ By:_____________________________________ Assistant Secretary EX-99.B5B-MGTAGMT 5 PAGE 1 INVESTMENT MANAGEMENT AGREEMENT Between T. ROWE PRICE INTERNATIONAL FUNDS, INC. and ROWE PRICE-FLEMING INTERNATIONAL, INC. INVESTMENT MANAGEMENT AGREEMENT, made as of the 1st day of May, 1990, by and between T. ROWE PRICE INTERNATIONAL FUNDS, INC., a Maryland Corporation (hereinafter called the "Corporation"), and ROWE PRICE-FLEMING INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Maryland (hereinafter called the "Manager"). W I T N E S S E T H: WHEREAS, the Corporation is engaged in business as an open-end management investment company and to register as such under the federal Investment Company Act of 1940, as amended (the "Act"); and WHEREAS, the Corporation is authorized to issue shares of capital stock ("Shares") in the T. Rowe Price International Stock Fund (the "Fund"), a separate series of the Corporation whose Shares represent interests in a separate portfolio of securities and other assets ("Fund Shares"); and WHEREAS, the Manager is engaged principally in the business of rendering investment supervisory services and is registered as an investment adviser under the federal Investment Advisers Act of 1940, as amended; and WHEREAS, the Fund desires the Manager to render investment supervisory services to the Fund in the manner and on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. Duties and Responsibilities of Manager. A. Investment Advisory Services. The Manager shall act as investment manager and shall supervise and direct the investments of the Fund in accordance with the Fund's investment objective, program and restrictions as provided in the Corporation's prospectus, on behalf of the Fund, as amended from time to time, and such other limitations as the Corporation may impose by notice in writing to the Manager. The Manager shall obtain and evaluate such information relating to the economy, industries, businesses, securities markets and securities as it may deem necessary or useful in the discharge of its obligations hereunder and shall formulate and implement a continuing PAGE 2 program for the management of the assets and resources of the Fund in a manner consistent with its investment objective. In furtherance of this duty, the Manager, as agent and attorney-in-fact with respect to the Corporation, is authorized, in its discretion and without prior consultation with the Corporation, to: (i) buy, sell, exchange, convert, lend, and otherwise trade in any stocks, bonds, and other securities or assets; and (ii) directly or through the trading desks of T. Rowe Price Associates, Inc. ("Price Associates"), Robert Fleming Holdings Limited ("Holdings") and their affiliates place orders and negotiate the commissions (if any) for the execution of transactions in securities with or through such brokers, dealers, underwriters or issuers as the Manager may select. B. Financial, Accounting, and Administrative Services. The Manager shall maintain the existence and records of the Corporation; maintain the registrations and qualifications of Fund Shares under federal and state law; monitor the financial, accounting, and administrative functions of the Fund; maintain liaison with the various agents employed for the benefit of the Fund by the Corporation (including the Corporation's transfer agent, custodian, independent accountants and legal counsel) and assist in the coordination of their activities on behalf of the Fund. C. Reports to Fund. The Manager shall furnish to or place at the disposal of the Corporation or Fund, as appropriate, such information, reports, evaluations, analyses and opinions as they may, at any time or from time to time, reasonably request or as the Manager may deem helpful. D. Reports and Other Communications to Shareholders. The Manager shall assist in developing all general shareholder communications, including regular shareholder reports. E. Fund Personnel. The Manager agrees to permit individuals who are officers or employees of the Manager to serve (if duly elected or appointed) as officers, directors, members of any committee of directors, members of any advisory board, or members of any other committee of the Corporation, without remuneration or other cost to the Fund or the Corporation. F. Personnel, Office Space, and Facilities of Manager. The Manager at its own expense shall furnish or provide and pay the cost of such office space, office equipment, office personnel, and office services as the Manager requires in the performance of its investment advisory and other obligations under this Agreement. 2. Allocation of Expenses. A. Expenses Paid by Manager. (1) Salaries and Fees of Officers. The Manager shall pay all salaries, expenses, and fees of the officers and directors of the Corporation who are affiliated with the Manager. PAGE 3 (2) Assumption of Expenses by Manager. The payment or assumption by the Manager of any expense of the Corporation or Fund, as appropriate, that the Manager is not required by this Agreement to pay or assume shall not obligate the Manager to pay or assume the same or any similar expense on any subsequent occasion. B. Expenses Paid by Fund. The Corporation or Fund, as appropriate, shall bear all expenses of its organization, operations, and business not specifically assumed or agreed to be paid by the Manager as provided in this Agreement. In particular, but without limiting the generality of the foregoing, the Corporation or Fund, as appropriate, shall pay: (1) Custody and Accounting Services. All expenses of the transfer, receipt, safekeeping, servicing and accounting for the cash, securities, and other property of the Corporation, for the benefit of the Fund, including all charges of depositories, custodians, and other agents, if any; (2) Shareholder Servicing. All expenses of maintaining and servicing shareholder accounts, including all charges for transfer, shareholder recordkeeping, dividend disbursing, redemption, and other agents for the benefit of the Fund, if any; (3) Shareholder Communications. All expenses of preparing, setting in type, printing, and distributing reports and other communications to shareholders; (4) Shareholder Meetings. All expenses incidental to holding meetings of shareholders, including the printing of notices and proxy material, and proxy solicitation therefor; (5) Prospectuses. All expenses of preparing, setting in type, and printing of annual or more frequent revisions of the prospectus and of mailing them to shareholders; (6) Pricing. All expenses of computing the Fund's net asset value per share, including the cost of any equipment or services used for obtaining price quotations; (7) Communication Equipment. All charges for equipment or services used for communication between the Manager or the Corporation or Fund and the custodian, transfer agent or any other agent selected by the Corporation; (8) Legal and Accounting Fees and Expenses. All charges for services and expenses of the Corporation's legal counsel and independent auditors for the benefit of the Fund; (9) Directors' Fees and Expenses. All compensation of directors, other than those affiliated with the Manager, and all expenses incurred in connection with their service; PAGE 4 (10) Federal Registration Fees. All fees and expenses of registering and maintaining the registration of the Corporation under the Act and the registration of Fund Shares under the Securities Act of 1933, as amended (the "'33 Act"), including all fees and expenses incurred in connection with the preparation, setting in type, printing, and filing of any registration statement and prospectus under the '33 Act or the Act, and any amendments or supplements that may be made from time to time; (11) State Registration Fees. All fees and expenses of qualifying and maintaining qualification of the Corporation or Fund, as appropriate, and of Fund Shares for sale under securities laws of various states or jurisdictions, and of registration and qualification of the Corporation or Fund, as appropriate, under all other laws applicable to the Corporation or Fund, as appropriate, or its business activities (including registering the Corporation as a broker-dealer, or any officer of the Corporation or any person as agent or salesman of the Corporation in any state); (12) Issue and Redemption of Fund Shares. All expenses incurred in connection with the issue, redemption, and transfer of Fund Shares, including the expense of confirming all Fund Share transactions, and of preparing and transmitting the Fund's stock certificates; (13) Bonding and Insurance. All expenses of bond, liability, and other insurance coverage required by law or deemed advisable by the board of directors; (14) Brokerage Commissions. All brokers' commissions and other charges incident to the purchase, sale, or lending of the Fund's portfolio securities; (15) Taxes. All taxes or governmental fees payable by or with respect of the Corporation or Fund, as appropriate, to federal, state, or other governmental agencies, domestic or foreign, including stamp or other transfer taxes; (16) Trade Association Fees. All fees, dues, and other expenses incurred in connection with the Corporation's or Fund's, as appropriate, membership in any trade association or other investment organization; and (17) Nonrecurring and Extraordinary Expenses. Such nonrecurring expenses as may arise, including the costs of actions, suits, or proceedings to which the Corporation or Fund, as appropriate, is a party and the expenses the Corporation or Fund, as appropriate, may incur as a result of its legal obligation to provide indemnification to its officers, directors, and agents. 3. Management Fee. The Fund shall pay the Manager a fee ("Fee") which will consist of two components: a Group Management Fee ("Group Fee"), PAGE 5 and an Individual Fund Fee ("Fund Fee"). The Fee shall be paid monthly to the Manager on the first business day of the next succeeding calendar month and shall be calculated as follows: A. Group Fee. The monthly Group Fee ("Monthly Group Fee") shall be the sum of the daily Group Fee accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee Accrual for any particular day will be computed by multiplying the Price Funds' group fee accrual as determined below ("Daily Price Funds' Group Fee Accrual") by the ratio of the Fund's net assets for that day to the sum of the aggregate net assets of the Price Funds for that day. The Daily Price Funds' Group Fee Accrual for any particular day shall be calculated by multiplying the fraction of one (1) over the number of calendar days in the year by the annualized Daily Price Funds' Group Fee Accrual for that day as determined in accordance with the following schedule: Price Funds Annual Group Base Fee Rate for Each Level of Assets ______________________________________ 0.480% First $1 billion 0.450% Next $1 billion 0.420% Next $1 billion 0.390% Next $1 billion 0.370% Next $1 billion 0.360% Next $2 billion 0.350% Next $2 billion 0.330% Next $5 billion 0.340% Next $10 billion 0.320% Thereafter The Price Funds shall include all the mutual funds distributed by T. Rowe Price Investment Services, Inc. (except for any institutional or private label mutual funds). For the purposes of calculating the Daily Price Funds' Group Fee Accrual for any particular day, the net assets of each Price Fund shall be determined in accordance with the prospectus, on behalf of the Fund, as of the close of business on the previous business day on which the Fund was open for business. B. Fund Fee. The monthly Fund Fee ("Monthly Fund Fee") shall be the sum of the daily Fund Fee accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any particular day will be computed by multiplying the fraction of one (1) over the number of calendar days in the year by the Fund Fee Rate of .35% and multiplying this product by the net assets of the Fund for that day, as determined in accordance with the Corporation's prospectus as of the close of business on the previous business day on which the Fund was open for business. C. Expense Limitation. To the extent that the aggregate expenses of every character incurred by the Fund in any fiscal year, including but not limited to fees of the Manager computed as hereinabove set forth, but excluding interest, taxes, brokerage, and other expenditures which are capitalized in accordance with generally accepted accounting principles and extraordinary expenses, shall exceed the limit ("State Expense Limit") prescribed by any state in which the Fund's Shares are qualified for sale, such excess amount shall be the liability of the Manager to pay in the manner specified below. To determine the Manager's liability for the Fund's PAGE 6 expenses, the expenses of the Fund shall be annualized monthly as of the last day of the month. If the annualized expenses for any month exceed the State Expense Limit, the payment of the Fee for such month (if there be any) shall be reduced by such excess ("Excess Amount") and in the event the Excess Amount exceeds the amount due as the Fee, the Manager shall remit to the Fund the difference between the Excess Amount and the amount due as the Fee; provided, however, that an adjustment shall be made on or before the last day of the first month of the next succeeding fiscal year if the aggregate expenses for the fiscal year do not exceed the State Expense Limit. D. Proration of Fee. If this Agreement becomes effective or terminates before the end of any month, the Fee for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 4. Brokerage. Subject to the approval of the board of directors, the Manager, in carrying out its duties under Paragraph 1.A., may cause the Corporation, with respect to the Fund, to pay a broker-dealer which furnishes brokerage or research services [as such services are defined under Section 28(e) of the Securities Exchange Act of 1934, as amended (the "'34 Act")] a higher commission than that which might be charged by another broker-dealer 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-dealer, viewed in terms of either that particular transaction or the overall responsibilities of the Manager with respect to the accounts as to which it exercises investment discretion (as such term is defined under Section 3(a)(35) of the '34 Act). 5. Manager's Use of the Services of Others. The Manager may (at its cost except as contemplated by Paragraph 4 of this Agreement) employ, retain or otherwise avail itself of the services or facilities of other persons or organizations for the purpose of providing the Manager or the Corporation or Fund, as appropriate, with such statistical and other factual information, such advice regarding economic factors and trends, such advice as to occasional transactions in specific securities or such other information, advice or assistance as the Manager may deem necessary, appropriate or convenient for the discharge of its obligations hereunder or otherwise helpful to the Corporation or Fund, as appropriate, or in the discharge of Manager's overall responsibilities with respect to the other accounts which it serves as investment manager. 6. Ownership of Records. All records required to be maintained and preserved by the Corporation or Fund pursuant to the provisions of rules or regulations of the Securities and Exchange Commission under Section 31(a) of the Act and maintained and preserved by the Manager on behalf of the Corporation or Fund, as appropriate, are the property of the Corporation or Fund, as appropriate, and will be surrendered by the Manager promptly on request by the Corporation or Fund, as appropriate. 7. Reports to Manager. The Corporation or Fund, as appropriate, shall furnish or otherwise make available to the Manager such prospectuses, financial statements, proxy statements, reports, and other information relating to the business and affairs of the Corporation or Fund, as PAGE 7 appropriate, as the Manager may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement. 8. Services to Other Clients. Nothing herein contained shall limit the freedom of the Manager or any affiliated person of the Manager to render investment supervisory and corporate administrative services to other investment companies, to act as investment manager or investment counselor to other persons, firms or corporations, or to engage in other business activities; but so long as this Agreement or any extension, renewal or amendment hereof shall remain in effect or until the Manager shall otherwise consent, the Manager shall be the only investment manager to the Fund. 9. Limitation of Liability of Manager. Neither the Manager nor any of its officers, directors, or employees, nor any person performing executive, administrative, trading, or other functions for the Corporation or Fund (at the direction or request of the Manager) or the Manager in connection with the Manager's discharge of its obligations undertaken or reasonably assumed with respect to this Agreement, shall be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or Fund in connection with the matters to which this Agreement relates, except for loss resulting from willful misfeasance, bad faith, or gross negligence in the performance of its or his duties on behalf of the Corporation or Fund or from reckless disregard by the Manager or any such person of the duties of the Manager under this Agreement. 10. Use of Manager's Name. The Corporation or Fund may use the name "T. Rowe Price International Funds, Inc." or any other name derived from the name "T. Rowe Price" only for so long as this Agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the Manager as investment manager. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, the Corporation or Fund will (by corporate action, if necessary) cease to use any name derived from the name "T. Rowe Price," any name similar thereto or any other name indicating that it is advised by or otherwise connected with the Manager, or with any organization which shall have succeeded to the Manager's business as investment manager. 11. Term of Agreement. The term of this Agreement shall begin on the date first above written, and unless sooner terminated as hereinafter provided, this Agreement shall remain in effect through April 30, 1991. Thereafter, this Agreement shall continue in effect from year to year, with respect to the Fund, subject to the termination provisions and all other terms and conditions hereof, so long as such continuation shall be specifically approved at least annually (a) by either the board of directors of the Corporation, or by vote of a majority of the outstanding voting securities of the Fund; (b) in either event by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the directors of the Corporation, with respect to the Fund, who are not parties to this Agreement or interested persons of any such party; and (c) the Manager shall not have notified the Corporation, in writing, at least 60 days prior to April 30, 1991 or prior to April 30th of any year thereafter, that it does not desire such continuation. The Manager shall furnish to the Corporation, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal or amendment hereof. PAGE 8 12. Amendment and Assignment of Agreement. This Agreement may not be amended or assigned without the affirmative vote of a majority of the outstanding voting securities of the Fund, and this Agreement shall automatically and immediately terminate in the event of its assignment. 13. Termination of Agreement. This Agreement may be terminated by either party hereto, without the payment of any penalty, upon 60 days' prior notice in writing to the other party; provided, that in the case of termination by the Corporation, with respect to the Fund, such action shall have been authorized by resolution of a majority of the directors who are not parties to this Agreement or interested persons of any such party, or by vote of a majority of the outstanding voting securities of the Fund. 14. Miscellaneous. A. Captions. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. B. Interpretation. Nothing herein contained shall be deemed to require the Corporation to take any action contrary to its Articles of Incorporation or By-Laws, or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the board of directors of the Corporation of its responsibility for and control of the conduct of the affairs of the Fund. C. Definitions. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Act shall be resolved by reference to such term or provision of the Act and to interpretations thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission validly issued pursuant to the Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested person," "assignment," and "affiliated person," as used in Paragraphs 2, 8, 11, 12, and 13 hereof, shall have the meanings assigned to them by Section 2(a) of the Act. In addition, where the effect of a requirement of the Act reflected in any provision of this Agreement is relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. PAGE 9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective seals to be hereunto affixed, as of the day and year first above written. Attest: T. ROWE PRICE INTERNATIONAL FUNDS, INC. ______________________________ By:________________________________________ Secretary Attest: ROWE PRICE-FLEMING INTERNATIONAL, INC. _______________________________ By:________________________________________ Assistant Secretary EX-99.B5C-MGTAGMT 6 PAGE 1 INVESTMENT MANAGEMENT AGREEMENT Between T. ROWE PRICE INTERNATIONAL FUNDS, INC. and ROWE PRICE-FLEMING INTERNATIONAL, INC. INVESTMENT MANAGEMENT AGREEMENT, made as of the 1st day of May, 1991, by and between T. ROWE PRICE INTERNATIONAL FUNDS, INC., a Maryland Corporation (hereinafter called the "Corporation"), and ROWE PRICE-FLEMING INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Maryland (hereinafter called the "Manager"). W I T N E S S E T H: WHEREAS, the Corporation is engaged in business as an open-end management investment company and is registered as such under the federal Investment Company Act of 1940, as amended (the "Act"); and WHEREAS, the Corporation is authorized to issue shares of capital stock ("Shares") in the T. Rowe Price International Discovery Fund (the "Fund"), a separate series of the Corporation whose Shares represent interests in a separate portfolio of securities and other assets ("Fund Shares"); and WHEREAS, the Manager is engaged principally in the business of rendering investment supervisory services and is registered as an investment adviser under the federal Investment Advisers Act of 1940, as amended; and WHEREAS, the Fund desires the Manager to render investment supervisory services to the Fund in the manner and on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. Duties and Responsibilities of Manager. A. Investment Advisory Services. The Manager shall act as investment manager and shall supervise and direct the investments of the Fund in accordance with the Fund's investment objective, program and restrictions as provided in the Corporation's prospectus, on behalf of the Fund, as amended from time to time, and such other limitations as the Corporation may impose by notice in writing to the Manager. The Manager shall obtain and evaluate such information relating to the economy, industries, businesses, securities markets and securities as it may deem necessary or useful in the discharge of its obligations hereunder and shall formulate and implement a continuing PAGE 2 program for the management of the assets and resources of the Fund in a manner consistent with its investment objective. In furtherance of this duty, the Manager, as agent and attorney-in-fact with respect to the Corporation, is authorized, in its discretion and without prior consultation with the Corporation, to: (i) buy, sell, exchange, convert, lend, and otherwise trade in any stocks, bonds, and other securities or assets; and (ii) directly or through the trading desks of T. Rowe Price Associates, Inc. ("Price Associates"), Robert Fleming Holdings Limited ("Holdings") and their affiliates place orders and negotiate the commissions (if any) for the execution of transactions in securities with or through such brokers, dealers, underwriters or issuers as the Manager may select. B. Financial, Accounting, and Administrative Services. The Manager shall maintain the existence and records of the Corporation; maintain the registrations and qualifications of Fund Shares under federal and state law; monitor the financial, accounting, and administrative functions of the Fund; maintain liaison with the various agents employed for the benefit of the Fund by the Corporation (including the Corporation's transfer agent, custodian, independent accountants and legal counsel) and assist in the coordination of their activities on behalf of the Fund. C. Reports to Fund. The Manager shall furnish to or place at the disposal of the Corporation or Fund, as appropriate, such information, reports, evaluations, analyses and opinions as they may, at any time or from time to time, reasonably request or as the Manager may deem helpful. D. Reports and Other Communications to Shareholders. The Manager shall assist in developing all general shareholder communications, including regular shareholder reports. E. Fund Personnel. The Manager agrees to permit individuals who are officers or employees of the Manager to serve (if duly elected or appointed) as officers, directors, members of any committee of directors, members of any advisory board, or members of any other committee of the Corporation, without remuneration or other cost to the Fund or the Corporation. F. Personnel, Office Space, and Facilities of Manager. The Manager at its own expense shall furnish or provide and pay the cost of such office space, office equipment, office personnel, and office services as the Manager requires in the performance of its investment advisory and other obligations under this Agreement. 2. Allocation of Expenses. A. Expenses Paid by Manager. (1) Salaries and Fees of Officers. The Manager shall pay all salaries, expenses, and fees of the officers and directors of the Corporation who are affiliated with the Manager. PAGE 3 (2) Assumption of Expenses by Manager. The payment or assumption by the Manager of any expense of the Corporation or Fund, as appropriate, that the Manager is not required by this Agreement to pay or assume shall not obligate the Manager to pay or assume the same or any similar expense on any subsequent occasion. B. Expenses Paid by Fund. The Corporation or Fund, as appropriate, shall bear all expenses of its organization, operations, and business not specifically assumed or agreed to be paid by the Manager as provided in this Agreement. In particular, but without limiting the generality of the foregoing, the Corporation or Fund, as appropriate, shall pay: (1) Custody and Accounting Services. All expenses of the transfer, receipt, safekeeping, servicing and accounting for the cash, securities, and other property of the Corporation, for the benefit of the Fund, including all charges of depositories, custodians, and other agents, if any; (2) Shareholder Servicing. All expenses of maintaining and servicing shareholder accounts, including all charges for transfer, shareholder recordkeeping, dividend disbursing, redemption, and other agents for the benefit of the Fund, if any; (3) Shareholder Communications. All expenses of preparing, setting in type, printing, and distributing reports and other communications to shareholders; (4) Shareholder Meetings. All expenses incidental to holding meetings of shareholders, including the printing of notices and proxy material, and proxy solicitation therefor; (5) Prospectuses. All expenses of preparing, setting in type, and printing of annual or more frequent revisions of the prospectus and of mailing them to shareholders; (6) Pricing. All expenses of computing the Fund's net asset value per share, including the cost of any equipment or services used for obtaining price quotations; (7) Communication Equipment. All charges for equipment or services used for communication between the Manager or the Corporation or Fund and the custodian, transfer agent or any other agent selected by the Corporation; (8) Legal and Accounting Fees and Expenses. All charges for services and expenses of the Corporation's legal counsel and independent auditors for the benefit of the Fund; (9) Directors' Fees and Expenses. All compensation of directors, other than those affiliated with the Manager, and all expenses incurred in connection with their service; PAGE 4 (10) Federal Registration Fees. All fees and expenses of registering and maintaining the registration of the Corporation under the Act and the registration of Fund Shares under the Securities Act of 1933, as amended (the "'33 Act"), including all fees and expenses incurred in connection with the preparation, setting in type, printing, and filing of any registration statement and prospectus under the '33 Act or the Act, and any amendments or supplements that may be made from time to time; (11) State Registration Fees. All fees and expenses of qualifying and maintaining qualification of the Corporation or Fund, as appropriate, and of Fund Shares for sale under securities laws of various states or jurisdictions, and of registration and qualification of the Corporation or Fund, as appropriate, under all other laws applicable to the Corporation or Fund, as appropriate, or its business activities (including registering the Corporation as a broker-dealer, or any officer of the Corporation or any person as agent or salesman of the Corporation in any state); (12) Issue and Redemption of Fund Shares. All expenses incurred in connection with the issue, redemption, and transfer of Fund Shares, including the expense of confirming all Fund Share transactions, and of preparing and transmitting the Fund's stock certificates; (13) Bonding and Insurance. All expenses of bond, liability, and other insurance coverage required by law or deemed advisable by the board of directors; (14) Brokerage Commissions. All brokers' commissions and other charges incident to the purchase, sale, or lending of the Fund's portfolio securities; (15) Taxes. All taxes or governmental fees payable by or with respect of the Corporation or Fund, as appropriate, to federal, state, or other governmental agencies, domestic or foreign, including stamp or other transfer taxes; (16) Trade Association Fees. All fees, dues, and other expenses incurred in connection with the Corporation's or Fund's, as appropriate, membership in any trade association or other investment organization; and (17) Nonrecurring and Extraordinary Expenses. Such nonrecurring expenses as may arise, including the costs of actions, suits, or proceedings to which the Corporation or Fund, as appropriate, is a party and the expenses the Corporation or Fund, as appropriate, may incur as a result of its legal obligation to provide indemnification to its officers, directors, and agents. 3. Management Fee. The Fund shall pay the Manager a fee ("Fee") which will consist of two components: a Group Management Fee ("Group Fee"), PAGE 5 and an Individual Fund Fee ("Fund Fee"). The Fee shall be paid monthly to the Manager on the first business day of the next succeeding calendar month and shall be calculated as follows: A. Group Fee. The monthly Group Fee ("Monthly Group Fee") shall be the sum of the daily Group Fee accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee Accrual for any particular day will be computed by multiplying the Price Funds' group fee accrual as determined below ("Daily Price Funds' Group Fee Accrual") by the ratio of the Fund's net assets for that day to the sum of the aggregate net assets of the Price Funds for that day. The Daily Price Funds' Group Fee Accrual for any particular day shall be calculated by multiplying the fraction of one (1) over the number of calendar days in the year by the annualized Daily Price Funds' Group Fee Accrual for that day as determined in accordance with the following schedule: Price Funds' Annual Group Base Fee Rate for Each Level of Assets ______________________________________ 0.480% First $1 billion 0.450% Next $1 billion 0.420% Next $1 billion 0.390% Next $1 billion 0.370% Next $1 billion 0.360% Next $2 billion 0.350% Next $2 billion 0.330% Next $5 billion 0.340% Next $10 billion 0.320% Thereafter The Price Funds shall include all the mutual funds distributed by T. Rowe Price Investment Services, Inc., excluding any institutional or private label mutual funds. For the purpose of calculating the Daily Price Funds' Group Fee Accrual for any particular day, the net assets of each Price Fund shall be determined in accordance with the prospectus, on behalf of the Fund, as of the close of business on the previous business day on which the Fund was open for business. B. Fund Fee. The monthly Fund Fee ("Monthly Fund Fee") shall be the sum of the daily Fund Fee accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any particular day will be computed by multiplying the fraction of one (1) over the number of calendar days in the year by the Fund Fee Rate of .75% and multiplying this product by the net assets of the Fund for that day, as determined in accordance with the Corporation's prospectus as of the close of business on the previous business day on which the Fund was open for business. C. Expense Limitation. To the extent that the aggregate expenses of every character incurred by the Fund in any fiscal year, including but not limited to fees of the Manager computed as hereinabove set forth, but excluding interest, taxes, brokerage, and other expenditures which are capitalized in accordance with generally accepted accounting principles and extraordinary expenses, shall exceed the limit ("State Expense Limit") prescribed by any state in which the Fund's Shares are qualified for sale, such excess amount shall be the liability of the Manager to pay in the manner specified below. To determine the Manager's liability for the Fund's expenses, the expenses of the Fund shall be annualized monthly as of the last PAGE 6 day of the month. If the annualized expenses for any month exceed the State Expense Limit, the payment of the Fee for such month (if there be any) shall be reduced by such excess ("Excess Amount") and in the event the Excess Amount exceeds the amount due as the Fee, the Manager shall remit to the Fund the difference between the Excess Amount and the amount due as the Fee; provided, however, that an adjustment shall be made on or before the last day of the first month of the next succeeding fiscal year if the aggregate expenses for the fiscal year do not exceed the State Expense Limit. However, as part of the consideration for the Fund's entering into this Agreement, the Manager hereby agrees that through December 31, 1990, the expense limit will be 1.50% of the average daily net assets of the Fund ("1.50% Expense Limitation"); provided, however, that (1) any amount paid or assumed by the Manager pursuant to the 1.50% Expense Limitation (but not over any State Expense Limit) shall be reimbursed by the Fund to the Manager after December 31, 1990 (such reimbursement period being referred to as the "Original Reimbursement Period"); (2) no such reimbursement, with respect to such Original Reimbursement Period shall be made to the Manager after December 31, 1992; and (3) such reimbursement shall only be made to the extent that it does not result in the Fund's aggregate expenses exceeding an expense limit of 1.50%. The Manager may voluntarily agree to an additional expense limitation (any such additional expense limitation hereinafter referred to as an "Additional Expense Limitation"), for the same or a different period of time beyond December 31, 1990 (any such additional period being hereinafter referred to as an "Additional Period") provided, however, that: (1) any amount paid or assumed by the Manager pursuant to an Additional Expense Limitation (but in no case over any State Expense Limit) shall be reimbursed by the Fund to the Manager after the last day of the Additional Period (such additional reimbursement period being hereinafter referred to as an "Additional Reimbursement Period"); (2) no reimbursement for an Additional Reimbursement Period shall be made to the Manager more than two years after the end of an Additional Period; and (3) reimbursement for an Additional Reimbursement Period shall only be made to the extent that it does not result in the Fund's aggregate expenses exceeding the Additional Expense Limitation applicable to such Additional Reimbursement Period. D. Proration of Fee. If this Agreement becomes effective or terminates before the end of any month, the Fee for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 4. Brokerage. Subject to the approval of the board of directors, the Manager, in carrying out its duties under Paragraph 1.A., may cause the Corporation, with respect to the Fund, to pay a broker-dealer which furnishes brokerage or research services [as such services are defined under Section 28(e) of the Securities Exchange Act of 1934, as amended (the "'34 Act")] a higher commission than that which might be charged by another broker-dealer 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-dealer, viewed in terms of either that particular transaction or the overall responsibilities of the Manager with respect to the accounts as to which it exercises investment discretion (as such term is defined under Section 3(a)(35) of the '34 Act). PAGE 7 5. Manager's Use of the Services of Others. The Manager may (at its cost except as contemplated by Paragraph 4 of this Agreement) employ, retain or otherwise avail itself of the services or facilities of other persons or organizations for the purpose of providing the Manager or the Corporation or Fund, as appropriate, with such statistical and other factual information, such advice regarding economic factors and trends, such advice as to occasional transactions in specific securities or such other information, advice or assistance as the Manager may deem necessary, appropriate or convenient for the discharge of its obligations hereunder or otherwise helpful to the Corporation or Fund, as appropriate, or in the discharge of Manager's overall responsibilities with respect to the other accounts which it serves as investment manager. 6. Ownership of Records. All records required to be maintained and preserved by the Corporation or Fund pursuant to the provisions of rules or regulations of the Securities and Exchange Commission under Section 31(a) of the Act and maintained and preserved by the Manager on behalf of the Corporation or Fund, as appropriate, are the property of the Corporation or Fund, as appropriate, and will be surrendered by the Manager promptly on request by the Corporation or Fund, as appropriate. 7. Reports to Manager. The Corporation or Fund, as appropriate, shall furnish or otherwise make available to the Manager such prospectuses, financial statements, proxy statements, reports, and other information relating to the business and affairs of the Corporation or Fund, as appropriate, as the Manager may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement. 8. Services to Other Clients. Nothing herein contained shall limit the freedom of the Manager or any affiliated person of the Manager to render investment supervisory and corporate administrative services to other investment companies, to act as investment manager or investment counselor to other persons, firms or corporations, or to engage in other business activities; but so long as this Agreement or any extension, renewal or amendment hereof shall remain in effect or until the Manager shall otherwise consent, the Manager shall be the only investment manager to the Fund. 9. Limitation of Liability of Manager. Neither the Manager nor any of its officers, directors, or employees, nor any person performing executive, administrative, trading, or other functions for the Corporation or Fund (at the direction or request of the Manager) or the Manager in connection with the Manager's discharge of its obligations undertaken or reasonably assumed with respect to this Agreement, shall be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or Fund in connection with the matters to which this Agreement relates, except for loss resulting from willful misfeasance, bad faith, or gross negligence in the performance of its or his duties on behalf of the Corporation or Fund or from reckless disregard by the Manager or any such person of the duties of the Manager under this Agreement. 10. Use of Manager's Name. The Corporation or Fund may use the name "T. Rowe Price International Funds, Inc." or any other name derived from the name "T. Rowe Price" only for so long as this Agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the PAGE 8 Manager as investment manager. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, the Corporation or Fund will (by corporate action, if necessary) cease to use any name derived from the name "T. Rowe Price," any name similar thereto or any other name indicating that it is advised by or otherwise connected with the Manager, or with any organization which shall have succeeded to the Manager's business as investment manager. 11. Term of Agreement. The term of this Agreement shall begin on the date first above written, and unless sooner terminated as hereinafter provided, this Agreement shall remain in effect through April 30, 1992. Thereafter, this Agreement shall continue in effect from year to year, with respect to the Fund, subject to the termination provisions and all other terms and conditions hereof, so long as such continuation shall be specifically approved at least annually (a) by either the board of directors of the Corporation, or by vote of a majority of the outstanding voting securities of the Fund; (b) in either event by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the directors of the Corporation, with respect to the Fund, who are not parties to this Agreement or interested persons of any such party; and (c) the Manager shall not have notified the Corporation, in writing, at least 60 days prior to April 30, 1992 or prior to April 30th of any year thereafter, that it does not desire such continuation. The Manager shall furnish to the Corporation, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal or amendment hereof. 12. Amendment and Assignment of Agreement. This Agreement may not be amended or assigned without the affirmative vote of a majority of the outstanding voting securities of the Fund, and this Agreement shall automatically and immediately terminate in the event of its assignment. 13. Termination of Agreement. This Agreement may be terminated by either party hereto, without the payment of any penalty, upon 60 days' prior notice in writing to the other party; provided, that in the case of termination by the Corporation, with respect to the Fund, such action shall have been authorized by resolution of a majority of the directors who are not parties to this Agreement or interested persons of any such party, or by vote of a majority of the outstanding voting securities of the Fund. 14. Miscellaneous. A. Captions. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. B. Interpretation. Nothing herein contained shall be deemed to require the Corporation to take any action contrary to its Articles of Incorporation or By-Laws, or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the board of directors of the Corporation of its responsibility for and control of the conduct of the affairs of the Fund. C. Definitions. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Act shall be resolved by reference to such term or provision of the Act and to interpretations thereof, if any, by the PAGE 9 United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission validly issued pursuant to the Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested person," "assignment," and "affiliated person," as used in Paragraphs 2, 8, 11, 12, and 13 hereof, shall have the meanings assigned to them by Section 2(a) of the Act. In addition, where the effect of a requirement of the Act reflected in any provision of this Agreement is relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective seals to be hereunto affixed, as of the day and year first above written. Attest: T. ROWE PRICE INTERNATIONAL FUNDS, INC. By: ______________________________ _____________________________________ Secretary Attest: ROWE PRICE-FLEMING INTERNATIONAL, INC. By: _______________________________ _____________________________________ Assistant Secretary EX-99.B5D-MGTAGMT 7 PAGE 1 INVESTMENT MANAGEMENT AGREEMENT Between T. ROWE PRICE INTERNATIONAL FUNDS, INC. and ROWE PRICE-FLEMING INTERNATIONAL, INC. INVESTMENT MANAGEMENT AGREEMENT, made as of the 1st day of May, 1990, by and between T. ROWE PRICE INTERNATIONAL FUNDS, INC., a Maryland Corporation (hereinafter called the "Corporation"), and ROWE PRICE-FLEMING INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Maryland (hereinafter called the "Manager"). W I T N E S S E T H: WHEREAS, the Corporation is engaged in business as an open-end management investment company and to register as such under the federal Investment Company Act of 1940, as amended (the "Act"); and WHEREAS, the Corporation is authorized to issue shares of capital stock ("Shares") in the T. Rowe Price European Stock Fund (the "Fund"), a separate series of the Corporation whose Shares represent interests in a separate portfolio of securities and other assets ("Fund Shares"); and WHEREAS, the Manager is engaged principally in the business of rendering investment supervisory services and is registered as an investment adviser under the federal Investment Advisers Act of 1940, as amended; and WHEREAS, the Fund desires the Manager to render investment supervisory services to the Fund in the manner and on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. Duties and Responsibilities of Manager. A. Investment Advisory Services. The Manager shall act as investment manager and shall supervise and direct the investments of the Fund in accordance with the Fund's investment objective, program and restrictions as provided in the Corporation's prospectus, on behalf of the Fund, as amended from time to time, and such other limitations as the Corporation may impose by notice in writing to the Manager. The Manager shall obtain and evaluate such information relating to the economy, industries, businesses, securities markets and securities as it may deem necessary or useful in the discharge of its obligations hereunder and shall formulate and implement a continuing PAGE 2 program for the management of the assets and resources of the Fund in a manner consistent with its investment objective. In furtherance of this duty, the Manager, as agent and attorney-in-fact with respect to the Corporation, is authorized, in its discretion and without prior consultation with the Corporation, to: (i) buy, sell, exchange, convert, lend, and otherwise trade in any stocks, bonds, and other securities or assets; and (ii) directly or through the trading desks of T. Rowe Price Associates, Inc. ("Price Associates"), Robert Fleming Holdings Limited ("Holdings") and their affiliates place orders and negotiate the commissions (if any) for the execution of transactions in securities with or through such brokers, dealers, underwriters or issuers as the Manager may select. B. Financial, Accounting, and Administrative Services. The Manager shall maintain the existence and records of the Corporation; maintain the registrations and qualifications of Fund Shares under federal and state law; monitor the financial, accounting, and administrative functions of the Fund; maintain liaison with the various agents employed for the benefit of the Fund by the Corporation (including the Corporation's transfer agent, custodian, independent accountants and legal counsel) and assist in the coordination of their activities on behalf of the Fund. C. Reports to Fund. The Manager shall furnish to or place at the disposal of the Corporation or Fund, as appropriate, such information, reports, evaluations, analyses and opinions as they may, at any time or from time to time, reasonably request or as the Manager may deem helpful. D. Reports and Other Communications to Shareholders. The Manager shall assist in developing all general shareholder communications, including regular shareholder reports. E. Fund Personnel. The Manager agrees to permit individuals who are officers or employees of the Manager to serve (if duly elected or appointed) as officers, directors, members of any committee of directors, members of any advisory board, or members of any other committee of the Corporation, without remuneration or other cost to the Fund or the Corporation. F. Personnel, Office Space, and Facilities of Manager. The Manager at its own expense shall furnish or provide and pay the cost of such office space, office equipment, office personnel, and office services as the Manager requires in the performance of its investment advisory and other obligations under this Agreement. 