-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BwYcal1aVrKBQc6QhETO/4PIIKpy++4c3mDZke+OXidopqJf1m3Riv8fjjM6+JIW sdmWepM3/Itk/xne0tRm9g== 0000313212-98-000091.txt : 19981123 0000313212-98-000091.hdr.sgml : 19981123 ACCESSION NUMBER: 0000313212-98-000091 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19981120 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: SEC FILE NUMBER: 002-65539 FILM NUMBER: 98755663 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-02958 FILM NUMBER: 98755664 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 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. 72 /X/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940/X/ Amendment No. 56 /X/ 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 410-345-2000 ------------ Registrant's Telephone Number, Including Area Code Henry H. Hopkins 100 East Pratt Street, Baltimore, Maryland 21202 ------------------------------------------------ Name and Address of Agent for Service Approximate Date of Proposed Public Offering December 31, ------------ 1998 ---- 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)(1) / / on (date) pursuant to paragraph (a)(1) /X/ 75 days after filing pursuant to paragraph (a)(2) / / on (date) pursuant to paragraph (a)(2) of Rule 485 If appropriate, check the following box: / / this post-effective amendment designates a new effective date for a previously filed post-effective amendment. TITLE OF SECURITIES BEING REGISTERED: COMMON STOCK SUBJECT TO COMPLETION Information contained herein is subject to completion or amendment. A Registration Statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the Registration Statement becomes effective. This Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state. 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
N-1A ITEM NO. LOCATION PART A Item 1. Cover Page Cover Page Item 2. Synopsis Transaction and Fund Expenses Item 3. Condensed Financial + Information Item 4. General Description of About the Fund; Fund, Market, and Risk Registrant Characteristics: What to Expect; Understanding Fund Performance; Investment Policies and Practices Item 5. Management of the Fund Transaction and Fund Expenses; Organization and Management Item 6. Capital Stock and Other Useful Information on Distributions and Securities Taxes; Organization and Management Item 7. Purchase of Securities Being Pricing Shares and Receiving Sale Offered Proceeds; Transaction Procedures and Special Requirements; Account Requirements and Transaction Information; Shareholder Services Item 8. Redemption or Repurchase Pricing Shares and Receiving Sale Proceeds; Transaction Procedures and Special Requirements; Shareholder Services Item 9. Pending Legal Proceedings + PART B Item 10. Cover Page Cover Page Item 11. Table of Contents Table of Contents Item 12. General Information and + History Item 13. Investment Objectives and Investment Objectives and Policies; Policies Risk Factors; Investment Program; Investment Restrictions; Investment Performance Item 14. Management of the Registrant Management of Fund Item 15. Control Persons and Principal Holders of Securities Principal Holders of Securities Item 16. Investment Advisory and Investment Management Services; Other Services Custodian; Independent Accountants; Legal Counsel Item 17. Brokerage Allocation Portfolio Transactions; Code of Ethics Item 18. Capital Stock and Other Dividends and Distributions; Capital Securities Stock Item 19. Purchase, Redemption and Pricing of Securities; Net Asset Value Pricing of Securities Being Per Share; Redemptions in Kind; Federal Offered Registration of Shares Item 20. Tax Status Tax Status Item 21. Underwriters Distributor for the Fund Item 22. Calculation of Yield + Quotations of Money Market Funds Item 23. Financial Statements +
CROSS REFERENCE SHEET 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 PROSPECTUS December 1, 1998 International Equity Funds A choice of international, global, and regional stock funds for investors seeking capital growth by diversifying beyond U.S. borders. (T. ROWE PRICE RAM LOGO) FACTS AT A GLANCE International Equity Funds Investment Goal Capital appreciation through investment in foreign companies or, for the Global Stock Fund, investment in a mix of foreign and U.S. companies. Strategy Global Stock Fund Invests primarily in well-established foreign and U.S. companies. International Stock Fund/(R)/ Invests worldwide primarily in well-established, non-U.S. companies. International Discovery Fund/(R)/ Invests primarily in small and medium-sized, non-U.S. companies. Emerging Markets Stock Fund Invests primarily in companies located in less developed "emerging market" countries. European Stock Fund Invests primarily in companies domiciled in Europe. Japan Fund Invests primarily in Japanese companies. Latin America Fund Invests primarily in companies located in Latin America. New Asia Fund Invests primarily in companies in Asia and the Pacific Basin, excluding Japan. International Growth & Income Fund Invests in large-capitalization, dividend-paying companies outside the U.S. The stock selection reflects a value orientation. Risk/Reward Each fund's share price will fluctuate with changes in market, economic, and foreign currency exchange conditions, as well as with changes in portfolio company prospects. Generally, funds investing in a single country, single or multiple emerging markets, or principally in smaller companies represent higher risk and potential reward than those with greater geographical diversification and an orientation toward established companies and more mature economies and markets. Investor Profile Those seeking higher appreciation potential over time and greater diversification for their equity investments who can accept the price declines associated with investing in stocks as well as the special risks that accompany international investing. Fees and Charges 100% no load. Redemption fees on three funds: the International Discovery, Latin America, and Emerging Markets Stock Funds impose a 2% redemption fee, payable to the funds, on shares purchased and held less than one year. No sales charges; free telephone exchange among T. Rowe Price funds; no 12b-1 marketing fees. Investment Manager Rowe Price-Fleming International, Inc. ("Price-Fleming") was founded in 1979 as a joint venture between T. Rowe Price Associates, Inc. and Robert Fleming Holdings, Ltd. As of December 31, 1997, Price-Fleming managed $30 billion in foreign stocks and bonds through its offices in Baltimore, London, Tokyo, Singapore, Hong Kong, and Buenos Aires. T. Rowe Price International Funds, Inc. Prospectus December 1, 1998 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. T. ROWE PRICE Contents 1 ABOUT THE FUNDS Transaction and Fund Expenses 2 Financial Highlights 5 Fund, Market, and Risk Characteristics 10 2 ABOUT YOUR ACCOUNT Pricing Shares and Receiving Sale Proceeds 19 Distributions and Taxes 22 Transaction Procedures and Special Requirements 24 3 MORE ABOUT THE FUNDS Organization and Management 27 Understanding Performance Information 31 Investment Policies and Practices 32 4 INVESTING WITH T. ROWE PRICE Account Requirements and Transaction Information 41 Opening a New Account 41 Purchasing Additional Shares 43 Exchanging and Redeeming 44 Rights Reserved by the Fund 45 Shareholder Services 46 Discount Brokerage 48 Investment Information 49 This prospectus contains information you should know before investing. Please keep it for future reference. A Statement of Additional Information about the funds, dated December 1, 1998, has been filed with the Securities and Exchange Commission and is incorporated by reference in this prospectus. To obtain a free copy, call 1-800-638-5660. ABOUT THE FUNDS 1 TRANSACTION AND FUND EXPENSES ---------------------------------------------------------- . Like all T. Rowe Price funds, these funds are 100% no load. These tables should help you understand the kinds of expenses you will bear directly or indirectly as a fund shareholder. Shareholder Transaction Expenses in Table 1 shows that you pay no sales charges. All the money you invest in a fund goes to work for you, subject to the fees explained below. Annual Fund Expenses provides an estimate of how much it will cost to operate each fund for a year, based on 1997 fiscal year expenses (and any expense limitations shown in Table 3). These are costs you pay indirectly, because they are deducted from the funds' 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: . A management fee The percent of fund assets paid to the fund's investment manager. Each fund's fee comprises both a group fee, 0.32% as of October 31, 1997, and an individual fund fee, as follows: International Stock, Global Stock and International Growth & Income Funds 0.35%; European Stock, Japan, and New Asia Funds 0.50%; International Discovery, Latin America, and Emerging Markets Stock Funds 0.75%. Because the investment programs of the funds are more costly to implement and maintain, their management fees are higher than those paid by most U.S. investment companies. . "Other" administrative expenses Charges primarily for the servicing of shareholder accounts, such as providing statements and reports and disbursing dividends, as well as providing custodial services. For the year ended October 31, 1997, the funds paid the fees shown in Table 6 to T. Rowe Price Services, Inc., for transfer and dividend disbursing functions and shareholder services; to T. Rowe Price Retirement Plan Services, Inc., for recordkeeping services for certain retirement plans; and to T. Rowe Price for accounting services. . Marketing or distribution fees An annual charge ("12b-1") to existing shareholders to defray the cost of selling shares to new shareholders. T. Rowe Price funds do not levy 12b-1 fees. T. ROWE PRICE For further details on fund expenses, please see Organization and Management. . Hypothetical example Assume you invest $1,000, the fund returns 5% annually, expense ratios remain as listed in Table 1, and you close your account at the end of the time periods shown. Your expenses would be as shown in Table 2. Table 1
Shareholder Transaction Expenses Emerging Int'l. Markets European Global Int'l. Growth & Int'l. Latin New Stock Stock Stock Discovery Income Stock Japan America Asia Sales charge "load" None None None None None None None None None on purchases --------------------------------------------------------------------------------- Sales charge "load" on reinvested None None None None None None None None None distributions --------------------------------------------------------------------------------- Redemption fees 2% None None 2% None None None 2% None /a/ /a/ /a/ --------------------------------------------------------------------------------- Exchange fees None None None None None None None None None Percentage of Fiscal 1997 Average Net Assets Annual Fund Expenses (After reduction)/bcd/ Emerging Int'l. Markets European Global Int'l. Growth & Int'l. Latin New Stock Stock Stock Discovery Income Stock Japan America Asia 0. 0.6 Management fee 1.07% 0.82% 01% 1.07% 6 0.67% 0.82% 1.07% 0.82% % --------------------------------------------------------------------------------- Marketing fees None None None None None None None None None (12b-1) --------------------------------------------------------------------------------- Total other 0.5 (shareholder 9 servicing, custodial, 0.68% 0.24% 1.29% 0.34% % 0.18% 0.42% 0.40% 0.28% auditing, etc.) --------------------------------------------------------------------------------- 1. Total fund expenses 1.75% 1.06% 30 1.41% 1.25% 0.85% 1.24% 1.47% 1.10% % - ---------------------------------------------------------------------------------------------------------------
/a/ On shares purchased and held for less than one year (details under "Contingent Redemption Fees" in "Pricing Shares and Receiving Sale Proceeds"). /b/Had Price-Fleming not agreed to waive management fees in accordance with an expense limitation agreement, the Emerging Markets Stock Fund's management fee, other expenses, and total expense ratios would have been 1.07%, 0.68%, and 1.75%, respectively. /c/Had Price-Fleming not agreed to waive management fees and bear certain expenses in accordance with an expense limitation agreement, the Global Stock Fund's management fee, other expenses, and total expense ratios would have been 0.67%, 1.29%, and 1.96%, respectively. /d/Had Price-Fleming not agreed to waive management fees and bear certain expenses in accordance with an expense limitation agreement, the International Growth & Income Fund's management fee, other expenses, and total expense ratio would have been 0.67%, 0.59%, and 1.26%, respectively. Note:A $5 fee is charged for wire redemptions under $5,000, subject to change without notice, and a $10 fee is charged for small accounts when applicable (see "Small Account Fee" under "Transaction Procedures and Special Requirements"). ABOUT THE FUNDS Table 2
Hypothetical Fund Expenses Fund Emerging Markets Stock $18 $55 $95 $206 ---------------------------------------- European Stock 11 34 58 129 ---------------------------------------- Global Stock 13 41 71 157 ---------------------------------------- 14 45 77 169 International Discovery ---------------------------------------- International Growth & 13 40 69 151 Income ---------------------------------------- International Stock 9 27 47 105 ---------------------------------------- Japan 13 39 68 150 ---------------------------------------- Latin America 15 46 80 176 ---------------------------------------- New Asia 11 35 61 134 - -----------------------------------------------------------------------
. Table 2 is just an example; actual expenses can be higher or lower than those shown. Table 3 sets forth expense ratio limitations and the periods for which they are effective. For each, Price-Fleming has agreed to waive management fees and bear certain 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 funds through the indicated reimbursement date, but no reimbursement will be made if it would result in the funds' expense ratio exceeding its specified limit. Any amounts reimbursed will have the effect of increasing fees otherwise paid by a fund. Table 3
Expense Ratio Limitations Expense Ratio Limitation Period Limitation Reimbursement Date Emerging Markets Stock/a/ 11/1/96-10/31/98 1.75% 10/31/00 Global Stock/b/ 11/1/97-10/31/99 1.20% 10/31/01 ----- International Growth & 12/1/98-10/31/00 1.25% 10/31/02 Income - --------------------------------------------------------------------------------------------
/a/ The Emerging Markets Stock Fund previously operated under a 1.75% limitation that expired October 31, 1996. The reimbursement period for this limitation extends through October 31, 1998. /b/The Global Stock Fund previously operated under a 1.30% limitation that expired October 31, 1997. The reimbursement period for this limitation extends through October 31, 1999. T. ROWE PRICE FINANCIAL HIGHLIGHTS ---------------------------------------------------------- Table 4, which provides information about each fund's financial history, is based on a single share outstanding throughout each fiscal year, and for the unaudited six months ended April 30, 1998. Each fund's section of the table is part of the financial statements which are included in its annual and semiannual reports, respectively, and are incorporated by reference into the Statement of Additional Information (available upon request). The financial statements in each fund's annual report were audited by the funds' independent accountants, PricewaterhouseCoopers LLP. The financial statements in the semiannual report are unaudited. Table 4 Financial Highlights Footnotes are on page 9.
Income From Investment Activities Less Distributions Net Asset Value Period Net Asset Net Net Realized Total From Net Net Total Redemption Ended Value, Investment & Unrealized Investment Investment Realized Distributions Fees Added to Beginning Income (Loss) Gain (Loss) on Activities Income Gain Paid-in-Capital of Period Investments - ------------------------------------------------------------------------------------------------------------------------- International Stock/a/ 1988 $ 8.54 $ 0.16 $ 1.36 $ 1.52 $ (0.16) $(0.93 ) $ (1.09 ) -- --------------------------------------------------------------------------------------------------------------- 1989 8.97 0.16 1.94 2.10 (0.16) (0.67 ) (0.83 ) -- --------------------------------------------------------------------------------------------------------------- 1990 10.24 0.22 (1.13) (0.91) (0.16) (0.36 ) (0.52 ) -- --------------------------------------------------------------------------------------------------------------- 1991 8.81 0.15 1.22 1.37 (0.15) (0.49 ) (0.64 ) -- --------------------------------------------------------------------------------------------------------------- 1992 9.54 0.14 (0.47) (0.33) (0.16) (0.16 ) (0.32 ) -- --------------------------------------------------------------------------------------------------------------- 1993/n/ 8.89 0.10 2.75 2.85 -- -- -- -- --------------------------------------------------------------------------------------------------------------- 1994 11.74 0.09 1.30 1.39 (0.09) (0.20 ) (0.29 ) -- --------------------------------------------------------------------------------------------------------------- 1995 12.84 0.18 (0.19) (0.01) (0.12) (0.62 ) (0.74 ) -- --------------------------------------------------------------------------------------------------------------- 1996 12.09 0.19 1.57 1.76 (0.18) (0.20 ) (0.38 ) -- --------------------------------------------------------------------------------------------------------------- 1997 13.47 0.19 0.86 1.05 (0.18) (0.20 ) (0.38 ) -- --------------------------------------------------------------------------------------------------------------- 1998/s/ 14.14 0.10 1.88 1.98 (0.20) (0.55 ) (0.75 ) -- International Discovery 1989/b/ $10.00 $ 0.14/c/ $ 4.03 $ 4.17 $ (0.13) $(0.10 ) $ (0.23 ) -- --------------------------------------------------------------------------------------------------------------- 1990 13.94 0.14/c/ (1.91) (1.77) (0.15) (0.27 ) (0.42 ) -- --------------------------------------------------------------------------------------------------------------- 1991 11.75 0.13/c/ 1.24 1.37 (0.13) -- (0.13 ) -- --------------------------------------------------------------------------------------------------------------- 1992 12.99 0.13/c/ (1.31) (1.18) (0.13) -- (0.13 ) -- --------------------------------------------------------------------------------------------------------------- 1993/n/ 11.68 0.07/c/ 4.41 4.48 -- -- -- -- --------------------------------------------------------------------------------------------------------------- 1994 16.16 0.04 1.52 1.56 (0.07) (0.02 ) (0.09 ) -- --------------------------------------------------------------------------------------------------------------- 1995 17.63 0.10 (2.38) (2.28) (0.06) (0.87 ) (0.93 ) $0.01 --------------------------------------------------------------------------------------------------------------- 1996 14.43 0.07 1.59 1.66 (0.10) (0.02 ) (0.12 ) -- --------------------------------------------------------------------------------------------------------------- 1997 15.97 0.02 0.25 0.27 (0.07) (0.06 ) (0.13 ) -- --------------------------------------------------------------------------------------------------------------- 1998/s/ 16.11 0.01 2.21 2.22 -- (0.25 ) (0.25 ) -- - ------------------------------------------------------------------------------------------------------------------------- European Stock 1990/d/ $10.00 $ 0.24/e/ $(0.56) $(0.32) $ (0.20) -- $ (0.20 ) -- --------------------------------------------------------------------------------------------------------------- 1991 9.48 0.10 0.59 0.69 (0.08) -- (0.08 ) -- --------------------------------------------------------------------------------------------------------------- 1992 10.09 0.14 (0.70) (0.56) (0.17) -- (0.17 ) -- --------------------------------------------------------------------------------------------------------------- 1993/n/ 9.36 0.12 1.89 2.01 -- -- -- -- --------------------------------------------------------------------------------------------------------------- 1994 11.37 0.14 1.26 1.40 (0.04) $(0.01 ) (0.05 ) -- --------------------------------------------------------------------------------------------------------------- 1995 12.72 0.20 1.60 1.80 (0.12) (0.05 ) (0.17 ) -- --------------------------------------------------------------------------------------------------------------- 1996 14.35 0.25 2.79 3.04 (0.21) (0.25 ) (0.46 ) -- --------------------------------------------------------------------------------------------------------------- 1997 16.93 0.25 3.12 3.37 (0.26) (0.20 ) (0.46 ) -- --------------------------------------------------------------------------------------------------------------- 1998/s/ 19.84 0.11 4.53 4.64 (0.25) (1.01 ) (1.26 ) -- Japan 1992/f/ $10.00 $(0.01)/g/ $(1.35) $(1.36) -- -- -- -- --------------------------------------------------------------------------------------------------------------- 1993/n/ 8.64 (0.05)/g/ 2.99 2.94 -- -- -- -- --------------------------------------------------------------------------------------------------------------- 1994 11.58 (0.06)/g/ 0.97 0.91 -- .85) .85) -- --------------------------------------------------------------------------------------------------------------- 1995 11.64 $(0.04) (1.40) (1.44) -- (0.81 ) (0.81 ) -- --------------------------------------------------------------------------------------------------------------- 1996 9.39 (0.05) (0.32) (0.37) -- -- -- -- --------------------------------------------------------------------------------------------------------------- 1997 9.02 (0.03) (1.02) (1.05) -- -- -- -- --------------------------------------------------------------------------------------------------------------- 1998/s/ 7.97 (0.01) (0.94) (0.95) -- -- -- -- New Asia/j/ 1990/h/ $ 5.00 $ 0.04/i/ $ 0.04 $ 0.08 $ (0.04) -- $ (0.04 ) -- --------------------------------------------------------------------------------------------------------------- 1991 5.04 0.10/i/ 0.87 0.97 (0.10) -- (0.10 ) -- --------------------------------------------------------------------------------------------------------------- 1992 5.91 0.10 0.56 0.66 (0.10) $(0.13 ) (0.23 ) -- --------------------------------------------------------------------------------------------------------------- 1993/n/ 6.34 0.03 3.51 3.54 -- -- -- -- --------------------------------------------------------------------------------------------------------------- 1994 9.88 0.06 0.36 0.42 (0.04) (0.19 ) (0.23 ) -- --------------------------------------------------------------------------------------------------------------- 1995 10.07 0.08 (1.07) (0.99) (0.07) (0.89 ) (0.96 ) -- --------------------------------------------------------------------------------------------------------------- 1996 8.12 0.06 0.55 0.61 (0.09) -- (0.09 ) -- --------------------------------------------------------------------------------------------------------------- 1997 8.64 0.09 (2.71) (2.62) (0.06) (0.01 ) (0.07 ) -- --------------------------------------------------------------------------------------------------------------- 1998/s/ 5.95 0.05 (0.34) (0.29) (0.08) -- (0.08 ) -- Latin America 1994/k/ $10.00 $(0.03) $ 0.29/l/ $ 0.26 -- -- -- $0.06 --------------------------------------------------------------------------------------------------------------- 1995 10.32 0.05 (3.92) (3.87) -- -- -- 0.04 --------------------------------------------------------------------------------------------------------------- 1996 6.49 0.10 1.60 1.70 $ (0.06) -- ) 0.01 --------------------------------------------------------------------------------------------------------------- 1997 8.14 0.13 1.44 1.57 (0.11) ) (0.14 ) 0.03 --------------------------------------------------------------------------------------------------------------- 1998/s/ 9.60 0.10 1.49 1.59 (0.12) -- (0.12 ) 0.02 - ------------------------------------------------------------------------------------------------------------------------- Emerging Markets Stock 1995/o/ $10.00 $ 0.02/p/ $ 0.44/l/ $ 0.46 -- -- -- $0.02 --------------------------------------------------------------------------------------------------------------- 1996 10.48 0.02/p/ 1.08 1.10 $ (0.01) -- ) 0.02 --------------------------------------------------------------------------------------------------------------- 1997 11.59 0.02 (0.23) (0.21) (0.04) ) (0.34 ) 0.04 --------------------------------------------------------------------------------------------------------------- 1998/s/ 11.08 0.01/p/ 1.33 1.34 -- (0.15 ) (0.15 ) 0.02 Global Stock 1996/q/ $10.00 $ 0.05/r/ $ 1.30 $ 1.35 -- -- -- -- --------------------------------------------------------------------------------------------------------------- 1997 11.35 0.06/r/ 1.84 1.90 $ (0.06) $(0.18 ) $ (0.24 ) -- 1998/s/ 13.01 0.04/t/ 2.24 2.28 (0.06) (0.53 ) (0.59 ) - ------------------------------------------------------------------------------------------------------------------------- Period Net Asset Ended Value, End of Period - --------------------------- International Stock/a/ 1988 $ 8.97 ------------ 1989 10.24 ------------ 1990 8.81 ------------ 1991 9.54 ------------ 1992 8.89 ------------ 1993/n/ 11.74 ------------ 1994 12.84 ------------ 1995 12.09 ------------ 1996 13.47 ------------ 1997 14.14 ------------ 1998/s/ 15.37 International Discovery 1989/b/ $13.94 ------------ 1990 11.75 ------------ 1991 12.99 ------------ 1992 11.68 ------------ 1993/n/ 16.16 ------------ 1994 17.63 ------------ 1995 14.43 ------------ 1996 15.97 ------------ 1997 16.11 ------------ 1998/s/ 18.08 - --------------------------- European Stock 1990/d/ $ 9.48 ------------ 1991 10.09 ------------ 1992 9.36 ------------ 1993/n/ 11.37 ------------ 1994 12.72 ------------ 1995 14.35 ------------ 1996 16.93 ------------ 1997 19.84 ------------ 1998/s/ 23.22 Japan 1992/f/ $ 8.64 ------------ 1993/n/ 11.58 ------------ 1994 11.64 ------------ 1995 9.39 ------------ 1996 9.02 ------------ 1997 7.97 ------------ 1998/s/ 7.02 New Asia/j/ 1990/h/ $ 5.04 ------------ 1991 5.91 ------------ 1992 6.34 ------------ 1993/n/ 9.88 ------------ 1994 10.07 ------------ 1995 8.12 ------------ 1996 8.64 ------------ 1997 5.95 ------------ 1998/s/ 5.58 Latin America 1994/k/ $10.32 ------------ 1995 6.49 ------------ 1996 8.14 ------------ 1997 9.60 ------------ 1998/s/ 11.09 - --------------------------- Emerging Markets Stock 1995/o/ $10.48 ------------ 1996 11.59 ------------ 1997 11.08 ------------ 1998/s/ 12.29 Global Stock 1996/q/ $11.35 ------------ 1997 13.01 1998/s/ 14.70 - ---------------------------
ABOUT THE FUNDS T. ROWE PRICE Table 4 Financial Highlights Footnotes are on page 9.
Returns, Ratios, and Supplemental Data Total Return Ratio of Ratio of Net Period (Includes Net Assets Expenses to Investment Portfolio Average Ended Reinvested ($ Thousands) Average Net Income to Turnover Commission Distributions) Assets Average Net Rate Rate Paid Assets International Stock/a/ 1988 17.9 % $ 630,114 1.16% 1.78 % 42.4% -- --------------------------------------------------------------------------------- 1989 23.7 970,214 1.10 1.63 47.8 -- --------------------------------------------------------------------------------- 1990 (8.9 ) 1,030,848 1.09 2.16 47.1 -- --------------------------------------------------------------------------------- 1991 15.87 1,476,309 1.10 1.51 45.0 -- --------------------------------------------------------------------------------- 1992 (3.47) 1,949,631 1.05 1.49 37.8 -- --------------------------------------------------------------------------------- 1993/n/ 32.06 3,746,055 1.01/m/ 1.52/ m/ 29.8/m/ -- --------------------------------------------------------------------------------- 1994 12.03 6,205,713 0.96 1.11 22.9 -- --------------------------------------------------------------------------------- 1995 0.38 6,385,905 0.91 1.56 17.8 -- --------------------------------------------------------------------------------- 1996 14.87 8,775,736 0.88 1.58 11.6 $0.0020 --------------------------------------------------------------------------------- 1997 7.90 10,005,170 0.85 1.33 15.8 0.0019 --------------------------------------------------------------------------------- 1998/s/ 14.80 10,707,000 0.85/m/ 1.36/ m/ 6.3 0.0047 - ------------------------------------------------------------------------------------------------ International Discovery 1989/b/ 41.8 %/c/ $ 61,166 1.50/cm/ 0.76 %/cm/ 38.3%/m/ -- --------------------------------------------------------------------------------- 1990 (12.8 )/c/ 136,660 1.50/c/ 1.10/ c/ 44.0 -- --------------------------------------------------------------------------------- 1991 11.69/c/ 166,819 1.50/c/ 1.03/ c/ 56.3 -- --------------------------------------------------------------------------------- 1992 (9.08)/c/ 166,362 1.50/c/ 1.07/ c/ 38.0 -- --------------------------------------------------------------------------------- 1993/n/ 38.36/c/ 329,001 1.50/cm/ 0.81/ cm/ 71.8/m/ -- --------------------------------------------------------------------------------- 1994 9.67 503,442 1.50 0.38 57.4 -- --------------------------------------------------------------------------------- 1995 (13.06) 325,374 1.50 0.55 43.5 -- --------------------------------------------------------------------------------- 1996 11.60 325,639 1.45 0.40 52.0 $0.0013 --------------------------------------------------------------------------------- 1997 1.69 254,430 1.41 0.13 72.7 0.0008 --------------------------------------------------------------------------------- 1998/s/ 14.10 252,024 1.43/m/ 0.10/ m/ 20.6 0.0076 European Stock 1990/d/ (3.2 )%/e/ $ 99,447 1.75%/em/ 2.30 %/em/ 34.9%/m/ -- --------------------------------------------------------------------------------- 1991 7.31 103,977 1.71 1.04 57.7 -- --------------------------------------------------------------------------------- 1992 (5.56) 173,798 1.48 1.23 52.0 -- --------------------------------------------------------------------------------- 1993/n/ 21.47 265,784 1.35/m/ 1.79/ m/ 21.3/m/ -- --------------------------------------------------------------------------------- 1994 12.35 337,498 1.25 1.19 24.5 -- --------------------------------------------------------------------------------- 1995 14.41 490,573 1.20 1.75 17.2 -- --------------------------------------------------------------------------------- 1996 21.76 704,887 1.12 1.81 14.1 $0.0248 --------------------------------------------------------------------------------- 1997 20.30 984,083 1.06 1.41 17.5 0.0312 --------------------------------------------------------------------------------- 1998/s/ 24.63 1,362,000 1.05/m/ 1.11/ m/ 15.1 0.0422 Japan 1992/f/ (13.40)%/g/ $ 45,792 1.50%/g/ (0.22)%/g/ 41.6% -- --------------------------------------------------------------------------------- 1993/n/ 33.72/g/ 87,163 1.50/gm/ (0.58)/gm/ 61.4/m/ -- --------------------------------------------------------------------------------- 1994 9.25/g/ 203,303 1.50/g/ (0.68)/g/ 61.5 -- --------------------------------------------------------------------------------- 1995 (12.87) 181,383 1.50 (0.48) 62.4 -- --------------------------------------------------------------------------------- 1996 (3.94) 167,118 1.32 (0.48) 29.8 $0.0540 --------------------------------------------------------------------------------- 1997 (11.64) 170,830 1.24 (0.39) 32.3 0.0457 --------------------------------------------------------------------------------- 1988/s/ (11.92) 152,353 1.27/m/ (0.22)/m/ 36.4 0.0262 - ------------------------------------------------------------------------------------------------ New Asia 1990/h/ 1.6 %/i/ $ 10,986 1.75%/im/ 2.10 %/im/ 3.2%/m/ -- --------------------------------------------------------------------------------- 1991 19.32/i/ 102,922 1.75/i/ 1.75/ i/ 49.0 -- --------------------------------------------------------------------------------- 1992 11.24 314,504 1.51 1.64 36.3 -- --------------------------------------------------------------------------------- 1993/n/ 55.84 1,650,450 1.29/m/ 1.02/ m/ 40.4/m/ -- --------------------------------------------------------------------------------- 1994 4.11 2,302,841 1.22 0.85 63.2 -- --------------------------------------------------------------------------------- 1995 (9.70) 1,908,893 1.15 0.97 63.7 -- --------------------------------------------------------------------------------- 1996 7.58 2,041,396 1.11 0.66 42.0 $0.0057 --------------------------------------------------------------------------------- 1997 (30.61) 876,787 1.10 0.76 41.8 0.0063 --------------------------------------------------------------------------------- 1998/s/ (4.89) 770,000 1.24/m/ 1.45/ m/ 33.6 0.0061 Latin America 1994/k/ 3.20% $ 198,435 1.99%/m/ (0.35)%/m/ 12.2%/m/ -- --------------------------------------------------------------------------------- 1995 (37.11) 148,600 1.82 0.76 18.9 -- --------------------------------------------------------------------------------- 1996 26.52 213,691 1.66 1.29 22.0 $0.0001 --------------------------------------------------------------------------------- 1997 19.94 398,066 1.47 1.30 32.7 0.0001 --------------------------------------------------------------------------------- 1998/s/ 16.84 385,311 1.46/m/ 1.69/ m/ 6.8 -- Emerging Markets Stock 1995/o/ 4.80%/p/ $ 14,399 1.75%/mp/ 0.54 %/mp/ 28.8%/m/ -- --------------------------------------------------------------------------------- 1996 10.69/p/ 67,896 1.75/p/ 0.44/ p/ 41.7 $0.0004 --------------------------------------------------------------------------------- 1997 (1.60) 119,285 1.75 0.21 84.3 0.0003 --------------------------------------------------------------------------------- 1998/s/ 12.38/p/ 122,813 1.75/mp/ 0.15/ mp/ 27.5 0.0008 Global Stock 1996/q/ 13.50%/r/ $ 14,916 1.30%/mr/ 0.88 %/mr/ 50.0%/m/ $0.0026 --------------------------------------------------------------------------------- 1997 16.98/r/ 32,020 1.30r/r/ 0.68/ r/ 41.8 0.0015 --------------------------------------------------------------------------------- 1998/s/ 18.29/t/ 42,125 1.20/st/ 0.69/ st/ 24.3 0.0146 - 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ABOUT THE FUNDS T. ROWE PRICE /a/ All per-share figures reflect the 2-for-1 stock split effective August 31, 1987. /b/ For the period December 30, 1988 (commencement of operations) to December 31, 1989. /c/Excludes expenses in excess of a 1.50% voluntary expense limitation in effect through December 31, 1993. /d/ For the period February 28, 1990 (commencement of operations) to December 31, 1990. /e/ Excludes expenses in excess of a 1.75% voluntary expense limitation in effect through December 31, 1991. /f/ For the period December 30, 1991 (commencement of operations) to December 31, 1992. /g/ Excludes expenses in excess of a 1.50% voluntary expense limitation in effect through October 31, 1995. /h/ For the period September 28, 1990 (commencement of operations) to December 31, 1990. /i/ Excludes expenses in excess of a 1.75% voluntary expense limitation in effect through December 31, 1992. /j/ All per-share figures reflect the 2-for-1 stock split effective May 27, 1994. /k/ For the period December 29, 1993 (commencement of operations) to October 31, 1994. ABOUT THE FUNDS /l/ The amount presented is calculated pursuant to a methodology prescribed by the Securities and Exchange Commission for a share outstanding throughout the period. This amount is inconsistent with the fund's aggregate gains and losses because of the timing of sales and redemptions of fund shares in relation to fluctuating market values for the investment portfolio. /m/ Annualized. /n/For the 10 months ended October 31, 1993. Fiscal year-end changed from December 31 to October 31. /o/For the period March 31, 1995 (commencement of operations) to October 31, 1995. /p/ Excludes expenses in excess of a 1.75% voluntary expense limitation in effect through October 31, 1998. /q/ For the period December 29, 1995 (commencement of operations) to October 31, 1996. /r/ Excludes expenses in excess of a 1.30% voluntary expense limitation in effect through October 31, 1997. /s/ For the six-month period October 31, 1997, through April 30, 1998. /t/ Excludes expenses in excess of a 1.20% voluntary expense limitation in effect through October 31, 1999. FUND, MARKET, AND RISK CHARACTERISTICS: WHAT TO EXPECT ---------------------------------------------------------- To help you decide whether an international or global equity fund is appropriate for you, this section takes a closer look at each fund's investment objective and approach. The funds, which are listed in Table 5, represent a broad range of potential risks and rewards. What are some of the potential advantages and disadvantages of investing beyond U.S. borders? Since U.S. stocks represent less than half of the world's stock market capitalization, investing abroad increases the opportunities available to you. Foreign investments also provide effective diversification for an all-U.S. portfolio, since historically their returns have not moved in sync with U.S. stocks over longer periods. Investing in foreign stocks entails many of the same risks as investing in U.S. stocks and others as well, such as currency risk. Also, foreign stocks may not always move counter to U.S. stocks, particularly in the short run. . Because global funds invest a portion of their assets in U.S. securities, they represent a more conservative approach to foreign investing than our international funds, which do not invest in U.S. stocks. T. ROWE PRICE Table 5
International Funds Comparison Guide Fund Geographic Emphasis Type of Company ------------------------------------------------ International Stock Worldwide (excluding Large, well U.S.) established ------------------------------------------------ Global Stock Worldwide (including Large, well U.S.) established ------------------------------------------------ International Discovery Worldwide (excluding Small to medium-sized U.S.) ------------------------------------------------ International Growth & Worldwide (excluding Large, well Income U.S.) established ------------------------------------------------ Emerging Markets Stock Worldwide (excluding All sizes U.S.) ------------------------------------------------ European Stock Europe (including All sizes Eastern Europe) ------------------------------------------------ Latin America Latin America All sizes ------------------------------------------------ Far East and Pacific All sizes New Asia Basin (excluding Japan) ------------------------------------------------ Japan Japan All sizes - -------------------------------------------------------------------------------
What are the funds' objectives and investment programs? Worldwide funds: Global Stock Fund The fund's objective is long-term growth of capital through investments primarily in common stocks of established companies throughout the world, including the U.S. The fund will diversify broadly by investing in a variety of industries in developed and emerging markets. Normally, the fund will invest in at least five countries, one of which will be the U.S. While the fund can purchase stocks without regard to a company's market capitalization, investments will generally be concentrated in established large and, to a lesser extent, medium-sized companies. The percentage of the fund's assets invested in U.S. and foreign stocks will vary over time in accordance with the managers' outlook. 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 - developed and emerging. International Discovery Fund The fund's objective is long-term growth of capital through investments primarily in common stocks of rapidly growing, small to medium-sized non-U.S. companies. Such companies may be found in developed and emerging markets. Traditionally, they are more dynamic and offer greater growth potential than larger companies, but they are generally riskier because they may have limited product lines, capital, and managerial resources. Their securities may trade less frequently and with greater price swings. Depending on conditions, the fund's ABOUT THE FUNDS portfolio should be composed of at least 10 countries and 100 different companies. Potential fund investors should pay careful attention to the risk discussion further on in this section. Emerging Markets Stock Fund The fund's objective is long-term growth of capital through investment primarily in common stocks of large and small companies domiciled, or with primary operations, in emerging markets. An emerging market includes any country defined as emerging or developing by the International Bank for Reconstruction and Development (World Bank), the International Finance Corporation, or the United Nations. The fund's investments are expected to be diversified geographically across emerging markets in Latin America, Asia, Europe, Africa, and the Middle East. Countries in which the fund may invest are listed below and others will be added as opportunities develop: Asia China, Hong Kong, Indonesia, India, Korea, Malaysia, Pakistan, Philippines, Singapore, Sri Lanka, Taiwan, Thailand, and Vietnam. Latin America Argentina, Belize, Brazil, Chile, Colombia, Mexico, Panama, Peru, and Venezuela. Europe Austria, Croatia, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Portugal, Romania, Russia, Slovakia, and Turkey. Africa and the Middle East Botswana, Egypt, Israel, Jordan, Mauritius, Morocco, Nigeria, South Africa, Tunisia, and Zimbabwe. Emerging market investments rank high on the potential risk and reward spectrum because a developing country, much like an emerging-growth company, often advances in fits and starts toward developed status, and may or may not successfully achieve that status. Potential fund investors should pay careful attention to the risk discussion further on in this section. International Growth & Income Fund The fund's objective is long-term growth of capital and reasonable income through investments primarily in common stocks of mature, dividend-paying non-U.S. companies. The fund expects to invest substantially all of its assets outside the U.S. and to diversify broadly, primarily among developed countries. Investments in emerging markets will be modest, and limited to more established developing countries. T. ROWE PRICE Regional or country funds: European Stock Fund The fund's objective is long-term growth of capital through investments primarily in common stocks of both large and small European companies. Current income is a secondary objective. 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. 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 France, Germany, Netherlands, Italy, Spain, Sweden, Switzerland, and United Kingdom. Others Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, Greece, Hungary, Ireland, Israel, Latvia, Lithuania, Luxembourg, Norway, Poland, Portugal, Russia, Slovakia, and Turkey. Japan Fund The fund's objective is long-term growth of capital through investments in common stocks of large and small companies domiciled or with primary operations in Japan. Assets will normally be invested across a wide range of industries and companies (both small and large). Investors in a single-country fund are fully exposed to that country's economic, stock market, and currency cycles, which could increase both its risks and its potential rewards compared with a fund invested in several countries or regions. Potential fund investors should pay careful attention to the risk discussion further on in this section. Note: For special pricing and transaction information about the Japan Fund, please see "Pricing Shares and Receiving Sale Proceeds." Latin America Fund The fund's objective is long-term growth of capital through investment primarily in common stocks of companies domiciled, or with primary operations, in Latin America. The fund expects to invest primarily in Mexico, Brazil, Chile, Argentina, Venezuela, Peru, and other markets as opportunities arise and conditions permit, including, but not limited to Belize, Colombia, Ecuador, and Guatemala. The portfolio is normally expected to invest in at least four countries. 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. ABOUT THE FUNDS Because Latin America includes many less-developed countries with legacies of political instability, potential fund investors should pay careful attention to the risk discussion further on in this section. . The Latin America Fund is registered as "nondiversified." This means 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. 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 may also invest in Pacific Rim countries such as Australia and New Zealand. Countries in which the fund may invest include those in the following list as well as others in the region, such as China, Pakistan, and Vietnam, as their markets become more accessible. Investments will represent a minimum of five countries. Primary Emphasis Hong Kong, Indonesia, India, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand. Potential investors should pay careful attention to the risk discussion further on in this section. What securities can the funds invest in other than common stocks? 