2. Allocation of Expenses. A. Expenses Paid by Manager. (1) Salaries and Fees of Officers. The Manager shall pay all salaries, expenses, and fees of the officers and directors of the Corporation who are affiliated with the Manager. PAGE 3 (2) Assumption of Expenses by Manager. The payment or assumption by the Manager of any expense of the Corporation or Fund, as appropriate, that the Manager is not required by this Agreement to pay or assume shall not obligate the Manager to pay or assume the same or any similar expense on any subsequent occasion. B. Expenses Paid by Fund. The Corporation or Fund, as appropriate, shall bear all expenses of its organization, operations, and business not specifically assumed or agreed to be paid by the Manager as provided in this Agreement. In particular, but without limiting the generality of the foregoing, the Corporation or Fund, as appropriate, shall pay: (1) Custody and Accounting Services. All expenses of the transfer, receipt, safekeeping, servicing and accounting for the cash, securities, and other property of the Corporation, for the benefit of the Fund, including all charges of depositories, custodians, and other agents, if any; (2) Shareholder Servicing. All expenses of maintaining and servicing shareholder accounts, including all charges for transfer, shareholder recordkeeping, dividend disbursing, redemption, and other agents for the benefit of the Fund, if any; (3) Shareholder Communications. All expenses of preparing, setting in type, printing, and distributing reports and other communications to shareholders; (4) Shareholder Meetings. All expenses incidental to holding meetings of shareholders, including the printing of notices and proxy material, and proxy solicitation therefor; (5) Prospectuses. All expenses of preparing, setting in type, and printing of annual or more frequent revisions of the prospectus and of mailing them to shareholders; (6) Pricing. All expenses of computing the Fund's net asset value per share, including the cost of any equipment or services used for obtaining price quotations; (7) Communication Equipment. All charges for equipment or services used for communication between the Manager or the Corporation or Fund and the custodian, transfer agent or any other agent selected by the Corporation; (8) Legal and Accounting Fees and Expenses. All charges for services and expenses of the Corporation's legal counsel and independent auditors for the benefit of the Fund; (9) Directors' Fees and Expenses. All compensation of directors, other than those affiliated with the Manager, and all expenses incurred in connection with their service; PAGE 4 (10) Federal Registration Fees. All fees and expenses of registering and maintaining the registration of the Corporation under the Act and the registration of Fund Shares under the Securities Act of 1933, as amended (the "'33 Act"), including all fees and expenses incurred in connection with the preparation, setting in type, printing, and filing of any registration statement and prospectus under the '33 Act or the Act, and any amendments or supplements that may be made from time to time; (11) State Registration Fees. All fees and expenses of qualifying and maintaining qualification of the Corporation or Fund, as appropriate, and of Fund Shares for sale under securities laws of various states or jurisdictions, and of registration and qualification of the Corporation or Fund, as appropriate, under all other laws applicable to the Corporation or Fund, as appropriate, or its business activities (including registering the Corporation as a broker-dealer, or any officer of the Corporation or any person as agent or salesman of the Corporation in any state); (12) Issue and Redemption of Fund Shares. All expenses incurred in connection with the issue, redemption, and transfer of Fund Shares, including the expense of confirming all Fund Share transactions, and of preparing and transmitting the Fund's stock certificates; (13) Bonding and Insurance. All expenses of bond, liability, and other insurance coverage required by law or deemed advisable by the board of directors; (14) Brokerage Commissions. All brokers' commissions and other charges incident to the purchase, sale, or lending of the Fund's portfolio securities; (15) Taxes. All taxes or governmental fees payable by or with respect of the Corporation or Fund, as appropriate, to federal, state, or other governmental agencies, domestic or foreign, including stamp or other transfer taxes; (16) Trade Association Fees. All fees, dues, and other expenses incurred in connection with the Corporation's or Fund's, as appropriate, membership in any trade association or other investment organization; and (17) Nonrecurring and Extraordinary Expenses. Such nonrecurring expenses as may arise, including the costs of actions, suits, or proceedings to which the Corporation or Fund, as appropriate, is a party and the expenses the Corporation or Fund, as appropriate, may incur as a result of its legal obligation to provide indemnification to its officers, directors, and agents. 3. Management Fee. The Fund shall pay the Manager a fee ("Fee") which will consist of two components: a Group Management Fee ("Group Fee"), PAGE 5 and an Individual Fund Fee ("Fund Fee"). The Fee shall be paid monthly to the Manager on the first business day of the next succeeding calendar month and shall be calculated as follows: A. Group Fee. The monthly Group Fee ("Monthly Group Fee") shall be the sum of the daily Group Fee accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee Accrual for any particular day will be computed by multiplying the Price Funds' group fee accrual as determined below ("Daily Price Funds' Group Fee Accrual") by the ratio of the Fund's net assets for that day to the sum of the aggregate net assets of the Price Funds for that day. The Daily Price Funds' Group Fee Accrual for any particular day shall be calculated by multiplying the fraction of one (1) over the number of calendar days in the year by the annualized Daily Price Funds' Group Fee Accrual for that day as determined in accordance with the following schedule: Price Funds Annual Group Base Fee Rate for Each Level of Assets ______________________________________ 0.480% First $1 billion 0.450% Next $1 billion 0.420% Next $1 billion 0.390% Next $1 billion 0.370% Next $1 billion 0.360% Next $2 billion 0.350% Next $2 billion 0.330% Next $5 billion 0.340% Next $10 billion 0.320% Thereafter The Price Funds shall include all the mutual funds distributed by T. Rowe Price Investment Services, Inc. (except for any institutional or private label mutual funds). For the purposes of calculating the Daily Price Funds' Group Fee Accrual for any particular day, the net assets of each Price Fund shall be determined in accordance with the prospectus, on behalf of the Fund, as of the close of business on the previous business day on which the Fund was open for business. B. Fund Fee. The monthly Fund Fee ("Monthly Fund Fee") shall be the sum of the daily Fund Fee accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any particular day will be computed by multiplying the fraction of one (1) over the number of calendar days in the year by the Fund Fee Rate of .50% and multiplying this product by the net assets of the Fund for that day, as determined in accordance with the Corporation's prospectus as of the close of business on the previous business day on which the Fund was open for business. C. Expense Limitation. To the extent that the aggregate expenses of every character incurred by the Fund in any fiscal year, including but not limited to fees of the Manager computed as hereinabove set forth, but excluding interest, taxes, brokerage, and other expenditures which are capitalized in accordance with generally accepted accounting principles and extraordinary expenses, shall exceed the limit ("State Expense Limit") prescribed by any state in which the Fund's Shares are qualified for sale, such excess amount shall be the liability of the Manager to pay in the manner specified below. To determine the Manager's liability for the Fund's expenses, the expenses of the Fund shall be annualized monthly as of the last PAGE 6 day of the month. If the annualized expenses for any month exceed the State Expense Limit, the payment of the Fee for such month (if there be any) shall be reduced by such excess ("Excess Amount") and in the event the Excess Amount exceeds the amount due as the Fee, the Manager shall remit to the Fund the difference between the Excess Amount and the amount due as the Fee; provided, however, that an adjustment shall be made on or before the last day of the first month of the next succeeding fiscal year if the aggregate expenses for the fiscal year do not exceed the State Expense Limit. However, as part of the consideration for the Fund's entering into this Agreement, the Manager hereby agrees that through December 31, 1991, the expense limit will be 1.75% of the average daily net assets of the Fund ("1.75% Expense Limitation"); provided, however, that (1) any amount paid or assumed by the Manager pursuant to the 1.75% Expense Limitation (but not over any State Expense Limit) shall be reimbursed by the Fund to the Manager after December 31, 1991 (such reimbursement period being referred to as the "Original Reimbursement Period"); (2) no such reimbursement, with respect to such Original Reimbursement Period shall be made to the Manager after December 31, 1993; and (3) such reimbursement shall only be made to the extent that it does not result in the Fund's aggregate expenses exceeding an expense limit of 1.75%. The Manager may voluntarily agree to an additional expense limitation (any such additional expense limitation hereinafter referred to as an "Additional Expense Limitation"), for the same or a different period of time beyond December 31, 1991 (any such additional period being hereinafter referred to as an "Additional Period") provided, however, that: (1) any amount paid or assumed by the Manager pursuant to an Additional Expense Limitation (but in no case over any State Expense Limit) shall be reimbursed by the Fund to the Manager after the last day of the Additional Period (such additional reimbursement period being hereinafter referred to as an "Additional Reimbursement Period"); (2) no reimbursement for an Additional Reimbursement Period shall be made to the Manager more than two years after the end of an Additional Period; and (3) reimbursement for an Additional Reimbursement Period shall only be made to the extent that it does not result in the Fund's aggregate expenses exceeding the Additional Expense Limitation applicable to such Additional Reimbursement Period. D. Proration of Fee. If this Agreement becomes effective or terminates before the end of any month, the Fee for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 4. Brokerage. Subject to the approval of the board of directors, the Manager, in carrying out its duties under Paragraph 1.A., may cause the Corporation, with respect to the Fund, to pay a broker-dealer which furnishes brokerage or research services [as such services are defined under Section 28(e) of the Securities Exchange Act of 1934, as amended (the "'34 Act")] a higher commission than that which might be charged by another broker-dealer 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-dealer, viewed in terms of either that particular transaction or the overall responsibilities of the Manager with respect to the accounts as to which it exercises investment discretion (as such term is defined under Section 3(a)(35) of the '34 Act). PAGE 7 5. Manager's Use of the Services of Others. The Manager may (at its cost except as contemplated by Paragraph 4 of this Agreement) employ, retain or otherwise avail itself of the services or facilities of other persons or organizations for the purpose of providing the Manager or the Corporation or Fund, as appropriate, with such statistical and other factual information, such advice regarding economic factors and trends, such advice as to occasional transactions in specific securities or such other information, advice or assistance as the Manager may deem necessary, appropriate or convenient for the discharge of its obligations hereunder or otherwise helpful to the Corporation or Fund, as appropriate, or in the discharge of Manager's overall responsibilities with respect to the other accounts which it serves as investment manager. 6. Ownership of Records. All records required to be maintained and preserved by the Corporation or Fund pursuant to the provisions of rules or regulations of the Securities and Exchange Commission under Section 31(a) of the Act and maintained and preserved by the Manager on behalf of the Corporation or Fund, as appropriate, are the property of the Corporation or Fund, as appropriate, and will be surrendered by the Manager promptly on request by the Corporation or Fund, as appropriate. 7. Reports to Manager. The Corporation or Fund, as appropriate, shall furnish or otherwise make available to the Manager such prospectuses, financial statements, proxy statements, reports, and other information relating to the business and affairs of the Corporation or Fund, as appropriate, as the Manager may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement. 8. Services to Other Clients. Nothing herein contained shall limit the freedom of the Manager or any affiliated person of the Manager to render investment supervisory and corporate administrative services to other investment companies, to act as investment manager or investment counselor to other persons, firms or corporations, or to engage in other business activities; but so long as this Agreement or any extension, renewal or amendment hereof shall remain in effect or until the Manager shall otherwise consent, the Manager shall be the only investment manager to the Fund. 9. Limitation of Liability of Manager. Neither the Manager nor any of its officers, directors, or employees, nor any person performing executive, administrative, trading, or other functions for the Corporation or Fund (at the direction or request of the Manager) or the Manager in connection with the Manager's discharge of its obligations undertaken or reasonably assumed with respect to this Agreement, shall be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or Fund in connection with the matters to which this Agreement relates, except for loss resulting from willful misfeasance, bad faith, or gross negligence in the performance of its or his duties on behalf of the Corporation or Fund or from reckless disregard by the Manager or any such person of the duties of the Manager under this Agreement. 10. Use of Manager's Name. The Corporation or Fund may use the name "T. Rowe Price International Funds, Inc." or any other name derived from the name "T. Rowe Price" only for so long as this Agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the PAGE 8 Manager as investment manager. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, the Corporation or Fund will (by corporate action, if necessary) cease to use any name derived from the name "T. Rowe Price," any name similar thereto or any other name indicating that it is advised by or otherwise connected with the Manager, or with any organization which shall have succeeded to the Manager's business as investment manager. 11. Term of Agreement. The term of this Agreement shall begin on the date first above written, and unless sooner terminated as hereinafter provided, this Agreement shall remain in effect through April 30, 1991. Thereafter, this Agreement shall continue in effect from year to year, with respect to the Fund, subject to the termination provisions and all other terms and conditions hereof, so long as such continuation shall be specifically approved at least annually (a) by either the board of directors of the Corporation, or by vote of a majority of the outstanding voting securities of the Fund; (b) in either event by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the directors of the Corporation, with respect to the Fund, who are not parties to this Agreement or interested persons of any such party; and (c) the Manager shall not have notified the Corporation, in writing, at least 60 days prior to April 30, 1991 or prior to April 30th of any year thereafter, that it does not desire such continuation. The Manager shall furnish to the Corporation, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal or amendment hereof. 12. Amendment and Assignment of Agreement. This Agreement may not be amended or assigned without the affirmative vote of a majority of the outstanding voting securities of the Fund, and this Agreement shall automatically and immediately terminate in the event of its assignment. 13. Termination of Agreement. This Agreement may be terminated by either party hereto, without the payment of any penalty, upon 60 days' prior notice in writing to the other party; provided, that in the case of termination by the Corporation, with respect to the Fund, such action shall have been authorized by resolution of a majority of the directors who are not parties to this Agreement or interested persons of any such party, or by vote of a majority of the outstanding voting securities of the Fund. 14. Miscellaneous. A. Captions. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. B. Interpretation. Nothing herein contained shall be deemed to require the Corporation to take any action contrary to its Articles of Incorporation or By-Laws, or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the board of directors of the Corporation of its responsibility for and control of the conduct of the affairs of the Fund. C. Definitions. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Act shall be resolved by reference to such term or provision of the Act and to interpretations thereof, if any, by the PAGE 9 United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission validly issued pursuant to the Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested person," "assignment," and "affiliated person," as used in Paragraphs 2, 8, 11, 12, and 13 hereof, shall have the meanings assigned to them by Section 2(a) of the Act. In addition, where the effect of a requirement of the Act reflected in any provision of this Agreement is relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective seals to be hereunto affixed, as of the day and year first above written. Attest: T. ROWE PRICE INTERNATIONAL FUNDS, INC. By: ______________________________ ___________________________________ Secretary Attest: ROWE PRICE-FLEMING INTERNATIONAL, INC. By: _______________________________ ___________________________________ Assistant Secretary EX-99.B5E-MGTAGMT 8 PAGE 1 INVESTMENT MANAGEMENT AGREEMENT Between T. ROWE PRICE INTERNATIONAL FUNDS, INC. and ROWE PRICE-FLEMING INTERNATIONAL, INC. INVESTMENT MANAGEMENT AGREEMENT, made as of the 1st day of May, 1991, by and between T. ROWE PRICE INTERNATIONAL FUNDS, INC., a Maryland corporation (the "Corporation"), and ROWE PRICE-FLEMING INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Maryland (hereinafter called the "Manager"). W I T N E S S E T H: WHEREAS, the Corporation is engaged in business as an open-end management investment company and is registered as such under the federal Investment Company Act of 1940, as amended (the "Act"); and WHEREAS, the Corporation is authorized to issue shares of capital stock ("Shares") in the T. Rowe Price New Asia Fund (the "Fund"), a separate series of the Corporation whose Shares represent interests in a separate portfolio of securities and other assets ("Fund Shares"); and WHEREAS, the Manager is engaged principally in the business of rendering investment supervisory services and is registered as an investment adviser under the federal Investment Advisers Act of 1940, as amended; and WHEREAS, the Fund desires the Manager to render investment supervisory services to the Fund in the manner and on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. Duties and Responsibilities of Manager. A. Investment Advisory Services. The Manager shall act as investment manager and shall supervise and direct the investments of the Fund in accordance with the Fund's investment objective, program and restrictions as provided in the Corporation's prospectus, on behalf of the Fund, as amended from time to time, and such other limitations as the Corporation may impose by notice in writing to the Manager. The Manager shall obtain and evaluate such information relating to the economy, industries, businesses, securities markets and securities as it may deem necessary or useful in the discharge of its obligations hereunder and shall formulate and implement a continuing PAGE 2 program for the management of the assets and resources of the Fund in a manner consistent with its investment objective. In furtherance of this duty, the Manager, as agent and attorney-in-fact with respect to the Corporation, is authorized, in its discretion and without prior consultation with the Corporation, to: (i) buy, sell, exchange, convert, lend, and otherwise trade in any stocks, bonds, and other securities or assets; and (ii) directly or through the trading desks of T. Rowe Price Associates, Inc. ("Price Associates"), Robert Fleming Holdings Limited ("Holdings") and their affiliates place orders and negotiate the commissions (if any) for the execution of transactions in securities with or through such brokers, dealers, underwriters or issuers as the Manager may select. B. Financial, Accounting, and Administrative Services. The Manager shall maintain the existence and records of the Corporation; maintain the registrations and qualifications of Fund Shares under federal and state law; monitor the financial, accounting, and administrative functions of the Fund; maintain liaison with the various agents employed for the benefit of the Fund by the Corporation (including the Corporation's transfer agent, custodian, independent accountants and legal counsel) and assist in the coordination of their activities on behalf of the Fund. C. Reports to Fund. The Manager shall furnish to or place at the disposal of the Corporation or Fund, as appropriate, such information, reports, evaluations, analyses and opinions as they may, at any time or from time to time, reasonably request or as the Manager may deem helpful. D. Reports and Other Communications to Shareholders. The Manager shall assist in developing all general shareholder communications, including regular shareholder reports. E. Fund Personnel. The Manager agrees to permit individuals who are officers or employees of the Manager to serve (if duly elected or appointed) as officers, directors, members of any committee of directors, members of any advisory board, or members of any other committee of the Corporation, without remuneration or other cost to the Fund or the Corporation. F. Personnel, Office Space, and Facilities of Manager. The Manager at its own expense shall furnish or provide and pay the cost of such office space, office equipment, office personnel, and office services as the Manager requires in the performance of its investment advisory and other obligations under this Agreement. 2. Allocation of Expenses. A. Expenses Paid by Manager. (1) Salaries and Fees of Officers. The Manager shall pay all salaries, expenses, and fees of the officers and directors of the Corporation who are affiliated with the Manager. PAGE 3 (2) Assumption of Expenses by Manager. The payment or assumption by the Manager of any expense of the Corporation or Fund, as appropriate, that the Manager is not required by this Agreement to pay or assume shall not obligate the Manager to pay or assume the same or any similar expense on any subsequent occasion. B. Expenses Paid by Fund. The Corporation or Fund, as appropriate, shall bear all expenses of its organization, operations, and business not specifically assumed or agreed to be paid by the Manager as provided in this Agreement. In particular, but without limiting the generality of the foregoing, the Corporation or Fund, as appropriate, shall pay: (1) Custody and Accounting Services. All expenses of the transfer, receipt, safekeeping, servicing and accounting for the cash, securities, and other property of the Corporation, for the benefit of the Fund, including all charges of depositories, custodians, and other agents, if any; (2) Shareholder Servicing. All expenses of maintaining and servicing shareholder accounts, including all charges for transfer, shareholder recordkeeping, dividend disbursing, redemption, and other agents for the benefit of the Fund, if any; (3) Shareholder Communications. All expenses of preparing, setting in type, printing, and distributing reports and other communications to shareholders; (4) Shareholder Meetings. All expenses incidental to holding meetings of shareholders, including the printing of notices and proxy material, and proxy solicitation therefor; (5) Prospectuses. All expenses of preparing, setting in type, and printing of annual or more frequent revisions of the prospectus and of mailing them to shareholders; (6) Pricing. All expenses of computing the Fund's net asset value per share, including the cost of any equipment or services used for obtaining price quotations; (7) Communication Equipment. All charges for equipment or services used for communication between the Manager or the Corporation or Fund and the custodian, transfer agent or any other agent selected by the Corporation; (8) Legal and Accounting Fees and Expenses. All charges for services and expenses of the Corporation's legal counsel and independent auditors for the benefit of the Fund; (9) Directors' Fees and Expenses. All compensation of directors, other than those affiliated with the Manager, and all expenses incurred in connection with their service; PAGE 4 (10) Federal Registration Fees. All fees and expenses of registering and maintaining the registration of the Corporation under the Act and the registration of Fund Shares under the Securities Act of 1933, as amended (the "'33 Act"), including all fees and expenses incurred in connection with the preparation, setting in type, printing, and filing of any registration statement and prospectus under the '33 Act or the Act, and any amendments or supplements that may be made from time to time; (11) State Registration Fees. All fees and expenses of qualifying and maintaining qualification of the Corporation or Fund, as appropriate, and of Fund Shares for sale under securities laws of various states or jurisdictions, and of registration and qualification of the Corporation or Fund, as appropriate, under all other laws applicable to the Corporation or Fund, as appropriate, or its business activities (including registering the Corporation as a broker-dealer, or any officer of the Corporation or any person as agent or salesman of the Corporation in any state); (12) Issue and Redemption of Fund Shares. All expenses incurred in connection with the issue, redemption, and transfer of Fund Shares, including the expense of confirming all Fund Share transactions, and of preparing and transmitting the Fund's stock certificates; (13) Bonding and Insurance. All expenses of bond, liability, and other insurance coverage required by law or deemed advisable by the board of directors; (14) Brokerage Commissions. All brokers' commissions and other charges incident to the purchase, sale, or lending of the Fund's portfolio securities; (15) Taxes. All taxes or governmental fees payable by or with respect of the Corporation or Fund, as appropriate, to federal, state, or other governmental agencies, domestic or foreign, including stamp or other transfer taxes; (16) Trade Association Fees. All fees, dues, and other expenses incurred in connection with the Corporation's or Fund's, as appropriate, membership in any trade association or other investment organization; and (17) Nonrecurring and Extraordinary Expenses. Such nonrecurring expenses as may arise, including the costs of actions, suits, or proceedings to which the Corporation or Fund, as appropriate, is a party and the expenses the Corporation or Fund, as appropriate, may incur as a result of its legal obligation to provide indemnification to its officers, directors, and agents. 3. Management Fee. The Fund shall pay the Manager a fee ("Fee") which will consist of two components: a Group Management Fee ("Group Fee"), PAGE 5 and an Individual Fund Fee ("Fund Fee"). The Fee shall be paid monthly to the Manager on the first business day of the next succeeding calendar month and shall be calculated as follows: A. Group Fee. The monthly Group Fee ("Monthly Group Fee") shall be the sum of the daily Group Fee accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee Accrual for any particular day will be computed by multiplying the Price Funds' group fee accrual as determined below ("Daily Price Funds' Group Fee Accrual") by the ratio of the Fund's net assets for that day to the sum of the aggregate net assets of the Price Funds for that day. The Daily Price Funds' Group Fee Accrual for any particular day shall be calculated by multiplying the fraction of one (1) over the number of calendar days in the year by the annualized Daily Price Funds' Group Fee Accrual for that day as determined in accordance with the following schedule: Price Funds' Annual Group Base Fee Rate for Each Level of Assets ______________________________________ 0.480% First $1 billion 0.450% Next $1 billion 0.420% Next $1 billion 0.390% Next $1 billion 0.370% Next $1 billion 0.360% Next $2 billion 0.350% Next $2 billion 0.340% Next $5 billion 0.330% Next $10 billion 0.320% Thereafter The Price Funds shall include all the mutual funds distributed by T. Rowe Price Investment Services, Inc., excluding any institutional or private label mutual funds. For the purpose of calculating the Daily Price Funds' Group Fee Accrual for any particular day, the net assets of each Price Fund shall be determined in accordance with the prospectus, on behalf of the Fund, as of the close of business on the previous business day on which the Fund was open for business. B. Fund Fee. The monthly Fund Fee ("Monthly Fund Fee") shall be the sum of the daily Fund Fee accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any particular day will be computed by multiplying the fraction of one (1) over the number of calendar days in the year by the Fund Fee Rate of .50% and multiplying this product by the net assets of the Fund for that day, as determined in accordance with the Corporation's prospectus as of the close of business on the previous business day on which the Fund was open for business. C. Expense Limitation. To the extent that the aggregate expenses of every character incurred by the Fund in any fiscal year, including but not limited to fees of the Manager computed as hereinabove set forth, but excluding interest, taxes, brokerage, and other expenditures which are capitalized in accordance with generally accepted accounting principles and extraordinary expenses, shall exceed the limit ("State Expense Limit") prescribed by any state in which the Fund's Shares are qualified for sale, such excess amount shall be the liability of the Manager to pay in the manner specified below. To determine the Manager's liability for the Fund's expenses, the expenses of the Fund shall be annualized monthly as of the last PAGE 6 day of the month. If the annualized expenses for any month exceed the State Expense Limit, the payment of the Fee for such month (if there be any) shall be reduced by such excess ("Excess Amount") and in the event the Excess Amount exceeds the amount due as the Fee, the Manager shall remit to the Fund the difference between the Excess Amount and the amount due as the Fee; provided, however, that an adjustment shall be made on or before the last day of the first month of the next succeeding fiscal year if the aggregate expenses for the fiscal year do not exceed the State Expense Limit. However, as part of the consideration for the Fund's entering into this Agreement, the Manager hereby agrees that through December 31, 1992, the expense limit will be 1.75% of the average daily net assets of the Fund ("1.75% Expense Limitation"); provided, however, that (1) any amount paid or assumed by the Manager pursuant to the 1.75% Expense Limitation (but not over any State Expense Limit) shall be reimbursed by the Fund to the Manager after December 31, 1992 (such reimbursement period being referred to as the "Original Reimbursement Period"); (2) no such reimbursement, with respect to such Original Reimbursement Period shall be made to the Manager after December 31, 1994; and (3) such reimbursement shall only be made to the extent that it does not result in the Fund's aggregate expenses exceeding an expense limit of 1.75%. The Manager may voluntarily agree to an additional expense limitation (any such additional expense limitation hereinafter referred to as an "Additional Expense Limitation"), for the same or a different period of time beyond December 31, 1992 (any such additional period being hereinafter referred to as an "Additional Period") provided, however, that: (1) any amount paid or assumed by the Manager pursuant to an Additional Expense Limitation (but in no case over any State Expense Limit) shall be reimbursed by the Fund to the Manager after the last day of the Additional Period (such additional reimbursement period being hereinafter referred to as an "Additional Reimbursement Period"); (2) no reimbursement for an Additional Reimbursement Period shall be made to the Manager more than two years after the end of an Additional Period; and (3) reimbursement for an Additional Reimbursement Period shall only be made to the extent that it does not result in the Fund's aggregate expenses exceeding the Additional Expense Limitation applicable to such Additional Reimbursement Period. D. Proration of Fee. If this Agreement becomes effective or terminates before the end of any month, the Fee for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 4. Brokerage. Subject to the approval of the board of directors, the Manager, in carrying out its duties under Paragraph 1.A., may cause the Corporation, with respect to the Fund, to pay a broker-dealer which furnishes brokerage or research services [as such services are defined under Section 28(e) of the Securities Exchange Act of 1934, as amended (the "'34 Act")] a higher commission than that which might be charged by another broker-dealer 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-dealer, viewed in terms of either that particular transaction or the overall responsibilities of the Manager with respect to the accounts as to which it exercises investment discretion (as such term is defined under Section 3(a)(35) of the '34 Act). PAGE 7 5. Manager's Use of the Services of Others. The Manager may (at its cost except as contemplated by Paragraph 4 of this Agreement) employ, retain or otherwise avail itself of the services or facilities of other persons or organizations for the purpose of providing the Manager or the Corporation or Fund, as appropriate, with such statistical and other factual information, such advice regarding economic factors and trends, such advice as to occasional transactions in specific securities or such other information, advice or assistance as the Manager may deem necessary, appropriate or convenient for the discharge of its obligations hereunder or otherwise helpful to the Corporation or Fund, as appropriate, or in the discharge of Manager's overall responsibilities with respect to the other accounts which it serves as investment manager. 6. Ownership of Records. All records required to be maintained and preserved by the Corporation or Fund pursuant to the provisions of rules or regulations of the Securities and Exchange Commission under Section 31(a) of the Act and maintained and preserved by the Manager on behalf of the Corporation or Fund, as appropriate, are the property of the Corporation or Fund, as appropriate, and will be surrendered by the Manager promptly on request by the Corporation or Fund, as appropriate. 7. Reports to Manager. The Corporation or Fund, as appropriate, shall furnish or otherwise make available to the Manager such prospectuses, financial statements, proxy statements, reports, and other information relating to the business and affairs of the Corporation or Fund, as appropriate, as the Manager may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement. 8. Services to Other Clients. Nothing herein contained shall limit the freedom of the Manager or any affiliated person of the Manager to render investment supervisory and corporate administrative services to other investment companies, to act as investment manager or investment counselor to other persons, firms or corporations, or to engage in other business activities; but so long as this Agreement or any extension, renewal or amendment hereof shall remain in effect or until the Manager shall otherwise consent, the Manager shall be the only investment manager to the Fund. 9. Limitation of Liability of Manager. Neither the Manager nor any of its officers, directors, or employees, nor any person performing executive, administrative, trading, or other functions for the Corporation or Fund (at the direction or request of the Manager) or the Manager in connection with the Manager's discharge of its obligations undertaken or reasonably assumed with respect to this Agreement, shall be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or Fund in connection with the matters to which this Agreement relates, except for loss resulting from willful misfeasance, bad faith, or gross negligence in the performance of its or his duties on behalf of the Corporation or Fund or from reckless disregard by the Manager or any such person of the duties of the Manager under this Agreement. 10. Use of Manager's Name. The Corporation or Fund may use the name "T. Rowe Price International Funds, Inc." or any other name derived from the name "T. Rowe Price" only for so long as this Agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the PAGE 8 Manager as investment manager. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, the Corporation or Fund will (by corporate action, if necessary) cease to use any name derived from the name "T. Rowe Price," any name similar thereto or any other name indicating that it is advised by or otherwise connected with the Manager, or with any organization which shall have succeeded to the Manager's business as investment manager. 11. Term of Agreement. The term of this Agreement shall begin on the date first above written, and unless sooner terminated as hereinafter provided, this Agreement shall remain in effect through April 30, 1992. Thereafter, this Agreement shall continue in effect from year to year, with respect to the Fund, subject to the termination provisions and all other terms and conditions hereof, so long as such continuation shall be specifically approved at least annually (a) by either the board of directors of the Corporation, or by vote of a majority of the outstanding voting securities of the Fund; (b) in either event by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the directors of the Corporation, with respect to the Fund, who are not parties to this Agreement or interested persons of any such party; and (c) the Manager shall not have notified the Corporation, in writing, at least 60 days prior to April 30, 1992 or prior to April 30th of any year thereafter, that it does not desire such continuation. The Manager shall furnish to the Corporation, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal or amendment hereof. 12. Amendment and Assignment of Agreement. This Agreement may not be amended or assigned without the affirmative vote of a majority of the outstanding voting securities of the Fund, and this Agreement shall automatically and immediately terminate in the event of its assignment. 13. Termination of Agreement. This Agreement may be terminated by either party hereto, without the payment of any penalty, upon 60 days' prior notice in writing to the other party; provided, that in the case of termination by the Corporation, with respect to the Fund, such action shall have been authorized by resolution of a majority of the directors who are not parties to this Agreement or interested persons of any such party, or by vote of a majority of the outstanding voting securities of the Fund. 14. Miscellaneous. A. Captions. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. B. Interpretation. Nothing herein contained shall be deemed to require the Corporation to take any action contrary to its Articles of Incorporation or By-Laws, or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the board of directors of the Corporation of its responsibility for and control of the conduct of the affairs of the Fund. C. Definitions. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Act shall be resolved by reference to such PAGE 9 term or provision of the Act and to interpretations thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission validly issued pursuant to the Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested person," "assignment," and "affiliated person," as used in Paragraphs 2, 8, 9, 11, 12, and 13 hereof, shall have the meanings assigned to them by Section 2(a) of the Act. In addition, where the effect of a requirement of the Act reflected in any provision of this Agreement is relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective seals to be hereunto affixed, as of the day and year first above written. Attest: T. ROWE PRICE INTERNATIONAL FUNDS, INC. By: ______________________________ _____________________________________ Secretary Attest: ROWE PRICE-FLEMING INTERNATIONAL, INC. By: _______________________________ _____________________________________ Assistant Secretary EX-99.B5F-MGTAGMT 9 PAGE 1 INVESTMENT MANAGEMENT AGREEMENT Between T. ROWE PRICE INTERNATIONAL FUNDS, INC. and ROWE PRICE-FLEMING INTERNATIONAL, INC. INVESTMENT MANAGEMENT AGREEMENT, made as of the 1st day of May, 1992, by and between T. ROWE PRICE INTERNATIONAL FUNDS, INC., a Maryland corporation (the "Corporation"), and ROWE PRICE-FLEMING INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Maryland (hereinafter called the "Manager"). W I T N E S S E T H: WHEREAS, the Corporation is engaged in business as an open-end management investment company and is registered as such under the federal Investment Company Act of 1940, as amended (the "Act"); and WHEREAS, the Corporation is authorized to issue shares of capital stock ("Shares") in the T. Rowe Price Global Government Bond Fund (the "Fund"), a separate series of the Corporation whose Shares represent interests in a separate portfolio of securities and other assets ("Fund Shares"); and WHEREAS, the Manager is engaged principally in the business of rendering investment supervisory services and is registered as an investment adviser under the federal Investment Advisers Act of 1940, as amended; and WHEREAS, the Fund desires the Manager to render investment supervisory services to the Fund in the manner and on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. Duties and Responsibilities of Manager. A. Investment Advisory Services. The Manager shall act as investment manager and shall supervise and direct the investments of the Fund in accordance with the Fund's investment objectives, program and restrictions as provided in the Corporation's prospectus, on behalf of the Fund, as amended from time to time, and such other limitations as the Corporation may impose by notice in writing to the Manager. The Manager shall obtain and evaluate such information relating to the economy, industries, businesses, securities markets and securities as it may deem necessary or useful in the discharge of its obligations hereunder and shall formulate and implement a continuing PAGE 2 program for the management of the assets and resources of the Fund in a manner consistent with its investment objectives. In furtherance of this duty, the Manager, as agent and attorney-in-fact with respect to the Corporation, is authorized, in its discretion and without prior consultation with the Corporation, to: (i) buy, sell, exchange, convert, lend, and otherwise trade in any stocks, bonds, and other securities or assets; and (ii) directly or through the trading desks of T. Rowe Price Associates, Inc. ("Price Associates"), Robert Fleming Holdings Limited ("Holdings") and their affiliates place orders and negotiate the commissions (if any) for the execution of transactions in securities with or through such brokers, dealers, underwriters or issuers as the Manager may select. B. Financial, Accounting, and Administrative Services. The Manager shall maintain the existence and records of the Corporation; maintain the registrations and qualifications of Fund Shares under federal and state law; monitor the financial, accounting, and administrative functions of the Fund; maintain liaison with the various agents employed for the benefit of the Fund by the Corporation (including the Corporation's transfer agent, custodian, independent accountants and legal counsel) and assist in the coordination of their activities on behalf of the Fund. C. Reports to Fund. The Manager shall furnish to or place at the disposal of the Corporation or Fund, as appropriate, such information, reports, evaluations, analyses and opinions as they may, at any time or from time to time, reasonably request or as the Manager may deem helpful. D. Reports and Other Communications to Shareholders. The Manager shall assist in developing all general shareholder communications, including regular shareholder reports. E. Fund Personnel. The Manager agrees to permit individuals who are officers or employees of the Manager to serve (if duly elected or appointed) as officers, directors, members of any committee of directors, members of any advisory board, or members of any other committee of the Corporation, without remuneration or other cost to the Fund or the Corporation. F. Personnel, Office Space, and Facilities of Manager. The Manager at its own expense shall furnish or provide and pay the cost of such office space, office equipment, office personnel, and office services as the Manager requires in the performance of its investment advisory and other obligations under this Agreement. 2. Allocation of Expenses. A. Expenses Paid by Manager. (1) Salaries and Fees of Officers. The Manager shall pay all salaries, expenses, and fees of the officers and directors of the Corporation who are affiliated with the Manager. PAGE 3 (2) Assumption of Expenses by Manager. The payment or assumption by the Manager of any expense of the Corporation or Fund, as appropriate, that the Manager is not required by this Agreement to pay or assume shall not obligate the Manager to pay or assume the same or any similar expense on any subsequent occasion. B. Expenses Paid by Fund. The Corporation or Fund, as appropriate, shall bear all expenses of its organization, operations, and business not specifically assumed or agreed to be paid by the Manager as provided in this Agreement. In particular, but without limiting the generality of the foregoing, the Corporation or Fund, as appropriate, shall pay: (1) Custody and Accounting Services. All expenses of the transfer, receipt, safekeeping, servicing and accounting for the cash, securities, and other property of the Corporation, for the benefit of the Fund, including all charges of depositories, custodians, and other agents, if any; (2) Shareholder Servicing. All expenses of maintaining and servicing shareholder accounts, including all charges for transfer, shareholder recordkeeping, dividend disbursing, redemption, and other agents for the benefit of the Fund, if any; (3) Shareholder Communications. All expenses of preparing, setting in type, printing, and distributing reports and other communications to shareholders; (4) Shareholder Meetings. All expenses incidental to holding meetings of shareholders, including the printing of notices and proxy material, and proxy solicitation therefor; (5) Prospectuses. All expenses of preparing, setting in type, and printing of annual or more frequent revisions of the prospectus and of mailing them to shareholders; (6) Pricing. All expenses of computing the Fund's net asset value per share, including the cost of any equipment or services used for obtaining price quotations; (7) Communication Equipment. All charges for equipment or services used for communication between the Manager or the Corporation or Fund and the custodian, transfer agent or any other agent selected by the Corporation; (8) Legal and Accounting Fees and Expenses. All charges for services and expenses of the Corporation's legal counsel and independent auditors for the benefit of the Fund; (9) Directors' Fees and Expenses. All compensation of directors, other than those affiliated with the Manager, and all expenses incurred in connection with their service; (10) Federal Registration Fees. All fees and expenses of registering and maintaining the registration of the Corporation under the Act and the registration of Fund Shares under the PAGE 4 Securities Act of 1933, as amended (the "'33 Act"), including all fees and expenses incurred in connection with the preparation, setting in type, printing, and filing of any registration statement and prospectus under the '33 Act or the Act, and any amendments or supplements that may be made from time to time; (11) State Registration Fees. All fees and expenses of qualifying and maintaining qualification of the Corporation or Fund, as appropriate, and of Fund Shares for sale under securities laws of various states or jurisdictions, and of registration and qualification of the Corporation or Fund, as appropriate, under all other laws applicable to the Corporation or Fund, as appropriate, or its business activities (including registering the Corporation as a broker-dealer, or any officer of the Corporation or any person as agent or salesman of the Corporation in any state); (12) Issue and Redemption of Fund Shares. All expenses incurred in connection with the issue, redemption, and transfer of Fund Shares, including the expense of confirming all Fund Share transactions, and of preparing and transmitting the Fund's stock certificates; (13) Bonding and Insurance. All expenses of bond, liability, and other insurance coverage required by law or deemed advisable by the board of directors; (14) Brokerage Commissions. All brokers' commissions and other charges incident to the purchase, sale, or lending of the Fund's portfolio securities; (15) Taxes. All taxes or governmental fees payable by or with respect of the Corporation or Fund, as appropriate, to federal, state, or other governmental agencies, domestic or foreign, including stamp or other transfer taxes; (16) Trade Association Fees. All fees, dues, and other expenses incurred in connection with the Corporation's or Fund's, as appropriate, membership in any trade association or other investment organization; and (17) Nonrecurring and Extraordinary Expenses. Such nonrecurring expenses as may arise, including the costs of actions, suits, or proceedings to which the Corporation or Fund, as appropriate, is a party and the expenses the Corporation or Fund, as appropriate, may incur as a result of its legal obligation to provide indemnification to its officers, directors, and agents. 