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 funds' investment objectives and programs. The funds may also engage in a variety of investment management practices, such as buying and selling futures and options. Under normal market conditions, the funds' investments in securities other than common stocks are limited to no more than 35% of total assets. However, for temporary defensive purposes, the funds may invest all or a significant portion of their assets in U.S. government and corporate debt obligations. The funds (other than Global Stock Fund) 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. The Global Stock Fund can invest up to 5% of its assets in below-investment-grade debt securities. How does the portfolio manager select stocks? For all funds except International Growth & Income, Price-Fleming blends a bottom-up approach to individual stock selection based on fundamental research with an awareness of the economic overview of the countries in our opportunity T. ROWE PRICE set. Stock selection is the focal point of decision-making, however. Fund managers weigh a company's prospects for achieving and sustaining above-average, long-term earnings growth and also look at valuation factors such as price/earnings, price/cash flow, and price/book value ratios. The International Growth & Income Fund is more value-oriented than our other international funds. Price-Fleming combines fundamental research and an overview of the global economy and each foreign market, as described above, with proprietary quantitative analysis. The fund will search for stocks with "value" characteristics such as dividend yields that are higher, or price/earnings or price/book value ratios that are lower, than the markets in which they trade. Typically, the fund will invest in large, mature companies that have favorable prospects for capital appreciation, as determined by Price-Fleming. What are the particular risks associated with international and global investing and these funds? Stock prices of foreign and U.S. companies are subject to many of the same influences, such as general economic conditions, company and industry earnings prospects, and investor psychology. However, investing in foreign securities also involves additional risks that can increase the potential for losses in the funds. Normally, these risks are significantly greater for investments in emerging markets. . Currency fluctuations Transactions in foreign securities are conducted in local currencies, so dollars must often be exchanged for another currency when a stock is bought or sold or a dividend is paid. Likewise, share price quotations and total return information reflect conversion into dollars. Fluctuations in foreign exchange rates can 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. Each fund's total return will be affected by currency fluctuations. The exact amount of the impact depends on the currencies represented in the portfolio and how each one appreciates or depreciates in relationship to the U.S. dollar. . Exchange rate movements can be large, unpredictable and last for extended periods. . Increased costs It is more expensive for U.S. investors to trade in foreign markets than in the U.S. Mutual funds offer an efficient way for individuals to invest abroad, but the overall expense ratios of international funds are usually higher than those of typical domestic funds. ABOUT THE FUNDS . Political and economic factors The economies, markets, and political structures of a number of the countries in which each fund can invest do not compare favorably with the U.S. and other mature economies in terms of wealth and stability. Therefore, investments in these countries will be riskier and more subject to erratic and abrupt price movements. This is especially true for emerging markets. However, even investments in countries with highly developed economies are subject to risk. For example, the Japanese stock market historically has experienced wide swings in value. Some economies are less well developed, overly reliant on particular industries, and more vulnerable to the ebb and flow of international trade, trade barriers, and other protectionist or retaliatory measures. This makes investment in such markets significantly riskier than in other countries. Many countries have legacies and the risk of hyperinflation and currency devaluations versus the dollar (which adversely affects returns to U.S. investors), and may be overly dependent on foreign capital (a risk that is exacerbated by big currency movements). Investments in countries that have recently begun moving away from central planning and state-owned industries toward free markets should be regarded as speculative. . While certain countries have made progress in economic growth, liberalization, fiscal discipline, and political and social stability, there is no assurance these trends will continue. Certain countries have histories of instability and upheaval with respect to their internal politics that could cause their governments to act in a detrimental or hostile manner toward private enterprise or foreign investment. Actions such as capital controls, nationalizing a company or industry, expropriating assets, or imposing punitive taxes could have a severe effect on security prices and impair a fund's ability to repatriate capital or income. Significant external risks, including war, currently affect some countries. Governments in many emerging market countries participate to a significant degree in their economies and securities markets. . Legal, regulatory, and operational Certain countries lack uniform accounting, auditing, and financial reporting standards, have less governmental supervision of financial markets than in the U.S., do not honor legal rights enjoyed in the U.S., and have settlement practices, such as delays, which could subject a fund to risks not customary in the U.S. In addition, securities markets in these countries have substantially lower trading volumes than U.S. markets, resulting in less liquidity and more volatility than in the U.S. . 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, the fund's net asset value may be significantly affected by trading on days T. ROWE PRICE when shareholders cannot make transactions. (For specific information on the Tokyo Stock Exchange, please see Pricing Shares and Receiving Sale Proceeds.) . For more details on potential risks of foreign investments, please see Investment Policies and Practices and the Statement of Additional Information. What can I expect in terms of price volatility? Like U.S. stock investments, common stocks of foreign companies offer investors a way to build capital over time. Nevertheless, the long-term rise of foreign stock prices as a group has been punctuated by declines. Share prices of all companies, even the best managed, most profitable, whether U.S. or foreign, are subject to market risk, which means they can fluctuate widely. In less well-developed stock markets, such as those found in Latin America, Eastern Europe, Africa, and Asia, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local stock prices and, therefore, fund share prices. . Each fund's share price will fluctuate; when you sell your shares, you may lose money. How does the portfolio manager try to reduce risk? The principal tools are intensive research and diversification; currency hedging techniques are used from time to time. . In addition to conducting on-site research in portfolio countries and companies, Price-Fleming has close ties with investment analysts based throughout the world. . 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 when 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. . Under normal conditions, the funds do not engage in extensive currency hedging programs. However, when foreign exchange rates are expected to be unfavorable for U.S. investors, fund managers can hedge the risk through the 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, the hedge may cause a loss. Also, it may be ABOUT THE FUNDS difficult or not practical to hedge currency risk in many emerging countries. How can I decide which fund is most appropriate for me? First, be sure that your investment objective is the same as the fund's: capital appreciation over time. If you will need the money you plan to invest in the near future, none of these funds is suitable. 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 regional or single-country fund. Third, consider your risk tolerance and the risk profile of the various funds, as described in this section. . The fund or funds you select should not be relied upon as a complete investment program nor be used for short-term trading purposes. Is there other information I need to review before making a decision? Be sure to read Investment Policies and Practices in Section 3, which discusses the principal types of portfolio securities that the fund may purchase as well as the types of management practices that the fund may use. You should also review the information in section 2, which discusses contingent redemption fees for the International Discovery, Latin America, and Emerging Markets Stock Funds. T. ROWE PRICE ABOUT YOUR ACCOUNT 2 PRICING SHARES AND RECEIVING SALE PROCEEDS ---------------------------------------------------------- Here are some procedures you should know when investing in a T. Rowe Price international fund. How and when shares are priced The share price (also called "net asset value" or NAV per share) for each fund, 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 is open for business. To calculate the NAV, a fund's assets are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. Each fund's portfolio securities usually are valued on the basis of the most recent closing market prices at 4 p.m. ET when the funds calculate their NAVs. Most of the securities in which the funds invest, however, are traded in markets that close before that time. For securities primarily traded in the Far East, for example, the most recent closing prices may be as much as 15 hours old at 4 p.m. Normally, developments that could affect the values of portfolio securities that occur between the close of the foreign market and 4 p.m. ET will not be reflected in the funds' NAVs. However, if a fund determines that such developments are so significant that they will clearly and materially affect the value of the fund's securities, the fund may adjust the previous closing prices to reflect fair value or use the next available opening market prices to value its portfolio securities. . The various ways you can buy, sell, and exchange shares are explained at the end of this prospectus and on the New Account Form. These procedures and the information you receive about them may differ for institutional and employer-sponsored retirement accounts. How your purchase, sale, or exchange price is determined If we receive your request in correct form by 4 p.m. ET, your transaction will be priced at that day's NAV. If we receive it after 4 p.m., it will be priced at the next business day's NAV. ABOUT THE FUNDS We cannot accept orders that request a particular day or price for your transaction or any other special conditions. Fund shares may be purchased through various third-party intermediaries including banks, brokers, and investment advisers. Where authorized by a fund, orders will be priced at the NAV next computed after receipt by the intermediary. Consult your intermediary to determine when your orders will be priced. The intermediary may charge a fee for its services. Note: The time at which transactions and shares are priced and the time until which orders are accepted may be changed in case of an emergency or if the New York Stock Exchange closes at a time other than 4 p.m. ET. 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 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 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 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 Japan Fund reopens. The Tokyo Stock Exchange is scheduled to be closed on the following weekdays: In 1998 - January 1, 2, 15; February 11; April 29; May 4, 5; July 20; September 15, 23; November 3, 23; and December 23, 31. In 1999 - January 1, 15; February 11; March 22; April 29; May 3, 4, 5; July 20; September 15, 23; October 11; November 3, 23; and December 23. If the Tokyo Stock Exchange closes on dates not listed, the fund will not be priced on those dates. How you can receive the proceeds from a sale . When filling out the New Account Form, you may wish to give yourself the widest range of options for receiving proceeds from a sale. If your request is received by 4 p.m. ET in correct form, proceeds are usually sent on the next business day. Proceeds can be sent to you by mail or to your bank account by Automated Clearing House (ACH) transfer or bank wire. Proceeds sent by ACH transfer should be credited the second day after the sale. ACH is an automated method of initiating payments from, and receiving payments in, your financial institution account. The ACH system is supported by over 20,000 banks, savings banks, and credit unions. Proceeds sent by bank wire should be credited to your account the next business day. T. ROWE PRICE . Exception: Under certain circumstances and when deemed to be in the fund's best interests, your proceeds may not be sent for up to five business days after we receive your sale or exchange request. If you were exchanging into a bond or money fund, your new investment would not begin to earn dividends until the sixth business day. . If for some reason we cannot accept your request to sell shares, we will contact you. Contingent Redemption Fee (Latin America, International Discovery, and Emerging Markets Stock Funds) 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 program and create additional transaction costs that are borne by all shareholders. For these reasons, the funds assess a 2% fee on redemptions (including exchanges) of fund shares held for less than one year. Redemption fees are paid to the fund to help offset transaction costs and to protect the funds' long-term shareholders. The fund will use the "first-in, first-out" (FIFO) method to determine the one-year holding period. Under this method, the date of the redemption or exchange will be compared to the earliest purchase date of shares held in the account. If this holding period is less than one year, the fee will be charged. The fee does not apply to any shares purchased through reinvested distributions (dividends and capital gains) or to shares held in retirement plans such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and money purchase pension accounts. The fee does apply to shares held in IRA accounts and to shares purchased through automatic investment plans (described under Shareholder Services). The fee may apply to shares in retirement plans held in broker omnibus accounts. In determining "one year," the fund will use the anniversary date of a transaction. Thus, shares purchased on March 1, 1998, for example, will be subject to the fee if they are redeemed on or prior to February 28, 1999. If they are redeemed on or after March 1, 1999, they will not be subject to the fee. ABOUT YOUR ACCOUNT USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES ---------------------------------------------------------- . All net investment income and realized capital gains are distributed to shareholders. Dividends and Other Distributions Dividend and capital gain distributions are reinvested in additional fund shares in your account unless you select another option on your New Account Form. The advantage of reinvesting distributions arises from compounding; that is, you receive income dividends and capital gain distributions on a rising number of shares. Distributions not reinvested are paid by check or transmitted to your bank account via ACH. If the Post Office cannot deliver your check, or if your check remains uncashed for six months, the fund reserves the right to reinvest your distribution check in your account at the NAV on the business day of the reinvestment and to reinvest all subsequent distributions in shares of the fund. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Income dividends . The funds declares and pays dividends (if any) annually. . The dividends of each fund (other than Global Stock Fund) 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. The dividends of the Global Stock Fund will be eligible for the 70% deduction for dividends received by corporations only to the extent the fund's income consists of dividends paid by U.S. corporations. Capital gains . A capital gain or loss is the difference between the purchase and sale price of a security. . If a fund has net capital gains for the year (after subtracting any capital losses), they are usually declared and paid in December to shareholders of record on a specified date that month. Tax Information . You will be sent timely information for your tax filing needs. You need to be aware of the possible tax consequences when: . You sell fund shares, including an exchange from one fund to another. . The fund makes a distribution to your account. T. ROWE PRICE Taxes on fund redemptions When you sell shares in any fund, you may realize a gain or loss. An exchange from one fund to another is still a sale for tax purposes. In January, you will be sent Form 1099-B indicating the date and amount of each sale you made in the fund during the prior year. This information will also be reported to the IRS. For new accounts or those opened by exchange in 1983 or later, we will provide the gain or loss on the shares you sold during the year, based on the "average cost," single category method. This information is not reported to the IRS, and you do not have to use it. You may calculate the cost basis using other methods acceptable to the IRS, such as "specific identification." To help you maintain accurate records, we send you a confirmation immediately following each transaction you make (except for systematic purchases and redemptions) and a year-end statement detailing all your transactions in each fund account during the year. Taxes on fund distributions . The following summary does not apply to retirement accounts, such as IRAs, which are not subject to current tax. In January, you will be sent Form 1099-DIV indicating the tax status of any dividend and capital gain distributions made to you. This information will also be reported to the IRS. Capital gain and distributions made by a fund are generally taxable to you for the year in which they were paid. You will be sent any additional information you need to determine your taxes on fund distributions, such as the portion of your dividend, if any, that may be exempt from state income taxes. The tax treatment of a capital gain distribution is determined by how long the fund held the portfolio securities, not how long you held shares in the fund. Short-term (one year or less) capital gain distributions are taxable at the same rate as ordinary income. Reflecting recent changes in the tax code, gains on securities held more than 12 months are taxed at a maximum rate of 20%. If you realized a loss on the sale or exchange of fund shares which you held six months or less, your short-term loss will be reclassified to a long-term loss to the extent you received a long-term capital gain distribution during the period you held the shares. 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 your tax return for your portion of foreign taxes paid by the fund. ABOUT YOUR ACCOUNT . Distributions are taxable whether reinvested in additional shares or received in cash. Tax effect of buying shares before a capital gain distribution If you buy shares shortly before or on the "record date" - the date that establishes you as the person to receive the upcoming distribution - you will receive a portion of the money you just invested in the form of a taxable distribution. Therefore, you may wish to find out a fund's record date before investing. Of course, a fund's share price may, at any time, reflect undistributed capital gains, taxable income, or income and unrealized appreciation, which may result in future taxable distributions. Note: For information on the tax consequences of hedging, please see Investment Policies and Practices. TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS ---------------------------------------------------------- . Following these procedures helps assure timely and accurate transactions. Purchase Conditions Nonpayment If your payment is not received or you pay with a check or ACH transfer that does not clear, your purchase will be canceled. You will be responsible for any losses or expenses incurred by the fund or transfer agent, and the fund can redeem shares you own in this or another identically registered T. Rowe Price fund as reimbursement. The fund and its agents have the right to reject or cancel any purchase, exchange, or redemption due to nonpayment. U.S. dollars All purchases must be paid for in U.S. dollars; checks must be drawn on U.S. banks. Sale (Redemption) Conditions Holds on immediate redemptions 10-day hold If you sell shares that you just purchased and paid for by check or ACH transfer, the fund will process your redemption but will generally delay sending you the proceeds for up to 10 calendar days to allow the check or transfer to clear. If your redemption request was sent by mail or mailgram, proceeds will be mailed no later than the seventh calendar day following receipt unless the check or ACH transfer has not cleared. (The 10-day hold does not apply to the following: purchases paid for by bank wire; cashier's, certified, or treasurer's checks; or automatic purchases through your paycheck.) T. ROWE PRICE Telephone, Tele*Access/(R)/, and personal computer transactions Exchange and redemption services through telephone and Tele*Access are established automatically when you sign the New Account Form unless you check the box that states you do not want these services. Personal computer transactions must be authorized separately. T. Rowe Price funds and their agents use reasonable procedures (including shareholder identity verification) to confirm that instructions given by telephone are genuine and they are not liable for acting on these instructions. If these procedures are not followed, it is the opinion of certain regulatory agencies that the funds and their agents may be liable for any losses that may result from acting on the instructions given. A confirmation is sent promptly after a transaction. All telephone conversations are recorded. Redemptions over $250,000 Large sales can adversely affect a portfolio manager's ability to implement a fund's investment strategy by causing the premature sale of securities that would otherwise be held. If, in any 90-day period, you redeem (sell) more than $250,000, or your sale amounts to more than 1% of fund net assets, the fund has the right to pay the difference between the redemption amount and the lesser of the two previously mentioned figures with securities from the fund. Excessive Trading . T. Rowe Price may bar excessive traders from purchasing shares. Frequent trades, involving either substantial fund assets or a substantial portion of your account or accounts controlled by you, can disrupt management of the fund and raise its expenses. . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe Price, you can make one purchase and sale involving the same fund within any 120-day period. For example, if you are in fund A, you can move substantial assets from fund A to fund B and, within the next 120 days, sell your shares in fund B to return to fund A or move to fund C. If you exceed this limit, you are in violation of our excessive trading policy. Two types of transactions are exempt from this policy: 1) trades solely in money market funds (exchanges between a money fund and a nonmoney fund are not exempt); and 2) systematic purchases or redemptions (see Shareholder Services). . Trades placed through intermediaries If you purchase fund shares through an intermediary including a broker, bank, investment adviser, or other third party and hold them for less than 60 calendar days, you are in violation of our excessive trading policy. . If you violate our excessive trading policy, you may be barred indefinitely and without further notice from further purchases of T. Rowe Price funds. ABOUT YOUR ACCOUNT Keeping Your Account Open Due to the relatively high cost to a fund of maintaining small accounts, we ask you to maintain an account balance of at least $1,000. If your balance is below $1,000 for three months or longer, we have the right to close your account after giving you 60 days in which to increase your balance. Small Account Fee Because of the disproportionately high costs of servicing accounts with low balances, a $10 fee, paid to T. Rowe Price Services, the fund's' transfer agent, will automatically be deducted from nonretirement accounts with balances falling below a minimum level. The valuation of accounts and the deduction are expected to take place during the last five business days of September. The fee will be deducted from accounts with balances below $2,000, except for UGMA/ UTMA accounts, for which the limit is $500. The fee will be waived for any investor whose aggregate T. Rowe Price mutual fund investments total $25,000 or more. Accounts employing automatic investing (e.g., payroll deduction, automatic purchase from a bank account, etc.) are also exempt from the charge. The fee will not apply to IRAs and other retirement plan accounts. (A separate custodial fee may apply to IRAs and other retirement plan accounts.) Signature Guarantees . A signature guarantee is designed to protect you and the T. Rowe Price funds from fraud by verifying your signature. You may need to have your signature guaranteed in certain situations, such as: . Written requests 1) to redeem over $100,000, or 2) to wire redemption proceeds. . Remitting redemption proceeds to any person, address, or bank account not on record. . Transferring redemption proceeds to a T. Rowe Price fund account with a different registration (name or ownership) from yours. . Establishing certain services after the account is opened. You can obtain a signature guarantee from most banks, savings institutions, broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot accept guarantees from notaries public or organizations that do not provide reimbursement in the case of fraud. T. ROWE PRICE MORE ABOUT THE FUNDS 3 ORGANIZATION AND MANAGEMENT ---------------------------------------------------------- How are the funds organized? T. Rowe Price International Funds, Inc. (the "Corporation"), currently consists of 11 series, each representing a separate class of shares and having different objectives and investment policies. The 11 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; Latin America Fund, 1993; Emerging Markets Bond Fund, 1994; Emerging Markets Stock Fund, Global Stock Fund, 1995, and International Growth & Income Fund, 1998. (The Global Government Bond, International Bond, and Emerging Markets Bond Funds are described in a separate prospectus.) What is meant by "shares"? As with all mutual funds, investors purchase shares when they put money in a fund. These shares are part of a fund's authorized capital stock, but share certificates are not issued. Each share and fractional share entitles the shareholder to: . Receive a proportional interest in a fund's income and capital gain distributions. . Cast one vote per share on certain fund matters, including the election of fund directors, changes in fundamental policies, or approval of changes in the fund's management contract. Do T. Rowe Price funds have annual shareholder meetings? The funds are not required to hold annual meetings and, in order to avoid unnecessary costs to fund shareholders, do not intend to do so except when certain matters, such as a change in a fund's fundamental policies, are to be decided. In addition, shareholders representing at least 10% of all eligible votes may call a special meeting, if they wish, for the purpose of voting on the removal of any fund director or trustee. If a meeting is held and you cannot attend, you can vote by proxy. Before the meeting, the fund will send you proxy materials that explain the issues to be decided and include a voting card for you to mail back. ABOUT YOUR ACCOUNT Who runs the funds? General Oversight The Corporation is governed by a Board of Directors that meets regularly to review the funds' investments, performance, expenses, and other business affairs. The Board elects the funds' officers. The policy of the funds is that a majority of the Board members will be independent of Price-Fleming. . All decisions regarding the purchase and sale of fund investments are made by Price-Fleming - specifically by each fund's Investment Advisory Group. 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 also has offices in London, Tokyo, Singapore, Hong Kong, and Buenos Aires. Price-Fleming was incorporated in Maryland in 1979 as a joint venture between T. Rowe Price and Robert Fleming Holdings Limited (Flemings). 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 a subsidiary of 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. . 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, Seoul, Taipei, Bombay, Jakarta, Singapore, Bangkok, and Johannesburg. Portfolio Management Each fund has an Investment Advisory Group that has day-to-day responsibility for managing the portfolio and developing and executing each fund's investment program. The members of each advisory group are listed below. Global Stock Fund Martin G. Wade, John R. Ford, James B. M. Seddon, Mark C. J. Bickford-Smith, Robert W. Smith, and David J. L. Warren. International Stock Fund Martin G. Wade, John R. Ford, James B. M. Seddon, Mark C. J. Bickford-Smith, Robert W. Smith, and David J. L. Warren. International Discovery Fund Martin G. Wade, Frances Dydasco, Nichola Pease, Benedict R. F. Thomas, and David J. L. Warren. T. ROWE PRICE European Stock Fund Martin G. Wade, Nichola Pease, John R. Ford, James B. M. Seddon, and Robert Revel-Chion. Japan Fund Martin G. Wade, Ian MacDonald, and David J. L. Warren. New Asia Fund Martin G. Wade, Frances Dydasco, Mark J. T. Edwards, and David J. L. Warren. Latin America Fund Martin G. Wade, John R. Ford, and Benedict R. F. Thomas. Emerging Markets Stock Fund Martin G. Wade, Frances Dydasco, Christopher D. Alderson, and Mark C. J. Bickford-Smith. International Growth & Income Fund Martin G. Wade, Richard T. Whitney, John R. Ford, James B.M. Seddon, and Robert W. Smith. Martin Wade joined Price-Fleming in 1979 and has 29 years of experience with the Fleming Group in research, client service, and investment management. (Fleming Group includes Robert Fleming and/or Jardine Fleming.) Christopher Alderson joined Price-Fleming in 1988 and has 12 years of experience with the Fleming Group in research, and portfolio management. Mark Bickford-Smith joined Price-Fleming in 1995 and has 13 years of experience with the Fleming Group in research and financial analysis. Frances Dydasco joined Price-Fleming in 1996 and has nine years of experience in research and financial analysis. Mark Edwards joined Price-Fleming in 1987 and has 16 years of experience in financial analysis. John Ford joined Price-Fleming in 1982 and has 18 years of experience with the Fleming Group in research and portfolio management. Nichola Pease joined Price-Fleming in 1996 and has 14 years of experience in research and financial analysis. James Seddon joined Price-Fleming in 1987 and has 11 years of experience in portfolio management. Robert Smith joined Price-Fleming in 1996, and has been with T. Rowe Price since 1992, and has 11 years of experience in financial analysis. Benedict Thomas joined Price-Fleming in 1988 and has nine years of portfolio management experience. David Warren joined Price-Fleming in 1983 and has 17 years of experience in equity research, fixed income research, and portfolio management. Ian MacDonald joined Price-Fleming in 1998 and has 13 years of experience in equity research and portfolio management. Robert Revel-Chion joined Price-Fleming in 1998 and has nine years of experience in investment management (four years of which were within the Fleming Group). Richard Whitney joined Price-Fleming in 1998, and has been with T. Rowe Price since 1985, and has 15 years of experience in equity research and portfolio 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 Corporation's Board of Directors has authorized Price-Fleming to utilize affiliates of Flemings and MORE ABOUT THE FUNDS 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. Marketing T. Rowe Price Investment Services, Inc., a wholly owned subsidiary of T. Rowe Price, distributes (sells) shares of this and all other T. Rowe Price funds. Shareholder Services T. Rowe Price Services, Inc., another wholly owned subsidiary, acts as the fund's transfer and dividend disbursing agent and provides shareholder and administrative services. Services for certain types of retirement plans are provided by T. Rowe Price Retirement Plan Services, Inc., also a wholly owned subsidiary. The address for each is 100 East Pratt St., Baltimore, MD 21202. How are fund expenses determined? The management agreement spells out the expenses to be paid by each fund. In addition to the management fee, the funds pay 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. Table 6 Service Fees Paid to T. Rowe Price Service Companies
Transfer Agent Sub-accountingServices Accounting Fund Emerging Markets Stock $ 282,000 $ 9,000 $ 100,000 -------------------------------------------------------------- European Stock 1,046,000 63,000 104,000 -------------------------------------------------------------- Global Stock 70,000 -- 100,000 -------------------------------------------------------------- International Discovery 513,000 8,000 126,000 -------------------------------------------------------------- International Growth & Income 270,000 -- 103,0000 -------------------------------------------------------------- International Stock 6,465,000 3,411,000 166,000 -------------------------------------------------------------- Japan 320,000 3,000 101,000 -------------------------------------------------------------- Latin America 739,000 98,000 110,000 -------------------------------------------------------------- New Asia 2,745,000 141,000 116,000 - ---------------------------------------------------------------------------------------------------------------------
The Management Fee This fee has two parts - an "individual fund fee" (discussed under Transaction and Fund Expenses), which reflects a fund's particular investment management costs, and a "group fee." The group fee, which is designed to reflect the benefits of the shared resources of the T. Rowe Price investment management complex, is calculated daily based on the combined net assets of all T. Rowe Price funds T. ROWE PRICE (except the Spectrum Funds, and any institutional, index, or private label mutual funds). The group fee schedule (shown below) is graduated, declining as the asset total rises, so shareholders benefit from the overall growth in mutual fund assets.
0.480% First $1 billion 0.360% Next $2 billion 0.310% Next $16 billion -------------------------- 0.450% Next $1 billion 0.350% Next $2 billion 0.305% Next $30 billion ---------------------------------------------------- 0.420% Next $1 billion 0.340% Next $5 billion 0.300% Thereafter ---------------------------------------------------- 0.390% Next $1 billion 0.330% Next $10 billion ------------------------------------------------------------------------------ 0.370% Next $1 billion 0.320% Next $10 billion
The fund's portion of the group fee is determined by the ratio of its daily net assets to the daily net assets of all the T. Rowe Price funds described previously. Based on combined T. Rowe Price funds' assets of over $76 billion at December 31, 1997, the group fee was 0.32%. Research and Administration Certain administrative support is provided by T. Rowe Price, which receives from Price-Fleming a fee of 0.15% of the market value of all assets in equity accounts, 0.15% of the market value of all assets in active fixed income accounts, and 0.035% 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 International 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. Fleming International Fixed Interest Management Limited (FIFIM) and JFIH provide research and administration support for fixed income accounts for which each receive 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. FIM and FIFIM are wholly owned subsidiaries of Flemings. JFIH is a wholly owned subsidiary of Jardine Fleming. UNDERSTANDING PERFORMANCE INFORMATION ---------------------------------------------------------- This section should help you understand the terms used to describe fund performance. You will come across them in shareholder reports you receive from us; in our newsletter, The Price Report; in Insights articles; in T. Rowe Price advertisements; and in the media. MORE ABOUT THE FUNDS Total Return This tells you how much an investment in a fund has changed in value over a given time period. It reflects any net increase or decrease in the share price and assumes that all dividends and capital gains (if any) paid during the period were reinvested in additional shares. Reinvested distributions are included, which 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 a fund may include cumulative or compound average annual total return figures, which may be compared with various indices, other performance measures, or other mutual funds. . Total return is the most widely used performance measure. Detailed performance information is included in each fund's annual and semiannual shareholder reports and in the quarterly Performance Update, which are all available without charge. Cumulative Total Return This is the actual rate of return on an investment for a specified period. A cumulative return does not indicate how much the value of the investment may have fluctuated between the beginning and end of the period specified. Average Annual Total Return This is always hypothetical. Working backward from the actual cumulative return, it tells you what constant year-by-year return would have produced the actual cumulative return. By smoothing out all the variations in annual performance, it gives you an idea of the investment's annual contribution to your portfolio, provided you held it for the entire period in question. INVESTMENT POLICIES AND PRACTICES ---------------------------------------------------------- This section takes a detailed look at some of the types of securities the funds may hold in their portfolios and the various kinds of investment practices that may be used in day-to-day portfolio management. The funds' investment program is subject to further restrictions and risks described in the Statement of Additional Information. Shareholder approval is required to substantively change a fund's objectives and certain investment restrictions noted in the following section as "fundamental policies." The managers also follow certain "operating policies," which can be changed without shareholder approval. However, significant changes are discussed with shareholders in fund reports. A fund adheres to applicable investment restrictions and policies at the time it makes an investment. A later T. ROWE PRICE change in circumstances does not cause a violation of the restriction and will not require the sale of an investment if it was proper at the time it was made. The fund's holdings of certain kinds of investments cannot exceed maximum percentages of total assets, which are set forth herein. For instance, each fund is not permitted to invest more than 10% of total assets in hybrid instruments. While these restrictions provide a useful level of detail about a fund's investment program, investors should not view them as an accurate gauge of the potential risk of such investments. For example, in a given period, a 5% investment in hybrid instruments could have significantly more of an impact on a fund's share price than its weighting in the portfolio. The net effect of a particular investment depends on its volatility and the size of its overall return in relation to the performance of all the funds' other investments. Changes in a fund's holdings, a fund's performance, and the contribution of various investments are discussed in the shareholder reports sent to you. . Fund managers have considerable leeway in choosing investment strategies and selecting securities they believe will help the funds achieve their objectives. Types of Portfolio Securities In seeking to meet their investment objectives, the funds may invest in any type of security or instrument (including certain potentially high-risk derivatives described in this section) whose investment characteristics are consistent with the funds' investment programs. The following pages describe the principal types of portfolio securities and investment management practices of the funds. Fundamental policy With the exception of Latin America Fund, a fund will not purchase a security if, as a result, with respect to 75% of its total assets, more than 5% of the fund's total assets would be invested in securities of a single issuer or more than 10% of the outstanding voting securities of the issuer would be held by the fund. Nondiversified Status--Latin America Fund The fund is registered as a nondiversified 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, at the end of each calendar quarter, with respect to 50% of its total assets, not more than 5% of its assets are invested in the securities of a single issuer. MORE ABOUT THE FUNDS 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 fund may purchase preferred stock where the issuer has omitted, or is in danger of omitting, payment of its dividend. Such investments would be made primarily for their capital appreciation potential. Convertible Securities and Warrants The 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 nonconvertible 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 anytime during the life of the warrants (generally, two or more years). Fixed Income Securities The funds may invest in any type of investment-grade security. The Global Stock Fund may also invest up to 5% of its total assets in below-investment-grade bonds, commonly referred to as "junk" bonds. 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 rates fall and falling when interest rates rise. Junk bond prices can be much more volatile and have a greater risk of default than investment-grade bonds. Hybrid Instruments These instruments (a type of potentially high-risk derivative) can combine the characteristics of securities, futures, and options. For example, the principal amount, redemption, or conversion terms of a security could be related to the market price of some commodity, currency, or securities index. Such securities may bear interest or pay dividends at below market or even relatively nominal rates. Under certain conditions, the redemption value of such an investment could be zero. . Hybrids can have volatile prices and limited liquidity, and their use by the fund may not be successful. T. ROWE PRICE Operating policy Each fund may invest up to 10% of its total assets in hybrid instruments. Passive Foreign Investment Companies The fund may purchase the securities of certain foreign investment funds or trusts called passive foreign investment companies. Such trusts have been the only or primary way to invest in certain countries. In addition to bearing their proportionate share of the trust's expenses (management fees and operating expenses), shareholders will also indirectly bear similar expenses of such trusts. Capital gains on the sale of such holdings are considered ordinary income regardless of how long the fund held 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. To avoid such tax and interest, the fund intends to treat these securities as sold on the last day of its fiscal year and recognize any gains for tax purposes at that time; deductions for losses are allowable only to the extent of any gains resulting from these deemed sales for prior taxable years. Such gains and losses will be treated as ordinary income. The fund will be required to distribute any resulting income even though it has not sold the security. Private Placements These securities are sold directly to a small number of investors, usually institutions. Unlike public offerings, such securities are not registered with the SEC. Although certain of these securities may be readily sold, for example, under Rule 144A, others may be illiquid, and their sale may involve substantial delays and additional costs. Operating policy Each fund will not invest more than 15% of its net assets in illiquid securities. Types of Management Practices Reserve Position Each fund will hold a certain portion of its assets in cash or cash equivalents. Each fund's reserve position can consist of shares of a T. Rowe Price internal money market fund and U.S. and foreign dollar-denominated money market securities, including repurchase agreements, in the two highest rating categories, maturing in one year or less. T. Rowe Price internal money market funds do not receive management fees. For temporary, defensive purposes, a fund may invest without limitation in such money market funds and 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. MORE ABOUT THE FUNDS Borrowing Money and Transferring Assets Each fund can borrow money from banks (and to the extent permitted by the SEC, other Price funds) as a temporary measure for emergency purposes, to facilitate redemption requests, or for other purposes consistent with each fund's investment objective and program. Such borrowings may be collateralized with fund assets, subject to restrictions. Fundamental policy Borrowings may not exceed 33/1//\\/3/\\% of total fund assets. Operating policies A fund may not transfer as collateral any portfolio securities except as necessary in connection with permissible borrowings or investments, and then such transfers may not exceed 33/1//\\/3/\\% of a fund's total assets. A fund may not purchase additional securities when borrowings exceed 5% of total assets. 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 generally not enter into a forward contract with a term 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 be 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 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 emerging markets where the foreign exchange markets are not sufficiently developed to permit hedging activity to take place. T. ROWE PRICE 1999: The Year of the Euro Currency On the first business day of 1999, several major European countries will officially inaugurate the European Economic and Monetary Union (EMU) and adopt the euro as a single European currency backed by the European Central Bank. The event could be one of the most significant financial developments of the century, creating a vast economic and currency bloc equal to the U.S. in size and power. Since the EMU has far-reaching implications for investors and funds with exposure to European securities, it is important for you to understand what is taking place. The currencies of the original participating countries will become fixed rate units of the euro, much the same as the nickel, dime, quarter, and half dollar are denominations of the U.S. dollar. The exchange rates versus the euro were set in May and will officially be determined by the end of 1998.
Country Currency Euro Rate - ------- -------- --------- Austria Schilling 13.91 Belgium Franc 40.78 Finland Mark 6.01 France Franc 6.63 Germany Mark 1.98 Ireland Punt 0.80 Italy Lira 1958.00 Luxembourg Franc 40.78 Netherlands Guilder 2.23 Portugal Escudo 202.70 Spain Peseta 168.20
Source: The Wall Street Journal, May 4, 1998 Beginning in January 1999, some European holdings will be redenominated in euros, particularly government securities. The face value of other investments might remain in the existing national currencies for a time, but they will be priced, settled, and valued in euros by stock exchanges and other agencies. Thus, some of the European holdings in your funds will be valued in euros. This will not affect the investment value of your funds in U.S. dollar terms, since the euro will be converted into the dollar in the same way deutschemarks, francs, lire, and other European currencies are currently converted at the prevailing exchange rates. During the transition period, which lasts from January 1, 1999, until June 30, 2002, other countries that have moved to adopt the economic terms of the Maastricht Treaty of 1993 will be able to participate in the EMU. The primary criteria for joining are: MORE ABOUT THE FUNDS . a sustainable budget deficit less than 3% of GDP; . public debt less than 60% of GDP; . low inflation and interest rates; and . no currency devaluations within two years of application. Some of the original participants are not totally compliant with these terms but are expected to embrace them by 2002. Countries joining later may have to be in strict accord before entering the EMU, or at least be well along the path to achieving them. So far, the transition seems to be progressing smoothly, but there has been resistance to some of the more stringent terms. French Socialists, in particular, would prefer to maintain heavy government subsidies for social programs. Therefore, the jury is still out on whether complete economic and monetary convergence will be attained as planned. Assuming all goes well, the national currencies of participating countries will cease to exist and all accounting will be in euros following the transition period. However, regardless of whether or not full convergence is realized on the date specified, we do not expect pricing in euros to have any special impact on the value of your investment. Of course, problems could develop that might be unfavorable for the fund, but we do not anticipate them at this time. Futures and Options Futures (a type of potentially high-risk derivative) are often used to manage risk, because they enable the investor to buy or sell an asset in the future at an agreed upon price. Options (another type of potentially high-risk derivative) 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 and options contracts for a number of reasons, including: to manage their exposure to changes in securities prices and foreign currencies; as an efficient means of adjusting overall exposure to certain markets; in an effort to enhance income; and to protect the value of portfolio securities. 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. In many foreign countries, futures and options markets do not exist or are not sufficiently developed to be effectively used by the funds. Operating policies Futures: Initial margin deposits and premiums on options used for non-hedging purposes will not equal more than 5% of each fund's net asset value. Options on securities: The total market value of securities against which each fund writes call or put options may not exceed 25% of its total assets. Each fund will not commit more than 5% of its total assets to premiums when purchasing call or put options. T. ROWE PRICE 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 the funds are expected to comply with such limits, the extent to which these limits apply is subject to tax regulations as yet unissued. 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 and could affect whether dividends paid by the funds are classified as capital gains or ordinary income. 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, a 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 Turnover is an indication of frequency. 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 held. The funds' portfolio turnover rates for the previous three fiscal periods are shown in Table 7. MORE ABOUT THE FUNDS . Table 7
Portfolio Turnover Rates Fund 1995 1996 1997 Emerging Markets Stock 28.8%* 41.7% 84.3% ------------------------------ European Stock 17.2% 14.1% 17.5% ------------------------------ Global Stock ** 50.0%* 41.8% ------------------------------ International Discovery 43.5% 52.0% 72.7% ------------------------------ International Stock 17.8% 11.6% 15.8% ------------------------------ Japan 62.4% 29.8% 32.3% ------------------------------ Latin America 18.9% 22.0% 32.7% ------------------------------ New Asia 63.7% 42.0% 41.8% - -------------------------------------------------------------
European Stock, Japan, New Asia, Latin America, and Emerging Markets Stock 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 countries or regions indicated. International Stock, International Discovery, and Global Stock Funds Each fund will invest at least 65% of its total assets in a manner which reflects its international or global character, respectively. In the case of the international funds, this requires that the funds invest in at least three countries outside of the U.S. For the global fund, this means that the fund must invest in at least three countries, one of which may include the U.S. T. ROWE PRICE INVESTING WITH T. ROWE PRICE 4 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION ---------------------------------------------------------- Tax Identification Number We must have your correct Social Security or corporate tax identification number on a signed New Account Form or W-9 Form. Otherwise, federal law requires the funds to withhold a percentage (currently 31%) of your dividends, capital gain distributions, and redemptions, and may subject you to an IRS fine. If this information is not received within 60 days after your account is established, your account may be redeemed, priced at the NAV on the date of redemption. Always verify your transactions by carefully reviewing the confirmation we send you. Please report any discrepancies to Shareholder Services promptly. Employer-Sponsored Retirement Plans and Institutional Accounts T. Rowe Price Trust Company 1-800-492-7670 Transaction procedures in the following sections may not apply to employer-sponsored retirement plans and institutional accounts. For procedures regarding employer-sponsored retirement plans, please call T. Rowe Price Trust Company or consult your plan administrator. For institutional account procedures, please call your designated account manager or service representative. OPENING A NEW ACCOUNT ---------------------------------------------------------- $2,500 minimum initial investment; $1,000 for retirement plans or gifts or transfers to minors (UGMA/UTMA) accounts Account Registration If you own other T. Rowe Price funds, be sure to register any new account just like your existing accounts so you can exchange among them easily. (The name and account type would have to be identical.) INVESTING WITH T. ROWE PRICE By Mail Please make your check payable to T. Rowe Price Funds (otherwise it will be returned) and send your check, together with the New Account Form, to the appropriate address in the next paragraph. We do not accept third-party checks to open new accounts, except for IRA Rollover checks that are properly endorsed. Regular Mail T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD 21298-9353 Mailgram, Express, Registered, or Certified Mail T. Rowe Price Account Services 10090 Red Run Blvd. Owings Mills, MD 21117 By Wire Call Investor Services for an account number and give the following wire information to your bank: PNC Bank, N.A. (Pittsburgh) ABA# 043000096 T. Rowe Price [fund name] Account# 1004397951 name of owner(s) and account number Complete a New Account Form and mail it to one of the appropriate addresses listed previously. Note: No services will be established and IRS penalty withholding may occur until a signed New Account Form is received. Also, retirement plans cannot be opened by wire. By Exchange Call Shareholder Services or use Tele*Access or your personal computer (see Automated Services under Shareholder Services). The new account will have the same registration as the account from which you are exchanging. Services for the new account may be carried over by telephone request if preauthorized on the existing account. For limitations on exchanging, see explanation of Excessive Trading under Transaction Procedures and Special Requirements. In Person Drop off your New Account Form at any location listed on the cover and obtain a receipt. PURCHASING ADDITIONAL SHARES ---------------------------------------------------------- $100 minimum purchase; $50 minimum for retirement plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA) accounts By ACH Transfer Use Tele*Access or your personal computer or call Investor Services if you have established electronic transfers using the ACH network. By Wire Call Shareholder Services or use the wire address in Opening a New Account. By Mail 1. Make your check payable to T. Rowe Price Funds (otherwise it may be returned). 2. Mail the check to us at the following address with either a fund reinvestment slip or a note indicating the fund you want to buy and your fund account number. 3. Remember to provide your account number and the fund name on the memo line of your check. Regular Mail T. Rowe Price Funds Account Services P.O. Box 89000 Baltimore, MD 21289-1500 /(For mailgrams, express, registered, or certified mail, see previous / /section.)/ By Automatic Asset Builder Fill out the Automatic Asset Builder section on the New Account or Shareholder Services Form. INVESTING WITH T. ROWE PRICE EXCHANGING AND REDEEMING SHARES ---------------------------------------------------------- Exchange Service You can move money from one account to an existing identically registered account or open a new identically registered account. Remember, exchanges are purchases and sales for tax purposes. (Exchanges into a state tax-free fund are limited to investors living in states where the fund is registered.) Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on shares held for less than six months or one year, as specified in the prospectus. The fee is paid to that fund. By Phone Call Shareholder Services If you find our phones busy during unusually volatile markets, please consider placing your order by your personal computer, Tele*Access (if you have previously authorized telephone services), mailgram, or express mail. For exchange policies, please see Transaction Procedures and Special Requirements - Excessive Trading. Redemption proceeds can be mailed to your account address, sent by ACH transfer, or wired to your bank (provided your bank information is already on file). For charges, see Electronic Transfers - By Wire under Shareholder Services. By Mail For each account involved, provide the account name, number, fund name, and exchange or redemption amount. For exchanges, be sure to indicate any fund you are exchanging out of and the fund or funds you are exchanging into. Please mail to the appropriate address below. T. Rowe Price requires the signatures of all owners exactly as registered, and possibly a signature guarantee (see Transaction Procedures and Special Requirements - Signature Guarantees). Regular Mail For nonretirement and IRA accounts T. Rowe Price Account Services P.O. Box 89000 Baltimore, MD 21289-0220 T. ROWE PRICE For employer-sponsored retirement accounts T. Rowe Price Trust Company P.O. Box 89000 Baltimore, MD 21289-0300 /(For mailgrams, express, registered, or certified mail, see Opening a / /New Account.)/ Redemptions from employer-sponsored retirement accounts must be in writing; please call T. Rowe Price Trust Company or your plan administrator for instructions. IRA distributions may be requested in writing or by telephone; please call Shareholder Services to obtain an IRA Distribution Form or an IRA Shareholder Services Form to authorize the telephone redemption service. RIGHTS RESERVED BY THE FUNDS ---------------------------------------------------------- Each fund and its agents reserve the following rights: (1) to waive or lower investment minimums; (2) to accept initial purchases by telephone or mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind any purchase or exchange order (including, but not limited to, orders deemed to result in excessive trading, market timing, fraud, or 5% ownership) upon notice to the shareholder within five business days of the trade or if the written confirmation has not been received by the shareholder, whichever is sooner; (5) to freeze any account and suspend account services when notice has been received of a dispute between the registered or beneficial account owners or there is reason to believe a fraudulent transaction may occur; (6) to otherwise modify the conditions of purchase and any services at any time; or (7) to act on instructions believed to be genuine. These actions will be taken when, in the sole discretion of management, they are deemed to be in the best interest of the fund. In an effort to protect each fund from the possible adverse effects of a substantial redemption in a large account, as a matter of general policy no shareholder or group of related shareholders controlled by the same INVESTING WITH T. ROWE PRICE person or group of persons will knowingly be permitted to purchase in excess of 5% of the outstanding shares of the fund, except upon approval of the fund's management. SHAREHOLDER SERVICES ---------------------------------------------------------- Shareholder Services 1-800-225-5132 Investor Services 1-800-638-5660 Many services are available to you as a T. Rowe Price shareholder; some you receive automatically, and others you must authorize 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, which we mail to all new shareholders, contains detailed descriptions of these and other services. Note: Corporate and other institutional accounts require an original or certified resolution to establish services and to redeem by mail. For more information, call Investor Services. Retirement Plans We offer a wide range of plans for individuals, institutions, and large and small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs (profit sharing, money purchase pension), 401(k), and 403(b)(7). For information on IRAs, call Investor Services. For information on all other retirement plans, including our no-load variable annuity, please call our Trust Company at 1-800-492-7670. Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days Tele*Access 24-hour service via toll-free number enables you to (1) access information on fund yields, prices, distributions, account balances, and your latest transaction; (2) request checks, prospectuses, services forms, duplicate statements, and tax forms; and (3) initiate purchase, redemption, and exchange transactions in your accounts (see Electronic Transfers on the next page). T. ROWE PRICE Web Address www.troweprice.com After obtaining proper authorization, account transactions may also be conducted through our Web site on the Internet. If you subscribe to America Online, you can access our Web site via keyword "T. Rowe Price" and conduct transactions in your account. Plan Account Line 1-800-401-3279 Plan Account Line This 24-hour service is similar to Tele*Access but is designed specifically to meet the needs of retirement plan investors. Telephone and Walk-In Services Buy, sell, or exchange shares by calling one of our service representatives or by visiting one of our investor center locations whose addresses are listed on the cover. Electronic Transfers By ACH With no charges to pay, you can initiate a purchase or redemption for as little as $100 or as much as $100,000 between your bank account and fund account using the ACH network. Enter instructions via Tele*Access or your personal computer, or call Shareholder Services. By Wire Electronic transfers can be conducted via bank wire. There is currently a $5 fee for wire redemptions under $5,000, and your bank may charge for incoming or outgoing wire transfers regardless of size. Checkwriting (Not available for equity funds, or the High Yield or Emerging Markets Bond Funds) You may write an unlimited number of free checks on any money market fund, and most bond funds, with a minimum of $500 per check. Keep in mind, however, that a check results in a redemption; a check written on a bond fund will create a taxable event which you and we must report to the IRS. Automatic Investing ($50 minimum) You can invest automatically in several different ways, including: INVESTING WITH T. ROWE PRICE Automatic Asset Builder You instruct us to move $50 or more from your bank account, or you can instruct your employer to send all or a portion of your paycheck to the fund or funds you designate. Automatic Exchange You can set up systematic investments from one fund account into another, such as from a money fund into a stock fund. DISCOUNT BROKERAGE ---------------------------------------------------------- To open an account 1-800-638-5660 For existing discount brokerage investors 1-800-225-7720 This service gives you the opportunity to consolidate all of your investments with one company. Investments available through our discount brokerage include stocks, options, bonds, non-T. Rowe Price mutual funds, and others at commission savings over full-service brokers. We also provide a wide range of services, including: Automated telephone and computer services You can enter stock and option trades, access quotes, and review account information around the clock by phone with Tele-Trader or via the Internet with Internet-Trader. Any trades executed through Tele-Trader save you an additional 10% on commissions. You will save 20% on commissions for stock trades when you trade through Internet-Trader. All trades are subject to a $35 minimum commission except stock trades placed through Internet-Trader, which are subject to a $29.95 minimum commission. Investor information A variety of informative reports, such as our Brokerage Insights series, S&P Market Month newsletter, and select stock reports can help you better evaluate economic trends and investment opportunities. Dividend Reinvestment Service Virtually all stocks held in customer accounts are eligible for this free service. T. ROWE PRICE /Discount Brokerage is a division of T. Rowe Price Investment / /Services, Inc., Member NASD/SIPC./ INVESTING WITH T. ROWE PRICE INVESTMENT INFORMATION ---------------------------------------------------------- To help shareholders monitor their current investments and make decisions that accurately reflect their financial goals, T. Rowe Price offers a wide variety of information in addition to account statements. Most of this information is also available on our Web site at www.troweprice.com. Shareholder Reports Fund managers' reviews of their strategies and results. If several members of a household own the same fund, only one fund report is mailed to that address. To receive additional copies, please call Shareholder Services or write to us at 100 East Pratt Street, Baltimore, Maryland 21202. The T. Rowe Price Report A quarterly investment newsletter discussing markets and financial strategies. Performance Update A quarterly review of all T. Rowe Price fund results. Insights Educational reports on investment strategies and financial markets. Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe Price Guide to International Investing, Managing Your Retirement Distribution, Personal Strategy Planner, Retirees Financial Guide, Retirement Planning Kit, and Tax Considerations for Investors. T. ROWE PRICE To help you achieve your financial goals, T. Rowe Price offers a wide range of stock, bond, and money market investments, as well as convenient services and timely, informative reports. To Open a Mutual Fund Account Investor Services 1-800-638-5660 1-410-547-2308 For Existing Accounts Shareholder Services 1-800-225-5132 1-410-625-6500 For Yields, Prices, Account Information, or to Conduct Transactions Tele*Access/(R)/ 1-800-638-2587 24 hours, 7 days To Open a Discount Brokerage Account 1-800-638-5660 Plan Account Line 1-800-401-3279 For retirement plan investors INVESTING WITH T. ROWE PRICE Investor Centers 101 East Lombard St. Baltimore, MD 21202 T. Rowe Price Financial Center 10090 Red Run Blvd. Owings Mills, MD 21117 Farragut Square 900 17th Street, N.W. Washington, D.C. 20006 ARCO Tower 31st Floor 515 South Flower St. Los Angeles, CA 90071 4200 West Cypress St. 10th Floor Tampa, FL 33607 Internet Address www.troweprice.com (LOGO) C01-040 12/1/98 STATEMENT OF ADDITIONAL INFORMATION The date of this Statement of Additional Information is March 1, 1998, or December 1, 1998. T. ROWE PRICE INTERNATIONAL FUNDS, INC. International Stock Fund International Discovery Fund International Growth & Income Fund European Stock Fund Japan Fund New Asia Fund Latin America Fund Emerging Markets Stock Fund Global Stock Fund and INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund _____________________________________________________________________ Mailing Address: T. Rowe Price Investment Services, Inc. 100 East Pratt Street Baltimore, Maryland 21202 1-800-638-5660 This Statement of Additional Information is not a prospectus but should be read in conjunction with the appropriate Fund prospectus dated March 1, 1998, or December 1, 1998, which may be obtained from T. Rowe Price Investment Services, Inc. If you would like a prospectus for a Fund of which you are not a shareholder, please call 1-800-638-5660. A prospectus with more complete information, including management fees and expenses, will be sent to you. Please read it carefully. C01-043 12/1/98
TABLE OF CONTENTS ----------------- Page Page ---- ---- Capital Stock 41 Investment Restrictions 20 - -------------------------------------- ------------------------------------ Code of Ethics 29 Legal Counsel 42 - -------------------------------------- ------------------------------------ Custodian 29 Management of the Funds 22 - -------------------------------------- ------------------------------------ Distributor for the Funds 28 Net Asset Value Per Share 36 - -------------------------------------- ------------------------------------ Dividends and Distributions 37 Portfolio Management 8 Practices - -------------------------------------- ------------------------------------ Federal Registration of Shares 42 Portfolio Transactions 30 - -------------------------------------- ------------------------------------ Independent Accountants 42 Pricing of Securities 36 - -------------------------------------- ------------------------------------ Investment Management Services 26 Principal Holders of 26 Securities - -------------------------------------- ------------------------------------ Investment Objectives and 2 Risk Factors 2 Policies - -------------------------------------- ------------------------------------ Investment Performance 39 Shareholder Services 29 - -------------------------------------- ------------------------------------ Investment Program 6 Tax Status 37 - -------------------------------------- ------------------------------------
INVESTMENT OBJECTIVES AND POLICIES ------------------------------------------------------------------------------- The following information supplements the discussion of each Fund's investment objectives and policies discussed in the Funds' prospectus. The Funds will not make a material change in their investment objectives without obtaining shareholder approval. Unless otherwise specified, the investment programs and restrictions of the Funds are not fundamental policies. Each Fund's operating policies are subject to change by each Board of Directors without shareholder approval. However, shareholders will be notified of a material change in an operating policy. Each Fund's fundamental policies may not be changed without the approval of at least a majority of the outstanding shares of the Fund or, if it is less, 67% of the shares represented at a meeting of shareholders at which the holders of 50% or more of the shares are represented. Throughout this Statement of Additional Information, "the Fund" is intended to refer to each Fund listed on the cover page, unless otherwise indicated. RISK FACTORS ------------------------------------------------------------------------------- All Funds 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 or risk and level of return that can be expected from each market. 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" below. Further, there is no assurance that the favorable trends discussed below will continue, and the Funds cannot guarantee they will achieve their objectives. Risk Factors of Foreign Investing There are special risks in foreign investing. 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 market countries, such as many of the countries of Asia, Latin America, Eastern Europe, Russia, Africa, 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 when investing in foreign securities. . Political and Economic Factors Individual foreign economies of certain countries 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 1994-1995, the Mexican peso plunged in value setting off a severe crisis in the Mexican economy. Asia is still coming to terms with its own crisis and recessionary conditions sparked off by widespread currency weakness in late 1997. 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 and hostile relations 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 Fund invests in securities denominated in various currencies. Accordingly, a change in the value of any such currency against the U.S. dollar will result in a corresponding change in the U. S. dollar value of the 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 limit at times and preclude investment in certain of such countries and 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 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 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. Investments in certain markets may be made through ADRs traded in the United States. Foreign stock markets are generally not as developed or efficient as, and 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. Commissions on foreign stocks are generally higher than commissions on United States exchanges, and while there is an increasing number of overseas stock markets that have adopted a system of negotiated rates, a number are still subject to an established schedule of minimum commission rates. 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 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. If the Fund invests in such investment funds, the Fund's shareholders will bear not only their proportionate share of the expenses of the Fund (including operating expenses and the fees of the investment manager), but also will bear indirectly similar expenses of the underlying investment funds. In addition, the securities of these investment funds may trade at a premium over their net asset value. . Information and Supervision There is generally less publicly available information about foreign companies comparable to reports and ratings that are published about companies in the United States. Foreign companies are also generally not subject to uniform accounting, auditing and financial reporting standards, practices, and requirements comparable to those applicable to United States companies. It also is often 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. . Other With respect to certain foreign countries, especially developing and emerging ones, there is the possibility of adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitations on the removal of Funds or other assets of the Funds, political or social instability, or diplomatic developments which could affect investments by U.S. persons in those countries. . Eastern Europe and Russia Changes occurring in Eastern Europe and Russia today could have long-term potential consequences. As restrictions fall, this could result in rising standards of living, lower manufacturing costs, growing consumer spending, and substantial economic growth. However, investment in the countries of Eastern Europe and Russia is highly speculative at this time. Political and economic reforms are too recent to establish a definite trend away from centrally planned economies and state-owned industries. In many of the countries of Eastern Europe and Russia, there is no stock exchange or formal market for securities. Such countries may also have government exchange controls, currencies with no recognizable market value relative to the established currencies of western market economies, little or no experience in trading in securities, no financial reporting standards, a lack of a banking and securities infrastructure to handle such trading, and a legal tradition which does not recognize rights in private property. In addition, these countries may have national policies which restrict investments in companies deemed sensitive to the country's national interest. Further, the governments in such countries may require governmental or quasi-governmental authorities to act as custodian of 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. . Latin America 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. For example, in late 1994 the value of the Mexican peso lost more than one-third of its value relative to the dollar. Certain Latin American countries also restrict the free conversion of their currency into foreign currencies, including the U.S. dollar. There is no significant foreign exchange market for many 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. . Japan The Japan 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. To the extent any of the other funds also invest in Japan, such investments will be subject to these same factors. Additional factors relating to Japan include the following: 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. A significant percentage of the total population of Japan is concentrated in the metropolitan areas of Tokyo, Osaka and Nagoya. 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. 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. It is possible that trade sanctions or other protectionist measures could impact Japan adversely in both the short- and long-term. . 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. Asia (ex-Japan) Political Instability The political history of certain Asian countries has been characterized by political uncertainty, intervention by the military in civilian and economic spheres, and political corruption. Such developments, if they continue to occur, 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 Asian 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. For example, in 1997 the Thai baht lost 46.75% of its value against the U.S. dollar. Certain Asian 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. Debt A number of Asian companies are highly dependent on foreign loans for their operation. In 1997, several Asian countries were forced to negotiate loans from the IMF and others that impose strict repayment term schedules and require significant economic and financial restructuring. INVESTMENT PROGRAM ------------------------------------------------------------------------------- Types of Securities Set forth below is additional information about certain of the investments described in the Fund's prospectus. Hybrid Instruments Hybrid Instruments (a type of potentially high-risk derivative) have been developed and combine the elements of futures contracts or options with those of debt, preferred equity, or a depository instrument (hereinafter "Hybrid Instruments"). Generally, a Hybrid Instrument will be a debt security, preferred stock, depository share, trust certificate, certificate of deposit, or other evidence of indebtedness on which a portion of or all interest payments, and/or the principal or stated amount payable at maturity, redemption, or retirement, is determined by reference to prices, changes in prices, or differences between prices, of securities, currencies, intangibles, goods, articles, or commodities (collectively "Underlying Assets") or by another objective index, economic factor, or other measure, such as interest rates, currency exchange rates, commodity indices, and securities indices (collectively "Benchmarks"). Thus, Hybrid Instruments may take a variety of forms, including, but not limited to, debt instruments with interest or principal payments or redemption terms determined by reference to the value of a currency or commodity or securities index at a future point in time, preferred stock with dividend rates determined by reference to the value of a currency, or convertible securities with the conversion terms related to a particular commodity. Hybrid Instruments can be an efficient means of creating exposure to a particular market, or segment of a market, with the objective of enhancing total return. For example, a Fund may wish to take advantage of expected declines in interest rates in several European countries, but avoid the transaction costs associated with buying and currency-hedging the foreign bond positions. One solution would be to purchase a U.S. dollar-denominated Hybrid Instrument whose redemption price is linked to the average three-year interest rate in a designated group of countries. The redemption price formula would provide for payoffs of greater than par if the average interest rate was lower than a specified level, and payoffs of less than par if rates were above the specified level. Furthermore, the Fund could limit the downside risk of the security by establishing a minimum redemption price so that the principal paid at maturity could not be below a predetermined minimum level if interest rates were to rise significantly. The purpose of this arrangement, known as a structured security with an embedded put option, would be to give the Fund the desired European bond exposure while avoiding currency risk, limiting downside market risk, and lowering transactions costs. Of course, there is no guarantee that the strategy will be successful, and the Fund could lose money if, for example, interest rates do not move as anticipated or credit problems develop with the issuer of the Hybrid. The risks of investing in Hybrid Instruments reflect a combination of the risks of investing in securities, options, futures and currencies. Thus, an investment in a Hybrid Instrument may entail significant risks that are not associated with a similar investment in a traditional debt instrument that has a fixed principal amount, is denominated in U.S. dollars, or bears interest either at a fixed rate or a floating rate determined by reference to a common, nationally published benchmark. The risks of a particular Hybrid Instrument will, of course, depend upon the terms of the instrument, but may include, without limitation, the possibility of significant changes in the Benchmarks or the prices of Underlying Assets to which the instrument is linked. Such risks generally depend upon factors which are unrelated to the operations or credit quality of the issuer of the Hybrid Instrument and which may not be readily foreseen by the purchaser, such as economic and political events, the supply and demand for the Underlying Assets, and interest rate movements. In recent years, various Benchmarks and prices for Underlying Assets have been highly volatile, and such volatility may be expected in the future. Reference is also made to the discussion of futures, options, and forward contracts herein for a discussion of the risks associated with such investments. Hybrid Instruments are potentially more volatile and carry greater market risks than traditional debt instruments. Depending on the structure of the particular Hybrid Instrument, changes in a Benchmark may be magnified by the terms of the Hybrid Instrument and have an even more dramatic and substantial effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid Instrument and the Benchmark or Underlying Asset may not move in the same direction or at the same time. Hybrid Instruments may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. Alternatively, Hybrid Instruments may bear interest at above market rates but bear an increased risk of principal loss (or gain). The latter scenario may result if "leverage" is used to structure the Hybrid Instrument. Leverage risk occurs when the Hybrid Instrument is structured so that a given change in a Benchmark or Underlying Asset is multiplied to produce a greater value change in the Hybrid Instrument, thereby magnifying the risk of loss as well as the potential for gain. Hybrid Instruments may also carry liquidity risk since the instruments are often "customized" to meet the portfolio needs of a particular investor, and therefore, the number of investors that are willing and able to buy such instruments in the secondary market may be smaller than that for more traditional debt securities. In addition, because the purchase and sale of Hybrid Instruments could take place in an over-the-counter market without the guarantee of a central clearing organization or in a transaction between the Fund and the issuer of the Hybrid Instrument, the creditworthiness of the counter party of issuer of the Hybrid Instrument would be an additional risk factor which the Fund would have to consider and monitor. Hybrid Instruments also may not be subject to regulation of the Commodities Futures Trading Commission ("CFTC"), which generally regulates the trading of commodity futures by U.S. persons, the SEC, which regulates the offer and sale of securities by and to U.S. persons, or any other governmental regulatory authority. Illiquid or Restricted Securities Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where registration is required, the Fund may be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in accordance with procedures prescribed by the Fund's Board of Directors. If, through the appreciation of illiquid securities or the depreciation of liquid securities, the Fund should be in a position where more than 15% of the value of its net assets is invested in illiquid assets, including restricted securities, the Fund will take appropriate steps to protect liquidity. Notwithstanding the above, the Fund may purchase securities which, while privately placed, are eligible for purchase and sale under Rule 144A under the 1933 Act. This rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities even though such securities are not registered under the 1933 Act. Price-Fleming, under the supervision of the Fund's Board of Directors, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's restriction of investing no more than 15% of its net assets in illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, 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 net assets in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities. Warrants The Fund may acquire warrants. Warrants are pure speculation in that they have no voting rights, pay no dividends, and have no rights with respect to the assets of the corporation issuing them. Warrants basically are options to purchase equity securities at a specific price valid for a specific period of time. They do not represent ownership of the securities, but only the right to buy them. Warrants differ from call options in that warrants are issued by the issuer of the security which may be purchased on their exercise, whereas call options may be written or issued by anyone. The prices of warrants do not necessarily move parallel to the prices of the underlying securities. There are, of course, other types of securities that are, or may become available, which are similar to the foregoing and the Funds may invest in these securities. PORTFOLIO MANAGEMENT PRACTICES ------------------------------------------------------------------------------- All Funds except Foreign Equity Fund Lending of Portfolio Securities Securities loans are made to broker-dealers or institutional investors or other persons, pursuant to agreements requiring that the loans be continuously secured by collateral at least equal at all times to the value of the securities lent, marked to market on a daily basis. The collateral received will consist of cash, U.S. government securities, letters of credit or such other collateral as may be permitted under its investment program. While the securities are being lent, the Fund will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as interest on the investment of the collateral or a fee from the borrower. The Fund has a right to call each loan and obtain the securities, within such period of time which coincides with the normal settlement period for purchases and sales of such securities in the respective markets. The Fund will not have the right to vote on securities while they are being lent, but it will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Loans will only be made to firms deemed by 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. All Funds Other Lending/Borrowing Subject to approval by the SEC, the Fund may make loans to, or borrow funds from, other mutual funds sponsored or advised by T. Rowe Price or Rowe Price-Fleming International, Inc. ("Price-Fleming"), (collectively, "Price Funds"). Repurchase Agreements The Fund may enter into a repurchase agreement through which an investor (such as the Fund) purchases a security (known as the "underlying security") from a well-established securities dealer or a bank that is a member of the Federal Reserve System. Any such dealer or bank will be on T. Rowe Price's approved list and have a credit rating with respect to its short-term debt of at least A1 by Standard & Poor's Corporation, P1 by Moody's Investors Services, Inc., or the equivalent rating by T. Rowe Price. At that time, the bank or securities dealer agrees to repurchase the underlying security at the same price, plus specified interest. Repurchase agreements are generally for a short period of time, often less than a week. Repurchase agreements which do not provide for payment within seven days will be treated 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. Money Market Reserves It is expected that the Fund will invest its cash reserves primarily in one or more money market funds established for the exclusive use of the T. Rowe Price family of mutual funds and other clients of T. Rowe Price and Price-Fleming. Currently, two such money market funds are in operation-Reserve Investment Fund ("RIF") and Government Reserve Investment Fund ("GRF"), each a series of the Reserve Investment Funds, Inc. Additional series may be created in the future. These funds were created and operate under an Exemptive Order issued by the Securities and Exchange Commission (Investment Company Act Release No. IC-22770, July 29, 1997). Both funds must comply with the requirements of Rule 2a-7 under the 1940 Act governing money market funds. The RIF invests at least 95% of its total assets in prime money market instruments receiving the highest credit rating. The GRF invests primarily in a portfolio of U.S. government-backed securities, primarily U.S. Treasuries, and repurchase agreements thereon. The RIF and GRF provide a very efficient means of managing the cash reserves of the Fund. While neither RIF or GRF pay an advisory fee to the Investment Manager, they will incur other expenses. However, the RIF and GRF are expected by T. Rowe Price to operate at very low expense ratios. The Fund will only invest in RIF or GRF to the extent it is consistent with its objective and program. Neither fund is insured or guaranteed by the U.S. government, and there is no assurance they will maintain a stable net asset value of $1.00 per share. Options Options are a type of potentially high-risk derivative. Writing Covered Call Options The Fund may write (sell) American or European style "covered" call options and purchase options to close out options previously written by the Fund. In writing covered call options, the Fund expects to generate additional premium income which should serve to enhance the Fund's total return and reduce the effect of any price decline of the security or currency involved in the option. Covered call options will generally be written on securities or currencies which, in 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, other liquid high-grade debt obligations, or other suitable cover as permitted by the SEC having a value equal to the fluctuating market value of the optioned securities or currencies. Portfolio securities or currencies on which call options may be written will be purchased solely on the basis of investment considerations consistent with the Fund's investment objective. The writing of covered call options is a conservative investment technique believed to involve relatively little risk (in contrast to the writing of naked or uncovered options, which the Fund will not do), but capable of enhancing the Fund's total return. When writing a covered call option, a Fund, in return for the premium, gives up the opportunity for profit from a price increase in the underlying security or currency above the exercise price, but conversely retains the risk of loss should the price of the security or currency decline. Unlike one who owns securities or currencies not subject to an option, the Fund has no control over when it may be required to sell the underlying securities or currencies, since it may be assigned an exercise notice at any time prior to the expiration of its obligation as a writer. If a call option which the Fund has written expires, the Fund will realize a gain in the amount of the premium; however, such gain may be offset by a decline in the market value of the underlying security or currency during the option period. If the call option is exercised, the Fund will realize a gain or loss from the sale of the underlying security or currency. The Fund does not consider a security or currency covered by a call to be "pledged" as that term is used in the Fund's policy which limits the pledging or mortgaging of its assets. The premium received is the market value of an option. The premium the Fund will receive from writing a call option will reflect, among other things, the current market price of the underlying security or currency, the relationship of the exercise price to such market price, the historical price volatility of the underlying security or currency, and the length of the option period. Once the decision to write a call option has been made, 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. Call options written by the Fund will normally have expiration dates of less than nine months from the date written. The exercise price of the options may be below, equal to, or above the current market values of the underlying securities or currencies at the time the options are written. From time to time, the Fund may purchase an underlying security or currency for delivery in accordance with an exercise notice of a call option assigned to it, rather than delivering such security or currency from its portfolio. In such cases, additional costs may be incurred. The Fund will realize a profit or loss from a closing purchase transaction if the cost of the transaction is less or more than the premium received from the writing of the option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security or currency, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by appreciation of the underlying security or currency owned by the Fund. The Fund will not write a covered call option if, as a result, the aggregate market value of all portfolio securities or currencies covering written call or put options exceeds 25% of the market value of the Fund's net assets. In calculating the 25% limit, the Fund will offset, against the value of assets covering written calls and puts, the value of purchased calls and puts on identical securities or currencies with identical maturity dates. Writing Covered Put Options The Fund may write American or European style covered put options and purchase options to close out options previously written by the Fund. A put option gives the purchaser of the option the right to sell, and the writer (seller) has the obligation to buy, the underlying security or currency at the exercise price during the option period (American style) or at the expiration of the option (European style). So long as the obligation of the writer continues, he may be assigned an exercise notice by the broker-dealer through whom such option was sold, requiring him to make payment to the exercise price against delivery of the underlying security or currency. The operation of put options in other respects, including their related risks and rewards, is substantially identical to that of call options. The Fund would write put options only on a covered basis, which means that the Fund would maintain in a segregated account cash, U.S. government securities, other liquid high-grade debt obligations, or other suitable cover as determined by the SEC, in an amount not less than the exercise price or the Fund will own an option to sell the underlying security or currency subject to the option having an exercise price equal to or greater than the exercise price of the "covered" option at all times while the put option is outstanding. (The rules of a clearing corporation currently require that such assets be deposited in escrow to secure payment of the exercise price.) 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. The Fund will not write a covered put option if, as a result, the aggregate market value of all portfolio securities or currencies covering put or call options exceeds 25% of the market value of the Fund's net assets. In calculating the 25% limit, the Fund will offset, against the value of assets covering written puts and calls, the value of purchased puts and calls on identical securities or currencies with identical maturity dates. Purchasing Put Options The Fund may purchase American or European style put options. As the holder of a put option, the Fund has the right to sell the underlying security or currency at the exercise price at any time during the option period (American style) or at the expiration of the option (European style). The Fund may enter into closing sale transactions with respect to such options, exercise them or permit them to expire. The Fund may purchase put options for defensive purposes in order to protect against an anticipated decline in the value of its securities or currencies. An example of such use of put options is provided next. The Fund may purchase a put option on an underlying security or currency (a "protective put") owned by the Fund as a defensive technique in order to protect against an anticipated decline in the value of the security or currency. Such hedge protection is provided only during the life of the put option when the Fund, as the holder of the put option, is able to sell the underlying security or currency at the put exercise price regardless of any decline in the underlying security's market price or currency's exchange value. For example, a put option may be purchased in order to protect unrealized appreciation of a security or currency where T. Rowe Price deems it desirable to continue to hold the security or currency because of tax considerations. The premium paid for the put option and any transaction costs would reduce any capital gain otherwise available for distribution when the security or currency is eventually sold. The Fund may also purchase put options at a time when the Fund does not own the underlying security or currency. By purchasing put options on a security or currency it does not own, the Fund seeks to benefit from a decline in the market price of the underlying security or currency. If the put option is not sold when it has remaining value, and if the market price of the underlying security or currency remains equal to or greater than the exercise price during the life of the put option, the Fund will lose its entire investment in the put option. In order for the purchase of a put option to be profitable, the market price of the underlying security or currency must decline sufficiently below the exercise price to cover the premium and transaction costs, unless the put option is sold in a closing sale transaction. The Fund will not commit more than 5% of its assets to premiums when purchasing put and call options. The premium paid by the Fund when purchasing a put option will be recorded as an asset of the Fund. This asset will be adjusted daily to the option's current market value, which will be the latest sale price at the time at which the net asset value per share of the Fund is computed (close of New York Stock Exchange), or, in the absence of such sale, the latest bid price. This asset will be terminated upon expiration of the option, the selling (writing) of an identical option in a closing transaction, or the delivery of the underlying security or currency upon the exercise of the option. Purchasing Call Options The Fund may purchase American or European style call options. As the holder of a call option, the Fund has the right to purchase the underlying security or currency at the exercise price at any time during the option period (American style) or at the expiration of the option (European style). The Fund may enter into closing sale transactions with respect to such options, exercise them or permit them to expire. The Fund may purchase call options for the purpose of increasing its current return or avoiding tax consequences which could reduce its current return. The Fund may also purchase call options in order to acquire the underlying securities or currencies. Examples of such uses of call options are provided next. Call options may be purchased by the Fund for the purpose of acquiring the underlying securities or currencies for its portfolio. Utilized in this fashion, the purchase of call options enables the Fund to acquire the securities or currencies at the exercise price of the call option plus the premium paid. At times the net cost of acquiring securities or currencies in this manner may be less than the cost of acquiring the securities or currencies directly. This technique may also be useful to the Fund in purchasing a large block of securities or currencies that would be more difficult to acquire by direct market purchases. So long as it holds such a call option rather than the underlying security or currency itself, the Fund is partially protected from any unexpected decline in the market price of the underlying security or currency and in such event could allow the call option to expire, incurring a loss only to the extent of the premium paid for the option. The Fund will not commit more than 5% of its assets to premiums when purchasing call and put options. The Fund may also purchase call options on underlying securities or currencies it owns in order to protect unrealized gains on call options previously written by it. A call option would be purchased for this purpose where tax considerations make it inadvisable to realize such gains through a closing purchase transaction. Call options may also be purchased at times to avoid realizing losses. Dealer (Over-the-Counter) Options The Fund may engage in transactions involving dealer options. Certain risks are specific to dealer options. While the Fund would look to a clearing corporation to exercise exchange-traded options, if the Fund were to purchase a dealer option, it would rely on the dealer from whom it purchased the option to perform if the option were exercised. Failure by the dealer to do so would result in the loss of the premium paid by the Fund as well as loss of the expected benefit of the transaction. Exchange-traded options generally have a continuous liquid market while dealer options have none. Consequently, the Fund will generally be able to realize the value of a dealer option it has purchased only by exercising it or reselling it to the dealer who issued it. Similarly, when the Fund writes a dealer option, it generally will be able to close out the option prior to its expiration only by entering into a closing purchase transaction with the dealer to which the Fund originally wrote the option. While the Fund will seek to enter into dealer options only with dealers who will agree to and which are expected to be capable of entering into closing transactions with the Fund, there can be no assurance that the Fund will be able to liquidate a dealer option at a favorable price at any time prior to expiration. Until the Fund, as a covered dealer call option writer, is able to effect a closing purchase transaction, it will not be able to liquidate securities (or other assets) or currencies used as cover until the option expires or is exercised. In the event of insolvency of the contra party, the Fund may be unable to liquidate a dealer option. With respect to options written by the Fund, the inability to enter into a closing transaction may result in material losses to the Fund. For example, since the Fund must maintain a secured position with respect to any call option on a security it writes, the Fund may not sell the assets which it has segregated to secure the position while it is obligated under the option. This requirement may impair a Fund's ability to sell portfolio securities or currencies at a time when such sale might be advantageous. The Staff of the SEC has taken the position that purchased dealer options and the assets used to secure the written dealer options are illiquid securities. The Fund may treat the cover used for written OTC options as liquid if the dealer agrees that the Fund may repurchase the OTC option it has written for a maximum price to be calculated by a predetermined formula. In such cases, the OTC option would be considered illiquid only to the extent the maximum repurchase price under the formula exceeds the intrinsic value of the option. Futures Contracts Futures contracts are a type of potentially high-risk derivative. Transactions in Futures The Fund may enter into futures contracts including; stock index, interest rate, and currency futures ("futures" or "futures contracts") for hedging, yield or return enhancement and risk management 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 CFTC. Although techniques other than the sale and purchase of futures contracts could be used for the above-referenced purposes, futures contracts offer an effective and relatively low cost means of implementing the Fund's objectives in these areas. Regulatory Limitations If the Fund purchases or sells futures contracts or related options which do not qualify as bona fide hedging under applicable CFTC rules, the aggregate initial margin deposits and premium required to establish those positions can not exceed 5% of the liquidation value of the Fund after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; provided, however, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in calculating the 5% limitation. For purposes of this policy, options on futures contracts and foreign currency options traded on a commodities exchange will be considered "related options." This policy may be modified by the Board of Directors without a shareholder vote and does not limit the percentage of the Fund's assets at risk to 5%. In instances involving the purchase of futures contracts or the writing of call or put options thereon by the Fund, an amount of cash, liquid assets, or other suitable cover as permitted by the SEC, equal to the market value of the futures contracts and options thereon (less any related margin deposits), will be identified by the Fund to cover the position, or alternative cover (such as owning an offsetting position) will be employed. Assets used as cover or held in an identified account cannot be sold while the position in the corresponding option or future is open, unless they are replaced with similar assets. As a result, the commitment of a large portion of a Fund's assets to cover or identified accounts could impede portfolio management or the Fund's ability to meet redemption requests or other current obligations. If the CFTC or other regulatory authorities adopt different (including less stringent) or additional restrictions, the Fund would comply with such new restrictions. Trading in Futures Contracts A futures contract provides for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument (e.g., units of a stock index) for a specified price, date, time and place designated at the time the contract is made. Brokerage fees are incurred when a futures contract is bought or sold and margin deposits must be maintained. Entering into a contract to buy is commonly referred to as buying or purchasing a contract or holding a long position. Entering into a contract to sell is commonly referred to as selling a contract or holding a short position. Unlike when the Fund purchases or sells a security, no price would be paid or received by the Fund upon the purchase or sale of a futures contract. Upon entering into a futures contract, and to maintain the Fund's open positions in futures contracts, the Fund would be required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash, or liquid assets known as "initial margin." The margin required for a particular futures contract is set by the exchange on which the contract is traded, and may be significantly modified from time to time by the exchange during the term of the contract. Futures contracts are customarily purchased and sold on margins that may range upward from less than 5% of the value of the contract being traded. If the price of an open futures contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the futures contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the futures contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the Fund. These subsequent payments, called "variation margin," to and from the futures broker, are made on a daily basis as the price of the underlying assets fluctuate, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market." Although certain futures contracts, by their terms, require actual future delivery of and payment for the underlying instruments, in practice most futures contracts are usually closed out before the delivery date. Closing out an open futures contract purchase or sale is effected by entering into an offsetting futures contract sale or purchase, respectively, for the same aggregate amount of the identical securities and the same delivery date. If the offsetting purchase price is less than the original sale price, the Fund realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if it is less, the Fund realizes a loss. The transaction costs must also be included in these calculations. There can be no assurance, however, that the Fund will be able to enter into an offsetting transaction with respect to a particular futures contract at a particular time. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain the margin deposits on the futures contract. Settlement of a stock index futures contract may or may not be in the underlying security. If not in the underlying security, then settlement will be made in cash, equivalent over time to the difference between the contract price and the actual price of the underlying asset (as adjusted by a multiplier) at the time the stock index futures contract expires. Special Risks of Transactions in Futures Contracts . Volatility and Leverage The prices of futures contracts are volatile and are influenced, among other things, by actual and anticipated changes in the market and interest rates, which in turn are affected by fiscal and monetary policies and national and international political and economic events. Most United States futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of futures contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses. Margin deposits required on futures trading are low. As a result, a relatively small price movement in a futures contract may result in immediate and substantial loss, as well as gain, to the investor. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit, if the contract were closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract. . Liquidity The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The Fund would do so to reduce exposure represented by long futures positions or short futures positions. The Fund may close its positions by taking opposite positions which would operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin would then be made, additional cash would be required to be paid by or released to the Fund, and the Fund would realize a loss or a gain. Futures contracts may be closed out only on the exchange or board of trade where the contracts were initially traded. Although the Fund intends to purchase or sell futures contracts only on exchanges or boards of trade where there appears to be an active market, there is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract at any particular time. In such event, it might not be possible to close a futures contract, and in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. However, in the event futures contracts have been used to hedge the underlying instruments, the Fund would continue to hold the underlying instruments subject to the hedge until the futures contracts could be terminated. In such circumstances, an increase in the price of underlying instruments, if any, might partially or completely offset losses on the futures contract. However, as described next, there is no guarantee that the price of the underlying instruments will, in fact, correlate with the price movements in the futures contract and thus provide an offset to losses on a futures contract. . Hedging Risk A decision of whether, when, and how to hedge involves skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of unexpected market behavior, market or interest rate trends. There are several risks in connection with the use by the Fund of futures contracts as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the futures contracts and movements in the prices of the underlying instruments which are the subject of the hedge. 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 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 (another type of potentially high-risk derivative) on futures are similar to options on underlying instruments except that options on futures give the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put), rather than to purchase or sell the futures contract, at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by the delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid. As an alternative to writing or purchasing call and put options on stock index futures, the Fund may write or purchase call and put options on financial indices. Such options would be used in a manner similar to the use of options on futures contracts. From time to time, a single order to purchase or sell futures contracts (or options thereon) may be made on behalf of the Fund and other T. Rowe Price Funds. Such aggregated orders would be allocated among the Funds and the other T. Rowe Price Funds in a fair and nondiscriminatory manner. Special Risks of Transactions in Options on Futures Contracts The risks described under "Special Risks in Transactions on Futures Contracts" are substantially the same as the risks of using options on futures. If the Fund, were to write an option on a futures contract, it would be required to deposit and maintain initial and variation margin in the same manner as a regular futures contract. In addition, where the Fund seeks to close out an option position by writing or buying an offsetting option covering the same index, underlying instrument or contract and having the same exercise price and expiration date, its ability to establish and close out positions on such options will be subject to the maintenance of a liquid secondary market. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options, or underlying instruments; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in the class or series of options) would cease to exist, although outstanding options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain of the facilities of any of the clearing corporations inadequate, and thereby result in the institution by an exchange of special procedures which may interfere with the timely execution of customers' orders. 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 CFTC and arbitration proceedings provided by the National Futures Association or any domestic futures exchange. In particular, funds received from the Fund for foreign futures or foreign options transactions may not be provided the same protections as funds received in respect of transactions on United States futures exchanges. In addition, the price of any foreign futures or foreign options contract and, therefore, the potential profit and loss thereon may be affected by any variance in the foreign exchange rate between the time the Fund's order is placed and the time it is liquidated, offset or exercised. 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 contract amounts and the value of the securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movement is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Under normal circumstances, consideration of the prospect for currency parties will be incorporated into the longer term investment decisions made with regard to overall diversification strategies. However, 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. The Fund may enter into forward contacts for any other purpose consistent with the Fund's investment objective and program. However, the Fund will not enter into a forward contract, or maintain exposure to any such contract(s), if the amount of foreign currency required to be delivered thereunder would exceed the Fund's holdings of liquid, high-grade debt securities, currency available for cover of the forward contract(s) or other suitable cover as permitted by the SEC. In determining the amount to be delivered under a contract, the Fund may net offsetting positions. At the maturity of a forward contract, the Fund may sell the portfolio security and make delivery of the foreign currency, or it may retain the security and either extend the maturity of the forward contract (by "rolling" that contract forward) or may initiate a new forward contract. If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund will incur a gain or a loss (as described below) to the extent that there has been movement in forward contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline during the period between the Fund's entering into a forward contract for the sale of a foreign currency and the date it enters into an offsetting contract for the purchase of the foreign currency, the Fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Fund will suffer a loss to the extent of the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. The Fund's dealing in forward foreign currency exchange contracts will generally be limited to the transactions described above. However, the Fund reserves the right to enter into forward foreign currency contracts for different purposes and under different circumstances. Of course, the Fund is not required to enter into forward contracts with regard to its foreign currency-denominated securities and will not do so unless deemed appropriate by 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 options, futures, and forward foreign exchange contracts, including options and futures on currencies, which will be treated as Section 1256 contracts or straddles. Transactions that are considered Section 1256 contracts will be considered to have been closed at the end of the Fund's fiscal year and any gains or losses will be recognized for tax purposes at that time. Such gains or losses from the normal closing or settlement of such transactions will be characterized as 60% long-term capital gain (taxable at a maximum rate of 20%) or loss and 40% short-term capital gain or loss regardless of the holding period of the instrument (ordinary income or loss for foreign exchange contracts). The Fund will be required to distribute net gains on such transactions to shareholders even though it may not have closed the transaction and received cash to pay such distributions. Options, futures and forward foreign exchange contracts, including options and futures on currencies, which offset a foreign dollar denominated bond or currency position may be considered straddles for tax purposes, in which case a loss on any position in a straddle will be subject to deferral to the extent of unrealized gain in an offsetting position. The holding period of the securities or currencies comprising the straddle will be deemed not to begin until the straddle is terminated. The holding period of the security offsetting an "in-the-money qualified covered call" option on an equity security will not include the period of time the option is outstanding. Losses on written covered calls and purchased puts on securities, excluding certain "qualified covered call" options on equity securities, may be long-term capital losses, if the security covering the option was held for more than 12 months prior to the writing of the option. In order for the Fund to continue to qualify for federal income tax treatment as a regulated investment company, at least 90% of its gross income for a taxable year must be derived from qualifying income, i.e., dividends, interest, income derived from loans of securities, and gains from the sale of securities or currencies. Tax regulations could be issued limiting the extent that net gain realized from option, futures or foreign forward exchange contracts on currencies is qualifying income for purposes of the 90% requirement. As a result of the "Taxpayer Relief Act of 1997," entering into certain options, futures contracts, or forward contracts may result in the "constructive sale" of offsetting stocks or debt securities of the Fund. INVESTMENT RESTRICTIONS ------------------------------------------------------------------------------- Fundamental policies may not be changed without the approval of the lesser of (1) 67% of the Fund's shares present at a meeting of shareholders if the holders of more than 50% of the outstanding shares are present in person or by proxy or (2) more than 50% of a Fund's outstanding shares. Other restrictions in the form of operating policies are subject to change by the Fund's Board of Directors without shareholder approval. Any investment restriction which involves a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the percentage occurs immediately after, and is caused by, an acquisition of securities or assets of, or borrowings by, the Fund. Calculation of the Fund's total assets for compliance with any of the following fundamental or operating policies or any other investment restrictions set forth in the Fund's prospectus or Statement of Additional Information will not include cash collateral held in connection with securities lending activities. Fundamental Policies As a matter of fundamental policy, the Fund may not: (1) Borrowing Borrow money except that the Fund may (i) borrow for non-leveraging, temporary or emergency purposes; and (ii) engage in reverse repurchase agreements and make other investments or engage in other transactions, which may involve a borrowing, in a manner consistent with the Fund's investment objective and program, provided that the combination of (i) and (ii) shall not exceed 33/1//\\/3/\\% of the value of the Fund's total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law. Any borrowings which come to exceed this amount will be reduced in accordance with applicable law. The Fund may borrow from banks, other Price Funds, or other persons to the extent permitted by applicable law; (2) Commodities Purchase or sell physical commodities; except that 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; All Funds except Foreign Equity Fund (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; All Funds except Latin America Fund (5) Percent Limit on Assets Invested in Any One Issuer Purchase a security if, as a result, with respect to 75% of the value of its total assets, more than 5% of the value of the Fund's total assets would be invested in the securities of a single issuer, except securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities; (6) Percent Limit on Share Ownership of Any One Issuer Purchase a security if, as a result, with respect to 75% of the value of 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); All Funds (7) Real Estate Purchase or sell real estate, including limited partnership interests therein, unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business); (8) Senior Securities Issue senior securities except in compliance with the 1940 Act; or (9) Underwriting Underwrite securities issued by other persons, except to the extent that the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933 in connection with the purchase and sale of its portfolio securities in the ordinary course of pursuing its investment program. NOTES The following Notes should be read in connection with the above-described fundamental policies. The Notes are not fundamental policies. With respect to investment restrictions (1) and (4), the Fund will not borrow from or lend to any other Price Fund (defined as any other mutual fund managed by or for which T. Rowe Price or Price-Fleming acts as adviser) unless each Fund applies for and receives an exemptive order from the SEC or the SEC issues rules permitting such transactions. There is no assurance the SEC would grant any order requested by the Fund or promulgate any rules allowing the transactions. With respect to investment restriction (2), the Fund does not consider currency contracts or hybrid investments to be commodities. For purposes of investment restriction (3), U.S., state or local governments, or related agencies or instrumentalities, are not considered an industry. Industries are determined by reference to the classifications of industries set forth in the Fund's semiannual and annual reports. It is the position of the Staff of the SEC that foreign governments are industries for purposes of this restriction. For purposes of investment restriction (4), the Fund will consider the acquisition of a debt security to include the execution of a note or other evidence of an extension of credit with a term of more than nine months. Operating Policies As a matter of operating policy, the Fund may not: (1) Borrowing Purchase additional securities when money borrowed exceeds 5% of its total assets; (2) Control of Portfolio Companies Invest in companies for the purpose of exercising management or control; (3) Futures Contracts Purchase a futures contract or an option thereon, if, with respect to positions in futures or options on futures which do not represent bona fide hedging, the aggregate initial margin and premiums on such options would exceed 5% of the Fund's net asset value; (4) Illiquid Securities Purchase illiquid securities if, as a result, more than 15% of its net assets would be invested in such securities; (5) Investment Companies Purchase securities of open-end or closed-end investment companies except (i) in compliance with the 1940 Act; or (ii) securities of the Reserve Investment or Government Reserve Investment Funds; (6) Margin Purchase securities on margin, except (i) for use of short-term credit necessary for clearance of purchases of portfolio securities and (ii) it may make margin deposits in connection with futures contracts or other permissible investments; (7) Mortgaging Mortgage, pledge, hypothecate or, in any manner, transfer any security owned by the Fund as security for indebtedness except as may be necessary in connection with permissible borrowings or investments and then such mortgaging, pledging or hypothecating may not exceed 33/1//\\/3/\\% of the Fund's total assets at the time of borrowing or investment; (8) Oil and Gas Programs Purchase participations or other direct interests in, or enter into leases with respect to oil, gas, or other mineral exploration or development programs if, as a result thereof, more than 5% of the value of the total assets of the Fund would be invested in such programs; (9) Options, etc. Invest in puts, calls, straddles, spreads, or any combination thereof, except to the extent permitted by the prospectus and Statement of Additional Information; (10) Short Sales Effect short sales of securities; or (11) Warrants Invest in warrants if, as a result thereof, more than 10% of the value of the net assets of the Fund would be invested in warrants. 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. MANAGEMENT OF THE FUNDS ------------------------------------------------------------------------------- The officers and directors of the Fund are listed below. Unless otherwise noted, the address of each is 100 East Pratt Street, Baltimore, Maryland 21202. Except as indicated, each has been an employee of T. Rowe Price for more than five years. In the list below, the Fund's directors who are considered "interested persons" of T. Rowe Price as defined under Section 2(a)(19) of the 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. Independent Directors DONALD W. DICK, JR., Principal, EuroCapital Advisors, LLC, an acquisition and management advisory firm; formerly (5/89-6/95) 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, Inc., Baltimore, Maryland; Address: P.O. Box 491, Chilmark, MA 02535-0491 DAVID K. FAGIN, Chairman and Chief Executive Officer, Western Exploration and Development, Ltd.; Director Golden Star Resources Ltd. and Miranda Mining Development Corporation; formerly (1986-7/91) President, Chief Operating Officer and Director, Homestake Mining Company; Address: 1660 Lincoln Street, Suite 3000, Denver, Colorado 80264-3001 HANNE M. MERRIMAN, Retail business consultant; formerly President and Chief Operating Officer (1991-92), Nan Duskin, Inc., a women's specialty store, Director (1984-90) and Chairman (1989-90) Federal Reserve Bank of Richmond, and President and Chief Executive Officer (1988-89), Honeybee, Inc., a division of Spiegel, Inc.; Director, Central Illinois Public Service Company, CIPSCO Incorporated, Finlay Enterprises, Inc., The Rouse Company, State Farm Mutual Automobile Insurance Company and USAir Group, Inc.; Address: 3201 New Mexico Avenue, N.W., Suite 350, Washington, D.C. 20016 HUBERT D. VOS, President, Stonington Capital Corporation, a private investment company; Address: 1231 State Street, Suite 247, Santa Barbara, California 93190-0409 PAUL M. WYTHES, Founding General Partner, Sutter Hill Ventures, a venture capital limited partnership, providing equity capital to young high technology companies throughout the United States; Director, Teltone Corporation, Interventional Technologies Inc. and Stuart Medical, Inc.; Address: 755 Page Mill Road, Suite A200, Palo Alto, California 94304-1005 Officers * M. DAVID TESTA, Chairman of the Board -Chairman of the Board, Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company; Chartered Financial Analyst * MARTIN G. WADE, Director and President -President, Director, Chief Investment Officer Price-Fleming; Director, Robert Fleming Holdings Limited; Director, Robert Fleming Asset Management; Address: 25 Copthall Avenue, London, EC2R 7DR, England /a/ PETER B. ASKEW, Executive Vice President -Executive Vice President, Price-Fleming /ab/ EDWARD A. WIESE, Executive Vice President -Vice President, T. Rowe Price, Price-Fleming, and T. Rowe Price Trust Company CHRISTOPHER D. ALDERSON, Vice President -Vice President, Price-Fleming /a/ ROBERT P. CAMPBELL, Vice President -Vice President, T. Rowe Price and Price-Fleming /a/ FRANCES DYDASCO, Vice President -Vice President and portfolio manager of Price-Fleming (Singapore); formerly (1994-1996) an Investment Manager at LGT Asset Management Ltd. (Hong Kong); and (1993-1994) with East Asia Hamon Asset (Hong Kong) /a/ MARK J.T. EDWARDS, Vice President -Vice President, Price-Fleming JOHN R. FORD, Vice President -Executive Vice President, Price-Fleming; Chartered Financial Analyst HENRY H. HOPKINS, Vice President-Vice President, Price-Fleming and T. Rowe Price Retirement Plan Services, Inc.; Director and Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc. and T. Rowe Price Trust Company /a/ STEPHEN ILOTT, Vice President -Vice President, Price-Fleming GEORGE A. MURNAGHAN, Vice President -Managing Director, T. Rowe Price; Vice President, Price-Fleming, T. Rowe Price Trust Company, and T. Rowe Price Investment Services, Inc. /a/ NICHOLA PEASE, Vice President -Vice President and portfolio manager of Price-Fleming; formerly (1987-1996) a Director of Smith New Court PLC (London) JAMES S. RIEPE, Vice President -Vice Chairman of the Board and Managing Director, T. Rowe Price; Chairman of the Board, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Trust Company; Director, Price-Fleming and General Re Corporation /a/ CHRISTOPHER ROTHERY, Vice President -Vice President, Price-Fleming /b/ R. TODD RUPPERT, Vice President -Managing Director, T. Rowe Price; Vice President, T. Rowe Price Trust Company and T. Rowe Price Retirement Plan Services, Inc. JAMES B.M. SEDDON, Vice President -Vice President, Price-Fleming /a/ MARK C.J. BICKFORD-SMITH, Vice President -Vice President and portfolio manager of Price-Fleming; formerly a Director and portfolio manager of Jardine Fleming Investment Management /a/ CHARLES P. SMITH, Vice President -Managing Director, T. Rowe Price; Vice President, Price-Fleming /a/ BENEDICT R.F. THOMAS, Vice President -Vice President, Price-Fleming; Chartered Financial Analyst /a/ PETER VAN DYKE, Vice President -Managing Director, T. Rowe Price; Vice President, Price-Fleming DAVID J. L. WARREN, Vice President -Executive Vice President, Price-Fleming WILLIAM F. WENDLER II, Vice President -Vice President, T. Rowe Price, Price-Fleming, and T. Rowe Price Investment Services, Inc. /ab/ EDWARD A. WIESE, Vice President -Vice President, T. Rowe Price, Price-Fleming, and T. Rowe Price Trust Company PATRICIA S. LIPPERT, Secretary-Assistant Vice President, T. Rowe Price and T. Rowe Price Investment Services, Inc. CARMEN F. DEYESU, Treasurer-Vice President, T. Rowe Price, T. Rowe Price Services, Inc., and T. Rowe Price Trust Company DAVID S. MIDDLETON, Controller-Vice President, T. Rowe Price, T. Rowe Price Services, Inc., and T. Rowe Price Trust Company /a/ ANN B. CRANMER, Assistant Vice President-Vice President, Price-Fleming ROGER L. FIERY III, Assistant Vice President-Vice President, Price-Fleming and T. Rowe Price /a/ LEAH P. HOLMES, Assistant Vice President-Vice President, Price-Fleming; Assistant Vice President, T. Rowe Price INGRID I. VORDEMBERGE, Assistant Vice President-Employee, T. Rowe Price (a) Mr. Askew is an Executive Vice President of the International Funds only. Messrs. Campbell, Dydasco, Edwards, Ilott, Pease, Rothery, Bickford-Smith, Smith, Thomas, Van Dyke, and Wiese are Vice Presidents of the International Funds only. Mmes. Cranmer and Holmes are Assistant Vice Presidents of the International Funds only. (b) Mr. Wiese is an Executive Vice President, and Mr. Ruppert is a Vice President of the Foreign Equity Fund. Compensation Table The Funds do not pay pension or retirement benefits to their officers or directors. Also, any director of a Fund who is an officer or employee of T. Rowe Price or Price-Fleming does not receive any remuneration from the Fund.
Name of Person, Aggregate Compensation from Total Compensation from Fund and Position Fund(a) Fund Complex Paid to Directors(b) - -------------------------------------- -------------------------------------------- --------------------------------- - -------------------------------------------------------------------------------------------------------------------------- International Stock Fund Anthony W. Deering, Director $8,531 $81,000 Donald W. Dick, Director 7,388 81,000 Paul M. Wythes, Director 7,388 80,000 - -------------------------------------------------------------------------------------------------------------------------- International Discovery Fund Anthony W. Deering, Director $1,903 $81,000 Donald W. Dick, Director 1,851 81,000 Paul M. Wythes, Director 1,851 80,000 - -------------------------------------------------------------------------------------------------------------------------- European Stock Fund Anthony W. Deering, Director $2,309 $81,000 Donald W. Dick, Director 2,166 81,000 Paul M. Wythes, Director 2,166 80,000 - -------------------------------------------------------------------------------------------------------------------------- Japan Fund Anthony W. Deering, Director $1,797 $81,000 Donald W. Dick, Director 1,767 81,000 Paul M. Wythes, Director 1,767 80,000 - -------------------------------------------------------------------------------------------------------------------------- New Asia Fund Anthony W. Deering, Director $3,129 $81,000 Donald W. Dick, Director 2,802 81,000 Paul M. Wythes, Director 2,802 80,000 - -------------------------------------------------------------------------------------------------------------------------- Latin America Fund Anthony W. Deering, Director $1,925 $81,000 Donald W. Dick, Director 1,866 81,000 Paul M. Wythes, Director 1,866 80,000 - -------------------------------------------------------------------------------------------------------------------------- Emerging Markets Stock Fund Anthony W. Deering, Director $1,750 $81,000 Donald W. Dick, Director 1,732 81,000 Paul M. Wythes, Director 1,732 80,000 - -------------------------------------------------------------------------------------------------------------------------- Global Stock Fund Anthony W. Deering, Director $1,717 $81,000 Donald W. Dick, Director 1,705 81,000 Paul M. Wythes, Director 1,705 80,000 - -------------------------------------------------------------------------------------------------------------------------- Foreign Equity Fund Anthony W. Deering, Director $3,770 $81,000 Donald W. Dick, Director 3,294 81,000 Paul M. Wythes, Director 3,294 80,000 - --------------------------------------------------------------------------------------------------------------------------
(a) Amounts in this column are based on accrued compensation from November 1, 1996 to October 31, 1997. (b) Amounts in this column are based on compensation received from January 1, 1997, to December 31, 1997. The T. Rowe Price complex included 84 funds as of December 31, 1997. All Funds The Fund's Executive Committee, consisting of the Fund's interested directors, has been authorized by its respective Board of Directors to exercise all powers of the Board to manage the Funds in the intervals between meetings of the Board, except the powers prohibited by statute from being delegated. PRINCIPAL HOLDERS OF SECURITIES ------------------------------------------------------------------------------- As of the date of the prospectus, the officers and directors of the Fund, as a group, owned less than 1% of the outstanding shares of the Fund. As of February 1, 1998, the following shareholders beneficially owned more than 5% of the outstanding shares of: International Stock, New Asia, Japan and European Stock Funds, respectively: Charles Schwab & Co. Inc., Reinvestment Account, Attn.: Mutual Fund Dept., 101 West Montgomery Street, San Francisco, California 94104-4122. Each of the following shareholders beneficially owned more than 5% of the outstanding shares of the Foreign Equity Fund: PACO, c/o Mutual Funds Unit #38615, P.O. Box 3577, Los Angeles, California 90051-1577. 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 objectives, 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 and corporate records; registering and qualifying Fund shares under federal laws; monitoring the financial, accounting, and administrative functions of the Fund; maintaining liaison with the agents employed by the Fund such as the Fund's custodian and transfer agent; assisting the Fund in the coordination of such agents' activities; and 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 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 0.15% of the market value of all assets in equity accounts, 0.15% of the market value of all assets in active fixed income accounts, and 0.035% 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 International Holdings Limited (JFIH), for which each receives from Price-Fleming a fee of 0.075% of the market value of all assets in equity accounts under Price-Fleming's management. Fleming International Fixed Interest Management Limited (FIFIM) and JFIH provide research and administration support for fixed income accounts for which each receive a fee of 0.075% of the market value of all assets in active fixed income accounts and 0.175% of such market value in passive fixed income accounts under Price-Fleming's management. FIM and FIFIM are wholly owned subsidiaries of Flemings. JFIH is a wholly owned subsidiary of Jardine Fleming. All Funds except Foreign Equity Fund 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 Price 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 0.360% Next $2 billion 0.310% Next $16 billion --------------------------------------------------------------------------- 0.450% Next $1 billion 0.350% Next $2 billion 0.305% Next $30 billion --------------------------------------------------------------------------- 0.420% Next $1 billion 0.340% Next $5 billion 0.300% Thereafter --------------------------------------------------------------------------- 0.390% Next $1 billion 0.330% Next $10 billion --------------------------------------------------------------------------- 0.370% Next $1 billion 0.320% Next $10 billion
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 the T. Rowe Price Spectrum Funds, and any institutional, index, 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 individual Fund Fee Rate and multiplying this product by the net assets of the Fund for that day, as determined in accordance with the Fund's prospectus as of the close of business on the previous business day on which the Fund was open for business. The individual fund fees of each Fund are listed in the following chart:
International Stock Fund 0.35% International Discovery Fund 0.75 International Growth & Income Fund European Stock Fund 0.50 Japan Fund 0.50 New Asia Fund 0.50 Latin America Fund 0.75 Emerging Markets Stock Fund 0.75 Global Stock Fund 0.35
The following chart sets forth the total management fees if any, paid to Price-Fleming by the Funds, during the last three years:
Fund 1997 1996 1995 ---- ---- ---- ---- International Stock $67,678,000 $52,565,000 $41,829,000 International Discovery 3,313,000 3,538,000 4,381,000 Japan 1,444,000 1,730,000 1,523,000 European Stock 7,315,000 5,007,000 3,547,000 New Asia 15,273,000 17,871,000 16,864,000 Latin America 3,989,000 2,096,000 1,765,000 Emerging Markets Stock 1,402,000 349,000 -- Global Stock 5,000 -- (a) - --------------------------------------------------------------------------------------------------------
(a) Prior to commencement of 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. Set forth in the prospectus are details of various expense limitations agreed to by Price-Fleming and the Funds. T. Rowe Price Spectrum Fund, Inc. The Funds are parties to Special Servicing Agreements ("Agreement") between and among T. Rowe Price Spectrum Fund, Inc. ("Spectrum Fund"), T. Rowe Price, Price-Fleming, 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 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. Foreign Equity Fund For its services to the Fund under the Management Agreement, Price-Fleming is paid an annual fee, in monthly installments, based on the Fund's average daily net assets at the rate of 0.70%. For the years 1997, 1996, and 1995, Price-Fleming received from the Fund management fees totaling $20,250,000, $13,871,000, and $8,673,000, respectively. DISTRIBUTOR FOR THE 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 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: necessary state filings; preparing, setting in type, printing, and mailing its prospectuses and reports to shareholders; and issuing its shares, including expenses of confirming purchase orders. The Underwriting Agreement provides that Investment Services will pay all fees and expenses in connection with: printing and distributing prospectuses and reports for use in offering and selling Fund shares; preparing, setting in type, printing, and mailing all sales literature and advertising; Investment Services' federal and state registrations as a broker-dealer; and offering and selling Fund shares, except for those fees and expenses specifically assumed by the Fund. Investment Services' expenses are paid by T. Rowe Price. Investment Services acts as the agent of the Fund in connection with the sale of its shares in the various states in which Investment Services is qualified as a broker-dealer. Under the Underwriting Agreement, Investment Services accepts orders for Fund shares at net asset value. No sales charges are paid by investors or the Fund. CUSTODIAN ------------------------------------------------------------------------------- State Street Bank and Trust Company is the custodian for the Fund's U.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. State Street Bank's main office is at 225 Franklin Street, Boston, Massachusetts 02110. The Fund has entered into a Custodian Agreement with The Chase Manhattan Bank, N.A., London, pursuant to which portfolio securities which are purchased outside the United States are maintained in the custody of various foreign branches of The Chase Manhattan Bank and such other custodians, including foreign banks and foreign securities depositories as are approved in accordance with regulations under the Investment Company Act of 1940. The address for The Chase Manhattan Bank, N.A., London is Woolgate House, Coleman Street, London, EC2P 2HD, England. SHAREHOLDER SERVICES ------------------------------------------------------------------------------- T. Rowe Price Services, Inc., another wholly owned subsidiary, acts as the Fund's transfer and dividend disbursing agent and provides shareholder and administrative services. Services for certain types of retirement plans are provided by T. Rowe Price Retirement Plan Services, Inc., also a wholly owned subsidiary. The address for each is 100 East Pratt St., Baltimore, MD 21202. The Fund from time to time may enter into agreements with outside parties through which shareholders hold Fund shares. The shares would be held by such parties in omnibus accounts. The agreements would provide for payments by the Fund to the outside party for shareholder services provided to shareholders in the omnibus accounts. CODE OF ETHICS ------------------------------------------------------------------------------- The Fund's investment adviser (Price-Fleming) has a written Code of Ethics which requires all employees to obtain prior clearance before engaging in personal securities transactions. Transactions must be executed within three business days of their clearance. In addition, all employees must report their personal securities transactions within 10 days after the end of the calendar quarter. Employees will not be permitted to effect transactions in a security: if there are pending client orders in the security; the security has been purchased or sold by a client within seven calendar days; the security is being considered for purchase for a client; or the security is subject to internal trading restrictions. In addition, employees are prohibited from profiting from short-term trading (e.g., purchases and sales involving the same security within 60 days). Any material violation of the Code of Ethics is reported to the Board of the Fund. The Board also reviews the administration of the Code of Ethics on an annual basis. PORTFOLIO TRANSACTIONS ------------------------------------------------------------------------------- Investment or Brokerage Discretion Decisions with respect to the purchase and sale of portfolio securities on behalf of the Fund are made by Price-Fleming. Price-Fleming is also responsible for implementing these decisions, including the negotiation of commissions and the allocation of portfolio brokerage and principal business. 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 brokers and dealers and, in the case of agency transactions, at competitive commission rates. However, under certain conditions, the Fund may pay higher brokerage commissions in return for brokerage and research services. As a general practice, over-the-counter orders are executed with market-makers. In selecting among market-makers, Price-Fleming generally seeks to select those it believes to be actively and effectively trading the security being purchased or sold. In selecting broker-dealers to execute the Fund's portfolio transactions, consideration is given to such factors as the price of the security, the rate of the commission, the size and difficulty of the order, the reliability, integrity, financial condition, general execution and operational capabilities of competing brokers and dealers, and brokerage and research services provided by them. It is not the policy of 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, 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 through 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 receive research services in connection with brokerage transactions, including designations in fixed price offerings. 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 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 brokers-dealers that 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 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. At the present time, T. Rowe Price does not recapture commissions or underwriting discounts or selling group concessions in connection with taxable securities acquired in underwritten offerings. T. Rowe Price does, however, attempt to negotiate elimination of all or a portion of the selling-group concession or underwriting discount when purchasing tax-exempt municipal securities on behalf of its clients in underwritten offerings. 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 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 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"), RF&Co., Robert Fleming, Inc. (a New York brokerage firm), Ord Minnett, Stockbrokers Botswana Ltd, and Fleming Martin. 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. 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. The tables below present information on affiliated brokers. Column 1 represents the total dollar amount of brokerage commissions paid to the broker. The dollar amount of brokerage commissions paid for the two previous fiscal year ends are also listed as marked. The second column represents the percentage that the commissions paid to the affiliated broker representing the aggregate brokerage commission paid by the Fund. The third column shows the percentage that the dollar amount of transaction involving the payment of commissions effected through the affiliated broker represents the aggregate dollar amount of brokerage transactions. The following amounts and percentages were paid to JFS during the year 1997:
Fund Total Brokerage Aggregate Brokerage Aggregate Dollar ---- --------------- ------------------- ---------------- Commissions Commissions Amount ----------- ----------- ------ International Stock $ 228,000 3% 2% International Discovery 180,995 12 10 European Stock -- -- -- Japan 127,117 29 25 New Asia 1,051,831 13 12 Foreign Equity 70,010 2 1 Latin America -- -- -- Emerging Markets Stock 69,648 9 8 Global Stock 206 1 1 - ------------------------------------------------------------------------------------------------------------------------------------
The following brokerage commission amounts were paid to JFS during the years 1996 and 1995:
Fund 1996 1995 ---- ---- ---- International Stock $ 295,800 $ 6,029,012 International Discovery 204,812 1,548,256 European Stock -- -- Japan 141,333 781,356 New Asia 1,342,379 10,230,880 Foreign Equity 93,205 2,077,591 Latin America -- 293,894 Emerging Markets Stock 7,924 25,786 Global Stock 710 -- - --------------------------------------------------------------
The following amounts and percentages were paid to RF&Co during the year 1997:
Fund Total Brokerage % of Aggregate % of Aggregate ---- --------------- -------------- -------------- Commissions Brokerage Commissions Dollar Amount ----------- --------------------- ------------- International Stock $317,208 3% 4% International Discovery 22,867 2 2 European Stock 51,846 5 6 Japan 6,478 1 1 New Asia -- -- -- Foreign Equity 96,488 3 3 Latin America 95,295 10 9 Emerging Markets Stock 27,548 4 4 Global Stock 402 1 1 - -----------------------------------------------------------------------------------------------------------------------------------
The following brokerage commission amounts were paid to RF&Co during the years 1996 and 1995:
Fund 1996 1995 ---- ---- ---- International Stock $439,567 $236,915 International Discovery 35,075 30,702 European Stock 34,646 28,980 Japan 733 59,539 New Asia -- -- Foreign Equity 86,928 46,833 Latin America 28,793 10,135 Emerging Markets Stock 7,519 4,869 Global Stock 731 -- - -------------------------------------------------------------
The following amounts and percentages were paid to Ord Minnett during the year 1997:
Fund Total Brokerage Aggregate Brokerage Aggregate Dollar ---- --------------- ------------------- ---------------- Commissions Commissions Amount ----------- ----------- ------ International Stock $43,327 1% 1% International Discovery 17,775 1 1 European Stock 358 1 1 Japan -- -- -- New Asia -- -- -- Foreign Equity 14,063 1 1 Latin America -- -- -- Emerging Markets Stock -- -- -- Global Stock 131 1 1 - --------------------------------------------------------------------------------
The following brokerage commission amounts were paid to Ord Minnett during the years 1996 and 1995:
Fund 1996 1995 ---- ---- ---- International Stock $60,141 $174,136 International Discovery 11,317 30,612 European Stock -- -- Japan -- -- New Asia 6,202 336,088 Foreign Equity 20,544 49,051 Latin America -- -- Emerging Markets Stock -- -- Global Stock 32 -- - -------------------------------------------------------------
The following amounts and percentages were paid to Fleming Martin during the year 1997:
Fund Total Brokerage Aggregate Brokerage Aggregate Dollar ---- --------------- ------------------- ---------------- Commissions Commissions Amount ----------- ----------- ------ International Stock -- -- -- International Discovery $34,413 2% 2% European Stock -- -- -- Japan -- -- -- New Asia -- -- -- Foreign Equity -- -- -- Latin America -- -- -- Emerging Markets Stock 5,339 1 1 Global Stock -- -- -- - ---------------------------------------------------------------------------------
In accordance with the written procedures adopted pursuant to Rule 17e-1, the independent directors of each Fund reviewed the 1997 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 The amounts shown below involved trades with brokers acting as agents or underwriters, in which such brokers received total commissions, including discounts received in connection with underwritings for the fiscal years ended 1997, 1996, and 1995:
Fund 1997 1996 1995 ---- ---- ---- ---- International Stock $9,102,292 $7,100,046 $6,029,012 International Discovery 1,526,634 1,278,239 1,548,256 European Stock 1,016,985 595,811 290,226 Japan 440,701 474,365 781,356 New Asia 7,978,905 5,383,653 10,230,880 Foreign Equity 3,506,559 2,052,024 2,077,591 Latin America 927,301 362,820 293,894 Emerging Markets Stock 780,941 382,407 72,181 Global Stock 61,979 50,058 -- - ---------------------------------------------------------------------------
The percentage of total portfolio transactions, placed with firms which provided research, statistical, or other services to T. Rowe Price in connection with the management of the Funds, or in some cases, to the Funds for the fiscal year ended 1997, 1996, and 1995, are shown below:
Fund 1997 1996 1995 ---- ---- ---- ---- International Stock 94% 89% 85% International Discovery 83 80 73 European Stock 95 94 90 Japan 70 70 69 New Asia 87 75 75 Foreign Equity 95 92 86 Latin America 90 92 97 Emerging Markets Stock 87 75 58 - ---------------------------------------------------------------------------------------------------------------- Global Stock 99 97 -- - ----------------------------------------------------------------------------------------------------------------
The portfolio turnover rate for each Fund for the fiscal years ended 1997, 1996, and 1995, was as follows:
Fund 1997 1996 1995 ---- ---- ---- ---- International Stock 15.8% 11.6% 17.8% International Discovery 72.7 52.0 43.5 European Stock 17.5 14.1 17.2 Japan 32.3 29.8 62.4 New Asia 41.8 42.0 63.7 Foreign Equity 15.9 13.8 18.8 Latin America 32.7 22.0 18.9 Emerging Markets Stock 84.3 41.7 28.8(b) Global Stock 41.8 50.0(a) -- - -------------------------------------------------------------------------------
(a) From the commencement of operations December 29, 1995, to October 31, 1996. (b) From the commencement of operations March 31, 1995, to October 31, 1995. PRICING OF SECURITIES ------------------------------------------------------------------------------- Equity securities listed or regularly traded on a securities exchange are valued at the last quoted sales price at the time the valuations are made. A security that 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. Listed securities not traded on a particular day and securities regularly traded in the over-the-counter market are valued at the mean of the latest bid and asked prices. Other equity securities 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 amortized cost in local currency which, when combined with accrued interest, approximates fair value. For the purposes of determining the Fund's net asset value per share, the U.S. dollar value of all assets and liabilities initially expressed in foreign currencies is determined by using the mean of the bid and offer prices of such currencies against U.S. dollars quoted by a major bank. 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 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. 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, 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, Dr. Martin Luther King, Jr. Holiday, Presidents' Day, 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 1998: January 1, 2, 15; February 11; April 29; May 4,5; July 20; September 15, 23; November 3, 23; and December 23, 31, as well as the following weekdays in 1999: January 1, 15; February 11; March 22; April 29; May 3, 4, 5; July 20; September 15, 23; October 11; 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 the 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 the NYSE is restricted, (c) during which an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or (d) during which a governmental body having jurisdiction over the Fund may by order permit such a suspension for the protection of the Fund's shareholders; provided that applicable rules and regulations of the Securities and Exchange Commission (or any succeeding governmental authority) shall govern as to whether the conditions prescribed in (b), (c), or (d) exist. DIVIDENDS AND DISTRIBUTIONS ------------------------------------------------------------------------------- Unless you elect otherwise, dividends and capital gain distributions, if any, will be reinvested on the reinvestment date using the NAV per share of that date. The reinvestment date normally precedes the payment date by about 10 days, although the exact timing is subject to change. TAX STATUS ------------------------------------------------------------------------------- The Fund intends to qualify as a "regulated investment company" under Subchapter M of the Code. Dividends and distributions paid by the Fund (other than Global Stock 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. Income dividends paid by the Global Stock Fund are eligible for the dividends-received deduction for corporate shareholders, only to the extent the Global Stock Fund's income consists of dividends paid by United States Corporations. Capital gain distributions paid from this Fund is 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 by December 31 of each year equal to at least 98% of ordinary income (as of December 31) and capital gains (as of October 31) in order to avoid a federal excise tax and distribute within 12 months 100% of ordinary income and capital gains as of December 31 to avoid 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 fluctuation, are taxable as ordinary income. If the net effect of these transactions is a gain, the ordinary income dividend paid by the Fund will be increased. If the result is a loss, the income dividend paid by the Fund will be decreased, or to the extent such dividend has already been paid a portion may be classified as a return of capital. Adjustments, to reflect these gains and losses will be made at the end of the Fund's taxable year. At the time of your purchase, the Fund's net asset value may reflect undistributed income, 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, 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. Income received by the 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 the Fund's total assets at the close of its taxable year comprise securities issued by foreign corporations or governments, 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. 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 a 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 the Fund 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 dividends in the absence of a Tax Treaty providing for a reduced rate or exemption from U.S. taxation. Distributions of net long-term capital gains realized by the Fund are not subject to tax unless the foreign shareholder is a nonresident alien individual who was physically present in the U.S. during the tax year for more than 182 days. Passive Foreign Investment Companies Each fund may purchase the securities of certain foreign investment funds or trusts called passive foreign investment companies. Such trusts have been the only or primary way to invest in certain countries. In addition to bearing their proportionate share of the trust's expenses (management fees and operating expenses), shareholders will also indirectly bear similar expenses of such trusts. Capital gains on the sale of such holdings are considered ordinary income regardless of how long the fund held 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. To avoid such tax and interest, each fund intends to treat these securities as sold on the last day of its fiscal year and recognize any gains for tax purposes at that time; deductions for losses are allowable only to the extent of any gains resulting from these deemed sales for prior taxable years. Such gains and losses will be treated as ordinary income. The fund will be required to distribute any resulting income even though it has not sold the security. INVESTMENT PERFORMANCE ------------------------------------------------------------------------------- Total Return Performance The Fund's calculation of total return performance includes the reinvestment of all capital gain distributions and income dividends for the period or periods indicated, without regard to tax consequences to a shareholder in the Fund. Total return is calculated as the percentage change between the beginning value of a static account in the Fund and the ending value of that account measured by the then current net asset value, including all shares acquired through reinvestment of income and capital gain dividends. The results shown are historical and should not be considered indicative of the future performance of the Fund. Each average annual compound rate of return is derived from the cumulative performance of the Fund over the time period specified. The annual compound rate of return for the Fund over any other period of time will vary from the average.