3. Management Fee. The Fund shall pay the Manager a fee ("Fee") which will consist of two components: a Group Management Fee ("Group Fee"), and an Individual Fund Fee ("Fund Fee"). The Fee shall be paid monthly to the Manager on the first business day of the next succeeding calendar month and shall be calculated as follows: A. Group Fee. The monthly Group Fee ("Monthly Group Fee") shall be the sum of the daily Group Fee accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee Accrual for any particular day will be PAGE 5 computed by multiplying the Price Funds' group fee accrual as determined below ("Daily Price Funds' Group Fee Accrual") by the ratio of the Fund's net assets for that day to the sum of the aggregate net assets of the Price Funds for that day. The Daily Price Funds' Group Fee Accrual for any particular day shall be calculated by multiplying the fraction of one (1) over the number of calendar days in the year by the annualized Daily Price Funds' Group Fee Accrual for that day as determined in accordance with the following schedule: Price Funds' Annual Group Base Fee Rate for Each Level of Assets ______________________________________ 0.480% First $1 billion 0.450% Next $1 billion 0.420% Next $1 billion 0.390% Next $1 billion 0.370% Next $1 billion 0.360% Next $2 billion 0.350% Next $2 billion 0.340% Next $5 billion 0.330% Next $10 billion 0.320% Thereafter The Price Funds shall include all the mutual funds distributed by T. Rowe Price Investment Services, Inc., excluding T. Rowe Price Spectrum Fund, Inc., and any institutional or private label mutual funds. For the purpose of calculating the Daily Price Funds' Group Fee Accrual for any particular day, the net assets of each Price Fund shall be determined in accordance with the prospectus, on behalf of the Fund, as of the close of business on the previous business day on which the Fund was open for business. B. Fund Fee. The monthly Fund Fee ("Monthly Fund Fee") shall be the sum of the daily Fund Fee accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any particular day will be computed by multiplying the fraction of one (1) over the number of calendar days in the year by the Fund Fee Rate of .35% and multiplying this product by the net assets of the Fund for that day, as determined in accordance with the Corporation's prospectus as of the close of business on the previous business day on which the Fund was open for business. C. Expense Limitation. To the extent that the aggregate expenses of every character incurred by the Fund in any fiscal year, including but not limited to fees of the Manager computed as hereinabove set forth, but excluding interest, taxes, brokerage, and other expenditures which are capitalized in accordance with generally accepted accounting principles and extraordinary expenses, shall exceed the limit ("State Expense Limit") prescribed by any state in which the Fund's Shares are qualified for sale, such excess amount shall be the liability of the Manager to pay in the manner specified below. To determine the Manager's liability for the Fund's expenses, the expenses of the Fund shall be annualized monthly as of the last day of the month. If the annualized expenses for any month exceed the State Expense Limit, the payment of the Fee for such month (if there be any) shall be reduced by such excess ("Excess Amount") and in the event the Excess Amount exceeds the amount due as the Fee, the Manager shall remit to the Fund the difference between the Excess Amount and the amount due as the Fee; provided, however, that an adjustment shall be made on or before the last day of the PAGE 6 first month of the next succeeding fiscal year if the aggregate expenses for the fiscal year do not exceed the State Expense Limit. However, as part of the consideration for the Fund's entering into this Agreement, the Manager hereby agrees that through December 31, 1992, the expense limit will be 1.20% of the average daily net assets of the Fund ("1.20% Expense Limitation"); provided, however, that (1) any amount paid or assumed by the Manager pursuant to the 1.20% Expense Limitation (but not over any State Expense Limit) shall be reimbursed by the Fund to the Manager after December 31, 1992 (such reimbursement period being referred to as the "Original Reimbursement Period"); (2) no such reimbursement, with respect to such Original Reimbursement Period shall be made to the Manager after December 31, 1994; and (3) such reimbursement shall only be made to the extent that it does not result in the Fund's aggregate expenses exceeding an expense limit of 1.20%. The Manager may voluntarily agree to an additional expense limitation (any such additional expense limitation hereinafter referred to as an "Additional Expense Limitation"), for the same or a different period of time beyond December 31, 1992 (any such additional period being hereinafter referred to as an "Additional Period") provided, however, that: (1) any amount paid or assumed by the Manager pursuant to an Additional Expense Limitation (but in no case over any State Expense Limit) shall be reimbursed by the Fund to the Manager after the last day of the Additional Period (such additional reimbursement period being hereinafter referred to as an "Additional Reimbursement Period"); (2) no reimbursement for an Additional Reimbursement Period shall be made to the Manager more than two years after the end of an Additional Period; and (3) reimbursement for an Additional Reimbursement Period shall only be made to the extent that it does not result in the Fund's aggregate expenses exceeding the Additional Expense Limitation applicable to such Additional Reimbursement Period. D. Proration of Fee. If this Agreement becomes effective or terminates before the end of any month, the Fee for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 4. Brokerage. Subject to the approval of the board of directors, the Manager, in carrying out its duties under Paragraph 1.A., may cause the Corporation, with respect to the Fund, to pay a broker-dealer which furnishes brokerage or research services [as such services are defined under Section 28(e) of the Securities Exchange Act of 1934, as amended (the "'34 Act")] a higher commission than that which might be charged by another broker-dealer 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-dealer, viewed in terms of either that particular transaction or the overall responsibilities of the Manager with respect to the accounts as to which it exercises investment discretion (as such term is defined under Section 3(a)(35) of the '34 Act). 5. Manager's Use of the Services of Others. The Manager may (at its cost except as contemplated by Paragraph 4 of this Agreement) employ, retain or otherwise avail itself of the services or facilities of other persons or organizations for the purpose of providing the Manager or the Corporation or Fund, as appropriate, with such statistical and other factual information, PAGE 7 such advice regarding economic factors and trends, such advice as to occasional transactions in specific securities or such other information, advice or assistance as the Manager may deem necessary, appropriate or convenient for the discharge of its obligations hereunder or otherwise helpful to the Corporation or Fund, as appropriate, or in the discharge of Manager's overall responsibilities with respect to the other accounts which it serves as investment manager. 6. Ownership of Records. All records required to be maintained and preserved by the Corporation or Fund pursuant to the provisions of rules or regulations of the Securities and Exchange Commission under Section 31(a) of the Act and maintained and preserved by the Manager on behalf of the Corporation or Fund, as appropriate, are the property of the Corporation or Fund, as appropriate, and will be surrendered by the Manager promptly on request by the Corporation or Fund, as appropriate. 7. Reports to Manager. The Corporation or Fund, as appropriate, shall furnish or otherwise make available to the Manager such prospectuses, financial statements, proxy statements, reports, and other information relating to the business and affairs of the Corporation or Fund, as appropriate, as the Manager may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement. 8. Services to Other Clients. Nothing herein contained shall limit the freedom of the Manager or any affiliated person of the Manager to render investment supervisory and corporate administrative services to other investment companies, to act as investment manager or investment counselor to other persons, firms or corporations, or to engage in other business activities; but so long as this Agreement or any extension, renewal or amendment hereof shall remain in effect or until the Manager shall otherwise consent, the Manager shall be the only investment manager to the Fund. 9. Limitation of Liability of Manager. Neither the Manager nor any of its officers, directors, or employees, nor any person performing executive, administrative, trading, or other functions for the Corporation or Fund (at the direction or request of the Manager) or the Manager in connection with the Manager's discharge of its obligations undertaken or reasonably assumed with respect to this Agreement, shall be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or Fund in connection with the matters to which this Agreement relates, except for loss resulting from willful misfeasance, bad faith, or gross negligence in the performance of its or his duties on behalf of the Corporation or Fund or from reckless disregard by the Manager or any such person of the duties of the Manager under this Agreement. 10. Use of Manager's Name. The Corporation or Fund may use the name "T. Rowe Price International Funds, Inc." or any other name derived from the name "T. Rowe Price" only for so long as this Agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the Manager as investment manager. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, the Corporation or Fund will (by corporate action, if necessary) cease to use any name derived from the name "T. Rowe Price," any name similar thereto or any other name indicating that it is advised by or PAGE 8 otherwise connected with the Manager, or with any organization which shall have succeeded to the Manager's business as investment manager. 11. Term of Agreement. The term of this Agreement shall begin on the date first above written, and unless sooner terminated as hereinafter provided, this Agreement shall remain in effect through April 30, 1993. Thereafter, this Agreement shall continue in effect from year to year, with respect to the Fund, subject to the termination provisions and all other terms and conditions hereof, so long as such continuation shall be specifically approved at least annually (a) by either the board of directors of the Corporation, or by vote of a majority of the outstanding voting securities of the Fund; (b) in either event by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the directors of the Corporation, with respect to the Fund, who are not parties to this Agreement or interested persons of any such party; and (c) the Manager shall not have notified the Corporation, in writing, at least 60 days prior to April 30, 1993 or prior to April 30th of any year thereafter, that it does not desire such continuation. The Manager shall furnish to the Corporation, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal or amendment hereof. 12. Amendment and Assignment of Agreement. This Agreement may not be amended or assigned without the affirmative vote of a majority of the outstanding voting securities of the Fund, and this Agreement shall automatically and immediately terminate in the event of its assignment. 13. Termination of Agreement. This Agreement may be terminated by either party hereto, without the payment of any penalty, upon 60 days' prior notice in writing to the other party; provided, that in the case of termination by the Corporation, with respect to the Fund, such action shall have been authorized by resolution of a majority of the directors who are not parties to this Agreement or interested persons of any such party, or by vote of a majority of the outstanding voting securities of the Fund. 14. Miscellaneous. A. Captions. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. B. Interpretation. Nothing herein contained shall be deemed to require the Corporation to take any action contrary to its Articles of Incorporation or By-Laws, or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the board of directors of the Corporation of its responsibility for and control of the conduct of the affairs of the Fund. C. Definitions. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Act shall be resolved by reference to such term or provision of the Act and to interpretations thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission validly issued pursuant to the Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested person," PAGE 9 "assignment," and "affiliated person," as used in Paragraphs 2, 8, 9, 11, 12, and 13 hereof, shall have the meanings assigned to them by Section 2(a) of the Act. In addition, where the effect of a requirement of the Act reflected in any provision of this Agreement is relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective seals to be hereunto affixed, as of the day and year first above written. Attest: T. ROWE PRICE INTERNATIONAL FUNDS, INC. By: ___________________________ ________________________________ Secretary Attest: ROWE PRICE-FLEMING INTERNATIONAL, INC. By: ___________________________ _______________________________ Assistant Secretary EX-99.B5G-MGTAGMT 10 PAGE 1 INVESTMENT MANAGEMENT AGREEMENT Between T. ROWE PRICE INTERNATIONAL FUNDS, INC. and ROWE PRICE-FLEMING INTERNATIONAL, INC. INVESTMENT MANAGEMENT AGREEMENT, made as of the 6th day of November, 1991, by and between T. ROWE PRICE INTERNATIONAL FUNDS, INC., a Maryland corporation (the "Corporation"), and ROWE PRICE-FLEMING INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Maryland (hereinafter called the "Manager"). W I T N E S S E T H: WHEREAS, the Corporation is engaged in business as an open-end management investment company and is registered as such under the federal Investment Company Act of 1940, as amended (the "Act"); and WHEREAS, the Corporation is authorized to issue shares of capital stock ("Shares") in the T. Rowe Price Japan Fund (the "Fund"), a separate series of the Corporation whose Shares represent interests in a separate portfolio of securities and other assets ("Fund Shares"); and WHEREAS, the Manager is engaged principally in the business of rendering investment supervisory services and is registered as an investment adviser under the federal Investment Advisers Act of 1940, as amended; and WHEREAS, the Fund desires the Manager to render investment supervisory services to the Fund in the manner and on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. Duties and Responsibilities of Manager. A. Investment Management Services. The Manager shall act as investment manager and shall supervise and direct the investments of the Fund in accordance with the Fund's investment objective, program and restrictions as provided in the Corporation's prospectus, on behalf of the Fund, as amended from time to time, and such other limitations as the Corporation may impose by notice in writing to the Manager. The Manager shall obtain and evaluate such information relating to the economy, industries, businesses, securities markets and securities as it may deem necessary or useful in the discharge of its obligations hereunder and shall formulate and implement a continuing PAGE 2 program for the management of the assets and resources of the Fund in a manner consistent with its investment objective. In furtherance of this duty, the Manager, as agent and attorney-in-fact with respect to the Corporation, is authorized, in its discretion and without prior consultation with the Corporation, to: (i) buy, sell, exchange, convert, lend, and otherwise trade in any stocks, bonds, and other securities or assets; and (ii) directly or through the trading desks of T. Rowe Price Associates, Inc. ("Price Associates"), Robert Fleming Holdings Limited ("Holdings") and their affiliates place orders and negotiate the commissions (if any) for the execution of transactions in securities with or through such brokers, dealers, underwriters or issuers as the Manager may select. B. Financial, Accounting, and Administrative Services. The Manager shall maintain the existence and records of the Corporation; maintain the registrations and qualifications of Fund Shares under federal and state law; monitor the financial, accounting, and administrative functions of the Fund; maintain liaison with the various agents employed for the benefit of the Fund by the Corporation (including the Corporation's transfer agent, custodian, independent accountants and legal counsel) and assist in the coordination of their activities on behalf of the Fund. C. Reports to Fund. The Manager shall furnish to or place at the disposal of the Corporation or Fund, as appropriate, such information, reports, evaluations, analyses and opinions as they may, at any time or from time to time, reasonably request or as the Manager may deem helpful to the Fund. D. Reports and Other Communications to Shareholders. The Manager shall assist in developing all general shareholder communications, including regular shareholder reports. E. Fund Personnel. The Manager agrees to permit individuals who are officers or employees of the Manager to serve (if duly elected or appointed) as officers, directors, members of any committee of directors, members of any advisory board, or members of any other committee of the Corporation, without remuneration or other cost to the Fund or the Corporation. F. Personnel, Office Space, and Facilities of Manager. The Manager at its own expense shall furnish or provide and pay the cost of such office space, office equipment, office personnel, and office services as the Manager requires in the performance of its investment advisory and other obligations under this Agreement. 2. Allocation of Expenses. A. Expenses Paid by Manager. (1) Salaries and Fees of Officers. The Manager shall pay all salaries, expenses, and fees of the officers and directors of the Corporation who are affiliated with the Manager. PAGE 3 (2) Assumption of Expenses by Manager. The payment or assumption by the Manager of any expense of the Corporation or Fund, as appropriate, that the Manager is not required by this Agreement to pay or assume shall not obligate the Manager to pay or assume the same or any similar expense of the Corporation or Fund, as appropriate, on any subsequent occasion. B. Expenses Paid by Fund. The Corporation or Fund, as appropriate, shall bear all expenses of its organization, operations, and business not specifically assumed or agreed to be paid by the Manager as provided in this Agreement. In particular, but without limiting the generality of the foregoing, the Corporation or Fund, as appropriate, shall pay: (1) Custody and Accounting Services. All expenses of the transfer, receipt, safekeeping, servicing and accounting for the cash, securities, and other property of the Corporation, for the benefit of the Fund, including all charges of depositories, custodians, and other agents, if any; (2) Shareholder Servicing. All expenses of maintaining and servicing shareholder accounts, including all charges for transfer, shareholder recordkeeping, dividend disbursing, redemption, and other agents for the benefit of the Fund, if any; (3) Shareholder Communications. All expenses of preparing, setting in type, printing, and distributing reports and other communications to shareholders; (4) Shareholder Meetings. All expenses incidental to holding meetings of Fund shareholders, including the printing of notices and proxy material, and proxy solicitation therefor; (5) Prospectuses. All expenses of preparing, setting in type, and printing of annual or more frequent revisions of the Fund's prospectus and of mailing them to shareholders; (6) Pricing. All expenses of computing the Fund's net asset value per share, including the cost of any equipment or services used for obtaining price quotations; (7) Communication Equipment. All charges for equipment or services used for communication between the Manager or the Corporation or Fund and the custodian, transfer agent or any other agent selected by the Corporation; (8) Legal and Accounting Fees and Expenses. All charges for services and expenses of the Corporation's legal counsel and independent auditors for the benefit of the Fund; (9) Directors' Fees and Expenses. All compensation of directors, other than those affiliated with the Manager, and all expenses incurred in connection with their service; (10) Federal Registration Fees. All fees and expenses of registering and maintaining the registration of the Corporation PAGE 4 under the Act and the registration of the Fund's shares under the Securities Act of 1933, as amended (the "'33 Act"), including all fees and expenses incurred in connection with the preparation, setting in type, printing, and filing of any registration statement and prospectus under the '33 Act or the Act, and any amendments or supplements that may be made from time to time; (11) State Registration Fees. All fees and expenses of qualifying and maintaining qualification of the Corporation or Fund, as appropriate, and of the Fund shares for sale under securities laws of various states or jurisdictions, and of registration and qualification of the Corporation or Fund, as appropriate, under all other laws applicable to the Corporation or Fund, as appropriate, or its business activities (including registering the Corporation as a broker-dealer, or any officer of the Corporation or any person as agent or salesman of the Corporation in any state); (12) Issue and Redemption of Fund Shares. All expenses incurred in connection with the issue, redemption, and transfer of the Fund's shares, including the expense of confirming all share transactions; (13) Bonding and Insurance. All expenses of bond, liability, and other insurance coverage required by law or deemed advisable by the Corporation's board of directors; (14) Brokerage Commissions. All brokers' commissions and other charges incident to the purchase, sale, or lending of the Fund's portfolio securities; (15) Taxes. All taxes or governmental fees payable by or with respect of the Corporation or Fund, as appropriate, to federal, state, or other governmental agencies, domestic or foreign, including stamp or other transfer taxes; (16) Trade Association Fees. All fees, dues, and other expenses incurred in connection with the Corporation's or Fund's, as appropriate, membership in any trade association or other investment organization; and (17) Nonrecurring and Extraordinary Expenses. Such nonrecurring expenses as may arise, including the costs of actions, suits, or proceedings to which the Corporation or Fund, as appropriate, is a party and the expenses the Corporation or Fund, as appropriate, may incur as a result of its legal obligation to provide indemnification to its officers, directors, and agents. 3. Management Fee. The Fund shall pay the Manager a fee ("Fee") which will consist of two components: a Group Management Fee ("Group Fee") and an Individual Fund Fee ("Fund Fee"). The Fee shall be paid monthly to the Manager on the first business day of the next succeeding calendar month and shall be calculated as follows: PAGE 5 A. Group Fee. The monthly Group Fee ("Monthly Group Fee") shall be the sum of the daily Group Fee accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee Accrual for any particular day will be computed by multiplying the Price Funds' group fee accrual as determined below ("Daily Price Funds' Group Fee Accrual") by the ratio of the Fund's net assets for that day to the sum of the aggregate net assets of the Price Funds for that day. The Daily Price Funds' Group Fee Accrual for any particular day shall be calculated by multiplying the fraction of one (1) over the number of calendar days in the year by the annualized Daily Price Funds' Group Fee Accrual for that day as determined in accordance with the following schedule: Price Funds Annual Group Base Fee Rate for Each Level of Assets ______________________________________ 0.480% First $1 billion 0.450% Next $1 billion 0.420% Next $1 billion 0.390% Next $1 billion 0.370% Next $1 billion 0.360% Next $2 billion 0.350% Next $2 billion 0.340% Next $5 billion 0.330% Next $10 billion 0.320% Thereafter The Price Funds shall include all the mutual funds distributed by T. Rowe Price Investment Services, Inc., excluding any institutional or private label mutual funds. For the purpose of calculating the Daily Price Funds' Group Fee Accrual for any particular day, the net assets of each Price Fund shall be determined in accordance with the prospectus, on behalf of the Fund, as of the close of business on the previous business day on which the Fund was open for business. B. Fund Fee. The monthly Fund Fee ("Monthly Fund Fee") shall be the sum of the daily Fund Fee accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any particular day will be computed by multiplying the fraction of one (1) over the number of calendar days in the year by the Fund Fee Rate of .50% and multiplying this product by the net assets of the Fund for that day, as determined in accordance with the Fund's prospectus as of the close of business on the previous business day on which the Fund was open for business. C. Expense Limitation. To the extent that the aggregate expenses of every character incurred by the Fund in any fiscal year, including but not limited to Fees of the Manager computed as hereinabove set forth, but excluding interest, taxes, brokerage, and other expenditures which are capitalized in accordance with generally accepted accounting principles and extraordinary expenses, shall exceed the limit ("State Expense Limit") prescribed by any state in which the Fund's Shares are qualified for sale, such excess amount shall be the liability of the Manager to pay in the manner specified below. To determine the Manager's liability for the Fund's expenses, the expenses of the Fund shall be annualized monthly as of the last day of the month. If the annualized expenses for any month exceed the State Expense Limit, the payment of the Fee for such month (if there be any) shall PAGE 6 be reduced by such excess ("Excess Amount") and in the event the Excess Amount exceeds the amount due as the Fee, the Manager shall remit to the Fund the difference between the Excess Amount and the amount due as the Fee; provided, however, that an adjustment shall be made on or before the last day of the first month of the next succeeding fiscal year if the aggregate expenses for the fiscal year do not exceed the State Expense Limit. However, as part of the consideration for the Fund entering into this Agreement, the Manager hereby agrees that through December 31, 1993, the expense limit will be 1.50% of the average daily net assets of the Fund ("1.50% Expense Limitation"); provided, however, that (1) any amount paid or assumed by the Manager pursuant to the 1.50% Expense Limitation shall be reimbursed by the Fund to the Manager after December 31, 1993 (such reimbursement period being referred to as the "Original Reimbursement Period"); (2) no such reimbursement, with respect to such Original Reimbursement Period shall be made to the Manager after December 31, 1995; and (3) such reimbursement shall only be made to the extent that it does not result in the Fund's aggregate expenses exceeding an expense limit of 1.50%. The Manager may voluntarily agree to an additional expense limitation (any such additional expense limitation hereinafter referred to as an "Additional Expense Limitation"), for the same or a different period of time beyond December 31, 1993 (any such additional period being hereinafter referred to as an "Additional Period") provided, however, that: (1) any amount paid or assumed by the Manager pursuant to an Additional Expense Limitation shall be reimbursed by the Fund to the Manager after the last day of the Additional Period (such additional reimbursement period being hereinafter referred to as an "Additional Reimbursement Period"); (2) no reimbursement for an Additional Reimbursement Period shall be made to the Manager more than two years after the end of an Additional Period; and (3) reimbursement for an Additional Reimbursement Period shall only be made to the extent that it does not result in the Fund's aggregate expenses exceeding the Additional Expense Limitation applicable to such Additional Reimbursement Period. D. Proration of Fee. If this Agreement becomes effective or terminates before the end of any month, the Fee for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 4. Brokerage. Subject to the approval of the board of directors, the Manager, in carrying out its duties under Paragraph 1.A., may cause the Corporation, with respect to the Fund, to pay a broker-dealer which furnishes brokerage or research services [as such services are defined under Section 28(e) of the Securities Exchange Act of 1934, as amended (the "'34 Act")], a higher commission than that which might be charged by another broker-dealer 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-dealer, viewed in terms of either that particular transaction or the overall responsibilities of the Manager with respect to the accounts as to which it exercises investment discretion (as such term is defined under Section 3(a)(35) of the '34 Act). 5. Manager's Use of the Services of Others. The Manager may (at its cost except as contemplated by Paragraph 4 of this Agreement) employ, PAGE 7 retain or otherwise avail itself of the services or facilities of other persons or organizations for the purpose of providing the Manager or the Corporation or Fund, as appropriate, with such statistical and other factual information, such advice regarding economic factors and trends, such advice as to occasional transactions in specific securities or such other information, advice or assistance as the Manager may deem necessary, appropriate or convenient for the discharge of its obligations hereunder or otherwise helpful to the Corporation or Fund, as appropriate, or in the discharge of Manager's overall responsibilities with respect to the other accounts which it serves as investment manager. 6. Ownership of Records. All records required to be maintained and preserved by the Corporation or Fund pursuant to the provisions of rules or regulations of the Securities and Exchange Commission under Section 31(a) of the Act and maintained and preserved by the Manager on behalf of the Corporation or Fund, as appropriate, are the property of the Corporation or Fund, as appropriate, and will be surrendered by the Manager promptly on request by the Corporation or Fund, as appropriate. 7. Reports to Manager. The Corporation or Fund, as appropriate, shall furnish or otherwise make available to the Manager such prospectuses, financial statements, proxy statements, reports, and other information relating to the business and affairs of the Corporation or Fund, as appropriate, as the Manager may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement. 8. Services to Other Clients. Nothing herein contained shall limit the freedom of the Manager or any affiliated person of the Manager to render investment supervisory and corporate administrative services to other investment companies, to act as investment manager or investment counselor to other persons, firms or corporations, or to engage in other business activities; but so long as this Agreement or any extension, renewal or amendment hereof shall remain in effect or until the Manager shall otherwise consent, the Manager shall be the only investment manager to the Fund. 9. Limitation of Liability of Manager. Neither the Manager nor any of its officers, directors, or employees, nor any person performing executive, administrative, trading, or other functions for the Corporation or Fund (at the direction or request of the Manager) or the Manager in connection with the Manager's discharge of its obligations undertaken or reasonably assumed with respect to this Agreement, shall be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or Fund in connection with the matters to which this Agreement relates, except for loss resulting from willful misfeasance, bad faith, or gross negligence in the performance of its or his duties on behalf of the Corporation or Fund or from reckless disregard by the Manager or any such person of the duties of the Manager under this Agreement. 10. Use of Manager's Name. The Corporation or Fund may use the name "T. Rowe Price International Funds, Inc." or any other name derived from the name "T. Rowe Price" only for so long as this Agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the Manager as investment manager. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, the Corporation or Fund will (by corporate action, if PAGE 8 necessary) cease to use any name derived from the name "T. Rowe Price," any name similar thereto or any other name indicating that it is advised by or otherwise connected with the Manager, or with any organization which shall have succeeded to the Manager's business as investment manager. 11. Term of Agreement. The term of this Agreement shall begin on the date first above written, and unless sooner terminated as hereinafter provided, this Agreement shall remain in effect through April 30, 1992. Thereafter, this Agreement shall continue in effect from year to year, with respect to the Fund, subject to the termination provisions and all other terms and conditions hereof, so long as such continuation shall be specifically approved at least annually (a) by either the board of directors of the Corporation, or by vote of a majority of the outstanding voting securities of the Fund; (b) in either event by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the directors of the Corporation, with respect to the Fund, who are not parties to this Agreement or interested persons of any such party; and (c) the Manager shall not have notified the Corporation, in writing, at least 60 days prior to April 30, 1992 or prior to April 30th of any year thereafter, that it does not desire such continuation. The Manager shall furnish to the Corporation, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal or amendment hereof. 12. Amendment and Assignment of Agreement. This Agreement may not be amended or assigned without the affirmative vote of a majority of the outstanding voting securities of the Fund, and this Agreement shall automatically and immediately terminate in the event of its assignment. 13. Termination of Agreement. This Agreement may be terminated by either party hereto, without the payment of any penalty, upon 60 days' prior notice in writing to the other party; provided, that in the case of termination by the Corporation, with respect to the Fund, such action shall have been authorized by resolution of a majority of the directors of the Corporation who are not parties to this Agreement or interested persons of any such party, or by vote of a majority of the outstanding voting securities of the Fund. 14. Miscellaneous. A. Captions. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. B. Interpretation. Nothing herein contained shall be deemed to require the Corporation to take any action contrary to its Articles of Incorporation or By-Laws, or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the board of directors of the Corporation of its responsibility for and control of the conduct of the affairs of the Fund. C. Definitions. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Act shall be resolved by reference to such term or provision of the Act and to interpretations thereof, if any, by the United States courts or, in the absence of any controlling decision of any PAGE 9 such court, by rules, regulations or orders of the Securities and Exchange Commission validly issued pursuant to the Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested person," "assignment," and "affiliated person," as used in Paragraphs 2, 8, 9, 11, 12, and 13 hereof, shall have the meanings assigned to them by Section 2(a) of the Act. In addition, where the effect of a requirement of the Act reflected in any provision of this Agreement is relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective seals to be hereunto affixed, as of the day and year first above written. Attest: T. ROWE PRICE INTERNATIONAL FUNDS, INC. By: ______________________________ ___________________________________ Secretary Attest: ROWE PRICE-FLEMING INTERNATIONAL, INC. By: _______________________________ ___________________________________ Assistant Secretary EX-99.B5H-MGTAGMT 11 PAGE 1 INVESTMENT MANAGEMENT AGREEMENT Between T. ROWE PRICE INTERNATIONAL FUNDS, INC. and ROWE PRICE-FLEMING INTERNATIONAL, INC. INVESTMENT MANAGEMENT AGREEMENT, made as of the 23rd day of April, 1992, by and between T. ROWE PRICE INTERNATIONAL FUNDS, INC., a Maryland corporation (the "Corporation"), and ROWE PRICE-FLEMING INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Maryland (hereinafter called the "Manager"). W I T N E S S E T H: WHEREAS, the Corporation is engaged in business as an open-end management investment company and is registered as such under the federal Investment Company Act of 1940, as amended (the "Act"); and WHEREAS, the Corporation is authorized to issue shares of capital stock ("Shares") in the T. Rowe Price Short-Term Global Income Fund (the "Fund"), a separate series of the Corporation whose Shares represent interests in a separate portfolio of securities and other assets ("Fund Shares"); and WHEREAS, the Manager is engaged principally in the business of rendering investment supervisory services and is registered as an investment adviser under the federal Investment Advisers Act of 1940, as amended; and WHEREAS, the Fund desires the Manager to render investment supervisory services to the Fund in the manner and on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. Duties and Responsibilities of Manager. A. Investment Management Services. The Manager shall act as investment manager and shall supervise and direct the investments of the Fund in accordance with the Fund's investment objective, program and restrictions as provided in the Corporation's prospectus, on behalf of the Fund, as amended from time to time, and such other limitations as the Corporation may impose by notice in writing to the Manager. The Manager shall obtain and evaluate such information relating to the economy, industries, businesses, securities markets and securities as it may deem necessary or useful in the discharge of its obligations hereunder and shall formulate and implement a continuing PAGE 2 program for the management of the assets and resources of the Fund in a manner consistent with its investment objective. In furtherance of this duty, the Manager, as agent and attorney-in-fact with respect to the Corporation, is authorized, in its discretion and without prior consultation with the Corporation, to: (i) buy, sell, exchange, convert, lend, and otherwise trade in any stocks, bonds, and other securities or assets; and (ii) directly or through the trading desks of T. Rowe Price Associates, Inc. ("Price Associates"), Robert Fleming Holdings Limited ("Holdings") and their affiliates place orders and negotiate the commissions (if any) for the execution of transactions in securities with or through such brokers, dealers, underwriters or issuers as the Manager may select. B. Financial, Accounting, and Administrative Services. The Manager shall maintain the existence and records of the Corporation; maintain the registrations and qualifications of Fund Shares under federal and state law; monitor the financial, accounting, and administrative functions of the Fund; maintain liaison with the various agents employed for the benefit of the Fund by the Corporation (including the Corporation's transfer agent, custodian, independent accountants and legal counsel) and assist in the coordination of their activities on behalf of the Fund. C. Reports to Fund. The Manager shall furnish to or place at the disposal of the Corporation or Fund, as appropriate, such information, reports, evaluations, analyses and opinions as they may, at any time or from time to time, reasonably request or as the Manager may deem helpful to the Fund. D. Reports and Other Communications to Shareholders. The Manager shall assist in developing all general shareholder communications, including regular shareholder reports. E. Fund Personnel. The Manager agrees to permit individuals who are officers or employees of the Manager to serve (if duly elected or appointed) as officers, directors, members of any committee of directors, members of any advisory board, or members of any other committee of the Corporation, without remuneration or other cost to the Fund or the Corporation. F. Personnel, Office Space, and Facilities of Manager. The Manager at its own expense shall furnish or provide and pay the cost of such office space, office equipment, office personnel, and office services as the Manager requires in the performance of its investment advisory and other obligations under this Agreement. 2. Allocation of Expenses. A. Expenses Paid by Manager. (1) Salaries and Fees of Officers. The Manager shall pay all salaries, expenses, and fees of the officers and directors of the Corporation who are affiliated with the Manager. PAGE 3 (2) Assumption of Expenses by Manager. The payment or assumption by the Manager of any expense of the Corporation or Fund, as appropriate, that the Manager is not required by this Agreement to pay or assume shall not obligate the Manager to pay or assume the same or any similar expense of the Corporation or Fund, as appropriate, on any subsequent occasion. B. Expenses Paid by Fund. The Corporation or Fund, as appropriate, shall bear all expenses of its organization, operations, and business not specifically assumed or agreed to be paid by the Manager as provided in this Agreement. In particular, but without limiting the generality of the foregoing, the Corporation or Fund, as appropriate, shall pay: (1) Custody and Accounting Services. All expenses of the transfer, receipt, safekeeping, servicing and accounting for the cash, securities, and other property of the Corporation, for the benefit of the Fund, including all charges of depositories, custodians, and other agents, if any; (2) Shareholder Servicing. All expenses of maintaining and servicing shareholder accounts, including all charges for transfer, shareholder recordkeeping, dividend disbursing, redemption, and other agents for the benefit of the Fund, if any; (3) Shareholder Communications. All expenses of preparing, setting in type, printing, and distributing reports and other communications to shareholders; (4) Shareholder Meetings. All expenses incidental to holding meetings of Fund shareholders, including the printing of notices and proxy material, and proxy solicitation therefor; (5) Prospectuses. All expenses of preparing, setting in type, and printing of annual or more frequent revisions of the Fund's prospectus and of mailing them to shareholders; (6) Pricing. All expenses of computing the Fund's net asset value per share, including the cost of any equipment or services used for obtaining price quotations; (7) Communication Equipment. All charges for equipment or services used for communication between the Manager or the Corporation or Fund and the custodian, transfer agent or any other agent selected by the Corporation; (8) Legal and Accounting Fees and Expenses. All charges for services and expenses of the Corporation's legal counsel and independent auditors for the benefit of the Fund; (9) Directors' Fees and Expenses. All compensation of directors, other than those affiliated with the Manager, and all expenses incurred in connection with their service; (10) Federal Registration Fees. All fees and expenses of registering and maintaining the registration of the Corporation PAGE 4 under the Act and the registration of the Fund's shares under the Securities Act of 1933, as amended (the "'33 Act"), including all fees and expenses incurred in connection with the preparation, setting in type, printing, and filing of any registration statement and prospectus under the '33 Act or the Act, and any amendments or supplements that may be made from time to time; (11) State Registration Fees. All fees and expenses of qualifying and maintaining qualification of the Corporation or Fund, as appropriate, and of the Fund shares for sale under securities laws of various states or jurisdictions, and of registration and qualification of the Corporation or Fund, as appropriate, under all other laws applicable to the Corporation or Fund, as appropriate, or its business activities (including registering the Corporation as a broker-dealer, or any officer of the Corporation or any person as agent or salesman of the Corporation in any state); (12) Issue and Redemption of Fund Shares. All expenses incurred in connection with the issue, redemption, and transfer of the Fund's shares, including the expense of confirming all share transactions; (13) Bonding and Insurance. All expenses of bond, liability, and other insurance coverage required by law or deemed advisable by the Corporation's board of directors; (14) Brokerage Commissions. All brokers' commissions and other charges incident to the purchase, sale, or lending of the Fund's portfolio securities; (15) Taxes. All taxes or governmental fees payable by or with respect of the Corporation or Fund, as appropriate, to federal, state, or other governmental agencies, domestic or foreign, including stamp or other transfer taxes; (16) Trade Association Fees. All fees, dues, and other expenses incurred in connection with the Corporation's or Fund's, as appropriate, membership in any trade association or other investment organization; and (17) Nonrecurring and Extraordinary Expenses. Such nonrecurring expenses as may arise, including the costs of actions, suits, or proceedings to which the Corporation or Fund, as appropriate, is a party and the expenses the Corporation or Fund, as appropriate, may incur as a result of its legal obligation to provide indemnification to its officers, directors, and agents. 