Cumulative Performance Percentage Change 1 Yr. Ended 5 Yrs. Ended 10 Yrs. Ended % Since Inception Date ----------- ------------ ------------- ------- -------------- - ------------------------ 10/31/97 10/31/97 10/31/97 Inception -------- -------- -------- --------- ------------------------------------------ 10/31/97 -------- ------------------------------- S&P 500 32.11% 147.48% 389.01% -- -- Dow Jones Industrial Average 25.82 161.29 406.78 -- -- CPI 2.08 13.96 40.16 -- -- Lipper International Funds 10.39 82.99 158.84 -- -- International Stock Fund 7.90 86.69 193.51 923.25% 05/09/80 International Discovery Fund 1.69 48.23 -- 87.84 12/30/88 European Stock Fund 20.30 132.83 -- 124.41 02/28/90 Japan Fund -11.64 9.05 -- -6.43 12/30/91 Latin America Fund 19.94 -- -- -1.52 12/29/93 New Asia Fund -30.61 6.44 -- 47.48 09/28/90 Emerging Markets Stock Fund -1.60 -- -- 14.15 03/31/95 Global Stock Fund 16.98 -- -- 32.77 12/29/95 Foreign Equity Fund 8.30 87.67 -- 101.32 09/07/89 - -------------------------------------------------------------------------------------------------
Average Annual Compound Rates of Return 1 Yr. Ended 5 Yrs. Ended 10 Yrs. Ended % Since Inception Date ----------- ------------ ------------- ------- -------------- - ------------------------ 10/31/97 10/31/97 10/31/97 Inception -------- -------- -------- --------- ------------------------------------------ 10/31/97 -------- ------------------------------- S&P 500 32.11 19.87 17.20 -- -- Dow Jones Industrial Average 25.82 21.18 17.62 -- -- CPI 2.08 2.65 3.43 -- -- Lipper International Funds 10.39 12.67 9.68 -- -- International Stock Fund 7.90 13.30 11.37 14.23 05/09/80 International Discovery Fund 1.69 8.19 -- 7.40 12/30/88 European Stock Fund 20.30 18.42 -- 11.11 02/28/90 Japan Fund -11.64 1.75 -- -1.13 12/30/91 Latin America Fund 19.94 -- -- -0.40 12/29/93 New Asia Fund -30.61 1.26 -- 5.63 09/28/90 Emerging Markets Stock Fund -1.60 -- -- 5.25 03/31/95 Global Stock Fund 16.98 -- -- 16.67 12/29/95 Foreign Equity Fund 8.30 13.42 -- 8.97 09/07/89 - -------------------------------------------------------------------------------------------------
Outside Sources of Information From time to time, in reports and promotional literature: (1) the Fund's total return performance, ranking, or any other measure of the Fund's performance may be compared to any one or combination of the following: (i) a broadbased index; (ii) other groups of mutual funds, including T. Rowe Price Funds, tracked by independent research firms ranking entities, or financial publications; (iii) indices of securities comparable to those in which the Fund invests; (2) the Consumer Price Index (or any other measure for inflation, government statistics, such as GNP may be used to illustrate investment attributes of the Fund or the general economic, business, investment, or financial environment in which the Fund operates; (3) various financial, economic and market statistics developed by brokers, dealers and other persons may be used to illustrate aspects of the Fund's performance; (4) the effect of tax-deferred compounding on the Fund's investment returns, or on returns in general in both qualified and nonqualified retirement plans or any other tax advantage product, may be illustrated by graphs, charts, etc.; and (5) the sectors or industries in which the Fund invests may be compared to relevant indices or surveys in order to evaluate the Fund's historical performance or current or potential value with respect to the particular industry or sector. Other Publications From time to time, in newsletters and other publications issued by Investment Services, T. Rowe Price mutual fund portfolio managers may discuss economic, financial and political developments in the U.S. and abroad and how these conditions have affected or may affect securities prices or the Fund; individual securities within the Fund's portfolio; and their philosophy regarding the selection of individual stocks, including why specific stocks have been added, removed or excluded from the Fund's portfolio. Other Features and Benefits The Fund is a member of the T. Rowe Price family of Funds and may help investors achieve various long-term investment goals, which include, but are not limited to, investing money for retirement, saving for a down payment on a home, or paying college costs. To explain how the Fund could be used to assist investors in planning for these goals and to illustrate basic principles of investing, various worksheets and guides prepared by T. Rowe Price Associates, Inc. and/or Investment Services may be made available. No-Load Versus Load and 12b-1 Funds Unlike the T. Rowe Price funds, many mutual funds charge sales fees to investors or use fund assets to finance distribution activities. These fees are in addition to the normal advisory fees and expenses charged by all mutual funds. There are several types of fees charged which vary in magnitude and which may often be used in combination. A sales charge (or "load") can be charged at the time the fund is purchased (front-end load) or at the time of redemption (back-end load). Front-end loads are charged on the total amount invested. Back-end loads or "redemption fees" are charged either on the amount originally invested or on the amount redeemed. 12b-1 plans allow for the payment of marketing and sales expenses from fund assets. These expenses are usually computed daily as a fixed percentage of assets. The Fund is a no-load fund which imposes no sales charges or 12b-1 fees. No-load funds are generally sold directly to the public without the use of commissioned sales representatives. This means that 100% of your purchase is invested for you. Redemptions in Kind In the unlikely event a shareholder were to receive an in kind redemption of portfolio securities of the Fund, brokerage fees could be incurred by the shareholder in a subsequent sale of such securities. Issuance of Fund Shares for Securities Transactions involving issuance of Fund shares for securities or assets other than cash will be limited to (1) bona fide reorganizations; (2) statutory mergers; or (3) other acquisitions of portfolio securities that: (a) meet the investment objective and policies of the Fund; (b) are acquired for investment and not for resale except in accordance with applicable law; (c) have a value that is readily ascertainable via listing on or trading in a recognized United States or international exchange or market; and (d) are not illiquid. CAPITAL STOCK ------------------------------------------------------------------------------- The T. Rowe Price International Funds, Inc. (the "International Corporation") is a Maryland corporation. The Institutional International Funds, Inc. (the "Institutional Corporation") was organized in 1989, as a Maryland corporation. Each 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 International Corporation consists of the following 12 series, each representing a separate class of shares and having different objectives and investment policies. The 12 series are as follows: International Stock Fund, International Bond Fund, International Discovery Fund, European Stock Fund, New Asia Fund, Global Bond Fund, Japan Fund, Latin America Fund, Emerging Markets Bond Fund, Emerging Markets Stock Fund, Global Stock Fund, and International Growth & Income Fund. Effective May 1, 1998, the T. Rowe Price Global Government Bond Fund changed its name to the T. Rowe Price Global Bond Fund. (The bond funds are described in a separate Statement of Additional Information.) Currently, the Institutional Corporation consists of one series, the Foreign Equity Fund. Each 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, conversions or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption, subject to applicable law, and might thus be superior or inferior to the capital stock or to other classes or series in various characteristics. The Board of Directors may increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the Fund has authorized to issue without shareholder approval. 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 until such time as less than a majority of the directors holding office have been elected by shareholders, at which time the directors then in office will call a shareholders' meeting for the election of directors. Except as set forth above, the directors shall continue to hold office and may appoint successor directors. Voting rights are not cumulative, so that the holders of more than 50% of the shares voting in the election of directors can, if they choose to do so, elect all the directors of the Fund, in which event the holders of the remaining shares will be unable to elect any person as a director. As set forth in the By-Laws of the Fund, a special meeting of shareholders of the Fund shall be called by the Secretary of the Fund on the written request of shareholders entitled to cast at least 10% of all the votes of the Fund entitled to be cast at such meeting. Shareholders requesting such a meeting must pay to the Fund the reasonably estimated costs of preparing and mailing the notice of the meeting. The Fund, however, will otherwise assist the shareholders seeking to hold the special meeting in communicating to the other shareholders of the Fund to the extent required by Section 16(c) of the Investment Company Act of 1940. FEDERAL REGISTRATION OF SHARES ------------------------------------------------------------------------------- The Fund's shares are registered for sale under the Securities Act of 1933. Registration of the Fund's shares is not required under any state law, but the Fund is required to make certain filings with and pay fees to the states in order to sell its shares in the states. LEGAL COUNSEL ------------------------------------------------------------------------------- Swidler Berlin Shereff Friedman, LLP, whose address is 919 Third Avenue, New York, New York 10022-9998, is legal counsel to the Fund. INDEPENDENT ACCOUNTANTS ------------------------------------------------------------------------------- PricewaterhouseCoopers LLP, 250 West Pratt Street, 21st Floor, Baltimore, Maryland 21201, are the independent accountants to the Funds. All Funds The report of independent accountants are included in each Fund's Annual Report for the year ended October 31, 1997. A copy of each Annual and Semiannual Report accompanies this Statement of Additional Information. The following financial statements and the report of independent accountants appearing in each Annual Report for the year ended October 31, 1997, and the unaudited semiannual report for the six months ended April 30, 1998, are incorporated into this Statement of Additional Information by reference:
ANNUAL REPORT REFERENCES: INTERNATIONAL INTERNATIONAL EUROPEAN STOCK DISCOVERY STOCK ----- --------- ----- Report of Independent Accountants 35 27 25 Statement of Net Assets, October 31, 1997 13-28 10-20 9-18 Statement of Operations, year ended October 31, 1997 29 21 19 Statement of Changes in Net Assets, years ended October 31, 1997 and October 31, 1996 30 22 20 Notes to Financial Statements, October 31, 1997 31-34 23-26 21-24 Financial Highlights 12 9 8
LATIN NEW ASIA JAPAN FOREIGN AMERICA -------- ----- EQUITY ------- ------ Report of Independent Accountants 21 20 19 22 Statement of Net Assets, October 31, 1997 11-14 9-13 9-12 10-17 Statement of Operations, year ended October 31, 1997 15 14 13 18 Statement of Changes in Net Assets, years ended October 31, 1997 and October 31, 1996 16 15 14 19 Notes to Financial Statements, October 31, 1997 17-20 16-19 15-18 20-21 Financial Highlights 10 8 8 9
EMERGING MARKETS STOCK ------------- Report of Independent Accountants 26 Statement of Net Assets, October 31, 1997 11-19 Statement of Operations, year ended October 31, 1997 20 Statement of Changes in Net Assets, years ended October 31, 1997 and October 31, 1996 21 Notes to Financial Statements, October 31, 1997 22-25 Financial Highlights 10
GLOBAL STOCK ------------ Report of Independent Accountants 37 Statement of Net Assets, October 31, 1997 13-30 Statement of Operations, year ended October 31, 1997 31 Statement of Changes in Net Assets, from year ended October 31, 1997 and December 29, 1995 (commencement of operations) to October 31, 1996 32 Notes to Financial Statements, October 31, 1997 33-36 Financial Highlights 12
UNAUDITED SEMIANNUAL REPORT REFERENCES: INTERNATIONAL GLOBAL LATIN DISCOVERY STOCK AMERICA --------- ----- ------- Statement of Net Assets, April 30, 1998 11-20 13-29 9-11 Statement of Operations, six months ended April 30, 1998 21 30 12 Statement of Changes in Net Assets, six months ended April 30, 1998 and year ended October 31, 1997 22 31 13 Notes to Financial Statements, April 30, 1998 23-26 32-35 14-17 Financial Highlights 10 12 8
INTERNATIONAL EUROPEAN NEW ASIA STOCK STOCK -------- ----- ----- Portfolio of Investments, April 30, 1998 12-25 10-18 9-12 Statement of Assets and Liabilities, April 30, 1998 26 19 13 Statement of Operations, six months ended April 30, 1998 27 20 14 Statement of Changes in Net Assets, six months ended April 30, 1998 and year ended October 31, 1997 28 21 15 Notes to Financial Statements, April 30, 1998 29-32 22-25 16-19 Financial Highlights 11 9 8
JAPAN ----- Portfolio of Investments, April 30, 1998 9-11 Statement of Assets and Liabilities, April 30, 1998 12 Statement of Operations, six months ended April 30, 1998 13 Statement of Changes in Net Assets, six months ended April 30, 1998 and year ended October 31, 1997 14 Notes to Financial Statements, April 30, 1998 15-18 Financial Highlights 8
EMERGING FOREIGN MARKETS STOCK EQUITY ------------- ------ Statement of Net Assets, April 30, 1998 9-15 9-15 Statement of Operations, six months ended April 30, 1998 16 16 Statement of Changes in Net Assets, six months ended April 30, 1998 and year ended October 31, 1997 17 17 Notes to Financial Statements, April 30, 1998 18-21 18-19 Financial Highlights 8 8
PART C OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements International Stock, International Discovery, European Stock, New Asia, Japan, Latin America, Emerging Markets Stock, and Global Stock Funds. Condensed Financial Information (Financial Highlights table) is included in Part A of the Registration Statement. Statement of Net Assets, Statement of Operations, and Statement of Changes in Net Assets are included in each fund's Annual Report to Shareholders, the pertinent portions of which are incorporated by reference in Part B of the Registration Statement. International Growth & Income Fund Financial Statements Inapplicable (b) Exhibits (1)(a)Articles of Amendment and Restatement of T. Rowe Price International Funds, Inc., dated February 16, 1990 (electronically filed with Amendment No. 42 dated February 28, 1994) (1)(b) Articles Supplementary of T. Rowe Price International Funds, Inc., dated March 4, 1991 (1)(c) Articles of Amendment of T. Rowe Price International Funds, Inc., dated May 1, 1991 (1)(d) Articles Supplementary of T. Rowe Price International Funds, Inc., dated October 18, 1991 (1)(e) Articles Supplementary of T. Rowe Price International Funds, Inc., dated May 4, 1992 (electronically filed with Amendment No. 44 dated December 22, 1994) (1)(f) Articles Supplementary of T. Rowe Price International Funds, Inc., dated November 4, 1993 (electronically filed with Amendment No. 41 dated December 16, 1993) (1)(g) Articles Supplementary of T. Rowe Price International Funds, Inc. dated February 18, 1994 (electronically filed with Amendment No. 42 dated February 28, 1994) (1)(h) Articles Supplementary of T. Rowe Price International Funds, Inc. dated November 2, 1994 (electronically filed with Amendment No. 44 dated December 22, 1994) (1)(i) Articles Supplementary of T. Rowe Price International Funds, Inc. dated January 25, 1995 (electronically filed with Amendment No. 49 dated March 22, 1995) (1)(j) Articles Supplementary of T. Rowe Price International Funds, Inc. dated October 11, 1995 (electronically filed with Amendment No. 50 dated October 12, 1995) (1)(k) Articles Supplementary of T. Rowe Price International Funds, Inc., on behalf of T. Rowe Price International Growth & Income Fund dated November __, 1998 (to be filed by Amendment) (2) By-Laws of Registrant, as amended to May 1, 1991 and September 30, 1993 (electronically filed with Amendment No. 41 dated December 16, 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, T. Rowe Price Short-Term Global Income, T. Rowe Price Latin America, T. Rowe Price Emerging Markets Bond, T. Rowe Price Emerging Markets Bond, T. Rowe Price Global Stock, and T. Rowe Price International Growth & Income Funds. See Article FIFTH, Capital Stock, Paragraphs (A)-(E) of the Articles of Amendment and Restatement electronically 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 with Amendment No. 19) (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 (electronically filed with Amendment No. 42 dated February 28, 1994) (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 (electronically filed with Amendment No. 42 dated February 28, 1994) (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 (electronically filed with Amendment No. 42 dated February 28, 1994) (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 (electronically filed with Amendment No. 42 dated February 28, 1994) (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 (electronically filed with Amendment No. 42 dated February 28, 1994) (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 (electronically filed with Amendment No. 42 dated February 28, 1994) (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 (electronically filed with Amendment No. 42 dated February 28, 1994) (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 (electronically filed with Amendment No. 42 dated February 28, 1994) (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 (electronically filed with Amendment No. 41 dated December 16, 1993) (5)(j) Investment Management Agreement between Registrant and Rowe Price-Fleming International, Inc., on behalf of T. Rowe Price Emerging Markets Bond Fund, dated November 2, 1994 (electronically filed with Amendment No. 44 dated December 22, 1994) (5)(k) Investment Management Agreement between Registrant and Rowe Price-Fleming International, Inc., on behalf of T. Rowe Price Emerging Markets Stock Fund, dated January 25, 1995 (electronically filed with Amendment No. 49 dated March 22, 1995) (5)(l) Investment Management Agreement between Registrant and Rowe Price-Fleming International, Inc., on behalf of T. Rowe Price Global Stock Fund, dated November 1, 1995 (electronically filed with Amendment No. 51 dated December 20, 1995) (5)(m) Investment Management Agreement between Registrant and Rowe Price-Fleming International, Inc., on behalf of T. Rowe Price International Growth & Income Fund, dated November 4, 1998 (6)Underwriting Agreement between Registrant and T. Rowe Price Investment Services, Inc., dated May 1, 1990 (electronically filed with Amendment No. 42 dated February 28, 1994) (7) Inapplicable (8) Custody Agreements (8)(a) Custodian Agreement between T. Rowe Price Funds and State Street Bank and Trust Company, dated January 28, 1998, as amended November 11, 1998 (8)(b) Global Custody Agreement between The Chase Manhattan Bank, N.A., and T. Rowe Price Funds, dated January 3, 1994, as amended April 18, 1994, August 15, 1994, November 28, 1994, May 31, 1995, November 1, 1995, July 31, 1996, July 23, 1997, September 3, 1997, and October 29, 1997 (to be filed by amendment) (9) Other Agreements (9)(a) Transfer Agency and Service Agreement between T. Rowe Price Services, Inc. and T. Rowe Price Funds, dated January 1, 1998, as amended January 21, 1998, October 30, 1998, and November 11, 1998 (9)(b) Agreement between T. Rowe Price Associates, Inc. and T. Rowe Price Funds for Fund Accounting Services, dated January 1, 1998, as amended January 21, 1998, October 30, 1998, and November 11, 1998 (9)(c) Agreement between T. Rowe Price Retirement Plan Services, Inc. and the Taxable Funds, dated January 1, 1998, as amended January 21, 1998, October 30, 1998, and November 11, 1998 (10) Inapplicable (11) Consent of Independent Accountants (12) Inapplicable (13) Inapplicable (14) Inapplicable (15) Inapplicable (16) Total Return Performance Methodology (17) Financial Data Schedules (18) Inapplicable (19) Other Exhibits (a)Power of Attorney ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT None ITEM 26. NUMBER OF HOLDERS OF SECURITIES As of January 31, 1998, there were 13,107 shareholders in the T. Rowe Price Emerging Markets Stock Fund, 58,028 shareholders in the T. Rowe Price European Stock Fund, 3,929 shareholders in the T. Rowe Price Global Stock Fund, 20,597 shareholders in the T. Rowe Price International Discovery Fund, 268,320 shareholders in the T. Rowe Price International Stock Fund, 13,696 shareholders in the T. Rowe Price Japan Fund, 36,715 shareholders in the T. Rowe Price Latin America Fund, and 96,861 shareholders in the T. Rowe Price New Asia Fund. ITEM 27. INDEMNIFICATION The Registrant maintains comprehensive Errors and Omissions and Officers and Directors insurance policies written by the Evanston Insurance Company, The Chubb Group and ICI Mutual. These policies provide coverage for the named insureds, which include T. Rowe Price Associates, Inc. ("Manager"), Rowe Price-Fleming International, Inc. ("Price-Fleming"), T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price Trust Company, T. Rowe Price Stable Asset Management, Inc., RPF International Bond Fund and fifty other investment companies, including, T. Rowe Price Growth Stock Fund, Inc., T. Rowe Price New Horizons Fund, Inc., T. Rowe Price New Era Fund, Inc., T. Rowe Price New Income Fund, Inc., T. Rowe Price Prime Reserve Fund, Inc., T. Rowe Price Tax-Free Income Fund, Inc., T. Rowe Price Tax-Exempt Money Fund, Inc., T. Rowe Price International Funds, Inc., T. Rowe Price Growth & Income Fund, Inc., T. Rowe Price Tax-Free Short-Intermediate Fund, Inc., T. Rowe Price Short-Term Bond Fund, Inc., T. Rowe Price High Yield Fund, Inc., T. Rowe Price Tax-Free High Yield Fund, Inc., T. Rowe Price New America Growth Fund, T. Rowe Price Equity Income Fund, T. Rowe Price GNMA Fund, T. Rowe Price Capital Appreciation Fund, T. Rowe Price California Tax-Free Income Trust, T. Rowe Price State Tax-Free Income Trust, T. Rowe Price Science & Technology Fund, Inc., T. Rowe Price Small-Cap Value Fund, Inc., Institutional International Funds, Inc., T. Rowe Price U.S. Treasury Funds, Inc., T. Rowe Price Index Trust, Inc., T. Rowe Price Spectrum Fund, Inc., T. Rowe Price Balanced Fund, Inc., T. Rowe Price Short-Term U.S. Government Fund, Inc., T. Rowe Price Mid-Cap Growth Fund, Inc., T. Rowe Price Small-Cap Stock Fund, Inc., T. Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc., T. Rowe Price Dividend Growth Fund, Inc., T. Rowe Price Blue Chip Growth Fund, Inc., T. Rowe Price Summit Funds, Inc., T. Rowe Price Summit Municipal Funds, Inc., T. Rowe Price Equity Series, Inc., T. Rowe Price International Series, Inc., T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Personal Strategy Funds, Inc., T. Rowe Price Value Fund, Inc., T. Rowe Price Capital Opportunity Fund, Inc., T. Rowe Price Corporate Income Fund, Inc., T. Rowe Price Health Sciences Fund, Inc., T. Rowe Price Mid-Cap Value Fund, Inc., Institutional Equity Funds, Inc., T. Rowe Price Financial Services Fund, Inc., T. Rowe Price Diversified Small-Cap Growth Fund, Inc., T. Rowe Price Tax-Efficient Balanced Fund, Inc., Reserve Investment Funds, Inc., T. Rowe Price Media & Telecommunications Fund, Inc.,and T. Rowe Price Real Estate Fund, Inc. The Registrant and the fifty investment companies listed above, with the exception of Institutional International Funds, Inc., and Institutional Equity Funds, Inc., will be collectively referred to as the Price Funds. The investment manager for Institutional Equity Funds, Inc., and the Price Funds, excluding T. Rowe Price International Funds, Inc. and T. Rowe Price International Series, Inc., is the Manager. Price-Fleming is the manager to T. Rowe Price International Funds, Inc., T. Rowe Price International Series, Inc. and Institutional International Funds, Inc. and is 50% owned by TRP Finance, Inc., a subsidiary of the Manager, 25% owned by Copthall Overseas Limited, a subsidiary of Robert Fleming Holdings Limited, and 25% owned by Jardine Fleming International Holdings Limited. In addition to the corporate insureds, the policies also cover the officers, directors, and employees of each of the named insureds. The premium is allocated among the named corporate insureds in accordance with the provisions of Rule 17d-1(d)(7) under the Investment Company Act of 1940. GENERAL. The Charter of the Corporation provides that to the fullest extent permitted by Maryland or federal law, no director or officer of the Corporation shall be personally liable to the Corporation or the holders of Shares for money damages and each director and officer shall be indemnified by the Corporation; PROVIDED, HOWEVER, that nothing herein shall be deemed to protect any director or officer of the Corporation against any liability to the Corporation of the holders of Shares to which such director or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. Article X, Section 10.01 of the Registrant's By-Laws provides as follows: SECTION 10.01. INDEMNIFICATION AND PAYMENT OF EXPENSES IN ADVANCE. The Corporation shall indemnify any individual ("Indemnitee") who is a present or former director, officer, employee, or agent of the Corporation, or who is or has been serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, who, by reason of his position was, is, or is threatened to be made, a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter collectively referred to as a "Proceeding") against any judgments, penalties, fines, settlements, and reasonable expenses (including attorneys' fees) incurred by such Indemnitee in connection with any Proceeding, to the fullest extent that such indemnification may be lawful under applicable Maryland law, as from time to time amended. The Corporation shall pay any reasonable expenses so incurred by such Indemnitee in defending a Proceeding in advance of the final disposition thereof to the fullest extent that such advance payment may be lawful under applicable Maryland Law, as from time to time amended. Subject to any applicable limitations and requirements set forth in the Corporation's Articles of Incorporation and in these By-Laws, any payment of indemnification or advance of expenses shall be made in accordance with the procedures set forth in applicable Maryland law, as from time to time amended. Notwithstanding the foregoing, nothing herein shall protect or purport to protect any Indemnitee against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office ("Disabling Conduct"). Anything in this Article X to the contrary notwithstanding, no indemnification shall be made by the Corporation to any Indemnitee unless: (a) there is a final decision on the merits by a court or other body before whom the Proceeding was brought that the Indemnitee was not liable by reason of Disabling Conduct; or (b)in the absence of such a decision, there is a reasonable determination, based upon a review of the facts, that the Indemnitee was not liable by reason of Disabling Conduct, which determination shall be made by: (i) the vote of a majority of a quorum of directors who are neither "interested persons" of the Corporation, as defined in Section 2(a)(19) of the Investment Company Act of 1940, nor parties to the Proceeding; or (ii) an independent legal counsel in a written opinion. Anything in this Article X to the contrary notwithstanding, any advance of expenses by the Corporation to any Indemnitee shall be made only upon the undertaking by such Indemnitee to repay the advance unless it is ultimately determined that such Indemnitee is entitled to indemnification as above provided, and only if one of the following conditions is met: (a) the Indemnitee provides a security for his undertaking; or (b) the Corporation shall be insured against losses arising by reason of any lawful advances; or (c) there is a determination, based on a review of readily available facts, that there is reason to believe that the Indemnitee will ultimately be found entitled to indemnification, which determination shall be made by: (i) a majority of a quorum of directors who are neither "interested persons" of the Corporation as defined in Section 2(a)(19) of the Investment Company Act of 1940, nor parties to the Proceeding; or (ii) an independent legal counsel in a written opinion. 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 of 1940, as from time to time amended, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or who is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against any liability asserted against him and incurred by him in or arising out of his position, whether or not the Corporation would have the power to indemnify him against such liability. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER M. David Testa, who is Chairman of the Board of the Manager, is also a Vice-Chairman of the Board, Chief Investment Officer, Director, and Managing Director of T. Rowe Price. George J. Collins is a Director of the Manager and is also a Director of T. Rowe Price. 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 & 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. James S. Riepe, who is a Director of the Manager, is also a Vice-Chairman of the Board, Director, and Managing Director of T. Rowe Price, and a Director of Rhone-Poulenc Rorer, Inc. George A. Roche, who is a Director and Vice President of the Manager, is also Chairman of the Board, President, a Director, and Managing Director of T. Rowe Price. Henry C. T. Strutt, a Director of the Manager, is Managing Director and General Manager of Jardine Fleming Holdings Ltd. and Director of Robert Fleming Holdings Ltd. Alvin M. Younger, Jr., who is Secretary and Treasurer of the Manager, is also the Chief Financial Officer, Managing Director, Secretary, and Treasurer of T. Rowe Price. Martin G. Wade, Director and President of the Manager; Director, Robert Fleming Holdings Limited and Robert Fleming Asset Management. With the exception of Christopher D. Alderson, Peter B. Askew, Mark Bickford-Smith, Ann B. Cranmer, Mark J. T. Edwards, Carol A. Eve, John R. Ford, Sally Patterson, Nichola Pease, Christopher Rothery, James B. M. Seddon, Benedict R. F. Thomas, Christine To, 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. Mr. Ilott is an employee of Fleming Investment Management Limited, an investment adviser registered under the Investment Advisers Act of 1940. Ms. Cranmer is an employee of Fleming Investment Management Limited. Mr. Wade, who is Director and President of the Manager, is also a Non-Executive Director of Robert Fleming Holdings. RPFI International Partners, L.P., is a Delaware limited partnership organized in 1985 for the purpose of investing in a diversified group of small and medium-sized non-U.S. companies. The Manager is the general partner of this partnership, and certain institutional investors, including advisory 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 eighty-eight 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.