3. Management Fee. The Fund shall pay the Manager a fee ("Fee") which will consist of two components: a Group Management Fee ("Group Fee") and an Individual Fund Fee ("Fund Fee"). The Fee shall be paid monthly to the Manager on the first business day of the next succeeding calendar month and shall be calculated as follows: PAGE 5 A. Group Fee. The monthly Group Fee ("Monthly Group Fee") shall be the sum of the daily Group Fee accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee Accrual for any particular day will be computed by multiplying the Price Funds' group fee accrual as determined below ("Daily Price Funds' Group Fee Accrual") by the ratio of the Fund's net assets for that day to the sum of the aggregate net assets of the Price Funds for that day. The Daily Price Funds' Group Fee Accrual for any particular day shall be calculated by multiplying the fraction of one (1) over the number of calendar days in the year by the annualized Daily Price Funds' Group Fee Accrual for that day as determined in accordance with the following schedule: Price Funds Annual Group Base Fee Rate for Each Level of Assets ______________________________________ 0.480% First $1 billion 0.450% Next $1 billion 0.420% Next $1 billion 0.390% Next $1 billion 0.370% Next $1 billion 0.360% Next $2 billion 0.350% Next $2 billion 0.340% Next $5 billion 0.330% Next $10 billion 0.320% Thereafter The Price Funds shall include all the mutual funds distributed by T. Rowe Price Investment Services, Inc., excluding any institutional or private label mutual funds. For the purpose of calculating the Daily Price Funds' Group Fee Accrual for any particular day, the net assets of each Price Fund shall be determined in accordance with the prospectus, on behalf of the Fund, as of the close of business on the previous business day on which the Fund was open for business. B. Fund Fee. The monthly Fund Fee ("Monthly Fund Fee") shall be the sum of the daily Fund Fee accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any particular day will be computed by multiplying the fraction of one (1) over the number of calendar days in the year by the Fund Fee Rate of .25% and multiplying this product by the net assets of the Fund for that day, as determined in accordance with the Fund's prospectus as of the close of business on the previous business day on which the Fund was open for business. C. Expense Limitation. As part of the consideration for the Fund entering into this Agreement, the Manager hereby agrees to limit the aggregate expenses of every character incurred by the Fund, including but not limited to Fees of the Manager computed as hereinabove set forth, but excluding interest, taxes, brokerage, and other expenditures which are capitalized in accordance with generally accepted accounting principles and extraordinary expenses, ("Manager Limitation"). Under the Manager Limitation, the Manager agrees that through December 31, 1993, such expenses shall not exceed 1.00% of the average daily net assets of the Fund ("1.00% Expense Limitation"). To determine the Manager's liability for the Fund's expenses over the 1.00% Expense Limitation, the amount of allowable year-to-date expenses shall be computed daily by pro rating the 1.00% Expense Limitation based on the number of days elapsed within the fiscal year of the Fund, or limitation period, if shorter ("Pro Rated PAGE 6 Limitation"). The Pro Rated Limitation shall be compared to the expenses of the Fund recorded through the prior day in order to produce the allowable expenses to be recorded for the current day ("Allowable Expenses"). If the Fund's Management Fee and other expenses for the current day exceed the Allowable Expenses, the Management Fee for the current day shall be reduced by such excess ("Unaccrued Fees"). In the event the excess exceeds the amount due as the Management Fee, the Manager shall be responsible to the Fund for the additional excess ("Other Expenses Exceeding Limit"). If at any time up through and including December 31, 1993, the Fund's Management Fee and other expenses for the current day are less than the Allowable Expenses, the differential shall be due to the Manager as payment of cumulative Unaccrued Fees (if any) or as payment for cumulative Other Expenses Exceeding Limit (if any). If cumulative Unaccrued Fees or cumulative Other Expenses Exceeding Limit remain at December 31, 1993, these amounts shall be paid to the Manager in the future provided that: (1) no such payment shall be made to the Manager after December 31, 1995; and (2) such payment shall only be made to the extent that it does not result in the Fund's aggregate expenses exceeding an expense limit of 1.00% of average daily net assets. The Manager may voluntarily agree to an additional expense limitation (any such additional expense limitation hereinafter referred to as an "Additional Expense Limitation"), at the same or a different level and for the same or a different period of time beyond December 31, 1993 (any such additional period being hereinafter referred to an as "Additional Period") provided, however, that: (1) the calculations and methods of payment shall be as described above; (2) no payment for cumulative Unaccrued Fees or cumulative Other Expenses Exceeding Limit shall be made to the Manager more than two years after the end of an Additional Period; and (3) payment for cumulative Unaccrued Fees or cumulative Other Expenses Exceeding Limit after the expiration of the Additional Period shall only be made to the extent it does not result in the Fund's aggregate expenses exceeding the Additional Expense Limitation to which the unpaid amounts relate. In addition to the Manager Limitation, it is understood that the expenses of the Fund will not exceed any expense limitation prescribed by any state in which the Fund's shares are qualified for sale ("State Expense Limit"). Any Management Fees not paid or expenses assumed by the Manager pursuant to a State Expense Limit shall be subject to reimbursement provided that no such reimbursement shall be made more than two years after the fiscal year in which such fees were not paid or expenses assumed. D. Proration of Fee. If this Agreement becomes effective or terminates before the end of any month, the Fee for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. 4. Brokerage. Subject to the approval of the board of directors, the Manager, in carrying out its duties under Paragraph 1.A., may cause the Corporation, with respect to the Fund, to pay a broker-dealer which furnishes brokerage or research services [as such services are defined under Section 28(e) of the Securities Exchange Act of 1934, as amended (the "'34 Act")], a higher commission than that which might be charged by another broker-dealer 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-dealer, viewed in terms of either that PAGE 7 particular transaction or the overall responsibilities of the Manager with respect to the accounts as to which it exercises investment discretion (as such term is defined under Section 3(a)(35) of the '34 Act). 5. Manager's Use of the Services of Others. The Manager may (at its cost except as contemplated by Paragraph 4 of this Agreement) employ, retain or otherwise avail itself of the services or facilities of other persons or organizations for the purpose of providing the Manager or the Corporation or Fund, as appropriate, with such statistical and other factual information, such advice regarding economic factors and trends, such advice as to occasional transactions in specific securities or such other information, advice or assistance as the Manager may deem necessary, appropriate or convenient for the discharge of its obligations hereunder or otherwise helpful to the Corporation or Fund, as appropriate, or in the discharge of Manager's overall responsibilities with respect to the other accounts which it serves as investment manager. 6. Ownership of Records. All records required to be maintained and preserved by the Corporation or Fund pursuant to the provisions of rules or regulations of the Securities and Exchange Commission under Section 31(a) of the Act and maintained and preserved by the Manager on behalf of the Corporation or Fund, as appropriate, are the property of the Corporation or Fund, as appropriate, and will be surrendered by the Manager promptly on request by the Corporation or Fund, as appropriate. 7. Reports to Manager. The Corporation or Fund, as appropriate, shall furnish or otherwise make available to the Manager such prospectuses, financial statements, proxy statements, reports, and other information relating to the business and affairs of the Corporation or Fund, as appropriate, as the Manager may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement. 8. Services to Other Clients. Nothing herein contained shall limit the freedom of the Manager or any affiliated person of the Manager to render investment supervisory and corporate administrative services to other investment companies, to act as investment manager or investment counselor to other persons, firms or corporations, or to engage in other business activities; but so long as this Agreement or any extension, renewal or amendment hereof shall remain in effect or until the Manager shall otherwise consent, the Manager shall be the only investment manager to the Fund. 9. Limitation of Liability of Manager. Neither the Manager nor any of its officers, directors, or employees, nor any person performing executive, administrative, trading, or other functions for the Corporation or Fund (at the direction or request of the Manager) or the Manager in connection with the Manager's discharge of its obligations undertaken or reasonably assumed with respect to this Agreement, shall be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or Fund in connection with the matters to which this Agreement relates, except for loss resulting from willful misfeasance, bad faith, or gross negligence in the performance of its or his duties on behalf of the Corporation or Fund or from reckless disregard by the Manager or any such person of the duties of the Manager under this Agreement. PAGE 8 10. Use of Manager's Name. The Corporation or Fund may use the name "T. Rowe Price International Funds, Inc." or any other name derived from the name "T. Rowe Price" only for so long as this Agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the Manager as investment manager. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, the Corporation or Fund will (by corporate action, if necessary) cease to use any name derived from the name "T. Rowe Price," any name similar thereto or any other name indicating that it is advised by or otherwise connected with the Manager, or with any organization which shall have succeeded to the Manager's business as investment manager. 11. Term of Agreement. The term of this Agreement shall begin on the date first above written, and unless sooner terminated as hereinafter provided, this Agreement shall remain in effect through April 30, 1993. Thereafter, this Agreement shall continue in effect from year to year, with respect to the Fund, subject to the termination provisions and all other terms and conditions hereof, so long as such continuation shall be specifically approved at least annually (a) by either the board of directors of the Corporation, or by vote of a majority of the outstanding voting securities of the Fund; (b) in either event by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the directors of the Corporation, with respect to the Fund, who are not parties to this Agreement or interested persons of any such party; and (c) the Manager shall not have notified the Corporation, in writing, at least 60 days prior to April 30, 1993 or prior to April 30th of any year thereafter, that it does not desire such continuation. The Manager shall furnish to the Corporation, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal or amendment hereof. 12. Amendment and Assignment of Agreement. This Agreement may not be amended or assigned without the affirmative vote of a majority of the outstanding voting securities of the Fund, and this Agreement shall automatically and immediately terminate in the event of its assignment. 13. Termination of Agreement. This Agreement may be terminated by either party hereto, without the payment of any penalty, upon 60 days' prior notice in writing to the other party; provided, that in the case of termination by the Corporation, with respect to the Fund, such action shall have been authorized by resolution of a majority of the directors of the Corporation who are not parties to this Agreement or interested persons of any such party, or by vote of a majority of the outstanding voting securities of the Fund. 14. Miscellaneous. A. Captions. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. B. Interpretation. Nothing herein contained shall be deemed to require the Corporation to take any action contrary to its Articles of Incorporation or By-Laws, or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or PAGE 9 deprive the board of directors of the Corporation of its responsibility for and control of the conduct of the affairs of the Fund. C. Definitions. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Act shall be resolved by reference to such term or provision of the Act and to interpretations thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission validly issued pursuant to the Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested person," "assignment," and "affiliated person," as used in Paragraphs 2, 8, 9, 11, 12, and 13 hereof, shall have the meanings assigned to them by Section 2(a) of the Act. In addition, where the effect of a requirement of the Act reflected in any provision of this Agreement is relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective seals to be hereunto affixed, as of the day and year first above written. Attest: T. ROWE PRICE INTERNATIONAL FUNDS, INC. By: ______________________________ ___________________________________ Secretary Attest: ROWE PRICE-FLEMING INTERNATIONAL, INC. By: _______________________________ ___________________________________ Assistant Secretary EX-99.B6-UNDERWRT 12 PAGE 1 UNDERWRITING AGREEMENT BETWEEN T. ROWE PRICE INTERNATIONAL FUNDS, INC. AND T. ROWE PRICE INVESTMENT SERVICES, INC. THIS UNDERWRITING AGREEMENT, made as of the 1st day of May, 1990, by and between T. ROWE PRICE INTERNATIONAL FUNDS, INC., a corporation organized and existing under the laws of the State of Maryland (hereinafter called the "Corporation"), and T. ROWE PRICE INVESTMENT SERVICES, INC., a corporation organized and existing under the laws of the State of Maryland (hereinafter called the "Distributor"). WITNESSETH: WHEREAS, the Corporation is engaged in business as an open-end management investment company and is registered as such under the federal Investment Company Act of 1940, as amended ("ICA-40"); and WHEREAS, the Corporation is authorized to issue shares of capital stock ("Shares") in separate series, with each such series representing the interests in a separate portfolio of securities and other assets; and WHEREAS, the Corporation intends initially to offer Shares in four series, the T. Rowe Price International Stock Fund, T. Rowe Price International Bond Fund, T. Rowe Price International Discovery Fund, and T. Rowe Price European Stock Fund (the "Funds"), such series together with any other series which may be established later and served by the Distributor hereunder, being herein referred to collectively as the "Funds" and individually referred to as a "Fund"); and WHEREAS, the Distributor is engaged principally in the business of distributing shares of the investment companies sponsored and managed by either T. Rowe Price Associates, Inc. ("Price Associates") or Rowe Price- Fleming International, Inc. ("Price-Fleming") and is registered as a broker- dealer under the Securities Exchange Act of 1934, as amended, ("SEA-34") and is a member of the National Association of Securities Dealers, Inc. ("NASD"); and WHEREAS, the Corporation desires the Distributor to act as the distributor in the public offering of the Shares of the Funds; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the parties hereto agree as follows: PAGE 2 1. Delivery of Corporation Documents. The Corporation has furnished Distributor with copies, properly certified or authenticated, of each of the following: (a) Articles of Amendment and Restatement, dated February 16, 1990. (b) By-Laws of the Corporation as in effect on the date hereof. (c) Resolutions of the Board of Directors of the Corporation selecting Distributor as principal underwriter for the Funds and approving this form of agreement. The Corporation shall furnish the Distributor from time to time with copies, properly certified or authenticated, of all the amendments of, or supplements to, the foregoing, if any. The Corporation shall furnish Distributor promptly with properly certified or authenticated copies of any registration statements filed by it on behalf of the Funds with the Securities and Exchange Commission under the Securities Act of 1933, as amended ("SA-33") or ICA-40, together with any financial statements and exhibits included therein, and all amendments or supplements thereto hereafter filed. 2. Sale of Shares. Subject to the provisions of Paragraphs 3, 4, and 6 hereof, and to such minimum purchase requirements as may from time to time be currently indicated in the Corporation's prospectus, on behalf of the Funds, the Distributor is authorized to sell, as agent for the Corporation, on behalf of the Funds, Shares authorized for issuance and registered under SA- 33. Distributor may also sell Shares under offers of exchange between and among the investment companies for which Price Associates and/or Price-Fleming act as investment advisers ("Price Funds"). Distributor may also purchase as principal such Shares for resale to the public. Such sale will be made by Distributor on behalf of the Funds by accepting unconditional orders to purchase the Shares placed with Distributor by investors and such purchases will be made by Distributor only after acceptance by Distributor of such orders. The sales price to the public of such Shares shall be the public offering price as defined in Paragraph 5 hereof. 3. Sale of Shares by the Corporation. The rights granted to the Distributor shall be nonexclusive in that the Corporation, on behalf of the Funds, reserves the right to sell Shares of the Funds to investors pursuant to applications received and accepted by the Corporation or its transfer agent. Further, the Corporation reserves the right to issue Shares in connection with the merger or consolidation of any other investment company, trust or personal holding company with the Corporation or the Corporation's acquisition by the purchase or otherwise, of all or substantially all of the assets of an investment company, trust or personal holding company. Any right granted to Distributor to accept orders for Shares, or to make sales on behalf of the Funds or to purchase Shares for resale, will not apply to Shares issued in connection with the merger or consolidation of any other investment company with the Corporation or its acquisition by purchase or otherwise, of all or substantially all of the assets of any investment company, trust or personal holding company, or substantially all of the outstanding shares or interests of any such entity, and such right shall not apply to Shares that may be PAGE 3 offered by the Corporation to shareholders by virtue of their being shareholders of the Funds. 4. Shares Covered by this Agreement. This Agreement relates to the issuance and sale of Shares that are duly authorized, registered, and available for sale by the Corporation, on behalf of the Funds, including redeemed or repurchased Shares if and to the extent that they may be legally sold and if, but only if, the Corporation authorizes the Distributor to sell them. 5. Public Offering Price. All Shares sold by the Distributor pursuant to this Agreement shall be sold at the public offering price. The public offering price for all accepted subscriptions will be the net asset value per share, as determined in the manner provided in the Corporation's Articles of Incorporation, with respect to the Funds, as now in effect, or as they may be amended (and as reflected in the then current prospectus of the Corporation, with respect to the Funds), next after the order is accepted by the Distributor. The Distributor will process orders submitted by brokers for the sale of Shares at the public offering price exclusive of any commission charged by such broker to his customer. 6. Suspension of Sales. If and whenever the determination of net asset value is suspended and until such suspension is terminated, no further orders for Shares shall be accepted by the Distributor except such unconditional orders placed with the Distributor before it had knowledge of the suspension. In addition, the Corporation reserves the right to suspend sales and Distributor's authority to accept orders for Shares on behalf of the Funds if, in the judgment of the Board of Directors of the Corporation, it is in the best interests of the Corporation or Funds to do so, such suspension to continue for such period as may be determined by the Board of Directors; and in that event, no orders to purchase Shares shall be processed or accepted by the Distributor on behalf of the Funds while such suspension remains in effect except for Shares necessary to cover unconditional orders accepted by Distributor before it had knowledge of the suspension, unless otherwise directed by the Board of Directors. 7. Solicitation of Orders. In consideration of the rights granted to the Distributor under this Agreement, Distributor will use its best efforts (but only in states in which Distributor may lawfully do so) to obtain from investors unconditional orders for Shares authorized for issuance by the Corporation, on behalf of the Funds, and registered under SA-33, provided that Distributor may in its discretion reject any order to purchase Shares. This does not obligate the Distributor to register or maintain its registration as a broker or dealer under the state securities laws of any jurisdiction if, in the discretion of the Distributor, such registration is not practical or feasible. The Funds shall make available to the Distributor at the expense of the Distributor such number of copies of the currently effective prospectus pertaining to the Funds as the Distributor may reasonably request. The Funds shall furnish to the Distributor copies of all information, financial statements and other papers which the Distributor may reasonably request for use in connection with the distribution of Shares. 8. Authorized Representations. The Corporation is not authorized by the Distributor to give, on behalf of the Distributor, any information or PAGE 4 to make any representations other than the information and representations contained in a registration statement or prospectus filed with the SEC under SA-33 and/or ICA-40, covering Shares, as such registration statement and prospectus may be amended or supplemented from time to time. Distributor is not authorized by the Corporation to give on behalf of the Funds any information or to make any representations in connection with the sale of Shares other than the information and representations contained in a registration statement or prospectus filed, on behalf of the Funds, with the Securities and Exchange Commission ("SEC") under SA-33 and/or ICA-40, covering Shares, as such registration statement and prospectus may be amended or supplemented from time to time, or contained in shareholder reports or other material that may be prepared by or on behalf of the Funds for the Distributor's use. This shall not be construed to prevent the Distributor from preparing and distributing tombstone ads and sales literature or other material as it may deem appropriate. No person other than Distributor is authorized to act as principal underwriter (as such term is defined in ICA-40, as amended) for the Corporation. 9. Registration and Sale of Additional Shares. The Corporation, on behalf of the Funds, will, from time to time, use its best efforts to register under SA-33, such Shares of the Funds as Distributor may reasonably be expected to sell on behalf of the Funds. In connection therewith, the Corporation, on behalf of the Funds, hereby agrees to register an indefinite number of Shares pursuant to Rule 24f-2 under ICA-40, and to register such Shares as shall be deemed advisable pursuant to Rule 24e-2 under ICA-40, as amended. The Corporation, on behalf of the Funds, will, in cooperation with the Distributor, take such action as may be necessary from time to time to qualify such Shares (so registered or otherwise qualified for sale under SA-33), in any state mutually agreeable to the Distributor and the Funds, and to maintain such qualification. 10. Expenses. The Corporation or Funds, as appropriate, shall pay all fees and expenses: a. in connection with the preparation, setting in type and filing of any registration statement and prospectus under SA-33 and/or ICA-40, and any amendments or supplements that may be made from time to time; b. in connection with the registration and qualification of Shares for sale in the various states in which the Funds shall determine it advisable to qualify such Shares for sale. (Including registering the Corporation as a broker or dealer or any officer of the Corporation or other person as agent or salesman of the Corporation in any state.); c. of preparing, setting in type, printing and mailing any report or other communication to shareholders of the Funds in their capacity as such; d. of preparing, setting in type, printing and mailing prospectuses annually to existing shareholders; PAGE 5 e. in connection with the issue and transfer of Shares resulting from the acceptance by Distributor of orders to purchase Shares placed with the Distributor by investors, including the expenses of confirming such purchase orders; and f. of any issue taxes or (in the case of Shares redeemed) any initial transfer taxes. The Distributor shall pay (or will enter into arrangements providing that persons other than Distributor shall pay) all fees and expenses: a. of printing and distributing any prospectuses or reports prepared for its use in connection with the distribution of Shares to the public; b. of preparing, setting in type, printing and mailing any other literature used by the Distributor in connection with the distribution of the Shares to the public; c. of advertising in connection with the distribution of such Shares to the public; d. incurred in connection with its registration as a broker or dealer or the registration or qualification of its officers, directors or representatives under federal and state laws; and e. incurred in connection with the sale and offering for sale of Shares which have not been herein specifically allocated to the Funds. 11. Conformity With Law. Distributor agrees that in selling Shares it shall duly conform in all respects with the laws of the United States and any state in which such Shares may be offered for sale by Distributor pursuant to this Agreement and to the rules and regulations of the NASD. 12. Independent Contractor. Distributor shall be an independent contractor and neither Distributor, nor any of its officers, directors, employees, or representatives is or shall be an employee of the Corporation in the performance of Distributor's duties hereunder. Distributor shall be responsible for its own conduct and the employment, control, and conduct of its agents and employees and for injury to such agents or employees or to others through its agents or employees. Distributor assumes full responsibility for its agents and employees under applicable statutes and agrees to pay all employee taxes thereunder. 13. Indemnification. Distributor agrees to indemnify and hold harmless the Corporation or Funds, as appropriate, and each of the Corporation's directors, officers, employees, representatives and each person, if any, who controls the Corporation or Funds within the meaning of Section 15 of SA-33 against any and all losses, liabilities, damages, claims or expenses PAGE 6 (including the reasonable costs of investigating or defending any alleged loss, liability, damage, claim or expense and reasonable legal counsel fees incurred in connection therewith) to which the Corporation or Funds or such of the Corporation's directors, officers, employees, representatives or controlling person may become subject under SA-33, under any other statute, at common law, or otherwise, arising out of the acquisition of any Shares by any person which (i) may be based upon any wrongful act by Distributor or any of Distributor's directors, officers, employees or representatives, or (ii) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, shareholder report or other information covering Shares filed or made public by the Corporation, on behalf of the Funds, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon information furnished to the Corporation by Distributor. In no case (i) is Distributor's indemnity in favor of the Corporation or Funds, as appropriate, or any person indemnified to be deemed to protect the Corporation or Funds, as appropriate, or such indemnified person against any liability to which the Corporation or Funds, as appropriate, or such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of his duties or by reason of his reckless disregard of his obligations and duties under this Agreement or (ii) is Distributor to be liable under its indemnity agreement contained in this Paragraph with respect to any claim made against the Corporation or Funds, as appropriate, or any person indemnified unless the Corporation or Funds, as appropriate, or such person, as the case may be, shall have notified Distributor in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon the Corporation or Funds, as appropriate, or upon such person (or after the Corporation or Funds or such person shall have received notice of such service on any designated agent). However, failure to notify Distributor of any such claim shall not relieve Distributor from any liability which Distributor may have to the Corporation or Funds or any person against whom such action is brought otherwise than on account of Distributor's indemnity agreement contained in this Paragraph. Distributor shall be entitled to participate, at its own expense, in the defense, or, if Distributor so elects, to assume the defense of any suit brought to enforce any such claim, but, if Distributor elects to assume the defense, such defense shall be conducted by legal counsel chosen by Distributor and satisfactory to the Corporation, on behalf of the Funds, to its directors, officers, employees or representatives, or to any controlling person or persons, defendant or defendants, in the suit. In the event that Distributor elects to assume the defense of any such suit and retain such legal counsel, the Corporation, its directors, officers, employees, representatives or controlling person or persons, defendant or defendants in the suit, shall bear the fees and expenses of any additional legal counsel retained by them. If Distributor does not elect to assume the defense of any such suit, Distributor will reimburse the Corporation, on behalf of the Funds, such directors, officers, employees, representatives or controlling person or persons, defendant or defendants in such suit for the reasonable fees and expenses of any legal counsel retained by them. Distributor agrees to promptly notify the Corporation of the commencement of any litigation or PAGE 7 proceedings against it or any of its directors, officers, employees or representatives in connection with the issue or sale of any Shares. The Corporation, on behalf of the Funds, agrees to indemnify and hold harmless Distributor and each of its directors, officers, employees, representatives and each person, if any, who controls Distributor within the meaning of Section 15 of SA-33 against any and all losses, liabilities, damages, claims or expenses (including the reasonable costs of investigating or defending any alleged loss, liability, damage, claim or expense and reasonable legal counsel fees incurred in connection therewith) to which Distributor or such of its directors, officers, employees, representatives or controlling person may become subject under SA-33, under any other statute, at common law, or otherwise, arising out of the acquisition of any Shares by any person which (i) may be based upon any wrongful act by the Corporation or any of the Corporation's directors, officers, employees or representatives, or (ii) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, shareholder report or other information covering Shares filed or made public by the Corporation, on behalf of the Funds, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon information furnished to Distributor by the Corporation. In no case (i) is the Corporation's indemnity in favor of the Distributor, or any person indemnified to be deemed to protect the Distributor or such indemnified person against any liability to which the Distributor or such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of his duties or by reason of his reckless disregard of his obligations and duties under this Agreement, or (ii) is the Corporation, on behalf of the Funds, to be liable under its indemnity agreement contained in this Paragraph with respect to any claim made against Distributor, or person indemnified unless Distributor, or such person, as the case may be, shall have notified the Corporation in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon Distributor or upon such person (or after Distributor or such person shall have received notice of such service on any designated agent). However, failure to notify the Corporation of any such claim shall not relieve the Corporation from any liability which the Corporation may have to Distributor or any person against whom such action is brought otherwise than on account of the Corporation's indemnity agreement contained in this Paragraph. The Corporation, on behalf of the Funds, shall be entitled to participate, at its own expense, in the defense, or, if the Corporation, on behalf of the Funds, so elects, to assume the defense of any suit brought to enforce any such claim, but, if the Corporation, on behalf of the Funds, elects to assume the defense, such defense shall be conducted by legal counsel chosen by the Corporation, on behalf of the Funds, and satisfactory to Distributor, to its directors, officers, employees or representatives, or to any controlling person or persons, defendant or defendants, in the suit. In the event that the Corporation, on behalf of the Funds, elects to assume the defense of any such suit and retain such legal counsel, Distributor, its directors, officers, employees, representatives or controlling person or PAGE 8 persons, defendant or defendants in the suit, shall bear the fees and expenses of any additional legal counsel retained by them. If the Corporation, on behalf of the Funds, does not elect to assume the defense of any such suit, the Corporation, on behalf of the Funds, will reimburse Distributor, such directors, officers, employees, representatives or controlling person or persons, defendant or defendants in such suit for the reasonable fees and expenses of any legal counsel retained by them. The Corporation, on behalf of the Funds, agrees to promptly notify Distributor of the commencement of any litigation or proceedings against it or any of its directors, officers, employees, or representatives in connection with the issue or sale of any Shares. 14. Duration and Termination of This Agreement. This Agreement shall become effective upon its execution ("effective date") and, unless terminated as provided, shall remain in effect through April 30, 1991 and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by the vote of a majority of the directors of the Corporation who are not interested persons of Distributor or of the Corporation, cast in person at a meeting called for the purpose of voting on such approval, and by vote of the directors of the Corporation or of a majority of the outstanding voting securities of the Corporation. This Agreement may, on 60 days' written notice, be terminated at any time, without the payment of any penalty, by the vote of a majority of the directors of the Corporation who are not interested persons of Distributor or the Corporation, by a vote of a majority of the outstanding voting securities of the Corporation, or by Distributor. This Agreement will automatically terminate in the event of its assignment. In interpreting the provisions of this Paragraph 14, the definitions contained in Section 2(a) of ICA-40 (particularly the definitions of "interested person," "assignment," and "majority of the outstanding securities") shall be applied. 15. Amendment of this Agreement. No provisions of this Agreement may be changed, waived, discharged, or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge, or termination is sought. If the Corporation should at any time deem it necessary or advisable in the best interests of the Corporation that any amendment of this Agreement be made in order to comply with the recommendations or requirements of the SEC or other governmental authority or to obtain any advantage under state or federal tax laws and notifies Distributor of the form of such amendment, and the reasons therefor, and if Distributor should decline to assent to such amendment, the Corporation may terminate this Agreement forthwith. If Distributor should at any time request that a change be made in the Corporation's Articles of Incorporation or By-Laws or in its methods of doing business, in order to comply with any requirements of federal law or regulations of the SEC, or of a national securities association of which Distributor is or may be a member relating to the sale of Shares, and the Corporation, on behalf of the Funds, should not make such necessary change within a reasonable time, Distributor may terminate this Agreement forthwith. 16. Additional Funds. In the event that the Corporation establishes one or more series of Shares in addition to the Funds with respect to which it desires to have Distributor render services as distributor under the terms hereof, it shall so notify Distributor in writing, and if PAGE 9 Distributor agrees in writing to provide such services, such series of Shares shall become a Fund hereunder. 17. Miscellaneous. It is understood and expressly stipulated that neither the shareholders of the Funds, nor the directors of the Corporation shall be personally liable hereunder. The captions in this Agreement are included for convenience of reference only, and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 18. Notice. Any notice required or permitted to be given by either party to the other shall be deemed sufficient if sent by registered or certified mail, postage prepaid, addressed by the party giving notice to the other party at the last address furnished by the other party to the party giving notice: if to the Corporation, 100 East Pratt Street, Baltimore, Maryland 21202, and if to the Distributor, at 100 East Pratt Street, Baltimore, Maryland 21202. ATTEST: T. ROWE PRICE INTERNATIONAL FUNDS, INC. __________________________ By:_______________________________________ Secretary Chairman of the Board ATTEST: T. ROWE PRICE INVESTMENT SERVICES, INC. __________________________ By:_______________________________________ Assistant Secretary President EX-99.B8A-CUSTODIAN 13 CUSTODIAN AGREEMENT The Custodian Agreement dated September 28, 1987, as amended, between State Street Bank and Trust Company and T. Rowe Price Funds should be inserted here. PAGE 1 CUSTODIAN CONTRACT Between STATE STREET BANK AND TRUST COMPANY and EACH OF THE PARTIES INDICATED ON APPENDIX A DATED: SEPTEMBER 28, 1987 FRF 07/87 PAGE 2 TABLE OF CONTENTS 1. Employment of Custodian and Property to be Held By It. . . . . . . . .1 2. Duties of the Custodian with Respect to Property of the Fund Held by the Custodian in the United States.. . . . . . . . . . . . .2 2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . . .2 2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . . .2 1) Sale . . . . . . . . . . . . . . . . . . . . . . . . . .2 2) Repurchase Agreement . . . . . . . . . . . . . . . . . .2 3) Securities System. . . . . . . . . . . . . . . . . . . .3 4) Tender Offer . . . . . . . . . . . . . . . . . . . . . .3 5) Redemption by Issuer . . . . . . . . . . . . . . . . . .3 6) Transfer to Issuer, Nominee, Exchange. . . . . . . . . .3 7) Sale to Broker . . . . . . . . . . . . . . . . . . . . .3 8) Exchange or Conversion . . . . . . . . . . . . . . . . .4 9) Warrants, Rights . . . . . . . . . . . . . . . . . . . .4 10) Loans of Securities. . . . . . . . . . . . . . . . . . .4 11) Borrowings . . . . . . . . . . . . . . . . . . . . . . .4 12) Options. . . . . . . . . . . . . . . . . . . . . . . . .5 13) Futures. . . . . . . . . . . . . . . . . . . . . . . . .5 14) In-Kind Distributions. . . . . . . . . . . . . . . . . .5 15) Miscellaneous. . . . . . . . . . . . . . . . . . . . . .5 16) Type of Payment. . . . . . . . . . . . . . . . . . . . .6 2.3 Registration of Securities . . . . . . . . . . . . . . . . . .6 2.4 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . .7 2.5 Sale of Shares and Availability of Federal Funds . . . . . . .7 2.6 Collection of Income, Dividends. . . . . . . . . . . . . . . .7 2.7 Payment of Fund Monies . . . . . . . . . . . . . . . . . . . .8 1) Purchases. . . . . . . . . . . . . . . . . . . . . . . .8 2) Exchanges. . . . . . . . . . . . . . . . . . . . . . . .9 3) Redemptions. . . . . . . . . . . . . . . . . . . . . . .9 4) Expense and Liability. . . . . . . . . . . . . . . . . .9 5) Dividends. . . . . . . . . . . . . . . . . . . . . . . .9 6) Short Sale Dividend. . . . . . . . . . . . . . . . . . .10 7) Loan . . . . . . . . . . . . . . . . . . . . . . . . . .10 8) Miscellaneous. . . . . . . . . . . . . . . . . . . . . .10 2.8 Liability for Payment in Advance of Receipt of Securities Purchased . . . . . . . . . . . . . . . . . . .10 2.9 Appointment of Agents. . . . . . . . . . . . . . . . . . . . .10 2.10 Deposit of Securities in Securities System . . . . . . . . . .10 1) Account of Custodian . . . . . . . . . . . . . . . . . .11 2) Records. . . . . . . . . . . . . . . . . . . . . . . . .11 3) Payment of Fund Monies, Delivery of Securities . . . . . . . . . . . . . . . . . . . . . .11 4) Reports. . . . . . . . . . . . . . . . . . . . . . . . .12 5) Annual Certificate . . . . . . . . . . . . . . . . . . .12 6) Indemnification. . . . . . . . . . . . . . . . . . . . .12 2.11 Fund Assets Held in the Custodian's Direct Paper System . . . . . . . . . . . . . . . . . . . . . . . . . . .13 2.12 Segregated Account . . . . . . . . . . . . . . . . . . . . . .14 PAGE 3 2.13 Ownership Certificates for Tax Purposes. . . . . . . . . . . .15 2.14 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . .15 2.15 Communications Relating to Fund Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . .15 2.16 Reports to Fund by Independent Public Accountants. . . . . . .16 3. Duties of the Custodian with Respect to Property of the Fund Held Outside of the United States. . . . . . . . . . . .16 3.1 Appointment of Foreign Sub-Custodians. . . . . . . . . . . . .16 3.2 Assets to be Held. . . . . . . . . . . . . . . . . . . . . . .17 3.3 Foreign Securities Depositories. . . . . . . . . . . . . . . .17 3.4 Segregation of Securities. . . . . . . . . . . . . . . . . . .17 3.5 Access of Independent Accountants of the Fund. . . . . . . . .17 3.6 Reports by Custodian . . . . . . . . . . . . . . . . . . . . .18 3.7 Transactions in Foreign Assets of the Fund . . . . . . . . . .18 3.8 Responsibility of Custodian, Sub-Custodian and Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 3.9 Monitoring Responsibilities. . . . . . . . . . . . . . . . . .19 3.10 Branches of U.S. Banks . . . . . . . . . . . . . . . . . . . .19 4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund . . . . . . . . . . . . . . . . . . . . . . . . .19 5. Proper Instructions. . . . . . . . . . . . . . . . . . . . . . . . . .20 6. Actions Permitted Without Express Authority. . . . . . . . . . . . . .21 7. Evidence of Authority, Reliance on Documents . . . . . . . . . . . . .21 8. Duties of Custodian with Respect to the Books of Account and Calculations of Net Asset Value and Net Income . . . . . . . . .22 9. Records, Inventory . . . . . . . . . . . . . . . . . . . . . . . . . .22 10. Opinion of Fund's Independent Accountant . . . . . . . . . . . . . . .23 11. Compensation of Custodian. . . . . . . . . . . . . . . . . . . . . . .23 12. Responsibility of Custodian. . . . . . . . . . . . . . . . . . . . . .23 13. Effective Period, Termination and Amendment. . . . . . . . . . . . . .25 14. Successor Custodian. . . . . . . . . . . . . . . . . . . . . . . . . .26 15. Interpretive and Additional Provisions . . . . . . . . . . . . . . . .28 16. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 17. Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 18. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . .29 19. Exemption from Liens . . . . . . . . . . . . . . . . . . . . . . . . .29 20. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . . .29 21. Prior Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . .29 22. The Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 23. Governing Documents. . . . . . . . . . . . . . . . . . . . . . . . . .30 24. Subcustodian Agreement . . . . . . . . . . . . . . . . . . . . . . . .30 25. Directors and Trustees . . . . . . . . . . . . . . . . . . . . . . . .30 26. Massachusetts Business Trust . . . . . . . . . . . . . . . . . . . . .30 27. Successors of Parties. . . . . . . . . . . . . . . . . . . . . . . . .31 PAGE 4 CUSTODIAN CONTRACT This Contract by and between State Street Bank and Trust Company, a Massachusetts trust company, having its principal place of business at 225 Franklin Street, Boston, Massachusetts, 02110 (hereinafter called the "Custodian"), and each fund which is listed on Appendix A (as such Appendix may be amended from time to time) and which evidences its agreement to be bound hereby by executing a copy of this Contract (each such fund individually hereinafter called the "Fund," whose definition may be found in Section 22), WITNESSETH: That in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. Employment of Custodian and Property to be Held by It The Fund hereby employs the Custodian as the custodian of its assets, including securities it desires to be held in places within the United States ("domestic securities") and securities it desires to be held outside the United States ("foreign securities") pursuant to the Governing Documents of the Fund. The Fund agrees to deliver to the Custodian all securities and cash now or hereafter owned or acquired by it, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Fund from time to time, and the cash consideration received by it for such new or treasury shares of capital stock ("Shares") of the Fund as may be issued or sold from time to time. The Custodian shall not be responsible for any property of the Fund held or received by the Fund and not delivered to the Custodian. With respect to domestic securities, upon receipt of "Proper Instructions" (within the meaning of Article 5), the Custodian shall from time to time employ one or more sub-custodians located in the United States, but only in accordance with an applicable vote by the Board of Directors/Trustees of the Fund, and provided that the Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian, and further provided that the Custodian shall not release the sub-custodian from any responsibility or liability unless mutually agreed upon by the parties in writing. With respect to foreign securities and other assets of the Fund held outside the United States, the Custodian shall employ Chase Manhattan Bank, N.A., as a sub-custodian for the Fund in accordance with the provisions of Article 3. 2. Duties of the Custodian with Respect to Property of the Fund Held By the Custodian in the United States 2.1 Holding Securities. The Custodian shall hold and physically segregate for the account of the Fund all PAGE 5 non-cash property, to be held by it in the United States, including all domestic securities owned by the Fund, other than (a) securities which are maintained pursuant to Section 2.10 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury, collectively referred to herein as "Securities System," and (b) commercial paper of an issuer for which the Custodian acts as issuing and paying agent ("Direct Paper") which is deposited and/or maintained in the Direct Paper System of the Custodian pursuant to Section 2.11. 2.2 Delivery of Securities. The Custodian shall release and deliver domestic securities owned by the Fund held by the Custodian or in a Securities System account of the Custodian or in the Custodian's Direct Paper book entry system account ("Direct Paper System Account") only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by mutual agreement of the parties, and only in the following cases: 1) Sale. Upon sale of such securities for the account of the Fund and receipt of payment therefor; 2) Repurchase Agreement. Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Fund; 3) Securities System. In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.10 hereof; 4) Tender Offer. To the depository agent or other receiving agent in connection with tender or other similar offers for portfolio securities of the Fund; 5) Redemption by Issuer. To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 6) Transfer to Issuer, Nominee. Exchange. To the issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.9 or into the name or nominee name of any sub-custodian appointed pursuant to Article 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units and bearing the same interest rate, maturity date and call provisions, PAGE 6 if any; provided that, in any such case, the new securities are to be delivered to the Custodian; 7) Sale to Broker or Dealer. Upon the sale of such securities for the account of the Fund, to the broker or its clearing agent or dealer, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's failure to act in accordance with its duties as set forth in Section 12. 8) Exchange or Conversion. For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization, split-up of shares, change of par value or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 9) Warrants, Rights. In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 10) Loans of Securities. For delivery in connection with any loans of securities made by the Fund, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund, which may be in the form of cash, obligations issued by the United States government, its agencies or instrumentalities, or such other property as mutually agreed by the parties, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Fund prior to the receipt of such collateral, unless the Custodian fails to act in accordance with its duties set forth in Article 12; PAGE 7 11) Borrowings. For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt of amounts borrowed, except where additional collateral is required to secure a borrowing already made, subject to Proper Instructions, further securities may be released for that purpose; 12) Options. For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation, any registered national securities exchange, any similar organization or organizations, or the Investment Company Act of 1940, regarding escrow or other arrangements in connection with transactions by the Fund; 13) Futures. For delivery in accordance with the provisions of any agreement among the Fund, the Custodian, and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, any similar organization or organizations, or the Investment Company Act of 1940, regarding account deposits in connection with transactions by the Fund; 14) In-Kind Distributions. Upon receipt of instructions from the transfer agent ("Transfer Agent") for the Fund, for delivery to such Transfer Agent or to the holders of shares in connection with distributions in kind, as may be described from time to time in the Fund's currently effective prospectus and statement of additional information ("prospectus"), in satisfaction of requests by holders of Shares for repurchase or redemption; 15) Miscellaneous. For any other proper corporate purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Directors/Trustees or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, specifying the securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such PAGE 8 purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made; and 16) Type of Payment. In any or all of the above cases, payments to the Fund shall be made in cash, by a certified check upon or a treasurer's or cashier's check of a bank, by effective bank wire transfer through the Federal Reserve Wire System or, if appropriate, outside of the Federal Reserve Wire System and subsequent credit to the Fund's Custodian account, or, in case of delivery through a stock clearing company, by book-entry credit by the stock clearing company in accordance with the then current street custom, or such other form of payment as may be mutually agreed by the parties, in all such cases collected funds to be promptly credited to the Fund. 2.3 Registration of Securities. Domestic securities held by the Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Custodian which nominee shall be assigned exclusively to the Fund, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Fund, or in the name or nominee name of any agent appointed pursuant to Section 2.9 or in the name or nominee name of any sub-custodian appointed pursuant to Article 1. All securities accepted by the Custodian on behalf of the Fund under the terms of this Contract shall be in "street name" or other good delivery form. 2.4 Bank Accounts. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Contract, and shall hold in such account or accounts, subject to the provisions hereof all cash received by it from or for the account of the Fund, other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Custodian for the Fund may be deposited for the Fund's credit in the Banking Department of the Custodian or in such other banks or trust companies as the Custodian may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the Investment Company Act of 1940 and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall be approved by vote of a majority of the Board of Directors/Trustees of the Fund. Such funds shall be PAGE 9 deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. 2.5 Sale of Shares and Availability of Federal Funds. Upon mutual agreement between the Fund and the Custodian, the Custodian shall, upon the receipt of Proper Instructions, make federal funds available to the Fund as of specified times agreed upon from time to time by the Fund and the Custodian in the amount of checks received in payment for Shares of the Fund which are deposited into the Fund's account. 2.6 Collection of Income, Dividends. The Custodian shall collect on a timely basis all income and other payments with respect to United States registered securities held hereunder to which the Fund shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to United States bearer securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent thereof and shall credit such income or other payments, as collected, to the Fund's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. The Custodian will also receive and collect all stock dividends, rights and other items of like nature as and when they become due or payable. Income due the Fund on United States securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Fund is properly entitled. 2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by mutual agreement of the parties, the Custodian shall pay out monies of the Fund in the following cases only: 1) Purchases. Upon the purchase of domestic securities, options, futures contracts or options on futures contracts for the account of the Fund but only (a) against the delivery of such securities, or evidence of title to such options, futures contracts or options on futures contracts, to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the Investment PAGE 10 Company Act of 1940, as amended, to act as a custodian and has been designated by the Custodian as its agent for this purpose in accordance with Section 2.9 hereof) registered in the name of the Fund or in the name of a nominee of the Fund or of the Custodian referred to in Section 2.3 hereof or in other proper form for transfer; (b) in the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section 2.10 hereof or (c) in the case of a purchase involving the Direct Paper System, in accordance with the conditions set forth in Section 2.11; or (d) in the case of repurchase agreements entered into between the Fund and the Custodian, or another bank, or a broker-dealer which is a member of NASD, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Fund of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Fund. All coupon bonds accepted by the Custodian shall have the coupons attached or shall be accompanied by a check payable on coupon payable date for the interest due on such date. 2) Exchanges. In connection with conversion, exchange or surrender of securities owned by the Fund as set forth in Section 2.2 hereof; 3) Redemptions. For the redemption or repurchase of Shares issued by the Fund as set forth in Article 4 hereof; 4) Expense and Liability. For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) Dividends. For the payment of any dividends or other distributions to shareholders declared pursuant to the Governing Documents of the Fund; 6) Short Sale Dividend. For payment of the amount of dividends received in respect of securities sold short; 7) Loan. For repayment of a loan upon redelivery of pledged securities and upon surrender of the PAGE 11 note(s), if any, evidencing the loan; 8) Miscellaneous. For any other proper purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Directors/Trustees or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Secretary or an Assistant Secretary, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made. 2.8 Liability for Payment in Advance of Receipt of Securities Purchased. In any and every case where payment for purchase of domestic securities for the account of the Fund is made by the Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund to so pay in advance, the Custodian shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Custodian. 2.9 Appointment of Agents. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company, which is itself qualified under the Investment Company Act of 1940, as amended, to act as a custodian, as its agent to carry out such of the provisions of this Article 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. 2.10 Deposit of Securities in Securities Systems. The Custodian may deposit and/or maintain domestic securities owned by the Fund in a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, which acts as a securities depository, or in the book-entry system authorized by the U.S. Department of the Treasury and certain federal agencies, collectively referred to herein as "Securities System" in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations, if any, and subject to the following provisions: 1) Account of Custodian. The Custodian may keep domestic securities of the Fund in a Securities System provided that such securities are represented in an account ("Account") of the Custodian in the Securities System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise PAGE 12 for customers; 2) Records. The records of the Custodian, with respect to domestic securities of the Fund which are maintained in a Securities System, shall identify by book-entry those securities belonging to the Fund; 3) Payment of Fund Monies, Delivery of Securities. Subject to Section 2.7, the Custodian shall pay for domestic securities purchased for the account of the Fund upon (i) receipt of advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. Subject to Section 2.2, the Custodian shall transfer domestic securities sold for the account of the Fund upon (i) receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. Copies of all advices from the Securities System of transfers of domestic securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian and be provided to the Fund at its request. The Custodian shall furnish the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Fund; 4) Reports. The Custodian shall provide the Fund with any report obtained by the Custodian on the Securities System's accounting system, internal accounting control and procedures for safeguarding domestic securities deposited in the Securities System, and further agrees to provide the Fund with copies of any documentation it has relating to its arrangements with the Securities Systems as set forth in this Agreement or as otherwise required by the Securities and Exchange Commission; 5) Annual Certificate. The Custodian shall have received the initial or annual certificate, as the case may be, required by Article 13 hereof; 6) Indemnification. Anything to the contrary in this Contract notwithstanding, the Custodian shall be liable to the Fund for any loss or expense, PAGE 13 including reasonable attorneys fees, or damage to the Fund resulting from use of the Securities System by reason of any failure by the Custodian or any of its agents or of any of its or their employees or agents or from failure of the Custodian or any such agent to enforce effectively such rights as it may have against the Securities System; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a consequence of any such loss, expense or damage if and to the extent that the Fund has not been made whole for any such loss, expense or damage. 2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian may deposit and/or maintain securities owned by the Fund in the Direct Paper System of the Custodian subject to the following provisions: 1) No transaction relating to securities in the Direct Paper System will be effected in the absence of Proper Instructions; 2) The Custodian may keep securities of the Fund in the Direct Paper System only if such securities are represented in an account ("Account") of the Custodian in the Direct Paper System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 3) The records of the Custodian with respect to securities of the Fund which are maintained in the Direct Paper System shall identify by book-entry those securities belonging to the Fund; 4) The Custodian shall pay for securities purchased for the account of the Fund upon the making of an entry on the records of the Custodian to reflect such payment and transfer of securities to the account of the Fund. The Custodian shall transfer securities sold for the account of the Fund upon the making of an entry on the records of the Custodian to reflect such transfer and receipt of payment for the account of the Fund; 5) The Custodian shall furnish the Fund confirmation of each transfer to or from the account of the Fund, in the form of a written advice or notice, of Direct Paper on the next business day following such transfer and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transaction in the Securities System for the account of the Fund; PAGE 14 6) The Custodian shall provide the Fund with any report on its system of internal accounting control as the Fund may reasonably request from time to time; 2.12 Segregated Account. The Custodian shall, upon receipt of Proper Instructions, which may be of a continuing nature where deemed appropriate by mutual agreement of the parties, establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, (ii) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Fund or commodity futures contracts or options thereon purchased or sold by the Fund, (iii) for the purposes of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release, rule or policy, of the Securities and Exchange Commission relating to the maintenance of segregated accounts by registered investment companies and (iv) for other proper corporate purposes, but only, in the case of clause (iv), upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Directors/Trustees or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper corporate purposes. 2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of the Fund held by it and in connection with transfers of such securities. 2.14 Proxies. If the securities are registered other than in the name of the Fund or a nominee of the Fund, the Custodian shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the PAGE 15 registered holder of such securities, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities. 2.15 Communications Relating to Fund Portfolio Securities. The Custodian shall transmit promptly to the Fund all written information (including, without limitation, pendency of calls and maturities of domestic securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund and the maturity of futures contracts purchased or sold by the Fund) received by the Custodian from issuers of the domestic securities being held for the Fund by the Custodian, an agent appointed under Section 2.9, or sub-custodian appointed under Section 1. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund all written information received by the Custodian, an agent appointed under Section 2.9, or sub-custodian appointed under Section 1 from issuers of the domestic securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian of such desired action at least 72 hours (excluding holidays and weekends) prior to the time such action must be taken under the terms of the tender, exchange offer, or other similar transaction, and it will be the responsibility of the Custodian to timely transmit to the appropriate person(s) the Fund's notice. Where the Fund does not notify the Custodian of its desired action within the aforesaid 72 hour period, the Custodian shall use its best efforts to timely transmit the Fund's notice to the appropriate person. 2.16 Reports to Fund by Independent Public Accountants. The Custodian shall provide the Fund, at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including domestic securities deposited and/or maintained in a Securities System, relating to the services provided by the Custodian under this Contract; such reports shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies existing or arising since the prior examination would be disclosed by such examination. The reports must describe any material inadequacies disclosed and, if there are no such inadequacies, the reports shall so state. PAGE 16 3. Duties of the Custodian with Respect to Property of the Fund Held Outside of the United States 3.1 Appointment of Foreign Sub-Custodians. The Custodian is authorized and instructed to employ Chase Manhattan Bank, N.A, ("Chase") as sub-custodian for the Fund's securities, cash and other assets maintained outside of the United States ("foreign assets") all as described in the Subcustodian Agreement between the Custodian and Chase. Upon receipt of "Proper Instructions", together with a certified resolution of the Fund's Board of Directors/Trustees, the Custodian and the Fund may agree to designate additional proper institutions and foreign securities depositories to act as sub-custodians of the Fund's foreign assets. Upon receipt of Proper Instructions from the Fund, the Custodian shall cease the employment of any one or more of such sub-custodians for maintaining custody of the Fund's foreign assets. 3.2 Assets to be Held. The Custodian shall limit the foreign assets maintained in the custody of foreign sub- custodians to foreign assets specified under the terms of the Subcustodian Agreement between the Custodian and Chase. 3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in writing by the Custodian and the Fund, foreign assets of the Fund shall be maintained in foreign securities depositories only through arrangements implemented by the banking institutions serving as sub- custodians pursuant to the terms hereof. 3.4 Segregation of Securities. The Custodian shall identify on its books as belonging to the Fund, the foreign assets of the Fund held by Chase and by each foreign sub- custodian. 3.5 Access of Independent Accountants of the Fund. Upon request of the Fund, the Custodian will use its best efforts (subject to applicable law) to arrange for the independent accountants, officers or other representatives of the Fund or the Custodian to be afforded access to the books and records of Chase and any banking or other institution employed as a sub-custodian for the Fund by Chase or the Custodian insofar as such books and records relate to the performance of Chase or such banking or other institution under any agreement with the Custodian or Chase. Upon request of the Fund, the Custodian shall furnish to the Fund such reports (or portions thereof) of Chase's external auditors as are available to the Custodian and which relate directly to Chase's system of internal accounting controls applicable to Chase's duties as a subcustodian or which relate to the internal accounting controls of any subcustodian employed by Chase with respect to foreign assets of the Fund. PAGE 17 3.6 Reports by Custodian. The Custodian will supply to the Fund from time to time, as mutually agreed upon, statements in respect of the foreign assets of the Fund held pursuant to the terms of the Subcustodian Agreement between the Custodian and Chase, including but not limited, to an identification of entities having possession of the Fund's foreign assets and advices or notifications of any transfers of foreign assets to or from each custodial account maintained by any sub-custodian on behalf of the Fund indicating, as to foreign assets acquired for the Fund, the identity of the entity having physical possession of such foreign assets. 3.7 Transactions in Foreign Assets of the Fund. All transactions with respect to the Fund's foreign assets shall be in accordance with, and subject to, the provisions of the Subcustodian Agreement between Chase and the Custodian. 3.8 Responsibility of Custodian, Sub-Custodian, and Fund. Notwithstanding anything to the contrary in this Custodian Contract, the Custodian shall not be liable to the Fund for any loss, damage, cost, expense, liability or claim arising out of or in connection with the maintenance of custody of the Fund's foreign assets by Chase or by any other banking institution or securities depository employed pursuant to the terms of any Subcustodian Agreement between Chase and the Custodian, except that the Custodian shall be liable for any such loss, damage, cost, expense, liability or claim to the extent provided in the Subcustodian Agreement between Chase and the Custodian or attributable to the failure of the Custodian to exercise the standard of care set forth in Article 12 hereof in the performance of its duties under this Contract or such Subcustodian Agreement. At the election of the Fund, the Fund shall be entitled to be subrogated to the rights of the Custodian under the Subcustodian Agreement with respect to any claims arising thereunder against Chase or any other banking institution or securities depository employed by Chase if and to the extent that the Fund has not been made whole therefor. As between the Fund and the Custodian, the Fund shall be solely responsible to assure that the maintenance of foreign securities and cash pursuant to the terms of the Subcustodian Agreement complies with all applicable rules, regulations, interpretations and orders of the Securities and Exchange Commission, and the Custodian assumes no responsibility and makes no representations as to such compliance. 3.9 Monitoring Responsibilities. With respect to the Fund's foreign assets, the Custodian shall furnish annually to the Fund, during the month of June, information concerning the sub-custodians employed by the Custodian. PAGE 18 Such information shall be similar in kind and scope to that furnished to the Fund in connection with the initial approval of this Contract. In addition, the Custodian will promptly inform the Fund in the event that the Custodian learns of a material adverse change in the financial condition of a sub-custodian. 3.10 Branches of U.S. Banks. Except as otherwise set forth in this Contract, the provisions of this Article 3 shall not apply where the custody of the Fund's assets is maintained in a foreign branch of a banking institution which is a "bank" as defined by Section 2(a)(5) of the Investment Company Act of 1940 which meets the qualification set forth in Section 26(a) of said Act. The appointment of any such branch as a sub-custodian shall be governed by Section 1 of this Contract. 4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund From such funds as may be available for the purpose but subject to the limitations of the Governing Documents of the Fund and any applicable votes of the Board of Directors/Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholder. In connection with the redemption or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian. The Custodian shall receive from the distributor for the Fund's Shares or from the Transfer Agent of the Fund and deposit as received into the Fund's account such payments as are received for Shares of the Fund issued or sold from time to time by the Fund. The Custodian will provide timely notification to the Fund and the Transfer Agent of any receipt by it of payments for Shares of the Fund. 5. Proper Instructions Proper Instructions as used herein means a writing signed or initialled by one or more person or persons as the Board of Directors/Trustees shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested, or shall be a blanket instruction authorizing specific transactions of a repeated or PAGE 19 routine nature. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing. Upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Board of Directors/Trustees of the Fund accompanied by a detailed description of procedures approved by the Board of Directors/Trustees, Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that the Board of Directors/Trustees and the Custodian are satisfied that such procedures afford adequate safeguards for the Fund's assets. 6. Actions Permitted without Express Authority The Custodian may in its discretion, without express authority from the Fund: 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Contract, provided that all such payments shall be accounted for to the Fund; 2) surrender securities in temporary form for securities in definitive form; 3) endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments on the same day as received; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund except as otherwise directed by the Board of Directors/Trustees of the Fund. 7. Evidence of Authority, Reliance on Documents The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper reasonably and in good faith believed by it to be genuine and to have been properly executed by or on behalf of the Fund in accordance with Article 5 hereof. The Custodian may receive and accept a certified copy of a vote of the Board of Directors/Trustees of the Fund as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Board of Directors/Trustees pursuant to the Governing Documents of the Fund as described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. So long as and to the extent that it is in the exercise of the standard of care set forth in Article 12 hereof, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this PAGE 20 Contract and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties. 8. Duties of Custodian with Respect to the Books of Account and Calculation of Net Asset Value and Net Income The Custodian shall cooperate with and supply necessary information to the person or persons appointed by the Board of Directors/Trustees of the Fund to keep the books of account of the Fund and/or compute the net asset value per share of the outstanding shares of the Fund or, if directed in writing to do so by the Fund, shall itself keep such books of account and/or compute such net asset value per share. If so directed, the Custodian shall also calculate daily the net income of the Fund as described in the Fund's currently effective prospectus and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per share and the daily income of the Fund shall be made at the time or times and in the manner described from time to time in the Fund's currently effective prospectus. 9. Records, Inventory The Custodian shall create and maintain all records relating to its activities and obligations under this Contract in such manner as will meet the obligations of the Fund under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable federal and state tax laws and any other law or administrative rules or procedures which may be applicable to the Fund. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection and audit by duly authorized officers, employees or agents of the Fund and employees and agents of the Securities and Exchange Commission, and, in the event of termination of this Agreement, will be delivered in accordance with Section 14 hereof. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of securities owned by the Fund and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. The Custodian shall conduct a periodic inventory of all securities and other property subject to this Agreement and provide to the Fund a periodic reconciliation of the vaulted position of the Fund to the appraised position of the Fund. The Custodian will promptly report to the Fund the results of the reconciliation, indicating any shortages or discrepancies uncovered thereby, and take appropriate action to remedy any such shortages or discrepancies. PAGE 21 10. Opinion of Fund's Independent Accountant The Custodian shall cooperate with the Fund's independent public accountants in connection with the annual and other audits of the books and records of the Fund and take all reasonable action, as the Fund may from time to time request, to provide from year to year the necessary information to such accountants for the expression of their opinion without any qualification as to the scope of their examination, including but not limited to, any opinion in connection with the preparation of the Fund's Form N-lA, and Form N-SAR or other annual reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission. 11. Compensation of Custodian The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Fund and the Custodian. 12. Responsibility of Custodian Notwithstanding anything to the contrary in this Agreement, the Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Contract, but shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence. In order for the indemnification provision contained in this Section to apply, it is understood that if in any case the Fund may be asked to indemnify or save the Custodian harmless, the Fund shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the Custodian will use all reasonable care to identify and notify the Fund promptly concerning any situation which presents or appears likely to present the probability of such a claim for indemnification against the Fund. The Fund, shall have the option to defend the Custodian against any claim which may be the subject of this indemnification, and in the event that the Fund so elects, it will so notify the Custodian, and thereupon the Fund shall take over complete defense of the claim and the Custodian shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this Section. The Custodian shall in no case confess any claim or make any compromise in any case in which the Fund will be asked to indemnify the Custodian except with the Fund's prior written consent. Nothing herein shall be construed to limit any right or cause of action on the part of the Custodian under this Contract which is independent of any right or cause of action on the part of the Fund. The Custodian shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund or such other counsel as may be agreed to by the parties) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Notwithstanding the foregoing, the responsibility PAGE 22 of the Custodian with respect to redemptions effected by check shall be in accordance with a separate Agreement entered into between the Custodian and the Fund. If the Fund requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund being liable for the payment of money or incurring liability of some other form, the Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. If the Fund requires the Custodian to advance cash or securities for any purpose or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Contract, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the Fund shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of the Fund's assets to the extent necessary to obtain reimbursement, provided that the Custodian gives the Fund reasonable notice to repay such cash or securities advanced, however, such notice shall not preclude the Custodian's right to assert any lien under this provision. 13. Effective Period, Termination and Amendment This Contract shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than sixty (60) days after the date of such delivery or mailing in the case of a termination by the Fund, and not sooner than 180 days after the date of such delivery or mailing in the case of a termination by the Custodian; provided, however that the Custodian shall not act under Section 2.10 hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Directors/Trustees of the Fund has approved the initial use of a particular Securities System and the receipt of an annual certificate of the Secretary or an Assistant Secretary that the Board of Directors/Trustees has reviewed the use by the Fund of such Securities System, as required in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended and that the Custodian shall not act under Section 2.11 hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Directors/Trustees has approved the initial use of the Direct Paper System and the receipt of an annual certificate of PAGE 23 the Secretary or an Assistant Secretary that the Board of Directors/Trustees has reviewed the use by the Fund of the Direct Paper System; provided further, however, that the Fund shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, or any provision of the Governing Documents of the Fund, and further provided, that the Fund may at any time by action of its Board of Directors/Trustees (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Contract in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Contract, the Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements, provided that the Custodian shall not incur any costs, expenses or disbursements specifically in connection with such termination unless it has received prior approval from the Fund, which approval shall not be unreasonably withheld. 14. Successor Custodian If a successor custodian shall be appointed by the Board of Directors/Trustees of the Fund, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities, funds and other properties then held by it hereunder and shall transfer to an account of the successor custodian all of the Fund's securities held in a Securities System. The Custodian shall also use its best efforts to assure that the successor custodian will continue any subcustodian agreement entered into by the Custodian and any subcustodian on behalf of the Fund. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Board of Directors/Trustees of the Fund, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such vote. In the event that no written order designating a successor custodian or certified copy of a vote of the Board of Directors/Trustees shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not PAGE 24 less than $25,000,000, all securities, funds and other properties held by the Custodian and all instruments held by the Custodian relative thereto and all other property held by it under this Contract and to transfer to an account of such successor custodian all of the Fund's securities held in any Securities System. Thereafter, such bank or trust company shall be the successor of the Custodian under this Contract. In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the certified copy of the vote referred to or of the Board of Directors/Trustees to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Contract relating to the duties and obligations of the Custodian shall remain in full force and effect. If while this Contract is in force the Fund shall be liquidated pursuant to law, the Custodian shall distribute, either in cash or (if the Fund so orders) in the portfolio securities and other assets of the Fund, pro rata among the holders of shares of the Fund as certified by the Transfer Agent, the property of the Fund which remains after paying or satisfying all expenses and liabilities of the Fund. Section 12 hereof shall survive any termination of this Contract. 15. Interpretive and Additional Provisions In connection with the operation of this Contract, the Custodian and the Fund may from time to time agree on such provisions interpretive of or in addition to the provisions of this Contract as may in their joint opinion be consistent with the general tenor of this Contract. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Governing Documents of the Fund. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Contract. 16. Notice Any notice shall be sufficiently given when sent by registered or certified mail, or by such other means as the parties shall agree, to the other party at the address of such party set forth above or at such other address as such party may from time to time specify in writing to the other party. 17. Bond The Custodian shall, at all times, maintain a bond in such form and amount as is acceptable to the Fund which shall be issued by a reputable fidelity insurance company authorized to do business in the place where such bond is issued against larceny PAGE 25 and embezzlement, covering each officer and employee of the Custodian who may, singly or jointly with others, have access to securities or funds of the Fund, either directly or through authority to receive and carry out any certificate instruction, order request, note or other instrument required or permitted by this Agreement. The Custodian agrees that it shall not cancel, terminate or modify such bond insofar as it adversely affects the Fund except after written notice given to the Fund not less than 10 days prior to the effective date of such cancellation, termination or modification. The Custodian shall furnish to the Fund a copy of each such bond and each amendment thereto. 18. Confidentiality The Custodian agrees to treat all records and other information relative to the Fund and its prior, present or future shareholders as confidential, and the Custodian, on behalf of itself and its employees, agrees to keep confidential all such information except, after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where the Custodian may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Fund. 19. Exemption from Liens The securities and other assets held by the Custodian for the Fund shall be subject to no lien or charge of any kind in favor of the Custodian or any person claiming through the Custodian, but nothing herein shall be deemed to deprive the Custodian of its right to invoke any and all remedies available at law or equity to collect amounts due it under this Agreement. Neither the Custodian nor any sub-custodian appointed pursuant to Section 1 hereof shall have any power or authority to assign, hypothecate, pledge or otherwise dispose of any securities held by it for the Fund, except upon the direction of the Fund, duly given as herein provided, and only for the account of the Fund. 20. Massachusetts Law to Apply This Contract shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. 21. Prior Contracts Without derogating any of the rights established by such contracts, this Contract supersedes and terminates, as of the date hereof, all prior contracts between the Fund and the Custodian relating to the custody of the Fund's assets. 22. The Parties All references herein to "the Fund" are to each of the funds listed on Appendix A individually, as if this Contract were between such individual fund and the Custodian. In the case of a series fund or trust, all references to "the Fund" are to the individual series or portfolio of such fund or trust, or to such fund or trust on behalf of the individual series or portfolio, as PAGE 26 appropriate. Any reference in this Contract to "the parties" shall mean the Custodian and such other individual Fund as to which the matter pertains. 23. Governing Documents. The term "Governing Documents" means the Articles of Incorporation, Agreement of Trust, By-Laws and Registration Statement filed under the Securities Act of 1933, as amended from time to time. 24. Subcustodian Agreement. Reference to the "Subcustodian Agreement" between the Custodian and Chase shall mean any such agreement which shall be in effect from time to time between Chase and the Custodian with respect to foreign assets of the Fund. 25. Directors and Trustees. It is understood and is expressly stipulated that neither the holders of shares in the Fund nor any Directors or Trustees of the Fund shall be personally liable hereunder. 26. Massachusetts Business Trust With respect to any Fund which is a party to this Contract and which is organized as a Massachusetts business trust, the term Fund means and refers to the trustees from time to time serving under the applicable trust agreement (Declaration of Trust) of such Trust as the same may be amended from time to time. It is expressly agreed that the obligations of any such Trust hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but bind only the trust property of the Trust, as provided in the Declaration of Trust of the Trust. The execution and delivery of this Contract has been authorized by the trustees and signed by an authorized officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them but shall bind only the trust property of the Trust as provided in its Declaration of Trust. 27. Successors of Parties. This Contract shall be binding on and shall inure to the benefit of the Fund and the Custodian and their respective successors. IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the dates indicated below. DATED: September 28, 1987 __________________ PAGE 27 STATE STREET BANK AND TRUST COMPANY ATTEST: /s/Kathleen M. Kubit By/s/Charles Cassidy _____________________ _________________________________ Assistant Secretary Vice President T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE INTERNATIONAL TRUST T. Rowe Price International Stock Fund T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE U.S. TREASURY MONEY FUND, INC. T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE INSTITUTIONAL TRUST Tax-Exempt Reserve Portfolio PAGE 28 (SIGNATURES CONTINUED) T. ROWE PRICE STATE TAX-FREE INCOME TRUST New York Tax-Free Money Fund T. ROWE PRICE STATE TAX-FREE INCOME TRUST New York Tax-Free Bond Fund T. ROWE PRICE INTERNATIONAL TRUST T. Rowe Price International Bond Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Money Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. DATED: September 28, 1987 ___________________ ATTEST: /s/Nancy J. Wortman By/s/Carmen F. Deyesu ____________________________ __________________________________ PAGE 29 Appendix A The following Funds are parties to this Agreement and have so indicated their intention to be bound by such Agreement by executing the Agreement on the dates indicated thereon. T. Rowe Price California Tax-Free Income Trust on behalf of the California Tax-Free Bond Fund and California Tax-Free Money Fund T. Rowe Price Capital Appreciation Fund T. Rowe Price Equity Income Fund T. Rowe Price GNMA Fund T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price Institutional Trust on behalf of the Tax-Exempt Reserve Portfolio T. Rowe Price International Trust on behalf of the T. Rowe Price International Bond Fund and T. Rowe Price International Stock Fund T. Rowe Price New America Growth Fund T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price New Income Fund, Inc. T. Rowe Price Prime Reserve Fund, Inc. T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price State Tax-Free Income Trust on behalf of the Maryland Tax-Free Bond Fund, New York Tax-Free Bond Fund and New York Tax-Free Money Fund T. Rowe Price Tax-Exempt Money Fund, Inc. T. Rowe Price Tax-Free High Yield Fund, Inc. T. Rowe Price Tax-Free Income Fund, Inc. T. Rowe Price Tax-Free Short-Intermediate Fund, Inc. T. Rowe Price U.S. Treasury Money Fund, Inc. PAGE 30 AMENDMENT NO. 1 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS THIS AGREEMENT, made as of this 24th day of June, 1988, by and between: T. Rowe Price Growth Stock Fund, Inc., T. Rowe Price New Horizons Fund, Inc., T. Rowe Price New Era Fund, Inc., T. Rowe Price New Income Fund, Inc., T. Rowe Price Prime Reserve Fund, Inc., T. Rowe Price International Trust, T. Rowe Price U.S. Treasury Money Fund, Inc., T. Rowe Price Growth & Income Fund, Inc., T. Rowe Price Tax-Exempt Money Fund, Inc., T. Rowe Price Tax-Free Income Fund, Inc., T. Rowe Price Tax-Free Short- Intermediate Fund, Inc., T. Rowe Price Short-Term Bond Fund, Inc., T. Rowe Price High Yield Fund, Inc., T. Rowe Price Tax-Free High Yield Fund, Inc., T. Rowe Price New America Growth Fund, T. Rowe Price Equity Income Fund, T. Rowe Price GNMA Fund, T. Rowe Price Capital Appreciation Fund, T. Rowe Price Institutional Trust, T. Rowe Price State Tax-Free Income Trust, T. Rowe Price California Tax-Free Income Trust, T. Rowe Price Science & Technology Fund, Inc., (hereinafter together called the "Funds" and individually "Fund") and State Street Bank and Trust Company, a Massachusetts trust, W I T N E S S E T H: It is mutually agreed that the Custodian Contract made by the parties on the 28th day of September, 1987, is hereby amended by adding thereto the T. Rowe Price Small-Cap Value Fund, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE NEW HORIZONS FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE NEW ERA FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE NEW INCOME FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President PAGE 31 (SIGNATURES CONTINUED) T. ROWE PRICE PRIME RESERVE FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE INTERNATIONAL TRUST /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE U.S. TREASURY MONEY FUND, INC. /s/Henry H.Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE GROWTH & INCOME FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE SHORT-TERM BOND FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE TAX-FREE INCOME FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE HIGH YIELD FUND, INC. /s/ Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President PAGE 32 (SIGNATURES CONTINUED) T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE NEW AMERICA GROWTH FUND /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE EQUITY INCOME FUND /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE GNMA FUND /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE CAPITAL APPRECIATION FUND /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE INSTITUTIONAL TRUST /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE STATE TAX-FREE INCOME TRUST /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President PAGE 33 (SIGNATURES CONTINUED) T. ROWE PRICE SMALL-CAP VALUE FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President STATE STREET BANK AND TRUST COMPANY /s/William Blackwell ______________________________________________ By: PAGE 34 AMENDMENT NO. 2 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of October 19, 1988, by adding thereto the T. Rowe Price International Discovery Fund, Inc., a separate series of T. Rowe Price International Trust. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL TRUST T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. ROWE PRICE U.S. TREASURY MONEY FUND, INC. T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND PAGE 35 T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE INSTITUTIONAL TRUST Tax-Exempt Reserve Portfolio T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President STATE STREET BANK AND TRUST COMPANY /s/Guy R. Sturgeon ______________________________________________ By: PAGE 36 AMENDMENT NO. 3 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988 and October 19, 1988, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of February 22, 1989, by adding thereto the T. Rowe Price International Equity Fund, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL TRUST T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. ROWE PRICE U.S. TREASURY MONEY FUND, INC. T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND PAGE 37 T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE INSTITUTIONAL TRUST Tax-Exempt Reserve Portfolio T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President STATE STREET BANK AND TRUST COMPANY /s/K. Donelson ______________________________________________ By: PAGE 38 AMENDMENT NO. 4 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988 and February 22, 1989, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of July 19, 1989, by adding thereto the Institutional International Funds, Inc., on behalf of the Foreign Equity Fund. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL TRUST T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. ROWE PRICE U.S. TREASURY MONEY FUND, INC. T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND PAGE 39 T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE INSTITUTIONAL TRUST Tax-Exempt Reserve Portfolio T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President STATE STREET BANK AND TRUST COMPANY /s/ ______________________________________________ By: PAGE 40 AMENDMENT NO. 5 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, and July 19, 1989 between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of September 15, 1989, by adding thereto the T. Rowe Price U.S. Treasury Funds, Inc., on behalf of the U.S. Treasury Intermediate Fund and the U.S. Treasury Long-Term Fund. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL TRUST T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. ROWE PRICE U.S. TREASURY MONEY FUND, INC. T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND PAGE 41 T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE INSTITUTIONAL TRUST Tax-Exempt Reserve Portfolio T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President STATE STREET BANK AND TRUST COMPANY /s/ ______________________________________________ By: PAGE 42 AMENDMENT NO. 6 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989 and September 15, 1989, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of December 15, 1989, by restating Section 2.15 as follows: 2.15 Communications Relating to Fund Portfolio Securities. The Custodian shall transmit promptly to the Fund all written information (including, without limitation, pendency of calls and maturities of domestic securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund and the maturity of futures contracts purchased or sold by the Fund) received by the Custodian from issuers of the domestic securities being held for the Fund by the Custodian, an agent appointed under Section 2.9, or sub-custodian appointed under Section 1. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund all written information received by the Custodian, an agent appointed under Section 2.9, or sub-custodian appointed under Section 1 from issuers of the domestic securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian of such desired action at least 48 hours (excluding holidays and weekends) prior to the time such action must be taken under the terms of the tender, exchange offer, or other similar transaction, and it will be the responsibility of the Custodian to timely transmit to the appropriate person(s) the Fund's notice. Where the Fund does not notify the custodian of its desired action within the aforesaid 48 hour period, the Custodian shall use its best efforts to timely transmit the Fund's notice to the appropriate person. It is expressely noted that the parties may negotiate and agree to alternative procedures with respect to such 48 hour notice period on a selective and individual basis. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. PAGE 43 T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL TRUST T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. ROWE PRICE U.S. TREASURY MONEY FUND, INC. T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE INSTITUTIONAL TRUST Tax-Exempt Reserve Portfolio T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. PAGE 44 T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U. S. TREASURY FUNDS, INC. U. S. Treasury Intermediate Fund U. S. Treasury Long-Term Fund /s/Carmen F. Deyesu ______________________________________________ By: Carmen F. Deyesu, Treasurer STATE STREET BANK AND TRUST COMPANY /s/ E. D. Hawkes, Jr. ______________________________________________ By: E. D. Hawkes, Jr. Vice President PAGE 45 Amendment No. 7 filed on Form SE January 25, 1990 with International Trust (CIK 313212) Post Effective Amendment No. 17. PAGE 46 AMENDMENT NO. 8 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, and December 20, 1989, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of January 25, 1990, by adding thereto the T. Rowe Price European Stock Fund, a separate series of T. Rowe Price International Trust. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL TRUST T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. ROWE PRICE U.S. TREASURY MONEY FUND, INC. T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND PAGE 47 T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE INSTITUTIONAL TRUST Tax-Exempt Reserve Portfolio T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins Vice President STATE STREET BANK AND TRUST COMPANY /s/ ______________________________________________ By: PAGE 48 AMENDMENT NO. 9 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, and January 25, 1990 between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of February 21, 1990, by adding thereto the T. Rowe Price Index Trust, Inc., on behalf of the T. Rowe Price Equity Index Fund. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL TRUST T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. ROWE PRICE U.S. TREASURY MONEY FUND, INC. T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND PAGE 49 T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE INSTITUTIONAL TRUST Tax-Exempt Reserve Portfolio T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund /s/Henry H. Hopkins __________________________________________ By: Henry H. Hopkins Vice President STATE STREET BANK AND TRUST COMPANY /s/ ___________________________________________ By: PAGE 50 AMENDMENT NO. 10 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of June 12, 1990, by adding thereto the T. Rowe Price Spectrum Fund, Inc., on behalf of the Spectrum Growth Fund and the Spectrum Income Fund. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL TRUST T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. ROWE PRICE U.S. TREASURY MONEY FUND, INC. T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND PAGE 51 T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE INSTITUTIONAL TRUST Tax-Exempt Reserve Portfolio T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund /s/Henry H. Hopkins __________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ ___________________________________________ By: PAGE 52 AMENDMENT NO. 11 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, and June 12, 1990 between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of July 18, 1990, by adding thereto the T. Rowe Price New Asia Fund, a separate series of the T. Rowe Price International Funds, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND PAGE 53 T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE INSTITUTIONAL TRUST Tax-Exempt Reserve Portfolio T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund /s/Henry H. Hopkins __________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ Guy R. Sturgeon ___________________________________________ By: Guy R. Sturgeon PAGE 54 AMENDMENT NO. 12 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, and July 18, 1990 between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of October 15, 1990, by adding thereto the T. Rowe Price Global Government Bond Fund, a separate series of the T. Rowe Price International Funds, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND PAGE 55 T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE INSTITUTIONAL TRUST Tax-Exempt Reserve Portfolio T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund /s/Henry H. Hopkins __________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ Guy R. Sturgeon ___________________________________________ By: PAGE 56 AMENDMENT NO. 13 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, and October 15, 1990, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of February 13, 1991, by adding thereto the Virginia Tax-Free Bond Fund and New Jersey Tax-Free Bond Fund, two separate series of the T. Rowe Price State Tax- Free Income Trust T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. PAGE 57 T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund /s/Henry H. Hopkins __________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ Guy Sturgeon ___________________________________________ By: Vice President PAGE 58 AMENDMENT NO. 14 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, and February 13, 1991, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of March 6, 1991, by adding thereto the T. Rowe Price Balanced Fund, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND PAGE 59 T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund T. ROWE PRICE BALANCED FUND, INC. /s/Henry H. Hopkins __________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ ___________________________________________ By: PAGE 60 AMENDMENT NO. 15 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, February 13, 1991, and March 6, 1991, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of September 12, 1991, by adding thereto the T. Rowe Price Adjustable Rate U.S. Government Fund, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND PAGE 61 T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. /s/Henry H. Hopkins __________________________________________ By: Henry H. Hopkins, Vice President PAGE 62 STATE STREET BANK AND TRUST COMPANY /s/ ___________________________________________ By: PAGE 63 AMENDMENT NO. 16 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, February 13, 1991, March 6, 1991 and September 12, 1991, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of November 6, 1991, by adding thereto the T. Rowe Price Japan Fund, a separate series of the T. Rowe Price International Funds, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. PAGE 64 T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. PAGE 65 /s/Henry H. Hopkins __________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ ___________________________________________ By: PAGE 66 AMENDMENT NO. 17 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, February 13, 1991, March 6, 1991, September 12, 1991 and November 6, 1991, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of April 23, 1992, by adding thereto the T. Rowe Price Mid-Cap Growth Fund, Inc. and T. Rowe Price Short-Term Global Income Fund, a separate series of the T. Rowe Price International Funds, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Income Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. PAGE 67 T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. /s/Henry H. Hopkins __________________________________ By: Henry H. Hopkins, Vice President PAGE 68 STATE STREET BANK AND TRUST COMPANY /s/ _________________________________________ By: PAGE 69 AMENDMENT NO. 18 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, February 13, 1991, March 6, 1991, September 12, 1991, November 6, 1991, and April 23, 1992, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of September 2, 1992, by adding thereto the T. Rowe Price OTC Fund, a series of the T. Rowe Price OTC Fund, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE OTC FUND, INC. T. Rowe Price OTC Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Income Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. PAGE 70 T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins, Vice President PAGE 71 STATE STREET BANK AND TRUST COMPANY /s/ _____________________________________________ By: PAGE 72 AMENDMENT NO. 19 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, February 13, 1991, March 6, 1991, September 12, 1991, November 6, 1991, April 23, 1992, and September 2, 1992, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of November 3, 1992, by adding thereto the T. Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Income Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND PAGE 73 T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE OTC FUND, INC. T. Rowe Price OTC Fund T. ROWE PRICE TAX-FREE INSURED INTEREMEDIATE BOND FUND, INC. PAGE 74 /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ ______________________________________________ By: PAGE 75 AMENDMENT NO. 20 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, February 13, 1991, March 6, 1991, September 12, 1991, November 6, 1991, April 23, 1992, September 2, 1992, and November 3, 1992, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of December 16, 1992, by adding thereto the T. Rowe Price Dividend Growth Fund, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Income Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND PAGE 76 T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE OTC FUND, INC. T. Rowe Price OTC Fund T. ROWE PRICE TAX-FREE INSURED INTEREMEDIATE BOND FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. PAGE 77 /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ ______________________________________________ By: PAGE 78 AMENDMENT NO. 21 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, February 13, 1991, March 6, 1991, September 12, 1991, November 6, 1991, April 23, 1992, September 2, 1992, November 3, 1992, and December 16, 1992, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of December 21, 1992, by adding thereto the Maryland Short-Term Tax-Free Bond Fund, an additional series to the T. Rowe Price State Tax-Free Income Trust. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Income Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. PAGE 79 T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE OTC FUND, INC. T. Rowe Price OTC Fund PAGE 80 T. ROWE PRICE TAX-FREE INSURED INTEREMEDIATE BOND FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ ______________________________________________ By: PAGE 81 AMENDMENT NO. 22 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, February 13, 1991, March 6, 1991, September 12, 1991, November 6, 1991, April 23, 1992, September 2, 1992, November 3, 1992, December 16, 1992, and December 21, 1992, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of January 28, 1993, by adding thereto the Georgia Tax-Free Bond Fund and the Florida Insured Intermediate Tax-Free Fund, additional series to the T. Rowe Price State Tax-Free Income Trust. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Income Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. PAGE 82 T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund Georgia Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. PAGE 83 T. ROWE PRICE OTC FUND, INC. T. Rowe Price OTC Fund T. ROWE PRICE TAX-FREE INSURED INTEREMEDIATE BOND FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ ______________________________________________ By: PAGE 84 AMENDMENT NO. 23 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, February 13, 1991, March 6, 1991, September 12, 1991, November 6, 1991, April 23, 1992, September 2, 1992, November 3, 1992, December 16, 1992, December 21, 1992, and January 28, 1993, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of April 22, 1993, by adding thereto the T. Rowe Price Blue Chip Growth Fund, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Income Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. PAGE 85 T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund Georgia Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE OTC FUND, INC. T. Rowe Price OTC Fund PAGE 86 T. ROWE PRICE TAX-FREE INSURED INTEREMEDIATE BOND FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. /s/Henry H. Hopkins ______________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ _______________________________________________ By: PAGE 87 AMENDMENT NO. 24 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, February 13, 1991, March 6, 1991, September 12, 1991, November 6, 1991, April 23, 1992, September 2, 1992, November 3, 1992, December 16, 1992, December 21, 1992, January 28, 1993, and April 22, 1993, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of June 30, 1993, by adding thereto the Spectrum Balanced Fund, a series of the T. Rowe Price Spectrum Fund, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Income Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. PAGE 88 T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund Georgia Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum Balanced Fund T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. PAGE 89 T. ROWE PRICE OTC FUND, INC. T. Rowe Price OTC Fund T. ROWE PRICE TAX-FREE INSURED INTEREMEDIATE BOND FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. /s/Henry H. Hopkins _____________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ _____________________________________________ By: PAGE 90 AMENDMENT NO. 25 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, February 13, 1991, March 6, 1991, September 12, 1991, November 6, 1991, April 23, 1992, September 2, 1992, November 3, 1992, December 16, 1992, December 21, 1992, January 28, 1993, April 22, 1993, and June 30, 1993, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of September 16, 1993, by adding thereto the T. Rowe Price Summit Funds, Inc. and T. Rowe Price Summit Municipal Funds, Inc. Notwithstanding anything to the contrary herein, it is understood that the T. Rowe Price Summit Funds, Inc. and T. Rowe Price Summit Municipal Funds, Inc. (collectively referred to as the "Funds") shall not be responsible for paying any of the fees or expenses set forth herein but that, in accordance with the Investment Management Agreement, dated September 16, 1993, between the Funds and T. Rowe Price Associates, Inc. ("T. Rowe Price"), the Funds will require T. Rowe Price to pay all such fees and expenses. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Income Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. PAGE 91 T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund Georgia Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund PAGE 92 T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum Balanced Fund T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE OTC FUND, INC. T. Rowe Price OTC Fund T. ROWE PRICE TAX-FREE INSURED INTEREMEDIATE BOND FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund /s/Henry H. Hopkins _____________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ _____________________________________________ By: PAGE 93 AMENDMENT NO. 26 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS W I T N E S S E T H: The Custodian Contract of September 28, 1987, as amended June 24, 1988, October 19, 1988, February 22, 1989, July 19, 1989, September 15, 1989, December 15, 1989, December 20, 1989, January 25, 1990, February 21, 1990, June 12, 1990, July 18, 1990, October 15, 1990, February 13, 1991, March 6, 1991, September 12, 1991, November 6, 1991, April 23, 1992, September 2, 1992, November 3, 1992, December 16, 1992, December 21, 1992, January 28, 1993, April 22, 1993, June 30, 1993, and September 16, 1993, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of November 3, 1993, by adding thereto the T. Rowe Price Latin America Fund, a separate series of the T. Rowe Price International Funds, Inc. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Income Fund T. Rowe Price Latin America Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. PAGE 94 T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund New Jersey Tax-Free Bond Fund Georgia Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum Balanced Fund T. ROWE PRICE BALANCED FUND, INC. PAGE 95 T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE OTC FUND, INC. T. Rowe Price OTC Fund T. ROWE PRICE TAX-FREE INSURED INTEREMEDIATE BOND FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund /s/Henry H. Hopkins _____________________________________________ By: Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ _____________________________________________ By: EX-99.B9A-TRANSFER 14 TRANSFER AGENT AGREEMENT The Transfer Agency and Service Agreement between T. Rowe Price Services, Inc. and T. Rowe Price Funds, dated January 1, 1994, should be inserted here. PAGE 1 TRANSFER AGENCY AND SERVICE AGREEMENT between T. ROWE PRICE SERVICES, INC. and EACH OF THE PARTIES INDICATED ON APPENDIX A PAGE 2 TABLE OF CONTENTS Page Article A Terms of Appointment . . . . . . . . . . . . . .2 Article B Duties of Price Services . . . . . . . . . . . .3 1. Receipt of Orders/Payments. . . . . . . . .3 2. Written Redemptions . . . . . . . . . . . .4 3. Transfers . . . . . . . . . . . . . . . . .6 4. Confirmations . . . . . . . . . . . . . . .6 5. Issuance of Share Certificates. . . . . . .6 6. Returned Checks and ACH Debits. . . . . . 7 7. Redemptions of Shares under Ten Day Hold. 7 8. Dividends, Distributions and Other Corporate Actions. . . . . . . . . . . . 9 9. Unclaimed Payments and Certificates . . .10 10. Books and Records . . . . . . . . . . . .10 11. Authorized Issued and Outstanding Shares.12 12. Tax Information . . . . . . . . . . . . .13 13. Information to be Furnished to the Fund .13 14. Correspondence. . . . . . . . . . . . . .13 15. Lost or Stolen Securities . . . . . . . .14 16. Telephone Services . . . . . . . . . . .14 17. Proxies . . . . . . . . . . . . . . . . .14 18. Form N-SAR. . . . . . . . . . . . . . . .15 19. Cooperation With Accountants. . . . . . .15 20. Blue Sky. . . . . . . . . . . . . . . . .15 21. Other Services. . . . . . . . . . . . . .15 22. Fees and Out-of-Pocket Expenses . . . . .15 Article C Representations and Warranties of the Price Services. . . . . . . . . . . . . . . . . . .17 Article D Representations and Warranties of the Fund . .18 Article E Standard of Care/Indemnification . . . . . . .18 Article F Dual Interests . . . . . . . . . . . . . . . . 20 Article G Documentation. . . . . . . . . . . . . . . . . 20 Article H References to Price Services . . . . . . . . . 22 Article I Compliance with Governmental Rules and Regulations . . . . . . . . . . . . . . . . . 22 Article J Ownership of Software and Related Material . . 22 PAGE 3 Article K Quality Service Standards. . . . . . . . . . . 23 Article L As of Transactions . . . . . . . . . . . . . . 23 Article M Term and Termination of Agreement. . . . . . . 26 Article N Notice . . . . . . . . . . . . . . . . . . . . 26 Article O Assignment . . . . . . . . . . . . . . . . . . 26 Article P Amendment/Interpretive Provisions. . . . . . . 26 Article Q Further Assurances . . . . . . . . . . . . . . 27 Article R Maryland Law to Apply. . . . . . . . . . . . . 27 Article S Merger of Agreement. . . . . . . . . . . . . . 27 Article T Counterparts . . . . . . . . . . . . . . . . . 27 Article U The Parties. . . . . . . . . . . . . . . . . . 27 Article V Directors, Trustees, Shareholders and Massachusetts Business Trust . . . . . . . . . . . . . . . . 28 Article W Captions . . . . . . . . . . . . . . . . . . . 28 PAGE 4 TRANSFER AGENCY AND SERVICE AGREEMENT AGREEMENT made as of the first day of January, 1994, by and between T. ROWE PRICE SERVICES, INC., a Maryland corporation having its principal office and place of business at 100 East Pratt Street, Baltimore, Maryland 21202 ("Price Services"), and EACH FUND WHICH IS LISTED ON APPENDIX A (as such Appendix may be amended from time to time) and which evidences its agreement to be bound hereby by executing a copy of this Agreement (each such Fund individually hereinafter referred to as "the Fund", whose definition may be found in Article U); WHEREAS, the Fund desires to appoint Price Services as its transfer agent, dividend disbursing agent and agent in connection with certain other activities, and Price Services desires to accept such appointment; WHEREAS, Price Services represents that it is registered with the Securities and Exchange Commission as a Transfer Agent under Section 17A of the Securities Exchange Act of 1934 ("'34 Act") and will notify each Fund promptly if such registration is revoked or if any proceeding is commenced before the Securities and Exchange Commission which may lead to such revocation; WHEREAS, certain of the Funds are named investment options under various tax-sheltered retirement plans including, but not limited to, individual retirement accounts, simplified employee pension plans, deferred compensation plans, 403(b) plans, and profit sharing, thrift, and money purchase pension plans for self-employed individuals and professional partnerships and corporations, (collectively referred to as "Retirement Plans"); PAGE 5 WHEREAS, Price Services has the capability of providing special services, on behalf of the Funds, for the accounts of shareholders participating in these Retirement Plans ("Retirement Accounts"). WHEREAS, Price Services may subcontract or jointly contract with other parties, on behalf of the Funds, including, but not limited to, DST, SRI, Moore Business Forms, Boston Financial Data Services, Inc., and the 440 Financial Group, to perform certain of the functions and services described herein including services to Retirement Plans and Retirement Accounts. Price Services may also enter into, on behalf of the Funds, certain banking relationships to perform various banking services including, but not limited to, check deposits, check disbursements, automated clearing house transactions ("ACH") and wire transfers. Subject to guidelines mutually agreed upon by the Funds and Price Services, excess balances, if any, resulting from these banking relationships will be invested and the income therefrom will be used to offset fees which would otherwise be charged to the Funds under this Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: A. Terms of Appointment Subject to the terms and conditions set forth in this Agreement, the Fund hereby employs and appoints Price Services to act, and Price Services agrees to act, as the Fund's transfer agent, dividend disbursing agent and agent in connection with: (1) the Fund's authorized and issued shares of its common stock or shares of beneficial interest (all such stock and shares to be PAGE 6 referred to as "Shares"); (2) any accumulation, open-account or similar plans provided to the shareholders of the Fund ("Shareholders"), including, without limitation, any periodic investment plan or periodic withdrawal program; and (3) certain Retirement Plan and Retirement Accounts as agreed upon by the parties. The parties to the Agreement hereby acknowledge that from time to time, Price Services and T. Rowe Price Trust Company may enter into contracts ("Other Contracts") with employee benefit plans and/or their sponsors for the provision of certain plan participant services to Retirement Plans and Retirement Accounts. Compensation paid to Price Services pursuant to this Agreement is with respect to the services described herein and not with respect to services provided under Other Contracts. B. Duties of Price Services Price Services agrees that it will perform the following services: 1. Receipt of Orders/Payments Receive for acceptance, orders/payments for the purchase of Shares and promptly deliver payment and appropriate documentation thereof to the authorized custodian of the Fund (the "Custodian"). Upon receipt of any check or other instrument drawn or endorsed to it as agent for, or identified as being for the account of, the Fund, Price Services will process the order as follows: o Examine the check to determine if the check conforms to the Funds' acceptance procedures (including certain third-party check procedures). If the check conforms, PAGE 7 Price Services will endorse the check and include the date of receipt, will process the same for payment, and deposit the net amount to the parties agreed upon designated bank account prior to such deposit in the Custodial account, and will notify the Fund and the Custodian, respectively, of such deposits (such notification to be given on a daily basis of the total amount deposited to said accounts during the prior business day); o Open a new account, if necessary, and credit the account of the investor with the number of Shares to be purchased according to the price of the Fund's Shares in effect for purchases made on that date, subject to any instructions which the Fund may have given to Price Services with respect to acceptance of orders for Shares relating to payments so received by it; o Maintain a record of all unpaid purchases and report such information to the Fund daily; o Process periodic payment orders, as authorized by investors, in accordance with the payment procedures for pre-authorized checking ("PAC") and ACH purchases mutually agreed upon by both parties; o Receive monies from Retirement Plans and determine the proper allocation of such monies to the Retirement Accounts based upon instructions received from Retirement Plan participants or Retirement Plan administrators ("Administrators"); and PAGE 8 o Process telephone orders for purchases of Fund shares from the Shareholder's bank account (via wire or ACH) to the Fund in accordance with procedures mutually agreed upon by both parties. Upon receipt of funds through the Federal Reserve Wire System that are designated for purchases in Funds which declare dividends at 12:00 p.m. (or such time as set forth in the Fund's current prospectus), Price Services shall promptly notify the Fund and the Custodian of such deposit. 2. Redemptions Receive for acceptance redemption requests, including telephone redemptions and requests received from Administrators for distributions to participants or their designated beneficiaries or for payment of fees due the Administrator or such other person, including Price Services, and deliver the appropriate documentation thereofto the Custodian. Price Services shall receive and stamp with the date of receipt, all requests for redemptions of Shares (including all certificates delivered to it for redemption) and shall process said redemption requests as follows, subject to the provisions of Section 7 hereof: o Examine the redemption request and, for written redemptions, the supporting documentation, to determine that the request is in good order and all requirements have been met; o Notify the Fund on the next business day of the total number of Shares presented and covered by all such requests; PAGE 9 o As set forth in the prospectus of the Fund, and in any event, on or prior to the seventh (7th) calendar day succeeding any such request for redemption, Price Services shall, from funds available in the accounts maintained by Price Services as agent for the Funds, pay the applicable redemption price in accordance with the current prospectus of the Fund, to the investor, participant, beneficiary, Administrator or such other person, as the case may be; o If any request for redemption does not comply with the Fund's requirements, Price Services shall promptly notify the investor of such fact, together with the reason therefore, and shall effect such redemption at the price in effect at the time of receipt of all appropriate documents; o Make such withholdings as may be required under applicable Federal and State tax law; o In the event redemption proceeds for the payment of fees are to be wired through the Federal Reserve Wire System or by bank wire, Price Services shall cause such proceeds to be wired in Federal funds to the bank account designated; and o Process periodic redemption orders as authorized by the investor in accordance with the periodic withdrawal procedures for Systematic Withdrawal Plan ("SWP") and systematic ACH redemptions mutually agreed upon by both parties. PAGE 10 Procedures and requirements for effecting and accepting redemption orders from investors by telephone, Tele*Access, Mailgram, or written instructions shall be established by mutual agreement between Price Services and the Fund consistent with the Fund's current prospectus. 3. Transfers Effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions and documentation and examine such instructions for conformance with appropriate procedures and requirements. In this regard, Price Services, upon receipt of a proper request for transfer, including any transfer involving the surrender of certificates of Shares, is authorized to transfer, on the records of the Fund, Shares of the Fund, including cancellation of surrendered certificates, if any, to credit a like amount of Shares to the transferee and to countersign, issue and deliver new certificates, if requested, for those Funds issuing certificates. 4. Confirmations Mail all confirmations and other enclosures requested by the Fund to the shareholder, and in the case of Retirement Accounts, to the Administrators, as may be required by the Funds or by applicable Federal or state law. 5. Issuance of Share Certificates o Those Funds which issue stock certificates shall supply Price Services with a sufficient supply of blank stock certificates and shall renew such supply upon request of Price Services. Such blank stock certificates shall PAGE 11 be properly signed, manually or facsimile, if authorized by the Fund, and shall bear the seal or facsimile thereof of the Fund; and notwithstanding the death, resignation or removal of any officers of the Fund authorized to sign certificates of stock, on behalf of the Fund, Price Services may continue to countersign certificates which bear the manual or facsimile signature of such officer until otherwise directed by the Fund. o If an investor requests a share certificate of a Fund which issues stock certificates (except shares in Retirement Plans and Retirement Accounts which will be non certificated), Price Services will countersign and mail by first class mail, a share certificate to the investor at his address as set forth on the transfer books of the Fund, subject to any other instructions for delivery of certificates which the Fund may give to Price Services with respect to certificates representing newly purchased Shares. 6. Returned Checks and ACH Debits In order to minimize the risk of loss to the Fund by reason of any check being returned unpaid, Price Services will promptly identify and follow-up on any check or ACH debit returned unpaid. For items returned, Price Services may telephone the investor and/or redeposit the check or debit for collection or cancel the purchase, as deemed appropriate. PAGE 12 7. Redemption of Shares under Ten Day Hold o Uncollected Funds Shares purchased by personal, corporate, or governmental check, or by ACH will be considered uncollected until the tenth calendar date following the trade date of the trade ("Uncollected Funds"); o Good Funds Share purchased by treasurer's, cashier, certified, or official check, or by wire transfer will be considered collected immediately ("Good Funds"). Absent information to the contrary (i.e., notification from the payee institution), Uncollected Funds will be considered Good Funds on the tenth calendar day following trade date. o Redemption of Uncollected Funds o Shareholders making telephone requests for redemption of shares purchased with Uncollected Funds will be given two options: 1. The Shareholder will be permitted to exchange to a money market fund to preserve principal until the funds are deemed Good Funds, 2. The redemption can be processed utilizing the same procedures for written redemptions described below. o If a written redemption request is made for shares where any portion of the payment for said shares is in Uncollected Funds, and the request is in good order, Price Services will promptly obtain PAGE 13 the information relative to the payment necessary to determine when the payment becomes Good Funds. The redemption will be processed in accordance with normal procedures, and the proceeds will be held until confirmation that the payment is Good Funds. On the seventh (7th) calendar day after trade date, and each day thereafter until either confirmation is received or the tenth (10th) calendar day, Price Services will call the paying institution to request confirmation that the check or ACH in question has been paid. On the tenth calendar day after trade date, the redemption proceeds will be released, regardless of whether confirmation has been received. o Checkwriting Redemptions. o Daily, all checkwriting redemptions $10,000 and over reported as Uncollected Funds or insufficient funds will be reviewed. An attempt will be made to contact the shareholder to make good the funds (through wire, exchange, transfer). Generally by 12:00 p.m. the same day, if the matter has not been resolved, the redemption request will be rejected and the check returned to the Shareholder. o All checkwriting redemptions under $10,000 reported as Uncollected or insufficient funds will PAGE 14 be rejected and the check returned to the Shareholder. o Confirmations of Available Funds The Fund expects that situations may develop whereby it would be beneficial to determine if a person who has placed an order for Shares has sufficient funds in his or her checking account to cover the payment for the Shares purchased. When this situation occurs, Price Services may call the bank in question and request that it confirm that sufficient funds to cover the purchase are currently credited to the account in question. Price Services will maintain written documentation or a recording of each telephone call which is made under the procedures outlined above. None of the above procedures shall preclude Price Services from inquiring as to the status of any check received by it in payment for the Fund's Shares as Price Services may deem appropriate or necessary to protect both the Fund and Price Services. If a conflict arises between Section 2 and this Section 7, Section 7 will govern. 8. Dividends, Distributions and Other Corporate Actions o The Fund will promptly inform Price Services of the declaration of any dividend, distribution, stock split or any other distributions of a similar kind on account of its Capital Stock. PAGE 15 o Price Services shall act as Dividend Disbursing Agent for the Fund, and as such, shall prepare and make income and capital gain payments to investors. As Dividend Disbursing Agent, Price Services will on or before the payment date of any such dividend or distribution, notify the Custodian of the estimated amount required to pay any portion of said dividend or distribution which is payable in cash, and the Fund agrees that on or before the payment date of such distribution, it shall instruct the Custodian to make available to Price Services sufficient funds for the cash amount to be paid out. If an investor is entitled to receive additional Shares by virtue of any such distribution or dividend, appropriate credits will be made to his or her account. 9. Unclaimed Payments and Certificates In accordance with procedures agreed upon by both parties, report abandoned property to appropriate state and governmental authorities of the Fund. Price Services shall, 90 days prior to the annual reporting of abandoned property to each of the states, make reasonable attempts to locate Shareholders for which (a) checks or share certificates have been returned; (b) for which accounts have aged outstanding checks; or (c) accounts with unissued shares that have been coded with stop mail and meet the dormancy period guidelines specified in the individual states. Price Services shall PAGE 16 make reasonable attempts to contact shareholders for those accounts which have significant aged outstanding checks. 10. Books and Records Maintain records showing for each Shareholder's account, Retirement Plan or Retirement Account, as the case may be, the following: o Names, address and tax identification number; o Number of Shares held; o Certain historical information regarding the account of each Shareholder, including dividends and distributions distributed in cash or invested in Shares; o Pertinent information regarding the establishment and maintenance of Retirement Plans and Retirement Accounts necessary to properly administer each account; o Information with respect to the source of dividends and distributions allocated among income (taxable and nontaxable income), realized short- term gains and realized long-term gains; o Any stop or restraining order placed against a Shareholder's account; o Information with respect to withholdings on domestic and foreign accounts; o Any instructions from a Shareholder including, all forms furnished by the Fund and executed by a PAGE 17 Shareholder with respect to (i) dividend or distribution elections, and (ii) elections with respect to payment options in connection with the redemption of Shares; o Any correspondence relating to the current maintenance of a Shareholder's account; o Certificate numbers and denominations for any Shareholder holding certificates; o Any information required in order for Price Services to perform the calculations contemplated under this Agreement. Price Services shall maintain files and furnish statistical and other information as required under this Agreement and as may be agreed upon from time to time by both parties or required by applicable law. However, Price Services reserves the right to delete, change or add any information to the files maintained; provided such deletions, changes or additions do not contravene the terms of this Agreement or applicable law and do not materially reduce the level of services described in this Agreement. Price Services shall also use its best efforts to obtain additional statistical and other information as each Fund may reasonably request for additional fees as may be agreed to by both parties. Any such records maintained pursuant to Rule 31a-1 under the Investment Company Act of 1940 ("the Act") will be PAGE 18 preserved for the periods and maintained in a manner prescribed in Rule 31a-2 thereunder. Disposition of such records after such prescribed periods shall be as mutually agreed upon by the Fund and Price Services. The retention of such records, which may be inspected by the Fund at reasonable times, shall be at the expense of the Fund. All records maintained by Price Services in connection with the performance of its duties under this Agreement will remain the property of the Fund and, in the event of termination of this Agreement, will be delivered to the Fund as of the date of termination or at such other time as may be mutually agreed upon. All books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except after prior notification to and approval by the other party hereto, which approval shall not be unreasonably withheld and may not be withheld where Price Services or the Fund may be exposed to civil or criminal contempt proceedings for failure to comply; when requested to divulge such information by duly constituted governmental authorities; or after so requested by the other party hereto. 11. Authorized Issued and Outstanding Shares Record the issuance of Shares of the Fund and maintain, pursuant to Rule 17Ad-10(e) of the '34 Act, a record of the total number of Shares of the Fund which are authorized, PAGE 19 issued and outstanding, based upon data provided to it by the Fund. Price Services shall also provide the Fund on a regular basis the total number of Shares which are authorized and issued and outstanding. Price Services shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issuance or sale of such Shares. 12. Tax Information Prepare and file with the Internal Revenue Service and with other appropriate state agencies and, if required, mail to investors, those returns for reporting dividends and distributions paid as required to be so filed and mailed, and shall withhold such sums required to be withheld under applicable Federal and state income tax laws, rules, and regulations. Additionally, Price Services will file and, as applicable, mail to investors, any appropriate information returns required to be filed in connection with Retirement Plan processing, such as 1099R, 5498, as well as any other appropriate forms that the Fund or Price Services may deem necessary. The Fund and Price Services shall agree to procedures to be followed with respect to Price Services' responsibilities in connection with compliance with back-up withholding and other tax laws. 13. Information to be Furnished to the Fund Furnish to the Fund such information as may be agreed upon between the Fund and Price Services including any information that the Fund and Price Services agree is necessary to the daily operations of the business. PAGE 20 14. Correspondence Promptly and fully answer correspondence from shareholders and Administrators relating to Shareholder Accounts, Retirement Accounts, transfer agent procedures, and such other correspondence as may from time to time be mutually agreed upon with the Funds. Unless otherwise instructed, copies of all correspondence will be retained by Price Services in accordance with applicable law and procedures. 15. Lost or Stolen Securities Pursuant to Rule 17f-1 of the '34 Act, report to the Securities Information Center and/or the FBI or other appropriate person on Form X-17-F-1A all lost, stolen, missing or counterfeit securities. Provide any other services relating to lost, stolen or missing securities as may be mutually agreed upon by both parties. 16. Telephone Services Maintain a Telephone Servicing Staff of representatives ("Representatives") sufficient to timely respond to all telephonic inquiries reasonably foreseeable. The Representatives will also effect telephone purchases, redemptions, exchanges, and other transactions mutually agreed upon by both parties, for those Shareholders who have authorized telephone services. The Reprentatives shall require each Shareholder effecting a telephone transaction to properly identify themself before the transaction is effected, in accordance with procedures agreed upon between by both parties. Procedures for processing telephone PAGE 21 transactions will be mutually agreed upon by both parties. Price Services will also be responsible for providing Tele*Access, PC*Access and such other Services as may be offered by the Funds from time to time. Price Services will maintain a special Shareholder Servicing staff to service certain Shareholders with substantial relationships with the Funds. 17. Proxies Monitor the mailing of proxy cards and other material supplied to it by the Fund in connection with Shareholder meetings of the Fund and shall coordinate the receipt, examination and tabulation of returned proxies and the certification of the vote to the Fund. 18. Form N-SAR Maintain such records, if any, as shall enable the Fund to fulfill the requirements of Form N-SAR. 19. Cooperation With Accountants Cooperate with each Fund's independent public accountants and take all reasonable action in the performance of its obligations under the Agreement to assure that the necessary information is made available to such accountants for the expression of their opinion without any qualification as to the scope of their examination, including, but not limited to, their opinion included in each such Fund's annual report on Form N-SAR and annual amendment to Form N-1A. PAGE 22 20. Blue Sky Provide to the Fund or its agent, on a daily, weekly, monthly and quarterly basis, and for each state in which the Fund's Shares are sold, sales reports and other materials for blue sky compliance purposes as shall be agreed upon by the parties. 21. Other Services Provide such other services as may be mutually agreed upon between Price Services and the Fund. 22. Fees and Out-of-Pocket Expenses Each Fund shall pay to Price Services and/or its agents for its Transfer Agent Services hereunder, fees computed as set forth in Schedule A attached. Except as provided below, Price Services will be responsible for all expenses relating to the providing of Services. Each Fund, however, will reimburse Price Services for the following out-of-pocket expenses and charges incurred in providing Services: o Postage. The cost of postage and freight for mailing materials to Shareholders and Retirement Plan participants, or their agents, including overnight delivery, UPS and other express mail services and special courier services required to transport mail between Price Services locations and mail processing vendors. o Proxies. The cost to mail proxy cards and other material supplied to it by the Fund and costs related to the receipt, examination and tabulation PAGE 23 of returned proxies and the certification of the vote to the Fund. o Communications o Print. The printed forms used internally and externally for documentation and processing Shareholder and Retirement Plan participant, or their agent's inquiries and requests; paper and envelope supplies for letters, notices, and other written communications sent to Shareholders and Retirement Plan participants, or their agents. o Print & Mail House. The cost of internal and third party printing and mail house services, including printing of statements and reports. o Voice and Data. The cost of equipment (including associated maintenance), supplies and services used for communicating to and from the Shareholders of the Fund and Retirement Plan participants, or their agents, the Fund's transfer agent, other Fund offices, and other agents of either the Fund or Price Services. These charges shall include: o telephone toll charges (both incoming and outgoing, local, long distance and mailgrams); and PAGE 24 o data and telephone lines and associated equipment such as modems, multiplexers, and facsimile equipment. o Record Retention. The cost of maintenance and supplies used to maintain, microfilm, copy, record, index, display, retrieve, and store, in microfiche or microfilm form, documents and records. o Disaster Recovery. The cost of services, equipment, facilities and other charges necessary to provide disaster recovery for any and all services listed in this Agreement. Out-of-pocket costs will be billed at cost to the Funds. Allocation of monthly costs among the Funds will generally be made based upon the number of Shareholder and Retirement Accounts serviced by Price Services each month. Some invoices for these costs will contain costs for both the Funds and other funds serviced by Price Services. These costs will be allocated based on a reasonable allocation mehodology. Where possible, such as in the case of inbound and outbound WATS charges, allocation will be made on the actual distribution or usage. C. Representations and Warranties of Price Services Price Services represents and warrants to the Fund that: 1. It is a corporation duly organized and existing and in good standing under the laws of Maryland; PAGE 25 2. It is duly qualified to carry on its business in Maryland and California; 3. It is empowered under applicable laws and by its charter and by-laws to enter into and perform this Agreement; 4. All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement; 5. It is registered with the Securities and Exchange Commission as a Transfer Agent pursuant to Section 17A of the '34 Act; and 6. It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. D. Representations and Warranties of the Fund The Fund represents and warrants to Price Services that: 1. It is a corporation or business trust duly organized and existing and in good standing under the laws of Maryland or Massachusetts, as the case may be; 2. It is empowered under applicable laws and by its Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws to enter into and perform this Agreement; 3. All proceedings required by said Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws have been taken to authorize it to enter into and perform this Agreement; 4. It is an investment company registered under the Act; and PAGE 26 5. A registration statement under the Securities Act of 1933 ("the '33 Act") is currently effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund being offered for sale. E. Standard of Care/Indemnification Notwithstanding anything to the contrary in this Agreement: 1. Price Services shall not be liable to any Fund for any act or failure to act by it or its agents or subcontractors on behalf of the Fund in carrying or attempting to carry out the terms and provisions of this Agreement provided Price Services has acted in good faith and without negligence or willful misconduct and selected and monitored the performance of its agents and subcontractors with reasonable care. 2. The Fund shall indemnify and hold Price Services harmless from and against all losses, costs, damages, claims, actions and expenses, including reasonable expenses for legal counsel, incurred by Price Services resulting from: (i) any action or omission by Price Services or its agents or subcontractors in the performance of their duties hereunder; (ii) Price Services acting upon instructions believed by it to have been executed by a duly authorized officer of the Fund; or (iii) Price Services acting upon information provided by the Fund in form and under policies agreed to by Price Services and the Fund. Price Services shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or willful PAGE 27 misconduct of Price Services or where Price Services has not exercised reasonable care in selecting or monitoring the performance of its agents or subcontractors. 3. Except as provided in Article L of this Agreement, Price Services shall indemnify and hold harmless the Fund from all losses, costs, damages, claims, actions and expenses, including reasonable expenses for legal counsel, incurred by the Fund resulting from the negligence or willful misconduct of Price Services or which result from Price Services' failure to exercise reasonable care in selecting or monitoring the performance of its agents or subcontractors. The Fund shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or willful misconduct of such Fund or its agents or subcontractors; unless such negligence or misconduct is attributable to Price Services. 4. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes or other causes reasonably beyond its control, such party shall not be liable to the other party for any loss, cost, damage, claim, action or expense resulting from such failure to perform or otherwise from such causes. 5. In order that the indemnification provisions contained in this Article E shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the PAGE 28 other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim, or to defend against said claim in its own name or in the name of the other party. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. 6. Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement. F. Dual Interests It is understood that some person or persons may be directors, officers, or shareholders of both the Funds and Price Services (including Price Services's affiliates), and that the existence of any such dual interest shall not affect the validity of this Agreement or of any transactions hereunder except as otherwise provided by a specific provision of applicable law. G. Documentation o As requested by Price Services, the Fund shall promptly furnish to Price Services the following: o A certified copy of the resolution of the Directors/Trustees of the Fund authorizing the appointment of Price Services and the execution and delivery of this Agreement; PAGE 29 o A copy of the Articles of Incorporation or Declaration of Trust, as the case may be, and By- Laws of the Fund and all amendments thereto; o Specimens of all forms of outstanding and new stock/share certificates in the forms approved by the Board of Directors/Trustees of the Fund with a certificate of the Secretary of the Fund as to such approval; o All account application forms and other documents relating to Shareholders' accounts; o An opinion of counsel for the Fund with respect to the validity of the stock, the number of Shares authorized, the status of redeemed Shares, and the number of Shares with respect to which a Registration Statement has been filed and is in effect; and o A copy of the Fund's current prospectus. The delivery of any such document for the purpose of any other agreement to which the Fund and Price Services are or were parties shall be deemed to be delivery for the purposes of this Agreement. o As requested by Price Services, the Fund will also furnish from time to time the following documents: o Each resolution of the Board of Directors/Trustees of the Fund authorizing the original issue of its Shares; PAGE 30 o Each Registration Statement filed with the Securities and Exchange Commission and amendments and orders thereto in effect with respect to the sale of Shares with respect to the Fund; o A certified copy of each amendment to the Articles of Incorporation or Declaration of Trust, and the By-Laws of the Fund; o Certified copies of each vote of the Board of Directors/Trustees authorizing officers to give instructions to the Transfer Agent; o Specimens of all new certificates accompanied by the Board of Directors/Trustees' resolutions approving such forms; o Such other documents or opinions which Price Services, in its discretion, may reasonably deem necessary or appropriate in the proper performance of its duties; and o Copies of new prospectuses issued. Price Services hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices. H. References to Price Services Each Fund agrees not to circulate any printed matter which contains any reference to Price Services without the prior PAGE 31 approval of Price Services, excepting solely such printed matter that merely identifies Price Services as agent of the Fund. The Fund will submit printed matter requiring approval to Price Services in draft form, allowing sufficient time for review by Price Services and its legal counsel prior to any deadline for printing. I. Compliance With Governmental Rules and Regulations Except as otherwise provided in the Agreement and except for the accuracy of information furnished to the Fund by Price Services, each Fund assumes full responsibility for the preparation, contents and distribution of its prospectuses and compliance with all applicable requirements of the Act, the '34 Act, the '33 Act, and any other laws, rules and regulations of governmental authorities having jurisdiction over the Fund. Price Services shall be responsible for complying with all laws, rules and regulations of governmental authorities having jurisdiction over transfer agents and their activities. J. Ownership of Software and Related Material All computer programs, magnetic tapes, written procedures and similar items purchased and/or developed and used by Price Services in performance of the Agreement shall be the property of Price Services and will not become the property of the Fund. K. Quality Service Standards Price Services and the Fund may from time to time agree to certain quality service standards, as well as incentives and penalties with respect to Price Services' hereunder. PAGE 32 L. As Of Transactions For purposes of this Article L, the term "Transaction" shall mean any single or "related transaction" (as defined below) involving the purchase or redemption of Shares (including exchanges) that is processed at a time other than the time of the computation of the Fund's net asset value per Share next computed after receipt of any such transaction order by Price Services. If more than one Transaction ("Related Transaction") in the Fund is caused by or occurs as a result of the same act or omission, such transactions shall be aggregated with other transactions in the Fund and be considered as one Transaction. o Reporting Price Services shall: 1. Utilize a system to identify all Transactions, and shall compute the net effect of such Transactions upon the Fund on a daily, monthly and rolling 365 day basis. The monthly and rolling 365 day periods are hereafter referred to as "Cumulative". 2. Supply to the Fund, from time to time as mutually agreed upon, a report summarizing the Transactions and the daily and Cumulative net effects of such Transactions both in terms of aggregate dilution and loss ("Dilution") or gain and negative dilution ("Gain") experienced by the Fund, and the impact such Gain or Dilution has had upon the Fund's net asset value per Share. PAGE 33 3. With respect to any Transaction which causes Dilution to the Fund of $25,000 or more, immediately provide the Fund: (i) a report identifying the Transaction and the Dilution resulting therefrom, (ii) the reason such Transaction was processed as described above, and (iii) the action that Price Services has or intends to take to prevent the reoccurrence of such as of processing ("Report"). o Liability 1. It will be the normal practice of the Funds not to hold Price Services liable with respect to any Transaction which causes Dilution to any single Fund of less than $25,000. Price Services will, however, closely monitor for each Fund the daily and Cumulative Gain/Dilution which is caused by Transactions of less than $25,000. When the Cumulative Dilution to any Fund exceeds 3/10 of 1% per share, Price Services, in consultation with counsel to the Fund, will make appropriate inquiry to determine whether it should take any remedial action. Price Services will report to the Board of Directors/Trustees of the Fund ("Board") any action it has taken. 2. Where a Transaction causes Dilution to a Fund of $25,000 or more ("Significant Transaction"), Price Services will review with counsel to the Fund the Report and the circumstances surrounding the underlying PAGE 34 Transaction to determine whether the Transaction was caused by or occurred as a result of a negligent act or omission by Price Services. If it is determined that the Dilution is the result of a negligent action or omission by Price Services, Price Services and outside counsel for the Fund will negotiate settlement. All such Significant Transactions will be reported to the Board at its next meeting (unless the settlement fully compensates the Fund for any Dilution). Any Significant Transaction, however, causing Dilution in excess of the lesser of $100,000 or a penny per Share will be promptly reported to the Board. Settlement will not be entered into with Price Services until approved by the Board. The factors the Board would be expected to consider in making any determination regarding the settlement of a Significant Transaction would include but not be limited to: o Procedures and controls adopted by Price Services to prevent "As Of" processing; o Whether such procedures and controls were being followed at the time of the Significant Transaction; o The absolute and relative volume of all transactions processed by Price Services on the day of the Significant Transaction; PAGE 35 o The number of Transactions processed by Price Services during prior relevant periods, and the net Dilution/Gain as a result of all such transactions to the Fund and to all other Price Funds; o The prior response of Price Services to recommendations made by the Funds regarding improvement to the Transfer Agent's "As Of" Processing Procedures. M. Term and Termination of Agreement o This Agreement shall run for a period of one (1) year from the date first written above and will be renewed from year to year thereafter unless terminated by either party as provided hereunder. o This Agreement may be terminated by the Fund upon one hundred twenty (120) days' written notice to Price Services; and by Price Services, upon three hundred sixty-five (365) days' writing notice to the Fund. o Upon termination hereof, the Fund shall pay to Price Services such compensation as may be due as of the date of such termination, and shall likewise reimburse for out-of- pocket expenses related to its services hereunder. N. Notice Any notice as required by this Agreement shall be sufficiently given (i) when sent to an authorized person of the other party at the address of such party set forth above or at PAGE 36 such other address as such party may from time to time specify in writing to the other party; or (ii) as otherwise agreed upon by appropriate officers of the parties hereto. O. Assignment Neither this Agreement nor any rights or obligations hereunder may be assigned either voluntarily or involuntarily, by operation of law or otherwise, by either party without the prior written consent of the other party, provided this shall not preclude Price Services from employing such agents and subcontractors as it deems appropriate to carry out its obligations set forth hereunder. P. Amendment/Interpretive Provisions The parties by mutual written agreement may amend this Agreement at any time. In addition, in connection with the operation of this Agreement, Price Services and the Fund may agree from time to time on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions are to be signed by all parties and annexed hereto, but no such provision shall contravene any applicable Federal or state law or regulation and no such interpretive or additional provision shall be deemed to be an amendment of this Agreement. Q. Further Assurances Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. PAGE 37 R. Maryland Law to Apply This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of Maryland. S. Merger of Agreement This Agreement, including the attached Appendices and Schedules supersedes any prior agreement with respect to the subject hereof, whether oral or written. T. Counterparts This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instruments. U. The Parties All references herein to "the Fund" are to each of the Funds listed on Appendix A individually, as if this Agreement were between such individual Fund and Price Services. In the case of a series Fund or trust, all references to "the Fund" are to the individual series or portfolio of such Fund or trust, or to such Fund or trust on behalf of the individual series or portfolio, as appropriate. The "Fund" also includes any T. Rowe Price Funds which may be established after the execution of this Agreement. Any reference in this Agreement to "the parties" shall mean Price Services and such other individual Fund as to which the matter pertains. V. Directors, Trustees and Shareholders and Massachusetts Business Trust It is understood and is expressly stipulated that neither the holders of Shares in the Fund nor any Directors or Trustees PAGE 38 of the Fund shall be personally liable hereunder. With respect to any Fund which is a party to this Agreement and which is organized as a Massachusetts business trust, the term "Fund" means and refers to the trustees from time to time serving under the applicable trust agreement (Declaration of Trust) of such Trust as the same may be amended from time to time. It is expressly agreed that the obligations of any such Trust hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but bind only the trust property of the Trust, as provided in the Declaration of Trust of the Trust. The execution and delivery of this Agreement has been authorized by the trustees and signed by an authorized officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them, but shall bind only the trust property of the Trust as provided in its Declaration of Trust. W. Captions The captions in the Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. PAGE 39 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers. DATED: 2/18/94 T. ROWE PRICE SERVICES, INC. ATTEST: /s/Barbara A. VanHorn /s/Mark E. Rayford ____________________ BY:___________________________ Barbara A. VanHorn Mark E. Rayford T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE DIVIDEND GROWTH FUND, INC T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund PAGE 40 T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Fund T. Rowe Price Latin America Fund T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE OTC FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund New Jersey Tax-Free Money Fund Virginia Tax-Free Money Fund Florida Insured Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund T. ROWE PRICE SUMMIT FUNDS, INC. Summit Cash Reserves Fund Summit Limited-Term Bond Fund Summit GNMA Fund PAGE 41 T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. Summit Municipal Money Market Fund Summit Municipal Intermediate Fund Summit Municipal Income Fund T. ROWE PRICE TAX-EXEMPT MONEY FUND,INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INSURED INTERMDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund DATED: 2/16/94 ATTEST: /s/Lenora V. Hornung /s/Carmen F. Deyesu _________________________ BY:__________________________ Lenora V. Hornung Carmen F. Deyesu PAGE 42 APPENDIX A The following Funds are parties to this Agreement, and have so indicated their intention to be bound by such Agreement by executing the Agreement on the dates indicated thereon. T. Rowe Price Adjustable Rate U.S. Government Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Balanced Fund, Inc. T. Rowe Price California Tax-Free Income Trust on behalf of the California Tax-Free Bond Fund and California Tax-Free Money Fund T. Rowe Price Capital Appreciation Fund T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price GNMA Fund T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price Index Trust, Inc. on behalf of the T. Rowe Price Equity Index Fund T. Rowe Price Institutional International Funds, Inc. on behalf of the Foreign Equity Fund T. Rowe Price International Funds, Inc. on behalf of the T. Rowe Price International Bond Fund and T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Fund T. Rowe Price Latin America Fund T. Rowe Price Mid-Cap Growth Fund PAGE 43 T. Rowe Price New America Growth Fund T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price New Income Fund, Inc. T. Rowe Price Prime Reserve Fund, Inc. T. Rowe Price OTC Fund, Inc. T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Small-Cap Value Fund, Inc. T. Rowe Price Spectrum Fund, Inc. on behalf of the Spectrum Growth Fund Spectrum Income Fund T. Rowe Price State Tax-Free Income Trust on behalf of the Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund New Jersey Tax-Free Bond Fund Virginia Tax-Free Bond Fund Georgia Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund T. Rowe Price Tax-Exempt Money Fund, Inc. T. Rowe Price Tax-Free High Yield Fund, Inc. T. Rowe Price Tax-Free Income Fund, Inc. T. Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc. T. Rowe Price Tax-Free Short-Intermediate Fund, Inc. T. Rowe Price U.S. Treasury Funds, Inc. on behalf of the U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. Rowe Price Summit Funds, Inc. on behalf of the Summit Cash Reserves Fund Summit Limited-Term Bond Fund Summit GNMA Fund PAGE 44 T. Rowe Price Summit Municipal Funds, Inc. on behalf of the Summit Municipal Money Market Fund Summit Municipal Intermediate Fund Summit Municipal Income Fund PAGE 45 SCHEDULE A - FEE SCHEDULE Effective January 1, 1994 to December 31, 1994, For the account of: THE T. ROWE PRICE FUNDS EQUITY FUNDS T. Rowe Price New American Growth Fund T. Rowe Price Growth Stock Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price New Era Fund, Inc. T. Rowe Price International Stock Fund T. Rowe Price Equity Income Fund T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Capital Appreciation Fund T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Small Capital Value Fund, Inc. T. Rowe Price International Discovery Fund Foreign Equity Fund T. Rowe Price Equity Index Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Spectrum Growth Fund T.Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Balanced Fund, Inc. T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Mid-Cap Growth Fund, Inc. T. Rowe Price Over-the-Counter Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. BOND FUNDS T. Rowe Price New Income Fund, Inc. T. Rowe Price Tax-Free Income Fund, Inc. T. Rowe Price New Jersey Tax-Free Bond Fund T. Rowe Price Virginia Tax-Free Bond Fund T. Rowe Price Short Term Bond Fund, Inc. T. Rowe Price Tax-Free Short Intermediate Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price Tax-Free High Yield Fund, Inc. T. Rowe Price Adjustable Rate U.S. Government Fund, Inc. T. Rowe Price GNMA Fund T. Rowe Price New York Tax-Free Bond Fund T. Rowe Price California Tax-Free Bond Fund T. Rowe Price International Bond Fund T. Rowe Price Maryland Short-Term Tax-Free Bond Fund T. Rowe Price Maryland Tax-Free Bond Fund T. Rowe Price U.S. Treasury Intermediate Fund T. Rowe Price U.S. Treasury Long-Term Fund T. Rowe Price Global Government Bond Fund PAGE 46 T. Rowe Price Spectrum Income Fund T. Rowe Price Short-term Global Bond Fund T. Rowe Price Tax-Free Insured Intermediate Fund, Inc. T. Rowe Price Georgia Tax-Free Bond Fund T. Rowe Price Florida Insured Intermediate Tax-Free Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund Money Market Funds T. Rowe Price Prime Reserve Fund, Inc. T. Rowe Price Tax-Exempt Money Fund, Inc. T. Rowe Price U.S. Treasury Money Fund T. Rowe Price New York Tax-Free Money Fund T. Rowe Price California Tax-Free Money Fund T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Municipal Money Market Fund PAGE 47 The following fees for services provided by T. Rowe Price Services, Inc. (TRPS) and vendors will be billed by TRPS for 1994: I. T. Rowe Price Services Maintenance and Transaction Charges - Billable Monthly A. Base Fee 1. Per Fund - Beginning January 1, 1994, chargeable at the rate of $1,000 per month to each Fund shown on the previous page. The fee is waived for new Funds for the first 6 months after effective date. 2. Monthly - $5,987,000 payable in twelve monthly installments of $498,917. B. Per Account Annual Fee - $3.63 for each Equity, Bond, and Money Market Account serviced. The Per Account Annual Fee will be billed monthly at a rate of 1/12 of the annual fee for each Fund account serviced during the month. Accounts serviced is defined as all open accounts at month end plus accounts which closed during the month. C. Transaction Fees 1. New Account Fees a. $3.00 for every account opened, including fiduciary accounts, excluding those opened by exchange and those established as described in (b) below. b. A fee of $1.00 will be assessed for accounts established within the model and list functions programs and under the agreement that the registrant's name will be quality controlled subsequent to its establishment. 2. Non-Automated Transactions a. $1.05 for each non-automated transaction and maintenance item processed for the Fund Group as a whole during a month. The non-automated transaction count will include all manually processed price dependent and maintenance transactions. Also, the number of new account setups will be excluded from the number of non-automated transactions. b. Fee to be charged to the Funds based on each Fund's number of total non-automated transactions and maintenance. c. Fee to be billed monthly for that month. PAGE 48 d. NOTE: The transaction count should not include correction of transactions caused by non-shareholder errors. D. Telephone Fee Billed at the rate of $5.20 per call for shareholder servicing calls received in excess of 34,000 calls per month. Calls received in Retail Services are allocated to the Funds based on accounts serviced and calls received in Telephone Services are allocated based on actual calls received. E. Items Scanned $.29 will be billed for each document page scanned. It will be allocated based on the number of items indexed to each Fund. F. Tele*Access Base fee, per month for all calls is $39,000. G. Institutional Electronic Interface Maximum fee calculated is 10 basis points or less per Fund. 10 basis points < $500 million 8 basis points > $500 million < $1 billion 5 basis points > $1 billion < $2 billion 3 basis points > $2 billion H. Correspondence $4.20 billed for each shareholder correspondence request completed in writing or by phone. Allocated to the Funds based on accounts serviced. I. Telephone Transaction Fee Each price dependent transaction initiated through the Telephone Services Group will be charged $.50. II. Vendor Fees A. DST 1. Annual Open Account Fee a. $1.77 for each Equity Fund account serviced. b. $4.20 for each Bond Fund account serviced. c. $4.20 for each Money Market Fund account serviced. PAGE 49 The Open Account Fee will be billed monthly at a rate of 1/12 of the annual fee for each Fund account serviced during the month. 2. Closed Account Fee (Annualized) Payable at an annual rate of $1.44. The Closed Account Fee will be billed monthly at a rate of 1/12 of the annual rate and will be charged in the month following the month during which such account is closed and shall cease to be charged in the month following the Purge Date. 3. Fiduciary Sub-Accounting Payable at the rate of $1.00 per month for each fiduciary account. Fiduciary accounts closed during the prior year will not be included as billable items. 4. Annual Base Fee Per Fund Annual Fee of $7,205.88 will be charged at a monthly rate of $600.49. The fee is waived for the first six (6) months after a new Fund is effective. The definition of new Fund excludes Funds created by mergers, purchases, or reorganizations. 5. Bank Account Reconciliation System (Comp/Recon) Annual charge of $120,000 payable at a rate of $10,000 per month. 6. TRAC 2000 - $7.00 per participant, per year 7. Voice Response Unit a. $500 Set-up Fee will be charged for each investment company unit. b. $2,500 Maintenance Fee will be billed each month. c. $.50 will be billed per call connected to the VRU. 8. Contingent Deferred Sales Charge. Billed to each Fund utilizing this service at an annual rate of $1.03 per open account. B. State Street Bank 1. NSCC Settlements PAGE 50 a. $11.30 for net redemptions b. $ 5.14 per net purchases 2. Checkwriting Fees $.565 for each checkwriting item processed (i.e. those resulting in either redemptions or returned as non- processable). This includes signature card maintenance and verification, manual or special processing of checks, stop payment processing, settlement functions, and postage and mailing expenses to return canceled checks to shareholders. 3. Stop Payments - Redemption/Distribution Accounts $15.00 for each manual stop payment placed on a redemption or distribution check. 4. ACH Transactions $.06 for each ACH transaction processed by the Bank and submitted to the ACH network. 5. Internal Book Transfers $1.08 billed for money movement between TRP DDA's at the Bank. Money is transferred by debit and credit memos. 6. Wire Fees $4.00 for each incoming, manual, and internal bank transfer wire; $3.75 for each outgoing transmission wire. 7. Paid checks $.18 for each paid check processed. 8. DDA Research $1.03 per request. 9. Special Handling $2,917 billed per month for the special handling of checks at Marina Bay. 10. Nightly Audits $.0285 per page for the audit of the DST nightly update. PAGE 51 11. VAX Computer Usage Billed at the rate of $8,318 per month which covers both: a. System Fee - for use of sub-systems such as capital stock interface, PDPS, Direct Deposit, etc. b. Communication Fee - charge for the line, modems, and statistical multiplexers. 12. Abandoned Property Services based on the following fee schedule: a. Administrative charge $125/Fund b. Processing charges $1.00/account c. Due Diligence Mailings $1.50/account d. Labor will be charged based on the number of hours required. 13. Account maintenance $16.00 per account per month 14. Reporting (SSCAN) for selected accounts - $50.00 per account per month 15. FDIC Passthrough - charged at prevailing FDIC rates C. J.P. Morgan Bank 1. Wire Transfer Fees Annual Account Maintenance $250.00 Annual MORCOM/CASH First Account $5,000.00 Subsequent Accounts $3,000.00 Batch File Transfer (BFT) Transmission $15.00 each (capped at 10 per month) BFT Per Outgoing Wire Peak (8 a.m. and 8 p.m.) $0.064 Off Peak (8 p.m. and 8 a.m.) $0.032 Outgoing Wires Straight-through (Repetive or Freetype) 80% of total volume $3.25 Book Transfer (IBT) $1.50 Repair (Freeform) $7.00 Zero Balance Transfer $1.00 PAGE 52 Incoming Wires Fed or CHIPS $3.25 Book (IBT) $1.50 FDIC Passthrough - charged at prevailing FDIC rates 2. Controlled Disbursement Fees Annual Account Maintenance (capped at 6 accounts) $760.00 per account Annual MORCOM Next Day $1,385.00 per account Annual MORCOM Check $715.00 per account Batch File Transfer (BFT) Transmission (capped at 10 per month) $15.00 each Same Day Match Pay (Dividend & Redemption Checks) DCD Match $2,500.00 per account TRPS Matches .005 per item Checks Paid Up to 500,000 items $0.051 Up to 750,000 items $0.042 Up to 1,000,000 items $0.035 Stops On-line $3.00 Returned Checks $3.00 per item 3. The bank may charge interest at a rate in excess of normal borrowing rates if the TRPS balance is overdrawn or is in a negative collected balance status. D. Fleet Bank of Massachusetts 1. Demand Deposit Services a. Monthly Account Maintenance $13.00/ 14.00 in May PAGE 53 b. Deposit Ticket $.85 c. Deposited Item Fee (all inclusive) $.054 d. Return of a Deposited Item Redeposit Fee per deposit $1.00 Per redeposited item $.50 Returned item $3.00 2. Treasury Master System a. Previous Day Balance Reporting Monthly module charge $60.00 Per Account $10.00 b. Previous Day Detail Monthly module charge $70.00 Per Transaction $.10 c. Current Day Detail Monthly module charge $70.00 Per Transaction $.10 d. Depository Transfer Monthly module charge $75.00 Per Transfer $.25 e. Money Movers per transfer $.50 f. Wire Transfer no addt'l charge- normal wire fees only 3. Wire Transfer a. Outgoing Repetitive Wire Placed prior to 1:00 pm $9.00 Placed after 1:00 pm $10.00 b. Outgoing Non-Repetitive Wire Placed prior to 1:00 pm $12.00 Placed after 1:00 pm $13.00 c. Incoming Wire $6.00 4. The bank may charge interest at a rate in excess of normal borrowing rates if the TRPS balance is overdrawn or is in a negative collected balance status. 5. FDIC Passthrough - charged at prevailing FDIC rates. E. First National Bank of Maryland 1. Internal Fund Transfer $5.40 2. Returned Items $2.70 PAGE 54 3. Deposit Items Charge varies 4. Deposit Tickets $.45 5. Return/redeposit items $2.25 6. Deposit Corrections $4.50 7. Check copy $9.00 8. First Facts CDA Repetitive Wire $4.05 System Reports/Per Module $27.00 Per Report Previous Day $1.80 Per Report Current Day $3.60 9. Account maintenance $11.25 10. Debit item $.54 11. Credit transaction $.54 12. Foreign Deposit $4.50 13. ACH Debit $.117 14. Tax Deposits $.90 15. Film - Monthly $121.50 16. TRPS may be charged interest when TRPS's balance at FNB is in a negative collected balance status. TRPS may also receive balance credits on a positive investable balance 17. FDIC Passthrough charged at prevailing FDIC rates III. New Funds Funds added during the term of this contract may have their Maintenance and Transaction charges and other charges (Section I) waived for a period of time, as agreed to by TRPS and Fund Directors, following the establishment of the Fund. Out-of- pocket expenses will be billed to the Fund from the Fund's inception. IN WITNESS WHEREOF, T.Rowe Price Funds and T.Rowe Price Services, Inc. have agreed upon this fee schedule to be executed in their names and on their behalf through their duly authorized officers: T. ROWE PRICE FUNDS T. ROWE PRICE SERVICES, INC. /s/Carmen F. Deyesu /s/Mark E. Rayford NAME ____________________ NAME ________________________ Carmen F. Deyesu Mark E. Rayford TITLE Treasurer TITLE President DATE 2/16/94 DATE 2/18/94 EX-99.B9B-FUNDACCT 15 FUND ACCOUNTING AGREEMENT The Agreement between T. Rowe Price Associates, Inc. and T. Rowe Price Funds for Fund Accounting Services, dated January 1, 1994, should be inserted here. PAGE 1 AGREEMENT between T. ROWE PRICE ASSOCIATES, INC. and THE T. ROWE PRICE FUNDS for FUND ACCOUNTING SERVICES PAGE 2 TABLE OF CONTENTS Page Article A Terms of Appointment/Duties of Price Associates .1 Article B Fees and Out-of-Pocket Expenses . . . . . . . . .2 Article C Representations and Warranties of Price Associates3 Article D Representations and Warranties of the Fund. . . .3 Article E Ownership of Software and Related Material. . . .3 Article F Quality Service Standards . . . . . . . . . . . .4 Article G Standard of Care/Indemnification. . . . . . . . .4 Article H Dual Interests. . . . . . . . . . . . . . . . . .5 Article I Documentation . . . . . . . . . . . . . . . . . .5 Article J Recordkeeping/Confidentiality . . . . . . . . . .5 Article K Compliance with Governmental Rules and Regulations6 Article L Terms and Termination of Agreement. . . . . . . .6 Article M Notice. . . . . . . . . . . . . . . . . . . . . . 6 Article N Assignment. . . . . . . . . . . . . . . . . . . . 7 Article O Amendment/Interpretive Provisions . . . . . . . .7 Article P Further Assurances. . . . . . . . . . . . . . . .7 Article Q Maryland Law to Apply . . . . . . . . . . . . . .7 Article R Merger of Agreement . . . . . . . . . . . . . . .7 Article S Counterparts. . . . . . . . . . . . . . . . . . .8 Article T The Parties . . . . . . . . . . . . . . . . . . . 8 Article U Directors, Trustee and Shareholders and Massachusetts Business Trust. . . . . . . . . . . . . . . . . .8 PAGE 3 Article V Captions. . . . . . . . . . . . . . . . . . . . . 9 PAGE 4 AGREEMENT made as of the first day of January, 1994, by and between T. ROWE PRICE ASSOCIATES, INC., a Maryland corporation having its principal office and place of business at 100 East Pratt Street, Baltimore, Maryland 21202 ("Price Associates"), and each Fund which is listed on Appendix A (as such Appendix may be amended from time to time) and which evidences its agreement to be bound hereby by executing a copy of this Agreement (each such Fund individually hereinafter referred to as "the Fund", whose definition may be found in Article T); WHEREAS, Price Associates has the capability of providing the Funds with certain accounting services ("Accounting Services"); WHEREAS, the Fund desires to appoint Price Associates to provide these Accounting Services and Price Associates desires to accept such appointment; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: A. Terms of Appointment/Duties of Price Associates Subject to the terms and conditions set forth in this Agreement, the Fund hereby employs and appoints Price Associates to provide, and Price Associates agrees to provide, the following Accounting Services: a. Maintain for each Fund a daily trial balance, a general ledger, subsidiary records and capital stock accounts; PAGE 5 b. Maintain for each Fund an investment ledger, including amortized bond and foreign dollar denominated costs where applicable; c. Maintain for each Fund all records relating to the Fund's income and expenses; d. Provide for the daily valuation of each Fund's portfolio securities and the computation of each Fund's daily net asset value per share. Such daily valuations shall be made in accordance with the valuation policies established by each of the Fund's Board of Directors including, but not limited to, the utilization of such pricing valuation sources and/or pricing services as determined by the Boards. Price Associates shall have no liability for any losses or damages incurred by the Fund as a result of erroneous portfolio security evaluations provided by such designated sources and/or pricing services; provided that, Price Associates reasonably believes the prices are accurate, has adhered to its normal verification control procedures, and has otherwise met the standard of care as set forth in Article G of this Agreement; e. Provide daily cash flow and transaction status information to each Fund's adviser; f. Prepare for each Fund such financial information that is reasonably necessary for shareholder reports, reports to PAGE 6 the Board of Directors and to the officers of the Fund, and reports to the Securities and Exchange Commission and the Internal Revenue Service and other Federal and state regulatory agencies; g. Provide each Fund with such advice that may be reasonably necessary to properly account for all financial transactions and to maintain the Fund's accounting procedures and records so as to insure compliance with generally accepted accounting and tax practices and rules; h. Maintain for each Fund all records that may be reasonably required in connection with the audit performed by each Fund's independent accountant, the Securities and Exchange Commission, the Internal Revenue Service or such other Federal or state regulatory agencies; and i. Cooperate with each Fund's independent public accountants and take all reasonable action in the performance of its obligations under the Agreement to assure that the necessary information is made available to such accountants for the expression of their opinion without any qualification as to the scope of their examination including, but not limited to, their opinion included in each such Fund's annual report on Form N-SAR and annual amendment to Form N-1A. B. Fees and Out-of-Pocket Expenses Each Fund shall pay to Price Associates for its Accounting Services hereunder, fees as set forth in the Schedule attached hereto. In addition, each Fund will reimburse Price Associates PAGE 7 for out-of-pocket expenses such as postage, printed forms, voice and data transmissions, record retention, disaster recovery, third party vendors, equipment leases and other similar items as may be agreed upon between Price Associates and the Fund. Some invoices will contain costs for both the Funds and other funds services by Price Associates. In these cases, a reasonable allocation methodogy will be used to allocate these costs to the Funds. C. Representations and Warrantees of Price Associates Price Associates represents and warrants to the Fund that: 1. It is a corporation duly organized and existing in good standing under the laws of Maryland. 2. It is duly qualified to carry on its business in Maryland. 3. It is empowered under applicable laws and by its charter and By-Laws to enter into and perform this Agreement. 4. All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 5. It has, and will continue to have, access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. D. Representations and Warrantees of the Fund The Fund represents and warrants to Price Associates that: 1. It is a corporation or business trust, as the case may be, duly organized and existing and in good standing under the laws of Maryland or Massachusetts, as the case may be. PAGE 8 2. It is empowered under applicable laws and by its Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws have been taken to authorize it to enter into and perform this Agreement. 3. All proceedings required by said Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws have been taken to authorize it to enter into and perform this Agreement. E. Ownership of Software and Related Material All computer programs, magnetic tapes, written procedures, and similar items purchased and/or developed and used by Price Associates in performance of the Agreement shall be the property of Price Associates and will not become the property of the Funds. F. Quality Service Standards Price Associates and the Fund may, from time to time, agree to certain quality service standards, with respect to Price Associates' services hereunder. G. Standard of Care/Indemnification Notwithstanding anything to the contrary in this Agreement: 1. Price Associates shall not be liable to any Fund for any act or failure to act by it or its agents or subcontractors on behalf of the Fund in carrying or attempting to carry out the terms and provisions of the Agreement provided Price Associates has acted in good faith and without negligence or willful misconduct and selected and monitored the performance of its agents and subcontractors with reasonable care. PAGE 9 2. The Fund shall indemnify and hold Price Associates harmless from and against all losses, costs, damages, claims, actions, and expenses, including reasonable expenses for legal counsel, incurred by Price Associates resulting from: (i) any action or omission by Price Associates or its agents or subcontractors in the performance of their duties hereunder; (ii) Price Associates acting upon instructions believed by it to have been executed by a duly authorized officer of the Fund; or (iii) Price Associates acting upon information provided by the Fund in form and under policies agreed to by Price Associates and the Fund. Price Associates shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or willful misconduct of Price Associates or where Price Associates has not exercised reasonable care in selecting or monitoring the performance of its agents or subcontractors. 3. Price Associates shall indemnify and hold harmless the Fund from all losses, costs, damages, claims, actions and expenses, including reasonable expenses for legal counsel, incurred by the Fund resulting from the negligence or willful misconduct of Price Associates or which result from Price Associates' failure to exercise reasonable care in selecting or monitoring the performance of its agents or subcontractors. The Fund shall not be entitled to such indemnification with respect to actions or omissions constituting negligence or willful misconduct of such Fund or its agents or subcontractors; unless such negligence or misconduct is attributable to Price Associates. PAGE 10 4. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes or other causes reasonably beyond its control, such party shall not be liable to the other party for any loss, cost, damage, claim, action or expense resulting from such failure to perform or otherwise from such causes. 5. In order that the indemnification provisions contained in this Article F shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim, or to defend against said claim in its own name or in the name of the other party. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. 6. Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement. H. Dual Interests It is understood that some person or persons may be directors, officers, or shareholders of both the Fund and Price PAGE 11 Associates (including Price Associates' affiliates), and that the existence of any such dual interest shall not affect the validity of this Agreement or of any transactions hereunder except as otherwise provided by a specific provision of applicable law. I. Documentation As requested by Price Associates, the Fund shall promptly furnish to Price Associates such documents as it may reasonably request and as are necessary for Price Associates to carry out its responsibilities hereunder. J. Recordkeeping/Confidentiality 1. Price Associates shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable, provided that Price Associates shall keep all records in such form and in such manner as required by applicable law, including the Investment Company Act of 1940 ("the Act") and the Securities Exchange Act of 1934 ("the '34 Act"). 2. Price Associates and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except: (a) after prior notification to and approval in writing by the other party hereto, which approval shall not be unreasonably withheld and may not be withheld where Price Associates or Fund may be exposed to civil or criminal contempt proceedings for failure to comply; (b) when requested to divulge PAGE 12 such information by duly constituted governmental authorities; or (c) after so requested by the other party hereto. K. Compliance With Governmental Rules and Regulations Except as otherwise provided in the Agreement and except for the accuracy of information furnished to the Funds by Price Associates, each Fund assumes full responsibility for the preparation, contents and distribution of its prospectuses, and for complying with all applicable requirements of the Act, the '34 Act, the Securities Act of 1933 (the "33 Act"), and any laws, rules and regulations of governmental authorities having jurisdiction over the Funds. L. Term and Termination of Agreement 1. This Agreement shall run for a period of one (1) year from the date first written above and will be renewed from year to year thereafter unless terminated by either party as provided hereunder. 2. This Agreement may be terminated by the Fund upon sixty (60) days' written notice to Price Associates; and by Price Associates, upon three hundred sixty-five (365) days' writing notice to the Fund. 3. Upon termination hereof, the Fund shall pay to Price Associates such compensation as may be due as of the date of such termination, and shall likewise reimburse for out-of-pocket expenses related to its services hereunder. M. Notice Any notice as required by this Agreement shall be sufficiently given (i) when sent to an authorized person of the PAGE 13 other party at the address of such party set forth above or at such other address as such party may from time to time specify in writing to the other party; or (ii) as otherwise agreed upon by appropriate officers of the parties hereto. N. Assignment Neither this Agreement nor any rights or obligations hereunder may be assigned either voluntarily or involuntarily, by operation of law or otherwise, by either party without the prior written consent of the other party, provided this shall not preclude Price Associates from employing such agents and subcontractors as it deems appropriate to carry out its obligations set forth hereunder. O. Amendment/Interpretive Provisions The parties by mutual written agreement may amend this Agreement at any time. In addition, in connection with the operation of this Agreement, Price Associates and the Fund may agree from time to time on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions are to be signed by all parties and annexed hereto, but no such provision shall contravene any applicable Federal or state law or regulation and no such interpretive or additional provision shall be deemed to be an amendment of this Agreement. PAGE 14 P. Further Assurances Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. Q. Maryland Law to Apply This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of Maryland. R. Merger of Agreement This Agreement, including the attached Appendices and Schedules supersedes any prior agreement with respect to the subject hereof, whether oral or written. S. Counterparts This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instruments. T. The Parties All references herein to "the Fund" are to each of the Funds listed on Appendix A individually, as if this Agreement were between such individual Fund and Price Associates. In the case of a series Fund or trust, all references to "the Fund" are to the individual series or portfolio of such Fund or trust, or to such Fund or trust on behalf of the individual series or portfolio, as appropriate. The "Fund" also includes any T. Rowe Price Funds which may be established after the execution of this PAGE 15 Agreement. Any reference in this Agreement to "the parties" shall mean Price Associates and such other individual Fund as to which the matter pertains. U. Directors, Trustees and Shareholders and Massachusetts Business Trust It is understood and is expressly stipulated that neither the holders of shares in the Fund nor any Directors or Trustees of the Fund shall be personally liable hereunder. With respect to any Fund which is a party to this Agreement and which is organized as a Massachusetts business trust, the term "Fund" means and refers to the trustees from time to time serving under the applicable trust agreement (Declaration of Trust) of such Trust as the same may be amended from time to time. It is expressly agreed that the obligations of any such Trust hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but bind only the trust property of the Trust, as provided in the Declaration of Trust of the Trust. The execution and delivery of this Agreement has been authorized by the trustees and signed by an authorized officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them, but shall bind only the trust property of the Trust as provided in its Declaration of Trust. PAGE 16 V. Captions The captions in the Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers. DATED: 2/22/94 T. ROWE PRICE ASSOCIATES, INC. ATTEST: /s/Barbara A. VanHorn /s/Alvin M. Younger _________________________ BY:___________________________ Barbara A. VanHorn Managing Director PAGE 17 T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Fund T. Rowe Price Latin America Fund T. ROWE PRICE MID-CAP GROWTH FUND T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. PAGE 18 T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE OTC FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund New Jersey Tax-Free Bond Fund Virginia Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund PAGE 19 T. ROWE PRICE SUMMIT FUNDS, INC. Summit Cash Reserves Fund Summit Limited-Term Bond Fund Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. Summit Municipal Money Market Fund Summit Municipal Intermediate Fund Summit Municipal Income Fund DATED: 2/16/94 ATTEST: /s/Lenora V. Hornung /s/Carmen F. Deyesu _________________________ BY:______________________________ Lenora V. Hornung Carmen F. Deyesu PAGE 20 APPENDIX A The following Funds are parties to this Agreement, and have so indicated their intention to be bound by such Agreement by executing the Agreement on the dates indicated thereon. T. Rowe Price Adjustable Rate U.S. Government Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Balanced Fund, Inc. T. Rowe Price California Tax-Free Income Trust on behalf of the California Tax-Free Bond Fund and California Tax-Free Money Fund T. Rowe Price Capital Appreciation Fund T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price GNMA Fund T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price Index Trust, Inc. on behalf of the T. Rowe Price Equity Index Fund T. Rowe Price Institutional International Funds, Inc. on behalf of the Foreign Equity Fund T. Rowe Price International Equity Fund, Inc. PAGE 21 T. Rowe Price International Funds, Inc. on behalf of the T. Rowe Price International Bond Fund and T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Fund T. Rowe Price Latin American Fund T. Rowe Price Mid-Cap Growth Fund T. Rowe Price New America Growth Fund T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price New Income Fund, Inc. T. Rowe Price OTC Fund, Inc. T. Rowe Price Prime Reserve Fund, Inc. T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Small-Cap Value Fund, Inc. T. Rowe Price Spectrum Fund, Inc. on behalf of the Spectrum Growth Fund Spectrum Income Fund T. Rowe Price State Tax-Free Income Trust on behalf of the Maryland Tax-Free Bond Fund, Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund and New York Tax-Free Money Fund New Jersey Tax-Free Bond Fund Virginia Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Bond Fund Georgia Tax-Free Bond Fund PAGE 22 T. Rowe Price Tax-Exempt Money Fund, Inc. T. Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc. T. Rowe Price Tax-Free High Yield Fund, Inc. T. Rowe Price Tax-Free Income Fund, Inc. T. Rowe Price Tax-Free Short-Intermediate Fund, Inc. T. Rowe Price U.S. Treasury Funds, Inc. on behalf of the U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. Rowe Price Summit Funds, Inc. on behalf of the Summit Cash Reserves Fund Summit Limited-Term Bond Fund Summit GNMA Fund T. Rowe Price Summit Municipal Funds, Inc. on behalf of Summit Municipal Money Market Fund Summit Municipal Intermediate Fund Summit Municipal Income Fund PAGE 23 FUND ACCOUNTING SERVICES 1994 FEE SCHEDULE A. Fee Structure 1. Base Fee Domestic Funds $60,000 each International Funds $100,000 each Spectrum Funds $35,000 each Per Fund fee for basic recordkeeping and financial reporting 2. Individual Fund Fee Total fees reflecting special $ 883,000 characteristics of each Fund 3. Stock Lending Fee Allocated to each Fund based $ 75,000 on ratio of net earnings from stock loans 4. Additional Funds Domestic Funds $60,000 each International Funds $100,000 each Spectrum Funds $35,000 each B. Total Cost Per Fund Growth Stock Fund $ 114,000 New Horizons Fund 95,000 Equity Income Fund 85,000 New Era Fund 72,000 International Stock Fund 115,000 Growth & Income Fund 85,000 New America Growth Fund 70,000 Capital Appreciation Fund 85,000 Small-Cap Value Fund 60,000 Foreign Equity Fund 105,000 International Discovery Fund 125,000 Science & Technology Fund 60,000 High Yield Fund 165,000 Tax-Free Income Fund 110,000 New Income Fund 100,000 Tax-Free High Yield Fund 110,000 European Stock Fund 100,000 Equity Index Fund 60,000 PAGE 24 New Asia Fund 110,000 Spectrum Growth Fund 35,000 GNMA Fund 120,000 International Bond Fund 125,000 Balanced Fund 90,000 Maryland Bond Fund 81,000 Tax-Free Short Intermediate Fund 85,000 Short-Term Bond Fund 120,000 California Bond Fund 72,000 New York Bond Fund 72,000 U.S. Treasury Short-Intermediate Fund 60,000 U.S. Treasury Long-Term Bond Fund 60,000 Spectrum Income Fund 35,000 Prime Reserve Fund 85,000 Tax-Exempt Money Fund 93,000 U.S. Treasury Money Fund 60,000 California Money Fund 67,000 New York Money Fund 67,000 Adjustable Rate Government Fund 110,000 Virginia Bond Fund 60,000 New Jersey Bond Fund 60,000 Global Government Bond Fund 100,000 OTC Fund 85,000 Japan Fund 100,000 Mid-Cap Growth Fund 60,000 Short-Term Global Fund 100,000 Maryland Short-Term Tax-Free Bond Fund 60,000 Florida Insured Intermediate Tax-Free Fund 60,000 Georgia Tax-Free Bond Fund 60,000 Tax-Free Insured Intermediate Bond Fund 60,000 Blue Chip Growth Fund 60,000 Dividend Growth Fund 65,000 Latin America Fund 100,000 Summit Cash Reserve Fund 60,000 Summit Limited-Term Bond Fund 60,000 Summit GNMA Fund 60,000 Summit Municipal Money Market Fund 60,000 Summit Municipal Intermediate Fund 60,000 Summit Municipal Income Fund 60,000 IN WITNESS WHEREOF, T. Rowe Price Funds and T. Rowe Price Associates, Inc. have agreed upon this fee schedule to be executed in their names and on their behalf through their duly authorized officers: T. ROWE PRICE FUNDS T. ROWE PRICE ASSOCIATES, INC. /s/Carmen F. Deyesu /s/Alvin M. Younger Name_________________________ Name__________________________ Carmen F. Deyesu Alvin M. Younger Title Treasurer Title Treasurer and Managing Director Date 2/16/94 Date 2/16/94 EX-99.B9C-RPS 16 RPS AGREEMENT The Agreement between T. Rowe Price Retirement Plan Services, Inc. and the Taxable Funds, dated January 1, 1994, should be inserted here. PAGE 1 AGREEMENT between T. ROWE PRICE RETIREMENT PLAN SERVICES, INC. and EACH OF THE PARTIES INDICATED ON APPENDIX A PAGE 2 TABLE OF CONTENTS Page Article A Terms of Appointment . . . . . . . . . . . . .2 Article B Duties of RPS. . . . . . . . . . . . . . . . .2 1. Purchases - Retirement Plans and Retirement Accounts . . . . . . . . . . .2 2. Retirement Plans - Redemptions to Cover Distributions . . . . . . . . . . . . . .3 3. Exchanges. . . . . . . . . . . . . . . . .4 4. Shares held by Retirement Accounts . . . .4 5. Books and Records. . . . . . . . . . . . .4 6. Tax Information. . . . . . . . . . . . . .5 7. Other Information to be furnished to the Funds. . . . . . . . . . . . . . .6 8. Correspondence . . . . . . . . . . . . . .6 9. Mailings/Confirmation Statements . . . . .6 10. Proxies. . . . . . . . . . . . . . . . . .6 11. Form N-SAR . . . . . . . . . . . . . . . .6 12. Backup Withholding . . . . . . . . . . . .6 Article C Fee and Out-of-Pocket Expenses . . . . . . . .7 1. Postage. . . . . . . . . . . . . . . . . .7 2. Proxies. . . . . . . . . . . . . . . . . .7 3. Communications . . . . . . . . . . . . . .7 4. Record Retention . . . . . . . . . . . . .8 5. Disaster Recovery. . . . . . . . . . . . .8 Article D Representations and Warranties of RPS. . . . .8 Article E Representations and Warranties of the Fund . .8 Article F Standard of Care/Indemnification . . . . . . .9 Article G Dual Interests . . . . . . . . . . . . . . . 11 Article H Documentation. . . . . . . . . . . . . . . . 11 Article I Recordkeeping/Confidentiality. . . . . . . . 12 Article J Ownership of Software and Related Material . 13 PAGE 3 Article K As of Transactions . . . . . . . . . . . . . 13 1. Reporting. . . . . . . . . . . . . . . . 13 2. Liability. . . . . . . . . . . . . . . . 14 Article L Term and Termination of Agreement. . . . . . 15 Article M Notice . . . . . . . . . . . . . . . . . . . . 16 Article N Assignment . . . . . . . . . . . . . . . . . . 16 Article O Amendment/Interpretive Provisions. . . . . . 16 Article P Further Assurances . . . . . . . . . . . . . 16 Article Q Maryland Law to Apply. . . . . . . . . . . . 16 Article R Merger of Agreement. . . . . . . . . . . . . 17 Article S Counterparts . . . . . . . . . . . . . . . . 17 Article T The Parties. . . . . . . . . . . . . . . . . . 17 Article U Directors, Trustees and Shareholders and Massachusetts Business Trust. . . . . . . . . . . . . . . 17 Article V Captions . . . . . . . . . . . . . . . . . . . 18 PAGE 4 AGREEMENT, made as of the first day of January, 1994, by and between T. ROWE PRICE RETIREMENT PLAN SERVICES, INC., a Maryland corporation having its principal office and place of business at 100 East Pratt Street, Baltimore, Maryland 21202 ("RPS"), and EACH FUND WHICH IS LISTED ON APPENDIX A (as such Appendix may be amended from time to time) and which evidences its agreement to be bound hereby by executing a copy of this Agreement (each Fund hereinafter referred to as "the Fund") whose definition may be found in Article T; WHEREAS, the Funds are named investment options under various tax-sheltered plans, including, but not limited to, state deferred compensation plans, 403(b) plans, and profit sharing, thrift, and money purchase pension plans for self-employed individuals, professional partnerships and corporations, (collectively referred to as "Retirement Plans"); and the Fund has determined that such investments of Retirement Plans in the Funds are in the best long-term interest of the Funds; WHEREAS, RPS has the capability of providing special services, on behalf of the Fund, for the accounts ("Retirement Accounts") of shareholders participating in these Retirement Plans; WHEREAS, RPS represents that it is registered with the Securities and Exchange Commission as a Transfer Agent under PAGE 5 Section 17A of the Securities Exchange Act of 1934 ("the '34 Act"). WHEREAS, RPS may subcontract or jointly contract with other parties on behalf of the Funds to perform certain of the functions described herein, RPS may also enter into, on behalf of the Funds, certain banking relationships to perform various banking services, including, but not limited to, check deposits, disbursements, automatic clearing house transactions ("ACH") and wire transfers. Subject to guidelines mutually agreed upon by the Funds and RPS, excess balances, if any, resulting from these banking relationships will be invested and the income therefrom will be used to offset fees which would otherwise be charged to the Funds under this Agreement. WHEREAS, the Fund desires to contract with RPS the foregoing functions and services described herein in connection with the Retirement Plans and Retirement Accounts; NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: A. Terms of Appointment Subject to the terms and conditions set forth in this Agreement, the Fund hereby employs and appoints RPS to perform the services and functions described herein in connection with PAGE 6 certain Retirement Plan and Retirement Accounts as agreed upon by the parties. B. Duties of RPS: RPS agrees that it will perform the following services: 1. Purchases - Retirement Plans and Retirement Accounts After RPS has received monies from Retirement Plans and has determined the proper allocation of such monies to the Retirement Accounts or Retirement Plan participants ("Participants") based upon instructions received from Participants, Retirement Plans or their designees, or Retirement Plan Administrator(s) ("Administrator(s)"), RPS will, as a responsibility under the Agreement: a. Transmit by check or wire the aggregate money allocated to each Fund to the Fund's custodian; b. In the case of a new Participant, establish and maintain a Retirement Account for such Participant; and c. Compute the number of shares of each Fund to which the Participant is entitled according to the price of such Fund shares as provided by such Fund for purchases made at that time and date, and credit each such Account with the number of shares of the Fund so purchased. PAGE 7 2. Retirement Plans - Redemptions to Cover Distributions. After RPS has received instructions from the Administrator regarding distributions to be made to Participants or their designated beneficiaries from Funds designated as investment options under the Retirement Plan, RPS will, as a responsibility under the Agreement: a. Compute the amount due for shares to be redeemed from each Retirement Account or compute the number of shares to be redeemed from each such Retirement Account for such distributions and the total number of all shares of each Fund to be redeemed in accordance with the price per share at that time and date of such Fund as calculated and provided by the Fund. After such computation, inform the Fund of the amount necessary to be redeemed. Distribute to Participants or their designated beneficiaries the amount to be disbursed. b. After RPS has received instructions from the Administrator regarding disbursements to be made regarding the payment of fees due the Administrator, or other persons including RPS, RPS will, as a responsibility under this Agreement: PAGE 8 i. Compute the number of shares to be redeemed from each Retirement Account to pay for such disbursements and the total number of all shares to be redeemed in accordance with the price per share at that time and date, of such Fund as calculated and provided by the Fund; ii. Effect the necessary redemption from the Fund's custodian to cover such disbursements; and iii. Mail to the Administrator or such other person as designated by the Administrator the amount to be disbursed. c. Other Provisions i. If any instruction tendered by an Administrator to redeem shares in a Retirement Account is not satisfactory to RPS, RPS shall promptly notify the Administrator of such fact together with the reason therefor; ii. The authority of RPS to perform its responsibilities under Paragraph B(2) with respect to each Fund shall be suspended upon receipt of notification by such Fund of the suspension of the determination of the Fund's net asset value per PAGE 9 share and shall remain suspended until proper notification; and iii. The Fund will promptly inform RPS of the declaration of any dividend or distribution on account of the capital stock of any Fund so that RPS may properly credit income and capital gain payments to each Retirement Account. 3. Exchanges Effect exchanges of shares of the Funds upon receipt of appropriate instructions from the Administrator and/or Participant. 4. Shares held by Retirement Accounts will be Noncertificate Shares RPS will have neither responsibility nor authority to issue stock certificates evidencing ownership of Fund shares held by Participants. All shares held in Retirement Accounts maintained by RPS shall be noncertificated shares. 5. Books and Records RPS shall maintain records showing for each Retirement Plan or Retirement Account, the following: a. Names, addresses and tax identification numbers, when provided; b. Number of shares held; PAGE 10 c. Historical information regarding the account of each Participant and/or Retirement Plan, including dividends and distributions invested in shares; d. Pertinent information regarding the establishment and maintenance of Retirement Plans and Retirement Accounts necessary to properly administer each account. e. Any instructions from a Participant or Administrator including, all forms furnished by the Fund and executed by a Participant with respect to (i) elections with respect to payment options in connection with the redemption of shares; or distribution elections, if applicable; and f. Any information required in order for RPS to perform the calculations contemplated under this Agreement. Any such records maintained pursuant to Rule 31a-1 under the Investment Company Act of 1940 ("the Act") will be preserved for the periods prescribed in Rule 31a-2 thereunder. Disposition of such records after such prescribed periods shall be as mutually agreed upon from time to time by RPS and the Funds. The retention of such records, which may be inspected by the Fund at reasonable times, shall be at the expense of the Funds. All records maintained by PAGE 11 RPS in connection with the performance of its duties under this Agreement will remain the property of the Funds and, in the event of termination of this Agreement, will be delivered to the Fund as of the date of termination or at such other time as may be mutually agreed upon. 6. Tax Information RPS shall also prepare and file with appropriate federal and state agencies, such information returns and reports as required by applicable Federal and State statutes relating to redemptions effected in Retirement Accounts which constitute reportable distributions. RPS will also prepare and submit to Participants, such reports containing information as is required by applicable Federal and State law. 7. Other Information to be furnished to the Funds RPS will furnish to the Fund, such information, including shareholder lists and statistical information as may be agreed upon from time to time between RPS and the Fund. 8. Correspondence RPS will promptly and fully answer correspondence from Administrators and in some cases, Participants, relating to Retirement Accounts, transfer agent procedures, and such other correspondence as may from time to time be mutually agreed upon with the Funds. Unless otherwise instructed, PAGE 12 copies of all correspondence will be retained by RPS in accordance with applicable law. 9. Mailings/Confirmation Statements RPS will be responsible for mailing all confirmations and other enclosures and mailings, as requested by the Administrators and as may be required of the Funds by applicable Federal or state law. 10. Proxies RPS shall monitor the mailing of proxy cards and other material supplied to it by the Fund in connection with shareholder meetings of the Fund and shall coordinate the receipt, examination and tabulation of returned proxies and the certification of the vote to the Fund. 11. Form N-SAR RPS shall maintain such records, if any, as shall enable the Fund to fulfill the requirements of Form N-SAR. 12. Withholding The Fund and RPS shall agree to procedures to be followed with respect to RPS's responsibilities in connection with compliance for federal withholding for Participants. PAGE 13 C. Fees and Out-of-Pocket Expenses Each Fund shall pay to RPS for its services hereunder fees computed as set forth in the Schedule attached hereto. Except as provided below, RPS will be responsible for all expenses relating to the providing of services. Each Fund, however, will reimburse RPS for the following out-of-pocket expenses and charges incurred in providing services: 1. Postage. The cost of postage and freight for mailing materials to Participants, or their agents, including overnight delivery, UPS and other express mail services and special courier services required to transport mail between RPS locations and mail processing vendors. 2. Proxies. The cost to mail proxy cards and other material supplied to it by the Fund and costs related to the receipt, examination and tabulation of returned proxies and the certification of the vote to the Fund. 3. Communications a. Print. The printed forms used internally and externally for documentation and processing Participant, or their agent's, inquiries and requests; paper and envelope supplies for letters, notices, and other written communications sent to Administrators and Participants, or their agents. PAGE 14 b. Print & Mail House. The cost of internal and third party printing and mail house services, including printing of statements and reports. c. Voice and Data. The cost of equipment (including associated maintenance), supplies and services used for communicating to and from the Participants, or their agents, the Fund's transfer agent, other Fund offices, and other agents of either the Fund or RPS. These charges shall include: o telephone toll charges (both incoming and outgoing, local, long distance and mailgrams); and o data and telephone lines and associated equipment such as modems, multiplexers, and facsimile equipment. 4. Record Retention. The cost of maintenance and supplies used to maintain, microfilm, copy, record, index, display, retrieve, and store, in microfiche or microfilm form, documents and records. 5. Disaster Recovery. The cost of services, equipment, facilities and other charges necessary to provide disaster recovery for any and all services listed in this Agreement. PAGE 15 D. Representations and Warranties of RPS RPS represents and warrants to the Fund that: 1. It is a corporation duly organized and existing and in good standing under the laws of Maryland. 2. It is duly qualified to carry on its business in Maryland. 3. It is empowered under applicable laws and by its charter and by-laws to enter into and perform this Agreement. 4. All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 5. It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. 6. It is registered with the Securities and Exchange Commission as a Transfer Agent pursuant to Section 17A of the '34 Act. E. Representations and Warranties of the Fund The Fund represents and warrants to RPS that: 1. It is a corporation or business trust duly organized and existing and in good standing under the laws of Maryland, or Massachusetts, as the case may be. 2. It is empowered under applicable laws and by its Articles of Incorporation or Declaration of Trust, as the PAGE 16 case may be, and By-Laws to enter into and perform this Agreement. 3. All proceedings required by said Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws have been taken to authorize it to enter into and perform this Agreement. 4. It is an investment company registered under the Act. 5. A registration statement under the Securities Act of 1933 ("the '33 Act") is currently effective and will remain effective, and appropriate state securities law filing have been made and will continue to be made, with respect to all shares of the Fund being offered for sale. F. Standard of Care/Indemnification Notwithstanding anything to the contrary in this Agreement: 1. RPS shall not be liable to the Fund for any act or failure to act by it or its agents or subcontractors on behalf of the Fund in carrying or attempting to carry out the terms and provisions of this Agreement provided RPS has acted in good faith and without negligence or willful misconduct and selected and monitored the performance of its agents and subcontractors with reasonable care. 2. The Fund shall indemnify and hold RPS harmless from and against all losses, costs, damages, claims, actions and PAGE 17 expenses, including reasonable expenses for legal counsel, incurred by RPS resulting from: (i) any action or omission by RPS or its agents or subcontractors in the performance of their duties hereunder; (ii) RPS acting upon instructions believed by it to have been executed by a duly authorized officer of the Fund; or (iii) RPS acting upon information provided by the Fund in form and under policies agreed to by RPS and the Fund. RPS shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or willful misconduct of RPS or where RPS has not exercised reasonable care in selecting or monitoring the performance of its agents or subcontractors. 3. Except as provided in Article K of this Agreement, RPS shall indemnify and hold harmless the Fund from all losses, costs, damages, claims, actions and expenses, including reasonable expenses for legal counsel, incurred by the Fund resulting from negligence or willful misconduct of RPS or which result from RPS' failure to exercise reasonable care in selecting or monitoring the performance of its agents or subcontractors. The Fund shall not be entitled to such indemnification in respect of actions or omissions PAGE 18 constituting negligence or willful misconduct of such Fund or its agents or subcontractors; unless such negligence or misconduct is attributable to RPS. 4. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes or other causes reasonably beyond its control, such party shall not be liable to the other party for any loss, cost, damage, claims, actions or expense resulting from such failure to perform or otherwise from such causes. 5. In order that the indemnification provisions contained in this Article F shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim, or to defend against said claim in its own name or in the name of the other party. The party seeking indemnification shall in no case confess any claim or make any compromise in any case PAGE 19 in which the other party may be required to indemnify it except with the other party's prior written consent. 6. Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement. G. Dual Interests It is understood that some person or persons may be directors, officers, or shareholders of both RPS and the Fund and that the existence of any such dual interest shall not affect the validity of this Agreement or of any transactions hereunder except as otherwise provided by a specific provision of applicable law. H. Documentation 1. As requested by RPS, the Fund shall promptly furnish to RPS the following: a. A certified copy of the resolution of the Directors/Trustees of the Fund authorizing the appointment of RPS and the execution and delivery of this Agreement; b. A copy of the Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws of the Fund and all amendments thereto; PAGE 20 c. Specimens of all forms of outstanding and new stock/share certificates in the forms approved by the Board of Directors/Trustees of the Fund with a certificate of the Secretary of the Fund as to such approval; d. All account application forms and other documents relating to shareholders' accounts; e. An opinion of counsel for the Fund with respect to the validity of the stock, the number of Shares authorized, the status of redeemed Shares, and the number of Shares with respect to which a Registration Statement has been filed and is in effect; and f. A copy of the Fund's current prospectus. The delivery of any such document for the purpose of any other agreement to which the Fund and RPS are or were parties shall be deemed to be delivery for the purposes of this Agreement. 2. As requested by RPS, the Fund will also furnish from time to time the following documents: a. Each resolution of the Board of Directors/Trustees of the Fund authorizing the original issue of its shares; PAGE 21 b. Each Registration Statement filed with the Securities and Exchange Commission and amendments and orders thereto in effect with respect to the sale of shares with respect to the Fund; c. A certified copy of each amendment to the Articles of Incorporation or Declaration of Trust, and the By-Laws of the Fund; d. Certified copies of each vote of the Board of Directors/Trustees authorizing officers to give instructions to the Fund; e. Specimens of all new certificates accompanied by the Board of Directors/Trustees' resolutions approving such forms; f. Such other documents or opinions which RPS, in its discretion, may reasonably deem necessary or appropriate in the proper performance of its duties; and g. Copies of new prospectuses issued. 3. RPS hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of check forms and facsimile signature imprinting devices, if any, and for the preparation or use, and for keeping account of, such forms and devices. PAGE 22 I. Recordkeeping/Confidentiality 1. RPS shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable, provided that RPS shall keep all records in such form and in such manner as required by applicable law, including the Act and the '34 Act. 2. RPS and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except: (a) after prior notification to and approval in writing by the other party hereto, which approval shall not be unreasonably withheld and may not be withheld where RPS or the Fund may be exposed to civil or criminal contempt proceedings for failure to comply; (b) when requested to divulge such information by duly constituted governmental authorities; or (c) after so requested by the other party hereto. J. Ownership of Software and Related Material All computer programs, magnetic tapes, written procedures and similar items purchased and/or developed and used by RPS in PAGE 23 performance of the Agreement shall be the property of RPS and will not become the property of the Fund. K. As Of Transactions For purposes of this Article K, the term "Transaction" shall mean any single or "related transaction" (as defined below) involving the purchase or redemption of shares (including exchanges) that are processed at a time other than the time of the computation of the Fund's net asset value per share next computed after receipt of any such transaction order by RPS. If more than one Transaction ("Related Transaction") in the Fund is caused by or occurs as a result of the same act or omission, such transactions shall be aggregated with other transactions in the Fund and be considered as one Transaction. 1. Reporting RPS shall: a. Utilize a system to identify all Transactions, and shall compute the net effect of such Transactions upon the Fund on a daily, monthly and rolling 365 day basis. The Monthly and rolling 365 day periods are hereinafter referred to as ("Cumulative"). b. Supply to the Fund, from time to time as mutually agreed upon, a report summarizing the Transactions and the daily and Cumulative net effects of such PAGE 24 Transactions both in terms of aggregate dilution and loss ("Dilution") or gain and negative dilution ("Gain") experienced by the Fund, and the impact such Gain or Dilution has had upon the Fund's net asset value per share. c. With respect to any Transaction which causes Dilution to the Fund of $25,000 or more, immediately provide the Fund: (i) a report identifying the Transaction and the Dilution resulting therefrom, (ii) the reason such Transaction was processed as described above, and (iii) the action that RPS has or intends to take to prevent the reoccurrence of such as of processing ("Report"). 2. Liability a. It will be the normal practice of the Fund not to hold RPS liable with respect to any Transaction which causes Dilution to any single Fund of less than $25,000. RPS will, however, closely monitor for each Fund the daily and Cumulative Gain/Dilution which is caused by Transactions of less than $25,000. When the Cumulative Dilution to any Fund exceeds 3/10 of 1% per share, RPS, in consultation with counsel to the Fund, will make appropriate inquiry to determine PAGE 25 whether it should take any remedial action. RPS will report to the Board of Directors/Trustees of the Fund ("Board"), as appropriate, any action it has taken. b. Where a Transaction causes Dilution to a Fund of $25,000 or more ("Significant Transaction"), RPS will review with counsel to the Fund, the Report and the circumstances surrounding the underlying Transaction to determine whether the Transaction was caused by or occurred as a result of a negligent act or omission by RPS. If it is determined that the Dilution is the result of a negligent action or omission by RPS, RPS and outside counsel for the Fund, as appropriate, will negotiate settlement. All such Significant Transactions will be reported to the Board at its next meeting (unless the settlement fully compensates the Fund for any Dilution). Any Significant Transaction, however, causing Dilution in excess of the lesser of $100,000 or a penny per share will be promptly reported to the Board. Settlement will not be entered into with RPS until approved by the Board. The factors the Board or the Funds would be expected PAGE 26 to consider in making any determination regarding the settlement of a Significant Transaction would include but not be limited to: i. Procedures and controls adopted by RPS to prevent As Of processing; ii. Whether such procedures and controls were being followed at the time of the Significant Transaction; iii. The absolute and relative volume of all transactions processed by RPS on the day of the Significant Transaction; iv. The number of Transactions processed by RPS during prior relevant periods, and the net Dilution/Gain as a result of all such transactions to the Fund and to all other Price Funds; and v. The prior response of RPS to recommendations made by the Funds regarding improvement to the Transfer Agent's As Of Processing Procedures. L. Term and Termination of Agreement 1. This Agreement shall run for a period of one (1) year from the date first written above and will be renewed from year to year thereafter unless terminated by either party as provided hereunder. PAGE 27 2. This Agreement may be terminated by the Funds upon one hundred twenty (120) days' written notice to RPS; and by RPS, upon three hundred sixty-five (365) days' writing notice to the Fund. 3. Upon termination hereof, the Fund shall pay to RPS such compensation as may be due as of the date of such termination, and shall likewise reimburse for out-of-pocket expenses related to its services hereunder. M. Notice Any notice as required by this Agreement shall be sufficiently given (i) when sent to an authorized person of the other party at the address of such party set forth above or at such other address as such party may from time to time specify in writing to the other party; or (ii) as otherwise agreed upon by appropriate officers of the parties hereto. N. Assignment Neither this Agreement nor any rights or obligations hereunder may be assigned either voluntarily or involuntarily, by operation of law or otherwise, by either party without the prior written consent of the other party O. Amendment/Interpretive Provisions The parties by mutual written agreement may amend this Agreement at any time. In addition, in connection with the PAGE 28 operation of this Agreement, RPS and the Fund may agree from time to time on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions are to be signed by all parties and annexed hereto, but no such provision shall contravene any applicable federal or state law or regulation and no such interpretive or additional provision shall be deemed to be an amendment of this Agreement. P. Further Assurances Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. Q. Maryland Law to Apply This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of Maryland. R. Merger of Agreement This Agreement, including the attached Schedule supersede any prior agreement with respect to the subject hereof, whether oral or written. S. Counterparts This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken PAGE 29 together shall be deemed to constitute one and the same instruments. T. The Parties All references herein to "the Fund" are to each of the Funds listed on Appendix A individually, as if this Agreement were between such individual Fund and RPS. In the case of a series Fund or trust, all references to "the Fund" are to the individual series or portfolio of such fund or trust, or to such Fund or trust on behalf of the individual series or portfolio, as appropriate. Any reference in this Agreement to "the parties" shall mean RPS and such other individual Fund as to which the matter pertains. The "Fund" also includes any T. Rowe Price Fund which may be established after the date of this Agreement. Any reference in this Agreement to "the parties" shall mean the Funds and RPS. U. Directors, Trustees and Shareholders and Massachusetts Business Trust It is understood and is expressly stipulated that neither the holders of shares in the Fund nor any Directors or Trustees of the Fund shall be personally liable hereunder. With respect to any Fund which is a party to this Agreement and which is organized as a Massachusetts business trust, the term "Fund" means and refers to the trustees from time to time serving under PAGE 30 the applicable trust agreement (Declaration of Trust) of such Trust as the same may be amended from time to time. It is expressly agreed that the obligations of any such Trust hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but bind only the trust property of the Trust, as provided in the Declaration of Trust of the Trust. The execution and delivery of this Agreement has been authorized by the trustees and signed by an authorized officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them, but shall bind only the trust property of the Trust as provided in its Declaration of Trust. V. Captions The captions in the Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers. PAGE 31 T. ROWE PRICE RETIREMENT PLAN DATED:2/18/94 SERVICES, INC. ATTEST: /s/Steve J. Zients By: ________________________ ________________________ Steve J. Zients T. ROWE PRICE ADJUSTABLE RATE U.S GOVERNMENT FUND, INC. T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL EQUITY FUND, INC. PAGE 32 T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Fund T. Rowe Price Latin America Fund T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE OTC FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. Summit Cash Reserves Fund Summit Limited-Term Bond Fund Summit GNMA Fund PAGE 33 DATED: 2/16/94 ATTEST: /s/Carmen F. Deyesu _________________________BY:_____________________________ /s/Carmen F. Deyesu PAGE 34 APPENDIX A The following Funds are parties to this Agreement, and have so indicated their intention to be bound by such Agreement by executing the Agreement on the dates indicated thereon. T. Rowe Price Adjustable Rate U.S. Government Fund, Inc. T. Rowe Price Balanced Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Capital Appreciation Fund T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price GNMA Fund T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price Index Trust, Inc. on behalf of the T. Rowe Price Equity Index Fund T. Rowe Price Institutional International Funds, Inc. on behalf of the Foreign Equity Fund T. Rowe Price International Equity Fund, Inc. PAGE 35 T. Rowe Price International Funds, Inc. on behalf of the T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Short-Term Global Fund T. Rowe Price Latin America Fund T. Rowe Price New America Growth Fund T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price New Income Fund, Inc. T. Rowe Price OTC Fund, Inc. T. Rowe Price Prime Reserve Fund, Inc. T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Small-Cap Value Fund, Inc. T. Rowe Price Spectrum Fund, Inc. on behalf of the Spectrum Growth Fund Spectrum Income Fund T. Rowe Price U.S. Treasury Funds, Inc. on behalf of the U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund PAGE 36 T. Rowe Price Summit Funds, Inc. Summit Cash Reserves Fund Summit Limited-Term Bond Fund Summit GNMA Fund PAGE 37 T. ROWE PRICE RETIREMENT PLAN SERVICES, INC. FEE SCHEDULE Fees for transfer agent services performed for retirement plan accounts serviced by T. Rowe Price Retirement Plan Services, Inc. ("RPS"). Effective January 1, 1994 to December 31, 1994. A. Base Fee A monthly base fee of $500,000 ($6,000,000 per year) allocated pro rata by account. B. Per Participant Fee A monthly per participant fee of $3.752 for each active (non- zero balance) participant being serviced at the end of the month. This fee will be allocated among the Funds based on the relative number of non-zero accounts open at the end of the month. C. Per Transaction Fee A fee for each Account transaction will be charged at the rate of $.15 per transaction, except for dividend transactions. D. Institutional Support Group (ISG) Telephone Call A fee of $5.24 per ISG telephone call will be charged to the Fund(s) involved in the telephone call. E. New Participant Fee A one-time new participant fee of $3.31 will be charged each time a participant is added to the records. F. Perks Fee Fees for selected PERKS plans will be $10 per account, maximum $40 per participant, capped at 25 basis points. PAGE 38 G. Billing Procedures RPS will render to each two monthly invoices (one for PAS and one for PERKS) each of which shall state: the number of participants in existence at month-end and the Fund's pro rata share, the assets by Fund at month-end, the number of transactions recorded during the month for each Fund, the number of new participants added during the month and the fund's pro rata share; the out-of-pocket expenses for which RPS is entitled to reimbursement under the Agreement, and the Fund's pro rata share; and the total compensation due for the month. H. New Funds Funds added during the term of this Agreement may have their Maintenance and Transaction charges waived for a period of time agreed upon between RPS and the Funds following the establishment of the Fund. Out-of-pocket expenses will be billed to the Fund from the Fund's inception. IN WITNESS WHEREOF, T. Rowe Price Funds and T. Rowe Price Retirement Plan Services, Inc. have agreed upon this fee schedule to be executed in their names and on their behalf through their duly authorized officers: T. ROWE PRICE FUNDS T. ROWE PRICE RETIREMENT PLAN SERVICES, INC. Name /s/Carmen F. Deyesu Name /s/Steve J. Zients Title Treasurer Title Vice President Date 2/16/94 Date 2/17/94 EX-99.B11-CONSENT 17 PAGE 1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post- Effective Amendment No. 45 to the Registration Statement on Form N-1A (the "Registration Statement") of our report dated November 17, 1993, relating to the financial statements and selected per share data and ratios appearing in the October 31, 1993 Annual Report to Shareholders of the T. Rowe Price International Discovery Fund, a series of the T. Rowe Price International Funds, Inc., which is also incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectus and under the heading "Independent Accountants" in the Statement of Additional Information. /s/Price Waterhouse PRICE WATERHOUSE Baltimore, Maryland February 25, 1994 PAGE 2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post- Effective Amendment No. 45 to the Registration Statement on Form N-1A (the "Registration Statement") of our report dated November 17, 1993, relating to the financial statements and selected per share data and ratios appearing in the October 31, 1993 Annual Report to Shareholders of the T. Rowe Price European Stock Fund, a series of the T. Rowe Price International Funds, Inc., which is also incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectus and under the heading "Independent Accountants" in the Statement of Additional Information. /s/Price Waterhouse PRICE WATERHOUSE Baltimore, Maryland February 25, 1994 PAGE 3 CONSENT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of T. Rowe Price International Funds, Inc. and the Shareholders of T. Rowe Price New Asia Fund We consent to the incorporation by reference in this Post-Effective Amendment No. 45 to the Registration Statement of the T. Rowe Price New Asia Fund on Form N-1A (File No. 2-65539) of our report dated November 17, 1993, on our audit of the financial statements and financial highlights of the Fund, which report is included in the Annual Report to Shareholders for the year ended December 31, 1993 which is incorporated by reference in the Registration Statement. We also consent to the reference to our Firm under the caption "Financial Highlights" in the Prospectus and "Independent Accountants" in the Statement of Additional Information. /s/Coopers & Lybrand COOPERS & LYBRAND Baltimore, Maryland February 25, 1994 PAGE 4 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post- Effective Amendment No. 45 to the Registration Statement on Form N-1A (the "Registration Statement") of our report dated November 17, 1993, relating to the financial statements and selected per share data and ratios appearing in the October 31, 1993 Annual Report to Shareholders of the T. Rowe Price Japan Fund, a series of the T. Rowe Price International Funds, Inc., which is also incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectus and under the heading "Independent Accountants" in the Statement of Additional Information. /s/Price Waterhouse PRICE WATERHOUSE Baltimore, Maryland February 25, 1994 PAGE 5 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post- Effective Amendment No. 45 to the Registration Statement on Form N-1A (the "Registration Statement") of our report dated November 17, 1993, relating to the financial statements and selected per share data and ratios appearing in the October 31, 1993 Annual Report to Shareholders of the T. Rowe Price International Stock Fund, a series of the T. Rowe Price International Funds, Inc., which is also incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectus and under the heading "Independent Accountants" in the Statement of Additional Information. /s/Price Waterhouse PRICE WATERHOUSE Baltimore, Maryland February 25, 1994 PAGE 6 CONSENT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of T. Rowe Price International Funds, Inc. and the Shareholders of T. Rowe Price Global Government Bond Fund We consent to the incorporation by reference in this Post-Effective Amendment No. 45 to the Registration Statement of the T. Rowe Price Global Government Bond Fund on Form N-1A (File No. 2-65539) of our report dated January 19, 1994, on our audit of the financial statements and financial highlights of the Fund, which report is included in the Annual Report to Shareholders for the year ended December 31, 1993 which is incorporated by reference in the Registration Statement. We also consent to the reference to our Firm under the caption "Financial Highlights" in the Prospectus and "Independent Accountants" in the Statement of Additional Information. /s/Coopers & Lybrand COOPERS & LYBRAND Baltimore, Maryland February 25, 1994 PAGE 7 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post-Effective Amendment No. 45 to the Registration Statement on Form N-1A (the "Registration Statement") of our report dated January 19, 1994, relating to the financial statements and selected per share data and ratios appearing in the December 31, 1993 Annual Report to Shareholders of the T. Rowe Price International Bond Fund, a series of the T. Rowe Price International Funds, Inc., which is also incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectus and under the heading "Independent Accountants" in the Statement of Additional Information. /s/Price Waterhouse PRICE WATERHOUSE Baltimore, Maryland February 25, 1994 PAGE 8 CONSENT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of T. Rowe Price International Funds, Inc. and the Shareholders of T. Rowe Price Short-Term Global Income Fund We consent to the incorporation by reference in this Post-Effective Amendment No. 45 to the Registration Statement of the T. Rowe Price Short-Term Global Income Fund on Form N-1A (File No. 2-65539) of our report dated January 19, 1994, on our audit of the financial statements and financial highlights of the Fund, which report is included in the Annual Report to Shareholders for the year ended December 31, 1993 which is incorporated by reference in the Registration Statement. We also consent to the reference to our Firm under the caption "Financial Highlights" in the Prospectus and "Independent Accountants" in the Statement of Additional Information. /s/Coopers & Lybrand COOPERS & LYBRAND Baltimore, Maryland February 25, 1994 EX-99.B16A-PERFORM 18 PAGE 1 TOTAL RETURN PERFORMANCE The total return performance of the Fund is measured by using an index of adjusted net asset values that reflect both the assumed investment of one share on the inception date of the Fund and the inclusion of shares received from the reinvestment of all Fund distributions, capital gains and income dividends, during the Fund's history. As an example, the following index assumes an investment of one share of the T. Rowe Price New Era Fund on January 20, 1969, its inception. Each year, the dividends and capital gains per share were accumulated on the shares held and were reinvested in additional fund shares at the Fund's actual reinvestment price. Each year end, the investment was evaluated at the reported net asset value of the Fund. These valuation points comprise the performance index. PAGE 2 Distributions Per Share Reinvestment Cumulative Reported Index (Div. & Cap. Share Price Share N.A.V. Total Valuation Gains) Holding Per Share Holding Per Share Value Date 1.00000000 X $10.00 = $10.00000 1/20/69 1.00000000 X 9.73 = 9.73000 12/31/69 1970 ($0.16 X 1.00000000) / $ 9.35 = 0.01711230 1.01711230 X 9.49= 9.65240 12/31/70 1971 ( 0.16 X 1.01711230) / 9.95 = 0.01635557 1.03346787 X 10.33= 10.67572 12/31/71 1972 ( 0.16 X 1.03346787) / 10.54 = 0.01568832 1.04915619 X 12.27= 12.87315 12/31/72 1973 (0.243 X 1.04915619) / 11.84 = 0.02153251 1.07068870 X 11.79= 12.62342 12/31/73 1974 (0.2884 X 1.07068870) / 11.43 = 0.02701545 1.09770416 X 8.47= 9.29755 12/31/74 1975 (0.2855 X 1.09770416) / 8.48 = 0.03605690 1.13466106 X 9.94= 11.27853 12/31/75 1976 (0.2785 X 1.13466106) / 10.09 = 0.03131844 1.16597951 X 11.74= 13.68860 12/31/76 1977 (0.2745 X 1.16597951) / 11.20 = 0.02857691 1.19455641 X 11.00= 13.14012 12/31/77 1978 (0.57 X 1.19455641) / 10.13 = 0.06721591 1.26177232 X 11.66= 14.71227 12/31/78 1979 (0.768 X 1.26177232) / 11.18 = 0.08667631 1.34844863 X 17.45= 23.53043 12/31/79 1980 (0.8314 X 1.34844863) / 16.71 = 0.06709157 1.41554021 X 25.27= 35.77070 12/31/80 PAGE 3 Distributions Per Share Reinvestment Cumulative Reported Index (Div. & Cap. Share Price Share N.A.V. Total Valuation Gains) Holding Per Share Holding Per Share Value Date 1981 ($2.1612 X 1.41554021)/$21.64 = 0.14137086 1.55691107 X 19.34 = 30.11066 12/31/81 1982 ( 3.9073 X 1.55691107)/ 14.15 = 0.42991651 1.98682758 X 15.53 = 30.85543 12/31/82 1983 ( 0.882 X 1.98682758) / 15.56 = 0.11262095 2.09944853 X 18.44 = 38.71383 12/31/83 1984 ( 1.90 X 2.09944853) / 16.89 = 0.23617242 2.33562095 X 17.13 = 40.00919 12/31/84 1985 ( 2.09 X 2.33562095) / 15.79 = 0.30914805 2.64476900 X 18.67 = 49.37784 12/31/85 1986 ( 1.35 X 2.64476900) / 17.74 = 0.20126483 2.84603383 1986 ( 2.40 X 2.84603383) / 18.03 = 0.37883978 3.22487361 X 17.76 = 57.27376 12/31/86 1987 ( 0.92 X 3.22487361) / 19.09 = 0.15541560 3.38028921 1987 ( 1.83 X 3.38028921) / 17.55 = 0.35247460 3.73276381 X 18.08 = 67.48837 12/31/87 Performance for any investment period is calculated as the percentage difference between a beginning index value and an ending index value. The ten-year performance from 12/31/77 to 12/31/87 for the New Era Fund would be calculated as: 67.48837 - 1 X 100 = 413.61% 13.14012 The five-year performance from 12/31/82 to 12/31/87 would be calculated as: 67.48837 - 1 X 100 = 118.72% 30.85543 The one-year performance from 12/31/86 to 12/31/87 would be calculated as: 67.48837 - 1 X 100 = 17.83% 57.27376 -----END PRIVACY-ENHANCED MESSAGE-----