POSITIONS AND POSITIONS AND OFFICES WITH OFFICES WITH NAME UNDERWRITER REGISTRANT James S. Riepe Chairman of the Board and Vice President Director Edward C. Bernard President None and Director Henry H. Hopkins Vice President and Director Vice President Charles E. Vieth Vice President and Director None Patricia M. Archer Vice President None Joseph C. Bonasorte Vice President None Darrell N. Braman Vice President None Ronae M. Brock Vice President None Meredith C. Callanan Vice President None Christine M. Carolan Vice President None Joseph A. Carrier Vice President None Laura H. Chasney Vice President None Renee M. Christoff Vice President None Victoria C. Collins Vice President None Christopher W. Dyer Vice President None Christine S. Fahlund Vice President None Forrest R. Foss Vice President None Andrea G. Griffin Vice President None Douglas E. Harrison Vice President None David J. Healy Vice President None Joseph P. Healy Vice President None Walter J. Helmlinger Vice President None Eric G. Knauss Vice President None Sharon R. Krieger Vice President None Keith W. Lewis Vice President None Sarah McCafferty Vice President None Maurice A. Minerbi Vice President None Nancy M. Morris Vice President None George A. Murnaghan Vice President None Steven E. Norwitz Vice President None Kathleen M. O'Brien Vice President None David Oestricher Vice President None Pamela D. Preston Vice President None Lucy B. Robins Vice President None John R. Rockwell Vice President None Christopher S. Ross Vice President None Kenneth J. Rutherford Vice President None Kristin E. Seeberger Vice President None William F. Wendler II Vice President None Jane F. White Vice President None Thomas R. Woolley Vice President None Alvin M. Younger, Jr. Secretary and Treasurer None Mark S. Finn Controller & Vice President None Richard J. Barna Assistant Vice President None Catherine L.Berkenkemper Assistant Vice President None Robin C. B. Binkley Assistant Vice President None Cheryl L. Emory Assistant Vice President None John A. Galateria Assistant Vice President None Edward F. Giltenan Assistant Vice President None Janelyn A. Healey Assistant Vice President None Kathleen Hussey Assistant Vice President None Sandra J. Kiefler Assistant Vice President None Valerie King-Calloway Assistant Vice President None Steven A. Larson Assistant Vice President None Jeanette M. LeBlanc Assistant Vice President None Patricia S. Lippert Assistant Vice President Secretary C. Lillian Matthews Assistant Vice President None Janice D. McCrory Assistant Vice President None Danielle N. Nicholson Assistant Vice President None Barbara A. O'Connor Assistant Vice President None JeanneMarie B. Patella Assistant Vice President None Carin C. Quinn Assistant Vice President None David A. Roscum Assistant Vice President None Jerome Tuccille Assistant Vice President None Linda C. Wright Assistant Vice President None Nolan L. North Assistant Treasurer None Barbara A. Van Horn Assistant Secretary None
(c)Not applicable. Investment Services will not receive any compensation with respect to its activities as underwriter for the Price Funds since the Price Funds are sold on a no-load basis. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS All accounts, books, and other documents required to be maintained by 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 T. Rowe Price Services, Inc., at 10090 Red Run Blvd., Owings Mills, Maryland 21117. 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 Registrant's portfolio securities which are purchased outside the United States is maintained by The Chase Manhattan Bank, N.A., London, in its foreign branches or with other U.S. banks. The Chase Manhattan Bank, N.A., London, is located at Woolgate House, Coleman Street, London EC2P 2HD England. ITEM 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 Not applicable 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, duly authorized, in the City of Baltimore, State of Maryland, this November 19, 1998. 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 Chairman of the Board November 19, 1998 M. David Testa (Chief Executive Officer) /s/Carmen F. Deyesu Treasurer (Chief November 19, 1998 Carmen F. Deyesu Financial Officer) /s/Martin G. Wade President and November 19, 1998 Martin G. Wade Director * Director November 19, 1998 Anthony W. Deering * Director November 19, 1998 Donald W. Dick, Jr. * Director November 19, 1998 Paul M. Wythes /s/Henry H. Hopkins Attorney-In-Fact November 19, 1998 Henry H. Hopkins EX-99.B1-CHARTER 2 INVESTMENT MANAGEMENT AGREEMENT BETWEEN T. ROWE PRICE INTERNATIONAL FUNDS, INC. AND ROWE PRICE-FLEMING INTERNATIONAL, INC. INVESTMENT MANAGEMENT AGREEMENT, made as of the 4th day of November, 1998, 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 International Growth & 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 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: (1) buy, sell, exchange, convert, lend, and otherwise trade in any stocks, bonds, and other securities or assets; and (2) 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 FUND 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 FUND 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 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 FILING FEES. All fees and expenses imposed on the Fund with respect to the sale of the Fund shares under securities laws of various states or jurisdictions, and, under all other laws applicable to the Fund, or its business activities (including registering the Fund as a broker-dealer, or any officer of the Fund or any person as agent or salesman of the Fund 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: 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% Next $10 billion 0.310% Next $16 billion 0.305% Next $30 billion 0.300% Thereafter The Price Funds shall include all the mutual funds distributed by T. Rowe Price Investment Services, Inc., (other than institutional or "private label" funds, Index Trust, Spectrum Funds and Reserve Investment 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 Fund's prospectus, 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 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. 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 October 31, 2000, such expenses shall not exceed 1.25% of the average daily net assets of the Fund ("1.25% Expense Limitation"). To determine the Manager's liability for the Fund's expenses over the 1.25% Expense Limitation, the amount of allowable year-to-date expenses shall be computed daily by pro rating the 1.25% Expense Limitation based on the number of days elapsed within the fiscal year of the Fund, or limitation period, if shorter ("Pro Rated 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 October 31, 2000, 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 October 31, 2000, these amounts shall be paid to the Manager in the future provided that: (1) no such payment shall be made to the Manager after October 31, 2002; 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 1.25% 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 October 31, 2000 (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. 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 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, 1999. 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, 1999 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 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. /s/Patricia S. Lippert /s/M. David Testa ___________________________ By: _________________________________ Patricia S. Lippert, M. David Testa, Secretary Chairman of the Board Attest: ROWE PRICE-FLEMING INTERNATIONAL, INC. /s/Barbara A. Van Horn /s/Henry H. Hopkins ___________________________ By: _________________________________ Barbara A. Van Horn, Henry H. Hopkins, Assistant Secretary Vice President EX-99.B8A-CUSTODIAN 3 CUSTODIAN AGREEMENT The Custodian Agreement dated January 28, 1998, between State Street Bank and Trust Company and T. Rowe Price Funds, as amended. CUSTODIAN AGREEMENT THIS AGREEMENT is made as of January 28, 1998 by and between each entity set forth on Appendix A hereto (as such Appendix A may be amended from time to time) which executes a copy of this Agreement (each referred to herein as the "FUND"), and State Street Bank and Trust Company, a Massachusetts trust company with its principal place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the "CUSTODIAN"). WITNESSETH: WHEREAS, each Fund desires to retain the Custodian to act as custodian of certain of the assets of the Fund, and the Custodian is willing to provide such services to each Fund, upon the terms and conditions hereinafter set forth; and WHEREAS, except as otherwise set forth herein, this Agreement is intended to supersede that certain custodian contract among the parties hereto dated September 28, 1987, as amended; and WHEREAS, the Funds have retained CHASE MANHATTAN BANK, N.A. to act as the Funds' custodian with respect to the assets of each such Fund to be held outside of the United States of America (except as otherwise set forth in this Agreement) pursuant to a written custodian agreement (the "FOREIGN CUSTODIAN AGREEMENT"), NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, each of the parties hereto agrees as follows: SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT. Each Fund hereby employs the Custodian as the custodian of certain of its assets, including those securities it desires to be held within the United States of America ("DOMESTIC SECURITIES") and those securities it desires to be held outside the United States of America (the "UNITED STATES") which are (i) not held on the Funds' behalf by CHASE MANHATTAN BANK, N.A. pursuant to the Foreign Custodian Agreement and (ii) described with greater particularity in Section 3 hereof (such securities shall be referred to herein as "FOREIGN SECURITIES"). Each Fund agrees to deliver to the Custodian all domestic securities, foreign securities and cash owned by it from time to time, and all payments of income, payments of principal or capital distributions received by it with respect to securities held by it hereunder, and the cash consideration received by it for such new or treasury shares of capital stock of each Fund as may be issued or sold from time to time ("SHARES"). The Custodian shall not be responsible for any property of any Fund held or received by such Fund (i) not delivered to the Custodian, or (ii) held in the custody of CHASE MANHATTAN BANK N.A. The Custodian is authorized to employ one or more sub-custodians located within the United States, provided that the Custodian shall have obtained the written acknowledgment of the Fund with respect to such employment. The Custodian is authorized to employ sub-custodians located outside the United States as noted on Schedule A attached hereto (as such Schedule A may be amended from time to time). The Custodian shall have no more or less responsibility or liability to any Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian and shall not release any sub-custodian from any responsibility or liability unless so agreed in writing by the Custodian and the applicable Fund. With the exception of State Street Bank and Trust Company (London branch), the Custodian shall not be liable for losses arising from the bankruptcy, insolvency or receivership of any sub-custodian located outside the United States. SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUNDS HELD BY THE CUSTODIAN IN THE UNITED STATES. SECTION 2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for the account of each Fund all non-cash property to be held by it in the United States, including all domestic securities owned by the Fund other than (a) securities which are maintained pursuant to Section 2.9 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the United States Department of the Treasury and certain federal agencies (each, a "U.S. SECURITIES SYSTEM") and (b) commercial paper of an issuer for which the Custodian acts as issuing and paying agent ("DIRECT PAPER") which is deposited and/or maintained in the Direct Paper system of the Custodian (the "DIRECT PAPER SYSTEM") pursuant to Section 2.10. SECTION 2.2 DELIVERY OF INVESTMENTS. The Custodian shall release and deliver domestic investments owned by a Fund held by the Custodian or in a U.S. Securities System account of the Custodian or in the Custodian's Direct Paper System account ("DIRECT PAPER SYSTEM ACCOUNT") only upon receipt of Proper Instructions, which may be continuing instructions when agreed to by the parties, and only in the following cases: 1)Upon sale of such investments for the account of the Fund and receipt of payment therefor; 2)Upon the receipt of payment in connection with any repurchase agreement related to such investments entered into by the Fund; 3) In the case of a sale effected through a U.S. Securities System, in accordance with the provisions of Section 2.9 hereof; 4) To the depository agent in connection with tender or other similar offers for portfolio investments of the Fund; 5) To the issuer thereof or its agent when such investments are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 6) To the issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.8 or into the name or nominee name of any sub-custodian appointed pursuant to Section 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian; 7) Upon the sale of such investments for the account of the Fund, to the broker or its clearing agent, against a receipt, for examination in accordance with usual "street delivery" custom; provided that in any such case the Custodian shall have no responsibility or liability for any loss arising from the delivery of such investments prior to receiving payment for such investments except as may arise from the Custodian's own negligence or willful misconduct; 8)For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the investments of the issuer of such investments, or pursuant to provisions for conversion contained in such investments, or pursuant to any deposit agreement; provided that, in any such case, the new investments and cash, if any, are to be delivered to the Custodian; 9)In the case of warrants, rights or similar investments, the surrender thereof in the exercise of such warrants, rights or similar investments or the surrender of interim receipts or temporary investments for definitive investments; provided that, in any such case, the new investments and cash, if any, are to be delivered to the Custodian or against a receipt; 10) For delivery in connection with any loans of investments made on behalf of the Fund, but only against receipt of adequate collateral as agreed upon from time to time by the Fund or its duly-appointed agent (which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, or such other property as the Fund may agree), except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of investments owned by the Fund prior to the receipt of such collateral in the absence of the Custodian's negligence or willful misconduct; 11) For delivery as security in connection with any borrowing by the Fund requiring a pledge of assets by the Fund, but only against receipt of amounts borrowed, except where additional collateral is required to secure a borrowing already made, subject to Proper Instructions, further securities may be released and delivered for that purpose; 12) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation, the rules of any registered national securities exchange or of any similar organization or organizations, or under the Investment Company Act of 1940, as amended from time to time (the "1940 ACT"), regarding escrow or other arrangements in connection with transactions by the Fund; 13) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian, and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, or any similar organization or organizations, or under the 1940 Act, regarding account deposits in connection with transactions by the Fund; 14) Upon receipt of instructions from the transfer agent for the Fund (the "TRANSFER AGENT"), for delivery to such Transfer Agent or to the holders of shares in connection with distributions in kind, as may be described from time to time in the Fund's currently effective prospectus, statement of additional information or other offering documents (all, as amended, supplemented or revised from time to time, the "PROSPECTUS"), in satisfaction of requests by holders of Shares for repurchase or redemption; and 15) For any other purpose, but only upon receipt of Proper Instructions specifying (a) the investments to be delivered, (b) setting forth the purpose for which such delivery is to be made, and (c) naming the person or persons to whom delivery of such investments shall be made. SECTION 2.3 REGISTRATION OF INVESTMENTS. Domestic investments held by the Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Custodian which nominee shall be assigned exclusively to the Fund, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Fund, or in the name or nominee name of any agent appointed pursuant to Section 2.8 or in the name or nominee name of any sub-custodian appointed pursuant to Section 1. All securities accepted by the Custodian on behalf of the Fund under the terms of this Agreement shall be in good deliverable form. If, however, the Fund directs the Custodian to maintain securities in "street name", the Custodian shall utilize its best efforts only to timely collect income due the Fund on such securities and to notify the Fund of relevant corporate actions including, without limitation, pendency of calls, maturities, tender or exchange offers. SECTION 2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund, other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the 1940 Act. Monies held by the Custodian for the Fund may be deposited by the Custodian to its credit as custodian in the banking department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable in the performance of its duties hereunder; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the 1940 Act, and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall be approved by vote of a majority of the board of directors or the board of trustees of the applicable Fund (as appropriate and in each case, the "BOARD"). Such funds shall be deposited by the Custodian in its capacity as custodian and shall be withdrawable by the Custodian only in that capacity. SECTION 2.5 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the Custodian shall collect on a timely basis all income and other payments with respect to United States registered investments held hereunder to which the Fund shall be entitled either by law or pursuant to custom in the investments business, and shall collect on a timely basis all income and other payments with respect to United States bearer investments if, on the date of payment by the issuer, such investments are held by the Custodian or its agent thereof and shall credit such income, as collected, to the Fund's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due, collect interest when due on investments held hereunder, and receive and collect all stock dividends, rights and other items of like nature as and when they become due and payable. With respect to income due the Fund on United States investments of the Fund loaned (pursuant to the provisions of Section 2.2 (10)) in accordance with a separate agreement between the Fund and the Custodian in its capacity as lending agent, collection thereof shall be in accordance with the terms of such agreement. Except as otherwise set forth in the immediately preceding sentence, income due the Fund on United States investments of the Fund loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Fund; the Custodian will have no duty or responsibility in connection therewith other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Fund is properly entitled. SECTION 2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when agreed to by the parties, the Custodian shall, from monies of the Fund held by the Custodian, pay out such monies in the following cases only: 1)Upon the purchase of domestic investments, options, futures contracts or options on futures contracts for the account of the Fund but only (a) against the delivery of such investments, or evidence of title to such options, futures contracts or options on futures contracts, to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the 1940 Act to act as a custodian and has been designated by the Custodian as its agent for this purpose in accordance with Section 2.8) registered in the name of the Fund or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a U.S. Securities System, in accordance with the conditions set forth in Section 2.9 hereof; (c) in the case of a purchase involving the Direct Paper System, in accordance with the conditions set forth in Section 2.10 hereof; or (d) for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign, such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions; 2) In connection with conversion, exchange or surrender of investments owned by the Fund as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of Shares as set forth in Section 4 hereof; 4) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management fees, accounting fees, transfer agent fees, legal fees, and operating expenses of the Fund (whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses); 5) For the payment of any dividends declared by the Board; 6)For payment of the amount of dividends received in respect of investments sold short; 7) For repayment of a loan upon redelivery of pledged securities and upon surrender of the note(s), if any, evidencing the loan; or 8) In connection with any repurchase agreement entered into by the Fund with respect to which the collateral is held by the Custodian, the Custodian shall act as the Fund's "securities intermediary"( as that term is defined in Part 5 of Article 8 of the Massachusetts Uniform Commercial Code, as amended), and, as securities intermediary, the Custodian shall take the following steps on behalf of the Fund: (a) provide the Fund with notification of the receipt of the purchased securities, and (b), by book-entry identify on the books of the Custodian as belonging to the Fund uncertificated securities registered in the name of the Fund and held in the Custodian's account at the Federal Reserve Bank. In connection with any repurchase agreement entered into by the Fund with respect to which the collateral is not held by the Custodian, the Custodian shall (a) provide the Fund with such notification as it may receive with respect to such collateral, and (b), by book-entry or otherwise, identify as belonging to the Fund securities as shown in the Custodian's account on the books of the entity appointed by the Fund to hold such collateral. 9) For any other purpose, but only upon receipt of Proper Instructions specifying (a) the amount of such payment, (b) setting forth the purpose for which such payment is to be made, and (c) naming the person or persons to whom such payment is to be made. SECTION 2.7 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. In any and every case where payment for purchase of domestic securities for the account of the Fund is made by the Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund to so pay in advance, the Custodian shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Custodian. SECTION 2.8 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company, which is itself qualified under the 1940 Act to act as a custodian, as its agent to carry out such of the provisions of this Section 2 as the Custodian may from time to time direct; provided, however, that the appointment of any such agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. SECTION 2.9 DEPOSIT OF INVESTMENTS IN U.S. SECURITIES SYSTEMS. The Custodian may deposit and/or maintain domestic investments owned by the Fund in a U.S. Securities System in accordance with applicable Federal Reserve Board and United States Securities and Exchange Commission ("SEC") rules and regulations, if any, subject to the following provisions: 1) The Custodian may keep domestic investments of the Fund in a U.S. Securities System provided that such investments are represented in an account of the Custodian in the U.S. Securities System ("ACCOUNT") which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 2) The records of the Custodian with respect to domestic investments of the Fund which are maintained in a U.S. Securities System shall identify by book-entry those investments belonging to the Fund; 3) The Custodian shall pay for domestic investments purchased for the account of the Fund upon (i) receipt of advice from the U.S. Securities System that such investments have been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. The Custodian shall transfer domestic investments sold for the account of the Fund upon (i) receipt of advice from the U.S. Securities System that payment for such investments has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. Copies of all advices from the U.S. Securities System of transfers of domestic investments for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian and be provided to the Fund at its request. Upon request, the Custodian shall furnish the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the U.S. Securities System for the account of the Fund; 4) The Custodian shall provide the Fund with any report obtained by the Custodian on the U.S. Securities System's accounting system, internal accounting control and procedures for safeguarding domestic investments deposited in the U.S. Securities System; 5) The Custodian shall have received from the Fund the initial or annual certificate, as the case may be, described in Section 10 hereof; and 6) Anything to the contrary in this Agreement notwithstanding, the Custodian shall be liable to the Fund for any loss or damage to the Fund resulting from use of the U.S. Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees, or from failure of the Custodian or any such agent to enforce effectively such rights as it may have against the U.S. Securities System. At the election of the Fund, the Fund shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the U.S. Securities System or any other person which the Custodian may have as a consequence of any such loss, expense or damage if and to the extent that the Fund has not been made whole for any such loss, expense or damage. SECTION 2.10 FUND ASSETS HELD IN THE DIRECT PAPER SYSTEM. The Custodian may deposit and/or maintain investments owned by the Fund in the Direct Paper System subject to the following provisions: 1) No transaction relating to investments in the Direct Paper System will be effected in the absence of Proper Instructions; 2) The Custodian may keep investments of the Fund in the Direct Paper System only if such investments are represented in the Direct Paper System Account, which account shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 3) The records of the Custodian with respect to investments of the Fund which are maintained in the Direct Paper System shall identify by book-entry those investments belonging to the Fund; 4) The Custodian shall pay for investments purchased for the account of the Fund upon the making of an entry on the records of the Custodian to reflect such payment and transfer of investments to the account of the Fund. The Custodian shall transfer investments sold for the account of the Fund upon the making of an entry on the records of the Custodian to reflect such transfer and receipt of payment for the account of the Fund; 5) The Custodian shall furnish the Fund confirmation of each transfer to or from the account of the Fund, in the form of a written advice or notice, of Direct Paper on the next business day following such transfer and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transaction in the Direct Paper System for the account of the Fund; and 6) The Custodian shall provide the Fund with any report on its system of internal accounting control as the Fund may reasonably request from time to time. SECTION 2.11 SEGREGATED ACCOUNT. The Custodian shall, upon receipt of Proper Instructions, establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or investments, including investments maintained in an account by the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, (ii) for purposes of segregating cash or government investments in connection with options purchased, sold or written by the Fund or commodity futures contracts or options thereon purchased or sold by the Fund, (iii) for the purposes of compliance by the Fund with the procedures required by 1940 Act Release No. 10666, or any other procedures subsequently required under the 1940 Act relating to the maintenance of segregated accounts by registered investment companies, and (iv) for other purposes, but only, in the case of clause (iv) upon receipt of Proper Instructions specifying (a) the investments to be delivered, (b) setting forth the purpose for which such delivery is to be made, and (c) naming the person or persons to whom delivery of such investments shall be made. SECTION 2.12 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute ownership and other certificates and affidavits for all United States federal and state tax purposes in connection with receipt of income or other payments with respect to domestic investments of the Fund held by it hereunder and in connection with transfers of such investments. SECTION 2.13 PROXIES. The Custodian shall, with respect to the domestic investments held hereunder, cause to be promptly executed by the registered holder of such investments, if the investments are registered otherwise than in the name of the Fund or a nominee of the Fund, all proxies without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials received by the Custodian and all notices received relating to such investments. SECTION 2.14 COMMUNICATIONS RELATING TO FUND INVESTMENTS. Subject to the provisions of Section 2.3, the Custodian shall transmit promptly to the Fund all written information (including, without limitation, pendency of calls and maturities of domestic investments and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund and the maturity of futures contracts purchased or sold by the Fund) received by the Custodian in connection with the domestic investments being held for the Fund pursuant to this Agreement. With respect to tender or exchange offers, the Custodian shall transmit to the Fund all written information received by the Custodian, any agent appointed pursuant to Section 2.8 hereof, or any sub-custodian appointed pursuant to Section 1 hereof, from issuers of the domestic investments whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian at least two (2) New York Stock Exchange business days prior to the time such action must be taken under the terms of the tender, exchange offer or other similar transaction, and it will be the responsibility of the Custodian to timely transmit to the appropriate person(s) such notice. Where the Fund provides the Custodian with less than two (2) New York Stock Exchange business days notice of its desired action, the Custodian shall use its best efforts to timely transmit the Fund's notice to the appropriate person. It is expressly noted that the parties may agree to alternative procedures with respect to such two (2) New York Stock Exchange business days notice period on a selective and individual basis. SECTION 2.15 REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. The Custodian shall provide the Fund, at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding investments, futures contracts and options on futures contracts, including domestic investments deposited and/or maintained in a U.S. Securities System, relating to the services provided by the Custodian under this Agreement. Such reports shall be of sufficient scope and detail, as may reasonably be required by the Fund, to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and if there are no such inadequacies the reports shall so state. SECTION 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO CERTAIN PROPERTY OF THE FUNDS HELD OUTSIDE OF THE UNITED STATES SECTION 3.1 DEFINITIONS. The following capitalized terms shall have the respective following meanings: "FOREIGN SECURITIES SYSTEM" means a clearing agency or a securities depository listed on Schedule A hereto. "FOREIGN SUB-CUSTODIAN" means a foreign banking institution set forth on Schedule A hereto. SECTION 3.2 HOLDING SECURITIES. The Custodian shall identify on its books as belonging to the Funds the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System. The Custodian may hold foreign securities for all of its customers, including the Funds, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Funds which are maintained in such account shall identify those securities as belonging to the Funds and (ii) the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian. SECTION 3.3 FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a Foreign Securities System in a designated country only through arrangements implemented by the Foreign Sub-Custodian in such country pursuant to the terms of this Agreement. SECTION 3.4 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. 3.4.1. Delivery of Foreign Securities. The Custodian or a Foreign Sub-Custodian shall - -------- -- ------- ----------- release and deliver foreign securities of the Funds held by such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: (i) upon the sale of such foreign securities for the Funds in accordance with reasonable market practice in the country where such foreign securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment; or (B) in the case of a sale effected through a Foreign Securities System in accordance with the rules governing the operation of the Foreign Securities System; (ii) in connection with any repurchase agreement related to foreign securities; (iii) to the depository agent in connection with tender or other similar offers for foreign securities of the Funds; (iv) to the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable; (v) to the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; (vi) to brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Foreign Sub-Custodian's own negligence or willful misconduct; (vii)for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; (viii) in the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; (ix) or delivery as security in connection with any borrowing by the Funds requiring a pledge of assets by the Funds; (x)in connection with trading in options and futures contracts, including delivery as original margin and variation margin; (xi) in connection with the lending of foreign securities; and (xii) for any other proper purpose, but only upon receipt of Proper Instructions specifying the foreign securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper Fund purpose, and naming the person or persons to whom delivery of such securities shall be made. 3.4.2. Payment of Fund Monies. Upon receipt of Proper Instructions, which may be - ------- -- ---- ------- continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of a Fund in the following cases only: (i)upon the purchase of foreign securities for the Fund, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving later delivery of such foreign securities; or (B) in the case of a purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System; (ii) in connection with the conversion, exchange or surrender of foreign securities of the Fund; (iii) for the payment of any expense or liability of the Fund, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Agreement, legal fees, accounting fees, and other operating expenses; (iv) for the purchase or sale of foreign exchange or foreign exchange contracts for the Fund, including transactions executed with or through the Custodian or its Foreign Sub-Custodians; (v)in connection with trading in options and futures contracts, including delivery as original margin and variation margin; (vii) in connection with the borrowing or lending of foreign securities; and (viii) for any other proper Fund purpose, but only upon receipt of Proper Instructions specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper Fund purpose, and naming the person or persons to whom such payment is to be made. 3.4.3. Market Conditions. Notwithstanding any provision of this Agreement to the - ------ ----------- contrary, settlement and payment for foreign securities received for the account of the Funds and delivery of foreign securities maintained for the account of the Funds may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs, including, without limitation, delivering foreign securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such foreign securities from such purchaser or dealer. SECTION 3.5 REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained in the custody of a Foreign Custodian (other than bearer securities) shall be registered in the name of the applicable Fund or in the name of the Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a Fund under the terms of this Agreement unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice. SECTION 3.6 BANK ACCOUNTS. A bank account or bank accounts opened and maintained outside the United States on behalf of a Fund with a Foreign Sub-Custodian shall be subject only to draft or order by the Custodian or such Foreign Sub-Custodian, acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Fund. SECTION 3.7 COLLECTION OF INCOME. The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the foreign securities held hereunder to which the Funds shall be entitled and shall credit such income, as collected, to the applicable Fund. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures. SECTION 3.8 PROXIES. With respect to the foreign securities held under this Section 3, the Custodian will use reasonable commercial efforts to facilitate the exercise of voting and other shareholder proxy rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. The Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Fund to exercise shareholder rights. SECTION 3.9 COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall transmit promptly to the Fund written information (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith) received by the Custodian in connection with the foreign securities being held for the account of the Fund. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund written information so received by the Custodian in connection with the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer. SECTION 3.10 LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS. Each agreement pursuant to which the Custodian employs as a Foreign Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties and, to the extent possible, to indemnify, and hold harmless, the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Sub-Custodian's performance of such obligations. At the Fund's election, the Funds shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Funds have not been made whole for any such loss, damage, cost, expense, liability or claim. SECTION 3.11 TAX LAW. The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund or the Custodian as custodian of the Funds by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of the Fund to notify the Custodian of the obligations imposed on the Fund or the Custodian as custodian of the Funds by the tax law of countries set forth on Schedule A hereto, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which the Fund has provided such information. SECTION 4. PAYMENTS FOR REPURCHASES OR REDEMPTIONS AND SALES OF SHARES. From such funds as may be available for the purpose, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares which have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares, the Custodian is authorized upon receipt of, and in accordance with, instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such written procedures and controls as may be mutually agreed upon from time to time between the Fund and the Custodian. The Custodian shall receive from the distributor for the Shares or from the Transfer Agent and deposit to the account of the Fund such payments as are received by the distributor or the Transfer Agent, as the case may be, for Shares issued or sold from time to time. The Custodian will notify the Fund and the Transfer Agent of any payments for Shares received by it from time to time. SECTION 5. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF NET ASSET VALUE AND NET INCOME. The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board to keep the books of account of the Fund and/or compute the net asset value per Share of the outstanding Shares or, if directed in writing to do so by the Fund, shall itself keep such books of account and/ or compute such net asset value per Share. If so directed, the Custodian shall also (i) calculate daily the net income of the Fund as described in the Prospectus and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income, and/ or (ii) advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per share and the daily income of the Fund shall be made at the time or times described from time to time in the Prospectus. SECTION 6. PROPER INSTRUCTIONS. "Proper Instructions," as such term is used throughout this Agreement, means either (i) a writing, including a facsimile transmission, signed by one or more persons as set forth on, and in accordance with, an "Authorized Persons List," as such term is defined herein (each such instruction a "Written Proper Instruction"), (ii) a "Client Originated Electronic Financial Instruction," as such term is defined in the Data Access Services Addendum hereto, given in accordance with the terms of such Addendum, or (iii) instructions received by the Custodian from a third party in accordance with any three-party agreement which requires a segregated asset account in accordance with Section 2.11. Each Written Proper Instruction shall set forth a brief description of the type of transaction involved (choosing from among the types of transactions set forth on the Authorized Persons List), including a specific statement of the purpose for which such action is requested, and any modification to a Written Proper Instruction must itself be a Written Proper Instruction and subject to all the provisions herein relating to Written Proper Instructions. The Fund will provide the Custodian with an "Authorized Persons List," which list shall set forth (a) the names of the individuals (each an "Authorized Person") who are authorized by the Board to give Written Proper Instructions with respect to the transactions described therein, and (b) the number of Authorized Persons whose signature or approval, as the case may be, is necessary for the Custodian to be able to act in accordance with such Written Proper Instructions with respect to a particular type of transaction. The Custodian may accept oral instructions or instructions delivered via electronic mail as Proper Instructions if the Custodian reasonably believes such instructions to have been given by an Authorized Person or Persons (as appropriate to the type of transaction); provided, however, that in no event will instructions delivered orally or via electronic mail be considered Proper Instructions with respect to transactions involving the movement of cash, securities or other assets of a Fund. The Custodian shall be entitled to rely upon instructions given in accordance with an Authorized Persons List until it actually receives written notice from the Board of the applicable Fund to the contrary. SECTION 7. EVIDENCE OF AUTHORITY. Subject to Section 9 hereof, the Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper reasonably and in good faith believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a copy of a vote of the Board, certified by the secretary or an assistant secretary of the applicable Fund, as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Board described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. SECTION 8. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The Custodian may in its discretion and without express authority from the Fund: 1) make payments to itself or others for minor expenses of handling investments or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to the Fund; 2) surrender investments in temporary form for investments in definitive form; 3) endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the investments and property of the Fund except as otherwise directed by the Board. SECTION 9. RESPONSIBILITY OF CUSTODIAN. The Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. Notwithstanding anything to the contrary herein, the Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, and it shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence. In order for the indemnification provision contained in this Section to apply, it is understood that if in any case the Fund may be asked by the Custodian to indemnify or hold the Custodian harmless, the Fund shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the Custodian will use reasonable care to identify, and notify the Fund promptly concerning, any situation which presents or appears likely to present the probability of such a claim for indemnification. The Fund shall have the option to defend the Custodian against any claim which may be the subject of a claim for indemnification hereunder, and in the event that the Fund so elects, it will notify the Custodian thereof and, thereupon, (i) the Fund shall take over complete defense of the claim and (ii) the Custodian shall initiate no further legal or other expenses with respect to such claim. The Custodian shall in no case confess any claim or make any compromise with respect to any claim for which it will seek indemnity from the Fund except with the Fund's prior written consent. Nothing herein shall be construed to limit any right or cause of action on the part of the Custodian under this Agreement which is independent of any right or cause of action on the part of the Fund. The Custodian shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund or other such counsel as agreed to by the parties) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Custodian shall be entitled to rely upon, and shall have no duty of inquiry with respect to, the accuracy of any representation or warranty given to it by the Fund or any duly-authorized employee or agent thereof, and shall be without liability for any action reasonably taken or omitted by it in reliance thereon. Regardless of whether assets held pursuant to this Agreement are maintained in the custody of a foreign banking institution, a foreign securities depository, or a branch or affiliate of a U.S. bank, the Custodian shall not be liable for any loss, damage, cost, expense, liability The Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. Notwithstanding anything to the contrary herein, the Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, and it shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence. In order for the indemnification provision contained in this Section to apply, it is understood that if in any case the Fund may be asked by the Custodian to indemnify or hold the Custodian harmless, the Fund shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the Custodian will use reasonable care to identify, and notify the Fund promptly concerning, any situation which presents or appears likely to present the probability of such a claim for indemnification. The Fund shall have the option to defend the Custodian against any claim which may be the subject of a claim for indemnification hereunder, and in the event that the Fund so elects, it will notify the Custodian thereof and, thereupon, (i) the Fund shall take over complete defense of the claim and (ii) the Custodian shall initiate no further legal or other expenses with respect to such claim. The Custodian shall in no case confess any claim or make any compromise with respect to any claim for which it will seek indemnity from the Fund except with the Fund's prior written consent. Nothing herein shall be construed to limit any right or cause of action on the part of the Custodian under this Agreement which is independent of any right or cause of action on the part of the Fund. The Custodian shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund or other such counsel as agreed to by the parties) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Custodian shall be entitled to rely upon, and shall have no duty of inquiry with respect to, the accuracy of any representation or warranty given to it by the Fund or any duly-authorized employee or agent thereof, and shall be without liability for any action reasonably taken or omitted by it in reliance thereon. Regardless of whether assets held pursuant to this Agreement are maintained in the custody of a foreign banking institution, a foreign securities depository, or a branch or affiliate of a U.S. bank, the Custodian shall not be liable for any loss, damage, cost, expense, liability If the Fund requires the Custodian to take any action with respect to investments, which action involves the payment of money or which action may, in the reasonable opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund being liable for the payment of money or incurring liability of some other form, the Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. If the Custodian, or any of its affiliates, subsidiaries or agents, advances cash or investments to the Fund for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement), or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the Fund shall be security therefor, and should the Fund fail to repay the Custodian promptly the Custodian shall be entitled to utilize available cash and to dispose of the Fund assets to the extent necessary to obtain reimbursement, provided that the Custodian gives the Fund reasonable notice to repay such cash or securities advanced, and provided further that such notice requirement shall not preclude the Custodian's right to assert and execute on such lien. Except as may arise from the Custodian's own negligence or willful misconduct, or the negligence or willful misconduct of a subcustodian or agent appointed by the Custodian, the Fund agrees to indemnify and hold the Custodian harmless from and against any and all costs, expenses, losses, damages, charges, reasonable counsel fees, payments and liabilities which may be asserted against the Custodian (i) acting in accordance with any Proper Instruction, or (ii) for any acts or omissions of CHASE MANHATTAN BANK N.A. Notwithstanding any provision herein to the contrary, to the extent the Custodian is found to be liable hereunder for any loss, liability, claim, expense or damage, the Custodian shall be liable only for such loss, liability, claim, expense or damage which was reasonably foreseeable. SECTION 10. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT. This Agreement shall become effective as of the date of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto, and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing in the case of a termination by the Fund, and not sooner than one hundred eighty (180) days after the date of such delivery or mailing in the case of termination by the Custodian; provided, however that the Custodian shall not act under Section 2.9 hereof in the absence of receipt of an initial certificate of a Fund's secretary, or an assistant secretary thereof, that the Board has approved the initial use of a particular U.S. Securities System, as required by the 1940 Act or any applicable Rule thereunder, and that the Custodian shall not act under Section 2.10 hereof in the absence of receipt of an initial certificate of a Fund's secretary, or an assistant secretary thereof, that the Board has approved the initial use of the Direct Paper System; provided further, however, that the Fund shall not amend or terminate this Agreement in contravention of any applicable federal or state regulations, or any provision of the Fund's articles of incorporation, agreement of trust, by-laws and/or registration statement (as applicable, the "GOVERNING DOCUMENTS"); and further provided that the Fund may at any time by action of its Board (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Custodian by the United States Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Agreement, the Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its reasonable costs, expenses and disbursements, provided that the Custodian shall not incur any costs, expenses or disbursements specifically in connection with such termination unless it has received prior approval from the Fund, such approval not to be unreasonably withheld. SECTION 11. SUCCESSOR CUSTODIAN. If a successor custodian shall be appointed by the Board, the Custodian shall, upon termination, deliver to such successor custodian at the offices of the Custodian, duly endorsed and in the form for transfer, all investments and other properties then held by it hereunder, and shall transfer to an account of the successor custodian all of the Fund's investments held in a Securities System. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a copy of a vote of the Board, certified by the secretary or an assistant secretary of the applicable Fund, deliver at the offices of the Custodian and transfer such investments, funds and other properties in accordance with such vote. In the event that no written order designating a successor custodian or certified copy of a vote of the Board shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the 1940 Act, doing business in Boston, Massachusetts, or New York, New York, of its own selection and having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $100,000,000, all property held by the Custodian under this Agreement and to transfer to an account of such successor custodian all of the Fund's investments held in any Securities System; thereafter, such bank or trust company shall be the successor of the Custodian under this Agreement. In the event that any property held pursuant to this Agreement remains in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the certified copy of the vote referred to or of the Board to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such property, and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect. SECTION 12. GENERAL. SECTION 12.1 COMPENSATION OF CUSTODIAN. The Custodian shall be entitled to compensation for its services and reimbursement of its expenses as Custodian as agreed upon from time to time between the Fund and the Custodian. SECTION 12.2 MASSACHUSETTS LAW TO APPLY. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. SECTION 12.3 RECORDS. The Custodian shall create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of the Fund under the 1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the SEC. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of investments owned by the Fund and held by the Custodian hereunder, and shall, when requested to do so by an officer of the Fund, and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. SECTION 12.4 OPINION OF FUND'S INDEPENDENT ACCOUNTANT. The Custodian shall take all reasonable action as the Fund may from time to time request to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1A, the preparation of the Fund's Form N-SAR, the preparation of any other annual reports to the SEC with respect to the Fund, and with respect to any other requirements of the SEC. SECTION 12.5 INTERPRETIVE AND ADDITIONAL PROVISIONS. In connection with the operation of this Agreement, the Custodian and the Fund may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Governing Documents. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement. SECTION 12.6 BOND. The Custodian shall at all times maintain a bond in such form and amount as is acceptable to the Fund, which shall be issued by a reputable fidelity insurance company authorized to do business in the place where such bond is issued, against larceny and embezzlement, covering each officer and employee of the Custodian who may, singly or jointly with others, have access to securities or funds of the Fund, either directly or through authority to receive and carry out any certificate instruction, order request, note or other instrument required or permitted by this Agreement. The Custodian agrees that it shall not cancel, terminate or modify such bond insofar as it adversely affects the Fund except after written notice given to the Fund not less than 10 days prior to the effective date of such cancellation, termination or modification. The Custodian shall, upon request, furnish to the Fund a copy of each such bond and each amendment thereto. SECTION 12.7 CONFIDENTIALITY. The Custodian agrees to treat all records and other information relative to the Fund and its prior, present or future shareholders as confidential, and the Custodian, on behalf of itself and its employees, agrees to keep confidential all such information except, after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where the Custodian may be exposed to civil or criminal contempt proceedings for failure to comply when requested to divulge such information by duly constituted authorities, or when so requested by the Fund. SECTION 12.8 EXEMPTION FROM LIEN. Except as set forth in Section 9 hereof, the securities and other assets held by the Custodian hereunder shall not be subject to lien or charge of any kind in favor of the Custodian or any person claiming through the Custodian. Nothing herein shall be deemed to deprive the Custodian of its right to invoke any and all remedies available at law or equity to collect amounts due it under this Agreement. SECTION 12.9 ASSIGNMENT. This Agreement may not be assigned by either party without the written consent of the other, except that either party may assign its rights and obligations hereunder to a party controlling, controlled by, or under common control with such party. SECTION 12.10 PRIOR AGREEMENTS. Without derogating the rights established thereunder prior to the date of this Agreement, this Agreement supersedes and terminates, as of the date hereof, all prior agreements between the Fund and the Custodian relating to the custody of Fund assets. SECTION 12.11 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, and all such counterparts taken together shall constitute but one and the same Agreement. SECTION 12.12 NOTICES. Any notice, instruction or other instrument required to be given hereunder may be delivered in person to the offices of the parties as set forth herein during normal business hours or delivered prepaid registered mail or by telex, cable or telecopy to the parties at the following addresses or such other addresses as may be notified by any party from time to time. To any Fund: c/o T. ROWE PRICE ASSOCIATES, INC. 100 East Pratt Street Baltimore, Maryland 21202 Attention: Carmen Deyesu Telephone: 410-345-6658 Telecopy: 410-685-8827/8830 To the Custodian: STATE STREET BANK AND TRUST COMPANY 1776 Heritage Drive North Quincy, Massachusetts 02171, U.S.A. Attention: Carol C. Ayotte Telephone: 617-985-6894 Telecopy: 617-537-6321 Such notice, instruction or other instrument shall be deemed to have been served in the case of a registered letter at the expiration of five business days after posting, in the case of cable twenty-four hours after dispatch and, in the case of telex, immediately on dispatch and if delivered outside normal business hours it shall be deemed to have been received at the next time after delivery when normal business hours commence and in the case of cable, telex or telecopy on the business day after the receipt thereof. Evidence that the notice was properly addressed, stamped and put into the post shall be conclusive evidence of posting. SECTION 12.13 ENTIRE AGREEMENT. This Agreement (including all schedules, appendices, exhibits and attachments hereto) constitutes the entire Agreement between the parties with respect to the subject matter hereof. SECTION 12.14 HEADINGS NOT CONTROLLING. Headings used in this Agreement are for reference purposes only and shall not be deemed a part of this Agreement. SECTION 12.15 SURVIVAL. All provisions regarding indemnification, confidentiality, warranty, liability and limits thereon shall survive following the expiration or termination of this Agreement. SECTION 12.16 SEVERABILITY. In the event any provision of this Agreement is held illegal, void or unenforceable, the balance shall remain in effect. SECTION 12.17 THE PARTIES. All references herein to the "Fund" are to each of the funds listed on Appendix A hereto individually, as if this Agreement were between such individual Fund and the Custodian. In the case of a series fund or trust, all references to the "Fund" are to the individual series or portfolio of such fund or trust, or to such fund or trust on behalf of the individual series or portfolio, as appropriate. Any reference in this Agreement to "the parties" shall mean the Custodian and such other individual Fund as to which the matter pertains. Each Fund hereby represents and warranties that (i) it has the requisite power and authority under applicable laws and its Governing Documents to enter into and perform this Agreement, (ii) all requisite proceedings have been taken to authorize it to enter into and perform this Agreement, and (iii) its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Fund or any law or regulation applicable to it. SECTION 12.18 DIRECTORS AND TRUSTEES. It is understood and is expressly stipulated that neither the holders of Shares nor any member of the Board be personally liable hereunder. Whenever reference is made herein to an action required to be taken by the Board, such action may also be taken by the Board's executive committee. SECTION 12.19 MASSACHUSETTS BUSINESS TRUST. With respect to any Fund which is a party to this Agreement and which is organized as a Massachusetts business trust, the term "Fund" means and refers to the trustees from time to time serving under the applicable trust agreement of such trust, as the same may be amended from time to time (the "DECLARATION OF TRUST"). It is expressly agreed that the obligations of any such Fund hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of the Fund personally, but bind only the trust property of the Fund as set forth in the applicable Declaration of Trust. In the case of each Fund which is a Massachusetts business trust (in each case, a "TRUST"), the execution and delivery of this Agreement on behalf of the Trust has been authorized by the trustees, and signed by an authorized officer, of the Trust, in each case acting in such capacity and not individually, and neither such authorization by the trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually, but shall bind only the trust property of the Trust as provided in its Declaration of Trust. SECTION 12.20 REPRODUCTION OF DOCUMENTS. This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. SECTION 12.21 SHAREHOLDER COMMUNICATIONS ELECTION. SEC Rule 14b-2 requires banks which hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, the Custodian needs the Fund to indicate whether it authorizes the Custodian to provide the Fund's name, address, and share position to requesting companies whose securities the Fund owns. If the Fund tells the Custodian "no", the Custodian will not provide this information to requesting companies. If the Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the Custodian is required by the rule to treat the Fund as consenting to disclosure of this information for all securities owned by the Fund or any funds or accounts established by the Fund. For the Fund's protection, the Rule prohibits the requesting company from using the Fund's name and address for any purpose other than corporate communications. Please indicate below whether the Fund consents or objects by checking one of the alternatives below. YES [ ] The Custodian is authorized to release the Fund's name, address, and share positions. NO [X] The Custodian is not authorized to release the Fund's name, address, and share positions. DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT Addendum to the Custodian Agreement (as defined below) between each fund listed on Appendix A to the Custodian Agreement, as such Appendix A is amended from time to time (each such fund listed on Appendix A shall be individually referred to herein as the "FUND"), and State Street Bank and Trust Company ("STATE STREET"). PREAMBLE WHEREAS, State Street has been appointed as custodian of certain assets of the Fund pursuant to a certain Custodian Agreement (the "CUSTODIAN AGREEMENT") dated as of January 28, 1998, and amended thereafter from time to time; WHEREAS, State Street has developed and utilizes proprietary accounting and other systems, including State Street's proprietary Multicurrency HORIZON/R/ Accounting System, in its role as custodian of the Fund, and maintains certain Fund-related data ("FUND DATA") in databases under the control and ownership of State Street (the "DATA ACCESS SERVICES"); and WHEREAS, State Street makes available to the Fund (and certain of the Fund's agents as set forth herein) certain Data Access Services solely for the benefit of the Fund, and intends to provide additional services, consistent with the terms and conditions of this Addendum. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and for other good and valuable consideration, the parties agree as follows: 1. SYSTEM AND DATA ACCESS SERVICES a. System. Subject to the terms and conditions of this Addendum and solely for the - ------ purpose of providing access to Fund Data as set forth herein, State Street hereby agrees to provide the Fund, or certain third parties approved by State Street that serve as the Fund's investment advisors, investment managers or fund accountants (the "FUND ACCOUNTANTS") or as the Fund's independent auditors (the "AUDITOR"), with access to State Street's Multicurrency HORIZON/R/ Accounting System and the other information systems described in Attachment A (collectively, the "SYSTEM") on a remote basis solely on the computer hardware, system software and telecommunication links described in Attachment B (the "DESIGNATED CONFIGURATION") or on any designated substitute or back-up equipment configuration consented to in writing by State Street, such consent not to be unreasonably withheld. b. Data Access Services. State Street agrees to make available to the Fund the - ---- ------ -------- Data Access Services subject to the terms and conditions of this Addendum and such data access operating standards and procedures as may be issued by State Street from time to time. The Fund shall be able to access the System to (i) originate electronic instructions to State Street in order to (a) effect the transfer or movement of cash or securities held under custody by State Street or (b) transmit accounting or other information (the transactions described in (i)(a) and (i)(b) above are referred to herein as "CLIENT ORIGINATED ELECTRONIC FINANCIAL INSTRUCTIONS"), and (ii) access data for the purpose of reporting and analysis, which shall all be deemed to be Data Access Services for purposes of this Addendum. c. Additional Services. State Street may from time to time agree to make available - ---------- -------- to the Fund additional Systems that are not described in the attachments to this Addendum. In the absence of any other written agreement concerning such additional systems, the term "SYSTEM" shall include, and this Addendum shall govern, the Fund's access to and use of any additional System made available by State Street and/or accessed by the Fund. 2. NO USE OF THIRD PARTY SYSTEMS-LEVEL SOFTWARE State Street and the Fund acknowledge that in connection with the Data Access Services provided under this Addendum, the Fund will have access, through the Data Access Services, to Fund Data and to functions of State Street's proprietary systems; provided, however that in no event will the Fund have direct access to any third party systems-level software that retrieves data for, stores data from, or otherwise supports the System. 3. LIMITATION ON SCOPE OF USE a. Designated Equipment; Designated Locations. The System and the Data Access - ---------- ---------- ---------- --------- Services shall be used and accessed solely on and through the Designated Configuration at the offices of the Fund or the Fund Accountants in Baltimore, Maryland or Owings Mills, Maryland ("DESIGNATED LOCATIONS"). b. Designated Configuration; Trained Personnel. State Street and the Fund shall - ---------- -------------- ------- --------- be responsible for supplying, installing and maintaining the Designated Configuration at the Designated Locations. State Street and the Fund agree that each will engage or retain the services of trained personnel to enable both parties to perform their respective obligations under this Addendum. State Street agrees to use commercially reasonable efforts to maintain the System so that it remains serviceable, provided, however, that State Street does not guarantee or assure uninterrupted remote access use of the System. c. Scope of Use. The Fund will use the System and the Data Access Services only - ----- -- --- for the processing of securities transactions, the keeping of books of account for the Fund and accessing data for purposes of reporting and analysis. The Fund shall not, and shall cause its employees and agents not to (i) permit any unauthorized third party to use the System or the Data Access Services, (ii) sell, rent, license or otherwise use the System or the Data Access Services in the operation of a service bureau or for any purpose other than as expressly authorized under this Addendum, (iii) use the System or the Data Access Services for any fund, trust or other investment vehicle), other than as set forth herein, without the prior written consent of State Street, (iv) allow access to the System or the Data Access Services through terminals or any other computer or telecommunications facilities located outside the Designated Locations, (v) allow or cause any information (other than portfolio holdings, valuations of portfolio holdings, and other information reasonably necessary for the management or distribution of the assets of the Fund) transmitted from State Street's databases, including data from third party sources, available through use of the System or the Data Access Services to be redistributed or retransmitted to another computer, terminal or other device for other than use for or on behalf of the Fund or (vi) modify the System in any way, including without limitation developing any software for or attaching any devices or computer programs to any equipment, system, software or database which forms a part of or is resident on the Designated Configuration. d. Other Locations. Except in the event of an emergency or of a planned System - ----- --------- shutdown, the Fund's access to services performed by the System or to Data Access Services at the Designated Locations may be transferred to a different location only upon the prior written consent of State Street. In the event of an emergency or System shutdown, the Fund may use any back-up site included in the Designated Configuration or any other back-up site agreed to by State Street, which agreement will not be unreasonably withheld. The Fund may secure from State Street the right to access the System or the Data Access Services through computer and telecommunications facilities or devices complying with the Designated Configuration at additional locations only upon the prior written consent of State Street and on terms to be mutually agreed upon by the parties. e. Title. Title and all ownership and proprietary rights to the System, including - ----- any enhancements or modifications thereto, whether or not made by State Street, are and shall remain with State Street. f. No Modification. Without the prior written consent of State Street, the Fund - -- ------------ shall not modify, enhance or otherwise create derivative works based upon the System, nor shall the Fund reverse engineer, decompile or otherwise attempt to secure the source code for all or any part of the System. g. Security Procedures. The Fund shall comply with data access operating standards - -------- ---------- and procedures and with user identification or other password control requirements and other security procedures as may be issued from time to time by State Street for use of the System on a remote basis and to access the Data Access Services. The Fund shall have access only to the Fund Data and authorized transactions agreed upon from time to time by State Street and, upon notice from State Street, the Fund shall discontinue remote use of the System and access to Data Access Services for any security reasons cited by State Street; provided, that, in such event, State Street shall, for a period not less than 180 days (or such other shorter period specified by the Fund) after such discontinuance, assume responsibility to provide accounting services under the terms of the Custodian Agreement. h. Inspections. State Street shall have the right to inspect the use of the System - ----------- and the Data Access Services by the Fund, the Fund Accountants and the Auditor to ensure compliance with this Addendum. The on-site inspections shall be upon prior written notice to Fund, the Fund Accountants and the Auditor and at reasonably convenient times and frequencies so as not to result in an unreasonable disruption of the Fund's or the Fund Accountants' or the Auditor respective businesses. 4. PROPRIETARY INFORMATION a. Proprietary Information. The Fund acknowledges and State Street represents that - ----------- ----------- the System and the databases, computer programs, screen formats, report formats, interactive design techniques, documentation and other information made available to the Fund by State Street as part of the Data Access Services and through the use of the System constitute copyrighted, trade secret, or other proprietary information of substantial value to State Street. Any and all such information provided by State Street to the Fund shall be deemed proprietary and confidential information of State Street (hereinafter "PROPRIETARY INFORMATION"). The Fund agrees that it will hold such Proprietary Information in the strictest confidence and secure and protect it in a manner consistent with its own procedures for the protection of its own confidential information and to take appropriate action by instruction or agreement with its employees or agents who are permitted access to the Proprietary Information to satisfy its obligations hereunder. The Fund further acknowledges that State Street shall not be required to provide the Fund Accountants or the Auditor with access to the System unless it has first received from the Fund Accountants and the Auditor an undertaking with respect to State Street's Proprietary Information in the form of Attachment C and/or Attachment C-1 to this Addendum. The Fund shall use all commercially reasonable efforts to assist State Street in identifying and preventing any unauthorized use, copying or disclosure of the Proprietary Information or any portions thereof or any of the logic, formats or designs contained therein. b. Cooperation. Without limitation of the foregoing, the Fund shall advise State - ----------- Street immediately in the event the Fund learns or has reason to believe that any person to whom the Fund has given access to the Proprietary Information, or any portion thereof, has violated or intends to violate the terms of this Addendum, and the Fund will, at its reasonable expense, cooperate with State Street in seeking injunctive or other equitable relief in the name of the Fund or State Street against any such person. c. Injunctive Relief. The Fund acknowledges that the disclosure of any Proprietary - ---------- ------ Information, or of any information which at law or equity ought to remain confidential, will immediately give rise to continuing irreparable injury to State Street inadequately compensable in damages at law. In addition, State Street shall be entitled to obtain immediate injunctive relief against the breach or threatened breach of any of the foregoing undertakings, in addition to any other legal remedies which may be available. d. Survival. The provisions of this Section 4 shall survive the termination of - -------- this Addendum. 5. LIMITATION ON LIABILITY a. Standard of Care and Limitation on Amount and Time for Bringing Action. State - -------- -- ---- --- ---------- -- ------ --- ---- --- -------- ------ Street shall be held to a standard of reasonable care with respect to all of its duties and obligations under this Addendum. The Fund agrees that any liability of State Street to the Fund or any third party arising with respect to the System or State Street's provision of Data Access Services under this Data Access Services Addendum shall be limited to the amount paid by the Fund for the preceding 24 months for such services. The foregoing limitation shall relate solely to State Street's provision of the Data Access Services pursuant to this Addendum and is not intended to limit State Street's responsibility to perform in accordance with the Custodian Agreement, including its duty to act in accordance with Proper Instructions. In no event shall State Street be liable to the Fund or any other party pursuant to this Addendum for any special, indirect, punitive or consequential damages even if advised of the possibility of such damages. No action, regardless of form, arising out of the terms of this Addendum may be brought by the Fund more than two years after the Fund has knowledge that the cause of action has arisen. b. Limited Warranties. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING, - ------- ---------- WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY STATE STREET. c. Third-Party Data. Organizations from which State Street may obtain certain data - ----------- ---- included in the System or the Data Access Services are solely responsible for the contents of such data, and State Street shall have no liability for claims arising out of the contents of such third-party data, including, but not limited to, the accuracy thereof. d. Regulatory Requirements. As between State Street and the Fund, the Fund shall - ---------- ------------ be solely responsible for the accuracy of any accounting statements or reports produced using the Data Access Services and the System and the conformity thereof with any requirements of law. e. Force Majeure. Neither party shall be liable for any costs or damages due to - ----- ------- delay or nonperformance under this Data Access Services Addendum arising out of any cause or event beyond such party's control, including, without limitation, cessation of services hereunder or any damages resulting therefrom to the other party as a result of work stoppage, power or other mechanical failure, computer virus, natural disaster, governmental action, or communication disruption. 6. INDEMNIFICATION The Fund agrees to indemnify and hold State Street harmless from any loss, damage or expense including reasonable attorney's fees, (a "loss") suffered by State Street arising from (i) the negligence or willful misconduct in the use by the Fund of the Data Access Services or the System, including any loss incurred by State Street resulting from a security breach at the Designated Locations or committed by the Fund's employees or agents or the Fund Accountants or the and Auditor, and (ii) any loss resulting from incorrect Client Originated Electronic Financial Instructions. State Street shall be entitled to rely on the validity and authenticity of Client Originated Electronic Financial Instructions without undertaking any further inquiry as long as such instruction is undertaken in conformity with security procedures established by State Street from time to time. 7. FEES Fees and charges for the use of the System and the Data Access Services and related payment terms shall be as set forth in the custody fee schedule in effect from time to time between the parties (the "FEE SCHEDULE"). Any tariffs, duties or taxes imposed or levied by any government or governmental agency by reason of the transactions contemplated by this Addendum, including, without limitation, federal, state and local taxes, use, value added and personal property taxes (other than income, franchise or similar taxes which may be imposed or assessed against State Street) shall be borne by the Fund. Any claimed exemption from such tariffs, duties or taxes shall be supported by proper documentary evidence delivered to State Street. 8. TRAINING, IMPLEMENTATION AND CONVERSION a. Training. State Street agrees to provide training, at a designated State Street - -------- training facility or at the Designated Locations, to the Fund's personnel in connection with the use of the System on the Designated Configuration. The Fund agrees that it will set aside, during regular business hours or at other times agreed upon by both parties, sufficient time to enable all operators of the System and the Data Access Services, designated by the Fund, to receive the training offered by State Street pursuant to this Addendum. b. Installation and Conversion. State Street and the Fund shall be responsible for - ------------ --- ---------- the technical installation and conversion ("INSTALLATION AND CONVERSION") of the Designated Configuration. The Fund shall have the following responsibilities in connection with Installation and Conversion of the System: (i) The Fund shall be solely responsible for the timely acquisition and maintenance of the hardware and software that attach to the Designated Configuration in order to use the Data Access Services at the Designated Locations, and (ii) State Street and the Fund each agree that they will assign qualified personnel to actively participate during the Installation and Conversion phase of the System implementation to enable both parties to perform their respective obligations under this Addendum. 9. SUPPORT During the term of this Addendum, State Street agrees to provide the support services set out in Attachment D to this Addendum. 10. TERM a. Term. This Addendum shall become effective on the date of its execution by - ---- State Street and shall remain in full force and effect until terminated as herein provided. b. Termination. Either party may terminate this Addendum (i) for any reason by - ----------- giving the other party at least one-hundred and eighty (180) days' prior written notice in the case of notice of termination by State Street to the Fund or thirty (30) days' notice in the case of notice from the Fund to State Street of termination; or (ii) immediately for failure of the other party to comply with any material term and condition of the Addendum by giving the other party written notice of termination. In the event the Fund shall cease doing business, shall become subject to proceedings under the bankruptcy laws (other than a petition for reorganization or similar proceeding) or shall be adjudicated bankrupt, this Addendum and the rights granted hereunder shall, at the option of State Street, immediately terminate with notice to the Fund. This Addendum shall in any event terminate as to any Fund within ninety (90) days after the termination of the Custodian Agreement. c. Termination of the Right to Use. Upon termination of this Addendum for any - ----------- -- --- ----- -- --- reason, any right to use the System and access to the Data Access Services shall terminate and the Fund shall immediately cease use of the System and the Data Access Services. Immediately upon termination of this Addendum for any reason, the Fund shall return to State Street all copies of documentation and other Proprietary Information in its possession; provided, however, that in the event that either party terminates this Addendum or the Custodian Agreement for any reason other than the Fund's breach, State Street shall provide the Data Access Services for a period of time and at a price to be agreed upon in writing by the parties. 11. MISCELLANEOUS a.Year 2000. State Street will take all steps necessary to ensure that its ---- ---- products (and those of its third-party suppliers) reflect the available state of the art technology to offer products that are Year 2000 compliant, including, but not limited to, century recognition of dates, calculations that correctly compute same century and multi-century formulas and date values, and interface values that reflect the date issues arising between now and the next one-hundred years. If any changes are required, State Street will make the changes to its products at no cost to the Fund and in a commercially reasonable time frame and will require third-party suppliers to do likewise. b. Assignment; Successors. This Addendum and the rights and obligations of the - ----------- ---------- Fund and State Street hereunder shall not be assigned by either party without the prior written consent of the other party, except that State Street may assign this Addendum to a successor of all or a substantial portion of its business, or to a party controlling, controlled by, or under common control with State Street. c. Survival. All provisions regarding indemnification, warranty, liability and - -------- limits thereon, and confidentiality and/or protection of proprietary rights and trade secrets shall survive the termination of this Addendum. d. Entire Agreement. This Addendum and the attachments hereto constitute the - ------ --------- entire understanding of the parties hereto with respect to the Data Access Services and the use of the System and supersedes any and all prior or contemporaneous representations or agreements, whether oral or written, between the parties as such may relate to the Data Access Services or the System, and cannot be modified or altered except in a writing duly executed by the parties. This Addendum is not intended to supersede or modify the duties and liabilities of the parties hereto under the Custodian Agreement or any other agreement between the parties hereto except to the extent that any such agreement specifically refers to the Data Access Services or the System. No single waiver or any right hereunder shall be deemed to be a continuing waiver. e. Severability. ------------ If any provision or provisions of this Addendum shall be held to be invalid, unlawful, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired. f. Governing Law. This Addendum shall be interpreted and construed in accordance - --------- --- with the internal laws of The Commonwealth of Massachusetts without regard to the conflict of laws provisions thereof. ATTACHMENT A MULTICURRENCY HORIZON/R/ ACCOUNTING SYSTEM SYSTEM PRODUCT DESCRIPTION I. The Multicurrency HORIZON/R/ Accounting System is designed to provide lot level portfolio and general ledger accounting for SEC and ERISA type requirements and includes the following services: 1) recording of general ledger entries; 2) calculation of daily income and expense; 3) reconciliation of daily activity with the trial balance, and 4) appropriate automated feeding mechanisms to (i) domestic and international settlement systems, (ii) daily, weekly and monthly evaluation services, (iii) portfolio performance and analytic services, (iv) customer's internal computing systems and (v) various State Street provided information services products. II. GlobalQuest/R/ GlobalQuest/R/ is designed to provide customer access to the following information maintained on The Multicurrency HORIZON/R/ Accounting System: 1) cash transactions and balances; 2) purchases and sales; 3) income receivables; 4) tax refund; 5) daily priced positions; 6) open trades; 7) settlement status; 8) foreign exchange transactions; 9) trade history; and 10) daily, weekly and monthly evaluation services. III. HORIZON/R/ Gateway. HORIZON/R/ Gateway provides customers with the ability to (i) generate reports using information maintained on the Multicurrency HORIZON/R/ Accounting System which may be viewed or printed at the customer's location; (ii) extract and download data from the Multicurrency HORIZONR Accounting System; and (iii) access previous day and historical data. The following information which may be accessed for these purposes: 1) holdings; 2) holdings pricing; 3) transactions, 4) open trades; 5) income; 6) general ledger and 7) cash. IV. State Street Interchange. State Street Interchange is an open ------------------------ information delivery architecture wherein proprietary communication products, data formats and workstation tools are replaced by industry standards and is designed to enable the connection of State Street's network to customer networks, thereby facilitating the sharing of information. ATTACHMENT C UNDERTAKING (FUND ACCOUNTANTS) The undersigned understands that in the course of its employment as Fund Accountant to each fund listed on Appendix A (as amended from time to time) to that certain Custodian Agreement dated as of January 28, 1998 (the "FUND"), it will have access to State Street Bank and Trust Company's Multicurrency HORIZON Accounting System and other information systems (collectively, the "SYSTEM"). The undersigned acknowledges that the System and the databases, computer programs, screen formats, report formats, interactive design techniques, documentation, and other information made available to the Undersigned by State Street Bank and Trust Company ("STATE STREET") as part of the Data Access Services provided to the Fund and through the use of the System constitute copyrighted, trade secret, or other proprietary information of substantial value to State Street. Any and all such information provided by State Street to the Undersigned shall be deemed proprietary and confidential information of State Street (hereinafter "PROPRIETARY INFORMATION"). The undersigned agrees that it will hold such Proprietary Information in confidence and secure and protect it in a manner consistent with its own procedures for the protection of its own confidential information and to take appropriate action by instruction or agreement with its employees who are permitted access to the Proprietary Information to satisfy its obligations hereunder. The undersigned will not attempt to intercept data, gain access to data in transmission, or attempt entry into any system or files for which it is not authorized. It will not intentionally adversely affect the integrity of the System through the introduction of unauthorized code or data, or through unauthorized deletion. Upon notice by State Street for any reason, any right to use the System and access to the Data Access Services shall terminate and the Undersigned shall immediately cease use of the System and the Data Access Services. Immediately upon notice by State Street for any reason, the undersigned shall return to State Street all copies of documentation and other Proprietary Information in its possession. [The Fund Accountants] By: ______________________________ Title: ______________________________ Date: ______________________________ ATTACHMENT C-1 UNDERTAKING (AUDITOR) The undersigned understands that in the course of its employment as Auditor to each fund listed on Appendix A (as amended from time to time) to that certain Custodian Agreement dated as of January 28, 1998 (the "FUND") it will have access to State Street Bank and Trust Company's Multicurrency HORIZON Accounting System and other information systems (collectively, the "SYSTEM"). The undersigned acknowledges that the System and the databases, computer programs, screen formats, report formats, interactive design techniques, documentation, and other information made available to the Undersigned by State Street Bank and Trust Company ("STATE STREET") as part of the Data Access Services provided to the Fund and through the use of the System constitute copyrighted, trade secret, or other proprietary information of substantial value to State Street. Any and all such information provided by State Street to the Undersigned shall be deemed proprietary and confidential information of State Street (hereinafter "PROPRIETARY INFORMATION"). The undersigned agrees that it will hold such Proprietary Information in confidence and secure and protect it in a manner consistent with its own procedures for the protection of its own confidential information and to take appropriate action by instruction or agreement with its employees who are permitted access to the Proprietary Information to satisfy its obligations hereunder. The undersigned will not attempt to intercept data, gain access to data in transmission, or attempt entry into any system or files for which it is not authorized. It will not intentionally adversely affect the integrity of the System through the introduction of unauthorized code or data, or through unauthorized deletion. Upon notice by State Street for any reason, any right to use the System and access to the Data Access Services shall terminate and the Undersigned shall immediately cease use of the System and the Data Access Services. Immediately upon notice by State Street for any reason, the undersigned shall return to State Street all copies of documentation and other Proprietary Information in its possession. [The Auditor] By: ______________________________ Title: ______________________________ Date: ______________________________ ATTACHMENT D SUPPORT During the term of this Addendum, State Street agrees to provide the following on-going support services: a. Telephone Support. The Fund Designated Persons may contact State Street's HORIZON/R/ Help Desk and Fund Assistance Center between the hours of 8 a.m. and 6 p.m. (Eastern time) on all business days for the purpose of obtaining answers to questions about the use of the System, or to report apparent problems with the System. From time to time, the Fund shall provide to State Street a list of persons who shall be permitted to contact State Street for assistance (such persons being referred to as the "FUND DESIGNATED PERSONS"). b. Technical Support. State Street will provide technical support to assist the - --------- ------- Fund in using the System and the Data Access Services. The total amount of technical support provided by State Street shall not exceed 10 resource days per year. State Street shall provide such additional technical support as is expressly set forth in the fee schedule in effect from time to time between the parties (the "FEE SCHEDULE"). Technical support, including during installation and testing, is subject to the fees and other terms set forth in the Fee Schedule. c. Maintenance Support. State Street shall use commercially reasonable ------------------- efforts to correct system functions that do not work according to the System Product Description as set forth on Attachment A in priority order in the next scheduled delivery release or otherwise as soon as is practicable. d. System Enhancements. State Street will provide to the Fund any enhancements to - ------ ------------ the System developed by State Street and made a part of the System; provided that State Street offer the Fund reasonable training on the enhancement. Charges for system enhancements shall be as provided in the Fee Schedule. State Street retains the right to charge for related systems or products that may be developed and separately made available for use other than through the System. e. Custom Modifications. In the event the Fund desires custom modifications in - ------ ------------- connection with its use of the System, the Fund shall make a written request to State Street providing specifications for the desired modification. Any custom modifications may be undertaken by State Street in its sole discretion in accordance with the Fee Schedule. f. Limitation on Support. State Street shall have no obligation to support the - ---------- -- ------- Fund's use of the System: (1) for use on any computer equipment or telecommunication facilities which does not conform to the Designated Configuration or (ii) in the event the Fund has modified the System in breach of this Addendum. In WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and on its behalf by its duly authorized representative as of the date and year first written above. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund Virginia Short-Term Tax-Free Bond Fund New Jersey Tax-Free Bond Fund Georgia Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index 500 Fund T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Stock Portfolio T. ROWE PRICE FIXED INCOME SERIES, INC. T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE VALUE FUND, INC. T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE REAL ESTATE FUND, INC. T. ROWE PRICE SMALL CAP STOCK FUND, INC. T. Rowe Price Small Cap Stock Fund T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE TAX EFFICIENT BALANCED FUND, INC. RESERVE INVESTMENT FUNDS, INC. Government Reserve Investment Fund Reserve Investment Fund SIGNATURE ATTESTED TO: EXECUTED ON BEHALF OF EACH FUND: /s/Suzanne E. Fraunhoffer /s/Carmen Deyesu By: _____________________ By:____________________ Name: Suzanne E. Fraunhoffer Name: Carmen Deyesu Title: Legal Assistant Title: Treasurer for each of the foregoing SIGNATURE ATTESTED TO: STATE STREET BANK AND TRUST COMPANY /s/Glenn Ciotti /s/Ronald E. Logue By: _____________________ By:____________________ Name: Glenn Ciotti Name: Ronald E. Logue Title: VP & Assoc. Counsel Title: Executive Vice President SCHEDULE A COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY United Kingdom State Street Bank None; and Trust Company The Bank of England, The Central Gilts Office (CGO); The Central Moneymarkets Office (CMO) Euroclear (The Euroclear System)/ State Street London Limited APPENDIX A T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE NEW HORIZONS FUND, INC. T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund Virginia Short-Term Tax-Free Bond Fund New Jersey Tax-Free Bond Fund Georgia Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index 500 Fund T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Stock Portfolio T. ROWE PRICE FIXED INCOME SERIES, INC. T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE VALUE FUND, INC. T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE REAL ESTATE FUND, INC. T. ROWE PRICE SMALL CAP STOCK FUND, INC. T. Rowe Price Small Cap Stock Fund T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE TAX EFFICIENT BALANCED FUND, INC. RESERVE INVESTMENT FUNDS, INC. Government Reserve Investment Fund Reserve Investment Fund AMENDMENT NO. 1 CUSTODIAN AGREEMENT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS The Custodian Agreement of January 28, 1998, between State Street Bank and Trust Company, and each of the Parties listed on Appendix A thereto is hereby amended, as of November 11, 1998, by adding thereto T. Rowe Price Index Trust, Inc., on behalf of T. Rowe Price International Funds, Inc., on behalf of T. Rowe Price International Growth & Income Fund. T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE FIXED INCOME SERIES, INC. T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index 500 Fund T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund INSTITUTIONAL EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. Rowe Price International Growth & Income Fund T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Stock Portfolio T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE REAL ESTATE FUND, INC. RESERVE INVESTMENT FUNDS, INC. Reserve Investment Fund Government Reserve Investment Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE SMALL-CAP STOCK FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund New Jersey Tax-Free Bond Fund Virginia Tax-Free Bond Fund Virginia Short-Term Tax-Free Bond Fund Florida Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund T. ROWE PRICE VALUE FUND, INC. Attest: /s/Patricia S. Lippert /s/Carmen F. Deyesu ______________________ ______________________________ Patricia S. Lippert, By: Carmen F. Deyesu Secretary Treasurer Attest: STATE STREET BANK AND TRUST COMPANY /s/Glenn Ciotti /s/Ronald E. Logue ______________________ ______________________________ Glenn Ciotti, Vice By: Ronald E. Logue, President & Assoc. Counsel Executive Vice President EX-99.B9A-TRANSFER 4 TRANSFER AGENT AGREEMENT The Transfer Agency and Service Agreement between T. Rowe Price Services, Inc. and T. Rowe Price Funds, dated January 1, 1998, as amended. TRANSFER AGENCY AND SERVICE AGREEMENT between T. ROWE PRICE SERVICES, INC. and EACH OF THE PARTIES INDICATED ON APPENDIX A TABLE OF CONTENTS Page Article A Terms of Appointment 2 Article B Duties of Price Services 3 1. Receipt of Orders/Payments 3 2. Redemptions 5 3. Transfers 7 4. Confirmations 7 5. Returned Checks and ACH Debits 7 6. Redemption of Shares under Ten Day Hold 8 7. Dividends, Distributions and Other Corporate Actions 10 8. Unclaimed Payments and Certificates 11 9. Books and Records 11 10. Authorized Issued and Outstanding Shares 14 11. Tax Information 14 12. Information to be Furnished to the Fund 14 13. Correspondence 15 14. Lost or Stolen Securities 15 15. Telephone Services 15 16. Collection of Shareholder Fees 16 17. Form N-SAR 16 18. Cooperation With Accountants 16 19. Blue Sky 16 20. Other Services 16 21. Fees and Out-of-Pocket Expenses 17 Article C Representations and Warranties of the Price Services 19 Article D Representations and Warranties of the Fund 19 Article E Standard of Care/Indemnification 20 Article F Dual Interests 22 Article G Documentation 22 Article H References to Price Services 24 Article I Compliance with Governmental Rules and Regulations 25 Article J Ownership of Software and Related Material 25 Article K Quality Service Standards 25 Article L As of Transactions 25 Article M Term and Termination of Agreement 29 Article N Notice 29 Article O Assignment 29 Article P Amendment/Interpretive Provisions 30 Article Q Further Assurances 30 Article R Maryland Law to Apply 30 Article S Merger of Agreement 30 Article T Counterparts 30 Article U The Parties 30 Article V Directors, Trustees, Shareholders and Massachusetts Business Trust 31 Article W Captions 31 TRANSFER AGENCY AND SERVICE AGREEMENT AGREEMENT made as of the first day of January, 1998, by and between T. ROWE PRICE SERVICES, INC., a Maryland corporation having its principal office and place of business at 100 East Pratt Street, Baltimore, Maryland 21202 ("Price Services"), and EACH FUND WHICH IS LISTED ON APPENDIX A (as such Appendix may be amended from time to time) and which evidences its agreement to be bound hereby by executing a copy of this Agreement (each such Fund individually hereinafter referred to as "the Fund", whose definition may be found in Article U); WHEREAS, the Fund desires to appoint Price Services as its transfer agent, dividend disbursing agent and agent in connection with certain other activities, and Price Services desires to accept such appointment; WHEREAS, Price Services represents that it is registered with the Securities and Exchange Commission as a Transfer Agent under Section 17A of the Securities Exchange Act of 1934 ("'34 Act") and will notify each Fund promptly if such registration is revoked or if any proceeding is commenced before the Securities and Exchange Commission which may lead to such revocation; WHEREAS, Price Services has the capability of providing shareholder services on behalf of the Funds for the accounts of shareholders in the Funds, including banks and brokers on behalf of underlying clients; WHEREAS, certain of the Funds are named investment options under various tax-sheltered retirement plans including, but not limited to, individual retirement accounts, Sep-IRA's, SIMPLE plans, deferred compensation plans, 403(b) plans, and profit sharing, thrift, and money purchase pension plans for self-employed individuals and professional partnerships and corporations, (collectively referred to as "Retirement Plans"); WHEREAS, Price Services also has the capability of providing special services, on behalf of the Funds, for the accounts of shareholders participating in these Retirement Plans ("Retirement Accounts"). WHEREAS, Price Services may subcontract or jointly contract with other parties, on behalf of the Funds to perform certain of the functions and services described herein including services to Retirement Plans and Retirement Accounts; WHEREAS, Price Services may also enter into, on behalf of the Funds, certain banking relationships to perform various banking services including, but not limited to, check deposits, check disbursements, automated clearing house transactions ("ACH") and wire transfers. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: A. Terms of Appointment Subject to the terms and conditions set forth in this Agreement, the Fund hereby employs and appoints Price Services to act, and Price Services agrees to act, as the Fund's transfer agent, dividend disbursing agent and agent in connection with: (1) the Fund's authorized and issued shares of its common stock or shares of beneficial interest (all such stock and shares to be referred to as "Shares"); (2) any dividend reinvestment or other services provided to the shareholders of the Fund ("Shareholders"), including, without limitation, any periodic investment plan or periodic withdrawal program; and (3) certain Retirement Plan and Retirement Accounts as agreed upon by the parties. The parties to the Agreement hereby acknowledge that from time to time, Price Services and T. Rowe Price Trust Company may enter into contracts ("Other Contracts") with employee benefit plans and/ or their sponsors for the provision of certain plan participant services to Retirement Plans and Retirement Accounts. Compensation paid to Price Services pursuant to this Agreement is with respect to the services described herein and not with respect to services provided under Other Contracts. B. Duties of Price Services Price Services agrees that it will perform the following services: 1. Receipt of Orders/Payments Receive for acceptance, orders/payments for the purchase of Shares and promptly deliver payment and appropriate documentation thereof to the authorized custodian of the Fund (the "Custodian"). Upon receipt of any check or other instrument drawn or endorsed to it as agent for, or identified as being for the account of, the Fund, Price Services will process the order as follows: o Examine the check to determine if the check conforms to the Funds' acceptance procedures (including certain third-party check procedures). If the check conforms, Price Services will endorse the check and include the date of receipt, will process the same for payment, and deposit the net amount to the parties agreed upon designated bank account prior to such deposit in the Custodial account, and will notify the Fund and the Custodian, respectively, of such deposits (such notification to be given on a daily basis of the total amount deposited to said accounts during the prior business day); o Subject to guidelines mutually agreed upon by the Funds and Price Services, excess balances, if any, resulting from deposit in these designated bank accounts will be invested and the income therefrom will be used to offset fees which would otherwise be charged to the Funds under this Agreement; o Ensure that any documentation received from Shareholder is in "good order" and all appropriate documentation is received to establish an account. o Open a new account, if necessary, and credit the account of the investor with the number of Shares to be purchased according to the price of the Fund's Shares in effect for purchases made on that date, subject to any instructions which the Fund may have given to Price Services with respect to acceptance of orders for Shares; o Maintain a record of all unpaid purchases and report such information to the Fund daily; o Process periodic payment orders, as authorized by investors, in accordance with the payment procedures mutually agreed upon by both parties; o Receive monies from Retirement Plans and determine the proper allocation of such monies to the Retirement Accounts based upon instructions received from Retirement Plan participants or Retirement Plan administrators ("Administrators"); o Process orders received from recordkeepers and banks and brokers for omnibus accounts in accordance with internal policies and procedures established in executed agency agreements and other agreements negotiated with banks and brokers; and o Process telephone orders for purchases of Fund shares from the Shareholder's bank account (via wire or ACH) to the Fund in accordance with procedures mutually agreed upon by both parties. Upon receipt of funds through the Federal Reserve Wire System that are designated for purchases in Funds which declare dividends at 12:00 p.m. (or such time as set forth in the Fund's current prospectus), Price Services shall promptly notify the Fund and the Custodian of such deposit. 2. Redemptions Receive for acceptance redemption requests, including telephone redemptions and requests received from Administrators for distributions to participants or their designated beneficiaries or for payment of fees due the Administrator or such other person, including Price Services, and deliver the appropriate documentation thereof to the Custodian. Price Services shall receive and stamp with the date of receipt, all requests for redemptions of Shares (including all certificates delivered to it for redemption) and shall process said redemption requests as follows, subject to the provisions of Section 6 hereof: o Examine the redemption request and, for written redemptions, the supporting documentation, to determine that the request is in good order and all requirements have been met; o Notify the Fund on the next business day of the total number of Shares presented and covered by all such requests; oFor those Funds that impose redemption fees, calculate the fee owed on the redemption in accordance with the guidelines established between the Fund and Price Services; o As set forth in the prospectus of the Fund, and in any event, on or prior to the seventh (7th) calendar day succeeding any such request for redemption, Price Services shall, from funds available in the accounts maintained by Price Services as agent for the Funds, pay the applicable redemption price in accordance with the current prospectus of the Fund, to the investor, participant, beneficiary, Administrator or such other person, as the case may be; o Instruct custodian to wire redemption proceeds to a designated bank account of Price Services. Subject to guidelines mutually agreed upon by the Funds and Price Services, excess balances, if any, resulting from deposit in these bank accounts will be invested and the income therefrom will be used to offset fees which would otherwise be charged to the Funds under this Agreement; o If any request for redemption does not comply with the Fund's requirements, Price Services shall promptly notify the investor of such fact, together with the reason therefore, and shall effect such redemption at the price in effect at the time of receipt of all appropriate documents; o Make such withholdings as may be required under applicable Federal tax laws; o In the event redemption proceeds for the payment of fees are to be wired through the Federal Reserve Wire System or by bank wire, Price Services shall cause such proceeds to be wired in Federal funds to the bank account designated by Shareholder; and o Process periodic redemption orders as authorized by the investor in accordance with the periodic withdrawal procedures for Systematic Withdrawal Plan ("SWP") and systematic ACH redemptions mutually agreed upon by both parties. Procedures and requirements for effecting and accepting redemption orders from investors by telephone, Tele*Access, computer, or written instructions shall be established by mutual agreement between Price Services and the Fund consistent with the Fund's current prospectus. 3. Transfers Effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions and documentation and examine such instructions for conformance with appropriate procedures and requirements. In this regard, Price Services, upon receipt of a proper request for transfer, including any transfer involving the surrender of certificates of Shares, is authorized to transfer, on the records of the Fund, Shares of the Fund, including cancellation of surrendered certificates, if any, to credit a like amount of Shares to the transferee. 4. Confirmations Mail all confirmations and other enclosures requested by the Fund to the shareholder, and in the case of Retirement Accounts, to the Administrators, as may be required by the Funds or by applicable Federal or state law. 5. Returned Checks and ACH Debits In order to minimize the risk of loss to the Fund by reason of any check being returned unpaid, Price Services will promptly identify and follow-up on any check or ACH debit returned unpaid. For items returned, Price Services may telephone the investor and/ or redeposit the check or debit for collection or cancel the purchase, as deemed appropriate. Price Services and the Funds will establish procedures for the collection of money owed the Fund from investors who have caused losses due to these returned items. 6. Redemption of Shares under Ten Day Hold o Uncollected Funds Shares purchased by personal, corporate, or governmental check, or by ACH will be considered uncollected until the tenth calendar date following the trade date of the trade ("Uncollected Funds"); o Good Funds Shares purchased by treasurer's, cashier, certified, or official check, or by wire transfer will be considered collected immediately ("Good Funds"). Absent information to the contrary (i.e., notification from the payee institution), Uncollected Funds will be considered Good Funds on the tenth calendar day following trade date. o Redemption of Uncollected Funds o Shareholders making telephone requests for redemption of shares purchased with Uncollected Funds will be given two options: 1. The Shareholder will be permitted to exchange to a money market fund to preserve principal until the payment is deemed Good Funds; 2. The redemption can be processed utilizing the same procedures for written redemptions described below. o If a written redemption request is made for shares where any portion of the payment for said shares is in Uncollected Funds, and the request is in good order, Price Services will promptly obtain the information relative to the payment necessary to determine when the payment becomes Good Funds. The redemption will be processed in accordance with normal procedures, and the proceeds will be held until confirmation that the payment is Good Funds. On the seventh (7th) calendar day after trade date, and each day thereafter until either confirmation is received or the tenth (10th) calendar day, Price Services will call the paying institution to request confirmation that the check or ACH in question has been paid. On the tenth calendar day after trade date, the redemption proceeds will be released, regardless of whether confirmation has been received. o Checkwriting Redemptions. o Daily, all checkwriting redemptions $10,000 and over reported as Uncollected Funds or insufficient funds will be reviewed. An attempt will be made to contact the shareholder to make good the funds (through wire, exchange, transfer). Generally by 12:00 p.m. the same day, if the matter has not been resolved, the redemption request will be rejected and the check returned to the Shareholder. oAll checkwriting redemptions under $10,000 reported as Uncollected or insufficient funds will be rejected and the check returned to the Shareholder. The Funds and Services may agree to contact shareholders presenting checks under $10,000 reported as insufficient to obtain alternative instructions for payment. o Confirmations of Available Funds The Fund expects that situations may develop whereby it would be beneficial to determine if a person who has placed an order for Shares has sufficient funds in his or her checking account to cover the payment for the Shares purchased. When this situation occurs, Price Services may call the bank in question and request that it confirm that sufficient funds to cover the purchase are currently credited to the account in question. Price Services will maintain written documentation or a recording of each telephone call which is made under the procedures outlined above. None of the above procedures shall preclude Price Services from inquiring as to the status of any check received by it in payment for the Fund's Shares as Price Services may deem appropriate or necessary to protect both the Fund and Price Services. If a conflict arises between Section 2 and this Section 6, Section 6 will govern. 7. Dividends, Distributions and Other Corporate Actions o The Fund will promptly inform Price Services of the declaration of any dividend, distribution, stock split or any other distributions of a similar kind on account of its Capital Stock. o Price Services shall act as Dividend Disbursing Agent for the Fund, and as such, shall prepare and make income and capital gain payments to investors. As Dividend Disbursing Agent, Price Services will on or before the payment date of any such dividend or distribution, notify the Custodian of the estimated amount required to pay any portion of said dividend or distribution which is payable in cash, and the Fund agrees that on or about the payment date of such distribution, it shall instruct the Custodian to make available to Price Services sufficient funds for the cash amount to be paid out. If an investor is entitled to receive additional Shares by virtue of any such distribution or dividend, appropriate credits will be made to his or her account. 8. Unclaimed Payments and Certificates In accordance with procedures agreed upon by both parties, report abandoned property to appropriate state and governmental authorities of the Fund. Price Services shall, 90 days prior to the annual reporting of abandoned property to each of the states, make reasonable attempts to locate Shareholders for which (a) checks or share certificates have been returned; (b) for which accounts have aged outstanding checks; or (c) accounts with unissued shares that have been coded with stop mail and meet the dormancy period guidelines specified in the individual states. Price Services shall make reasonable attempts to contact shareholders for those accounts which have significant aged outstanding checks and those checks meet a specified dollar threshold. 9. Books and Records Maintain records showing for each Shareholder's account, Retirement Plan or Retirement Account, as the case may be, the following: o Names, address and tax identification number; o Number of Shares held; o Certain historical information regarding the account of each Shareholder, including dividends and distributions distributed in cash or invested in Shares; o Pertinent information regarding the establishment and maintenance of Retirement Plans and Retirement Accounts necessary to properly administer each account; o Information with respect to the source of dividends and distributions allocated among income (taxable and nontaxable income), realized short-term gains and realized long-term gains; o Any stop or restraining order placed against a Shareholder's account; o Information with respect to withholdings on domestic and foreign accounts; o Any instructions from a Shareholder including, all forms furnished by the Fund and executed by a Shareholder with respect to (i) dividend or distribution elections, and (ii) elections with respect to payment options in connection with the redemption of Shares; o Any correspondence relating to the current maintenance of a Shareholder's account; o Certificate numbers and denominations for any Shareholder holding certificates; o Any information required in order for Price Services to perform the calculations contemplated under this Agreement. Price Services shall maintain files and furnish statistical and other information as required under this Agreement and as may be agreed upon from time to time by both parties or required by applicable law. However, Price Services reserves the right to delete, change or add any information to the files maintained; provided such deletions, changes or additions do not contravene the terms of this Agreement or applicable law and do not materially reduce the level of services described in this Agreement. Price Services shall also use its best efforts to obtain additional statistical and other information as each Fund may reasonably request for additional fees as may be agreed to by both parties. Any such records maintained pursuant to Rule 31a-1 under the Investment Company Act of 1940 ("the Act") will be preserved for the periods and maintained in a manner prescribed in Rule 31a-2 thereunder. Disposition of such records after such prescribed periods shall be as mutually agreed upon by the Fund and Price Services. The retention of such records, which may be inspected by the Fund at reasonable times, shall be at the expense of the Fund. All records maintained by Price Services in connection with the performance of its duties under this Agreement will remain the property of the Fund and, in the event of termination of this Agreement, will be delivered to the Fund as of the date of termination or at such other time as may be mutually agreed upon. All books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except after prior notification to and approval by the other party hereto, which approval shall not be unreasonably withheld and may not be withheld where Price Services or the Fund may be exposed to civil or criminal contempt proceedings for failure to comply; when requested to divulge such information by duly constituted governmental authorities; or after so requested by the other party hereto. 10. Authorized Issued and Outstanding Shares Record the issuance of Shares of the Fund and maintain, pursuant to Rule 17Ad-10(e) of the '34 Act, a record of the total number of Shares of the Fund which are authorized, issued and outstanding, based upon data provided to it by the Fund. Price Services shall also provide the Fund on a regular basis the total number of Shares which are authorized and issued and outstanding. Price Services shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issuance or sale of such Shares. 11. Tax Information Prepare and file with the Internal Revenue Service and with other appropriate state agencies and, if required, mail to investors, those returns for reporting dividends and distributions paid as required to be so filed and mailed, and shall withhold such sums required to be withheld under applicable Federal income tax laws, rules, and regulations. Additionally, Price Services will file and, as applicable, mail to investors, any appropriate information returns required to be filed in connection with Retirement Plan processing, such as 1099R, 5498, as well as any other appropriate forms that the Fund or Price Services may deem necessary. The Fund and Price Services shall agree to procedures to be followed with respect to Price Services' responsibilities in connection with compliance with back-up withholding and other tax laws. 12. Information to be Furnished to the Fund Furnish to the Fund such information as may be agreed upon between the Fund and Price Services including any information that the Fund and Price Services agree is necessary to the daily operations of the business. 13. Correspondence Promptly and fully answer correspondence from shareholders and Administrators relating to Shareholder Accounts, Retirement Accounts, transfer agent procedures, and such other correspondence as may from time to time be mutually agreed upon with the Funds. Unless otherwise instructed, copies of all correspondence will be retained by Price Services in accordance with applicable law and procedures. 14. Lost or Stolen Securities Pursuant to Rule 17f-1 of the '34 Act, report to the Securities Information Center and/or the FBI or other appropriate person on Form X-17-F-1A all lost, stolen, missing or counterfeit securities. Provide any other services relating to lost, stolen or missing securities as may be mutually agreed upon by both parties. 15. Telephone Services Maintain a Telephone Servicing Staff of representatives ("Representatives") sufficient to timely respond to all telephonic inquiries reasonably foreseeable. The Representatives will also effect telephone purchases, redemptions, exchanges, and other transactions mutually agreed upon by both parties, for those Shareholders who have authorized telephone services. The Representatives shall require each Shareholder effecting a telephone transaction to properly identify himself/herself before the transaction is effected, in accordance with procedures agreed upon between by both parties. Procedures for processing telephone transactions will be mutually agreed upon by both parties. Price Services will also be responsible for providing Tele*Access, PC*Access and such other Services as may be offered by the Funds from time to time. Price Services will maintain a special Shareholder Servicing staff to service certain Shareholders with substantial relationships with the Funds. 16. Collection of Shareholder Fees Calculate and notify shareholders of any fees owed the Fund, its affiliates or its agents. Such fees include the small account fee IRA custodial fee and wire fee. 17. Form N-SAR Maintain such records, if any, as shall enable the Fund to fulfill the requirements of Form N-SAR. 18. Cooperation With Accountants Cooperate with each Fund's independent public accountants and take all reasonable action in the performance of its obligations under the Agreement to assure that the necessary information is made available to such accountants for the expression of their opinion without any qualification as to the scope of their examination, including, but not limited to, their opinion included in each such Fund's annual report on Form N-SAR and annual amendment to Form N-1A. 19. Blue Sky Provide to the Fund or its agent, on a daily, weekly, monthly and quarterly basis, and for each state in which the Fund's Shares are sold, sales reports and other materials for blue sky compliance purposes as shall be agreed upon by the parties. 20. Other Services Provide such other services as may be mutually agreed upon between Price Services and the Fund. 21. Fees and Out-of-Pocket Expenses Each Fund shall pay to Price Services and/or its agents for its Transfer Agent Services hereunder, fees computed as set forth in Schedule A attached. Except as provided below, Price Services will be responsible for all expenses relating to the providing of Services. Each Fund, however, will reimburse Price Services for the following out-of-pocket expenses and charges incurred in providing Services: o Postage. The cost of postage and freight for mailing materials to Shareholders and Retirement Plan participants, or their agents, including overnight delivery, UPS and other express mail services and special courier services required to transport mail between Price Services locations and mail processing vendors. o Proxies. The cost to mail proxy cards and other material supplied to it by the Fund and costs related to the receipt, examination and tabulation of returned proxies and the certification of the vote to the Fund. o Communications o Print. The printed forms used internally and externally for documentation and processing Shareholder and Retirement Plan participant, or their agent's inquiries and requests; paper and envelope supplies for letters, notices, and other written communications sent to Shareholders and Retirement Plan participants, or their agents. o Print & Mail House. The cost of internal and third party printing and mail house services, including printing of statements and reports. o Voice and Data. The cost of equipment (including associated maintenance), supplies and services used for communicating to and from the Shareholders of the Fund and Retirement Plan participants, or their agents, the Fund's transfer agent, other Fund offices, and other agents of either the Fund or Price Services. These charges shall include: o telephone toll charges (both incoming and outgoing, local, long distance and mailgrams); and o data and telephone lines and associated equipment such as modems, multiplexers, and facsimile equipment. o Record Retention. The cost of maintenance and supplies used to maintain, microfilm, copy, record, index, display, retrieve, and store, in microfiche or microfilm form, documents and records. o Disaster Recovery. The cost of services, equipment, facilities and other charges necessary to provide disaster recovery for any and all services listed in this Agreement. Out-of-pocket costs will be billed at cost to the Funds. Allocation of monthly costs among the Funds will generally be made based upon the number of Shareholder and Retirement Accounts serviced by Price Services each month. Some invoices for these costs will contain costs for both the Funds and other funds serviced by Price Services. These costs will be allocated based on a reasonable allocation methodology. Where possible, such as in the case of inbound and outbound WATS charges, allocation will be made on the actual distribution or usage. C. Representations and Warranties of Price Services Price Services represents and warrants to the Fund that: 1. It is a corporation duly organized and existing and in good standing under the laws of Maryland; 2.It is duly qualified to carry on its business in Maryland, California and Florida; 3. It is empowered under applicable laws and by its charter and by-laws to enter into and perform this Agreement; 4. All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement; 5. It is registered with the Securities and Exchange Commission as a Transfer Agent pursuant to Section 17A of the '34 Act; and 6. It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. D. Representations and Warranties of the Fund The Fund represents and warrants to Price Services that: 1. It is a corporation or business trust duly organized and existing and in good standing under the laws of Maryland or Massachusetts, as the case may be; 2. It is empowered under applicable laws and by its Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws to enter into and perform this Agreement; 3. All proceedings required by said Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws have been taken to authorize it to enter into and perform this Agreement; 4. It is an investment company registered under the Act; and 5. A registration statement under the Securities Act of 1933 ("the '33 Act") is currently effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund being offered for sale. E. Standard of Care/Indemnification Notwithstanding anything to the contrary in this Agreement: 1. Price Services shall not be liable to any Fund for any act or failure to act by it or its agents or subcontractors on behalf of the Fund in carrying or attempting to carry out the terms and provisions of this Agreement provided Price Services has acted in good faith and without negligence or willful misconduct and selected and monitored the performance of its agents and subcontractors with reasonable care. 2. The Fund shall indemnify and hold Price Services harmless from and against all losses, costs, damages, claims, actions and expenses, including reasonable expenses for legal counsel, incurred by Price Services resulting from: (i) any action or omission by Price Services or its agents or subcontractors in the performance of their duties hereunder; (ii) Price Services acting upon instructions believed by it to have been executed by a duly authorized officer of the Fund; or (iii) Price Services acting upon information provided by the Fund in form and under policies agreed to by Price Services and the Fund. Price Services shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or willful misconduct of Price Services or where Price Services has not exercised reasonable care in selecting or monitoring the performance of its agents or subcontractors. 3.Except as provided in Article L of this Agreement, Price Services shall indemnify and hold harmless the Fund from all losses, costs, damages, claims, actions and expenses, including reasonable expenses for legal counsel, incurred by the Fund resulting from the negligence or willful misconduct of Price Services or which result from Price Services' failure to exercise reasonable care in selecting or monitoring the performance of its agents or subcontractors. The Fund shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or willful misconduct of such Fund or its agents or subcontractors; unless such negligence or misconduct is attributable to Price Services. 4. In determining Price Services' liability, an isolated error or omission will normally not be deemed to constitute negligence when it is determined that: o Price Services had in place "appropriate procedures;" othe employee(s) responsible for the error or omission had been reasonably trained and were being appropriately monitored; and o the error or omission did not result from wanton or reckless conduct on the part of the employee(s). It is understood that Price Services is not obligated to have in place separate procedures to prevent each and every conceivable type of error or omission. The term "appropriate procedures" shall mean procedures reasonably designed to prevent and detect errors and omissions. In determining the reasonableness of such procedures, weight will be given to such factors as are appropriate, including the prior occurrence of any similar errors or omissions when such procedures were in place and transfer agent industry standards in place at the time of the occurrence. 5. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes or other causes reasonably beyond its control, such party shall not be liable to the other party for any loss, cost, damage, claim, action or expense resulting from such failure to perform or otherwise from such causes. 6. In order that the indemnification provisions contained in this Article E shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim, or to defend against said claim in its own name or in the name of the other party. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. 7.Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement. F. Dual Interests It is understood that some person or persons may be directors, officers, or shareholders of both the Funds and Price Services (including Price Services's affiliates), and that the existence of any such dual interest shall not affect the validity of this Agreement or of any transactions hereunder except as otherwise provided by a specific provision of applicable law. G. Documentation oAs requested by Price Services, the Fund shall promptly furnish to Price Services the following: o A certified copy of the resolution of the Directors/ Trustees of the Fund authorizing the appointment of Price Services and the execution and delivery of this Agreement; o A copy of the Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws of the Fund and all amendments thereto; o As applicable, specimens of all forms of outstanding and new stock/share certificates in the forms approved by the Board of Directors/Trustees of the Fund with a certificate of the Secretary of the Fund as to such approval; o All account application forms and other documents relating to Shareholders' accounts; o An opinion of counsel for the Fund with respect to the validity of the stock, the number of Shares authorized, the status of redeemed Shares, and the number of Shares with respect to which a Registration Statement has been filed and is in effect; and o A copy of the Fund's current prospectus. The delivery of any such document for the purpose of any other agreement to which the Fund and Price Services are or were parties shall be deemed to be delivery for the purposes of this Agreement. o As requested by Price Services, the Fund will also furnish from time to time the following documents: o Each resolution of the Board of Directors/Trustees of the Fund authorizing the original issue of its Shares; o Each Registration Statement filed with the Securities and Exchange Commission and amendments and orders thereto in effect with respect to the sale of Shares with respect to the Fund; oA certified copy of each amendment to the Articles of Incorporation or Declaration of Trust, and the By-Laws of the Fund; o Certified copies of each vote of the Board of Directors/ Trustees authorizing officers to give instructions to the Transfer Agent; o Such other documents or opinions which Price Services, in its discretion, may reasonably deem necessary or appropriate in the proper performance of its duties; and o Copies of new prospectuses issued. Price Services hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices. H. References to Price Services Each Fund agrees not to circulate any printed matter which contains any reference to Price Services without the prior approval of Price Services, excepting solely such printed matter that merely identifies Price Services as agent of the Fund. The Fund will submit printed matter requiring approval to Price Services in draft form, allowing sufficient time for review by Price Services and its legal counsel prior to any deadline for printing. I. Compliance With Governmental Rules and Regulations Except as otherwise provided in the Agreement and except for the accuracy of information furnished to the Fund by Price Services, each Fund assumes full responsibility for the preparation, contents and distribution of its prospectuses and compliance with all applicable requirements of the Act, the '34 Act, the '33 Act, and any other laws, rules and regulations of governmental authorities having jurisdiction over the Fund. Price Services shall be responsible for complying with all laws, rules and regulations of governmental authorities having jurisdiction over transfer agents and their activities. J. Ownership of Software and Related Material All computer programs, magnetic tapes, written procedures and similar items purchased and/or developed and used by Price Services in performance of the Agreement shall be the property of Price Services and will not become the property of the Fund. K. Quality Service Standards Price Services and the Fund may from time to time agree to certain quality service standards, as well as incentives and penalties with respect to Price Services' hereunder. L. As Of Transactions For purposes of this Article L, the term "Transaction" shall mean any single or "related transaction" (as defined below) involving the purchase or redemption of Shares (including exchanges) that is processed at a time other than the time of the computation of the Fund's net asset value per Share next computed after receipt of any such transaction order by Price Services due to an act or omission of Price Services. "As Of Processing" refers to the processing of these Transactions. If more than one Transaction ("Related Transaction") in the Fund is caused by or occurs as a result of the same act or omission, such transactions shall be aggregated with other transactions in the Fund and be considered as one Transaction. o Reporting Price Services shall: 1. Utilize a system to identify all Transactions, and shall compute the net effect of such Transactions upon the Fund on a daily, monthly and rolling 365 day basis. The monthly and rolling 365 day periods are hereafter referred to as "Cumulative". 2. Supply to the Fund, from time to time as mutually agreed upon, a report summarizing the Transactions and the daily and Cumulative net effects of such Transactions both in terms of aggregate dilution and loss ("Dilution") or gain and negative dilution ("Gain") experienced by the Fund, and the impact such Gain or Dilution has had upon the Fund's net asset value per Share. 3. With respect to any Transaction which causes Dilution to the Fund of $100,000 or more, immediately provide the Fund: (i) a report identifying the Transaction and the Dilution resulting therefrom, (ii) the reason such Transaction was processed as described above, and (iii) the action that Price Services has or intends to take to prevent the reoccurrence of such as of processing ("Report"). o Liability 1. It will be the normal practice of the Funds not to hold Price Services liable with respect to any Transaction which causes Dilution to any single Fund of less than $25,000. Price Services will, however, closely monitor for each Fund the daily and Cumulative Gain/Dilution which is caused by Transactions of less than $25,000. When the Cumulative Dilution to any Fund exceeds 3/ 10 of 1% per share, Price Services, in consultation with counsel to the Fund, will make appropriate inquiry to determine whether it should take any remedial action. Price Services will report to the Board of Directors/Trustees of the Fund ("Board") any action it has taken. 2. Where a Transaction causes Dilution to a Fund greater than $25,000 ("Significant Transaction"), but less than $100,000, Price Services will review with Counsel to the Fund the circumstances surrounding the underlying Transaction to determine whether the Transaction was caused by or occurred as a result of a negligent act or omission by Price Services. If it is determined that the Dilution is the result of a negligent action or omission by Price Services, Price Services and outside counsel for the Fund will negotiate settlement. All such Significant Transactions will be reported to the Audit Committee at its annual meeting (unless the settlement fully compensates the Fund for any dilution). Any significant Transaction, however, causing Dilution in excess of the lesser of $100,000 or a penny per share will be PROMPTLY reported to the Board and resolved at the next scheduled Board Meeting. Settlement for significant Transactions causing Dilution of $100,000 or more will not be entered into until approved by the Board. The factors to consider in making any determination regarding the settlement of a Significant Transaction would include but not be limited to: o Procedures and controls adopted by Price Services to prevent As Of Processing; o Whether such procedures and controls were being followed at the time of the Significant Transaction; o The absolute and relative volume of all transactions processed by Price Services on the day of the Significant Transaction; o The number of Transactions processed by Price Services during prior relevant periods, and the net Dilution/Gain as a result of all such Transactions to the Fund and to all other Price Funds; o The prior response of Price Services to recommendations made by the Funds regarding improvement to the Transfer Agent's As Of Processing procedures. 3. In determining Price Services' liability with respect to a Significant Transaction, an isolated error or omission will normally not be deemed to constitute negligence when it is determined that: o Price Services had in place "appropriate procedures". o the employee(s) responsible for the error or omission had been reasonably trained and were being appropriately monitored; and o the error or omission did not result from wanton or reckless conduct on the part of the employee(s). It is understood that Price Services is not obligated to have in place separate procedures to prevent each and every conceivable type of error or omission. The term "appropriate procedures" shall mean procedures reasonably designed to prevent and detect errors and omissions. In determining the reasonableness of such procedures, weight will be given to such factors as are appropriate, including the prior occurrence of any similar errors or omissions when such procedures were in place and transfer agent industry standards in place at the time of the occurrence. M. Term and Termination of Agreement oThis Agreement shall run for a period of one (1) year from the date first written above and will be renewed from year to year thereafter unless terminated by either party as provided hereunder. o This Agreement may be terminated by the Fund upon one hundred twenty (120) days' written notice to Price Services; and by Price Services, upon three hundred sixty-five (365) days' writing notice to the Fund. o Upon termination hereof, the Fund shall pay to Price Services such compensation as may be due as of the date of such termination, and shall likewise reimburse for out-of-pocket expenses related to its services hereunder. N. Notice Any notice as required by this Agreement shall be sufficiently given (i) when sent to an authorized person of the other party at the address of such party set forth above or at such other address as such party may from time to time specify in writing to the other party; or (ii) as otherwise agreed upon by appropriate officers of the parties hereto. O. Assignment Neither this Agreement nor any rights or obligations hereunder may be assigned either voluntarily or involuntarily, by operation of law or otherwise, by either party without the prior written consent of the other party, provided this shall not preclude Price Services from employing such agents and subcontractors as it deems appropriate to carry out its obligations set forth hereunder. P. Amendment/Interpretive Provisions The parties by mutual written agreement may amend this Agreement at any time. In addition, in connection with the operation of this Agreement, Price Services and the Fund may agree from time to time on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions are to be signed by all parties and annexed hereto, but no such provision shall contravene any applicable Federal or state law or regulation and no such interpretive or additional provision shall be deemed to be an amendment of this Agreement. Q. Further Assurances Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. R. Maryland Law to Apply This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of Maryland. S. Merger of Agreement This Agreement, including the attached Appendices and Schedules supersedes any prior agreement with respect to the subject hereof, whether oral or written. T. Counterparts This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instruments. U. The Parties All references herein to "the Fund" are to each of the Funds listed on Appendix A individually, as if this Agreement were between such individual Fund and Price Services. In the case of a series Fund or trust, all references to "the Fund" are to the individual series or portfolio of such Fund or trust, or to such Fund or trust on behalf of the individual series or portfolio, as appropriate. The "Fund" also includes any T. Rowe Price Funds which may be established after the execution of this Agreement. Any reference in this Agreement to "the parties" shall mean Price Services and such other individual Fund as to which the matter pertains. V. Directors, Trustees and Shareholders and Massachusetts Business Trust It is understood and is expressly stipulated that neither the holders of Shares in the Fund nor any Directors or Trustees of the Fund shall be personally liable hereunder. With respect to any Fund which is a party to this Agreement and which is organized as a Massachusetts business trust, the term "Fund" means and refers to the trustees from time to time serving under the applicable trust agreement (Declaration of Trust) of such Trust as the same may be amended from time to time. It is expressly agreed that the obligations of any such Trust hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but bind only the trust property of the Trust, as provided in the Declaration of Trust of the Trust. The execution and delivery of this Agreement has been authorized by the trustees and signed by an authorized officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them, but shall bind only the trust property of the Trust as provided in its Declaration of Trust. W. Captions The captions in the Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers. T. ROWE PRICE SERVICES, INC. T. ROWE PRICE FUNDS /s/James S. Riepe /s/Carmen F. Deyesu BY: __________________________ BY: ________________________ James S. Riepe Carmen F. Deyesu DATED: ________________________ DATED: _______________________ APPENDIX A T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE FIXED INCOME SERIES, INC. T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund INSTITUTIONAL EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Stock Portfolio T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE REAL ESTATE FUND, INC. RESERVE INVESTMENT FUNDS, INC. Reserve Investment Fund Government Reserve Investment Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE SMALL-CAP STOCK FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund New Jersey Tax-Free Bond Fund Virginia Tax-Free Bond Fund Virginia Short-Term Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of the: T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. on behalf of the: T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund T. ROWE PRICE VALUE FUND, INC. AMENDMENT NO. 1 TRANSFER AGENCY AND SERVICE AGREEMENT BETWEEN T. ROWE PRICE SERVICES, INC. AND THE T. ROWE PRICE FUNDS The Transfer Agency and Service Agreement of January 1, 1998, between T. Rowe Price Services, Inc., and each of the Parties listed on Appendix A thereto is hereby amended, as of January 21, 1998, by adding thereto T. Rowe Price Index Trust, Inc., on behalf of T. Rowe Price Extended Equity Market Index Fund and T. Rowe Price Total Equity Market Index Fund. T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE FIXED INCOME SERIES, INC. T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index 500 Fund T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund INSTITUTIONAL EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Stock Portfolio T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE REAL ESTATE FUND, INC. RESERVE INVESTMENT FUNDS, INC. Reserve Investment Fund Government Reserve Investment Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE SMALL-CAP STOCK FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund New Jersey Tax-Free Bond Fund Virginia Tax-Free Bond Fund Virginia Short-Term Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund T. ROWE PRICE VALUE FUND, INC. Attest: /s/Patricia S. Butcher /s/Carmen F. Deyesu ______________________ ______________________________ Patricia S. Butcher, By: Carmen F. Deyesu Assistant Secretary Treasurer Attest: T. ROWE PRICE SERVICES, INC. /s/Barbara A. Van Horn /s/Henry H. Hopkins ______________________ ______________________________ Barbara A. Van Horn, By: Henry H. Hopkins, Assistant Secretary Vice President AMENDMENT NO. 2 TRANSFER AGENCY AND SERVICE AGREEMENT BETWEEN T. ROWE PRICE SERVICES, INC. AND THE T. ROWE PRICE FUNDS The Transfer Agency and Service Agreement of January 1, 1998, as amended January 21, 1998 between T. Rowe Price Services, Inc., and each of the Parties listed on Appendix A thereto is hereby amended, as of October 30, 1998, by adding thereto T. Rowe Price Prime Reserve Fund, Inc., on behalf of T. Rowe Price Prime Reserve Fund--PLUS Class and T. Rowe Price Tax-Exempt Money Fund, Inc., on behalf of T. Rowe Price Tax-Exempt Money Fund--PLUS Class. T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE FIXED INCOME SERIES, INC. T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index 500 Fund T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund INSTITUTIONAL EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Stock Portfolio T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. Rowe Price Prime Reserve Fund--PLUS Class T. ROWE PRICE REAL ESTATE FUND, INC. RESERVE INVESTMENT FUNDS, INC. Reserve Investment Fund Government Reserve Investment Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE SMALL-CAP STOCK FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund New Jersey Tax-Free Bond Fund Virginia Tax-Free Bond Fund Virginia Short-Term Tax-Free Bond Fund Florida Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. Rowe Price Tax-Exempt Money Fund--PLUS Class T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund T. ROWE PRICE VALUE FUND, INC. Attest: /s/Patricia S. Lippert /s/Carmen F. Deyesu ______________________ ______________________________ Patricia S. Lippert, By: Carmen F. Deyesu Secretary Treasurer Attest: T. ROWE PRICE SERVICES, INC. /s/Barbara A. Van Horn /s/Henry H. Hopkins ______________________ ______________________________ Barbara A. Van Horn, By: Henry H. Hopkins, Assistant Secretary Vice President AMENDMENT NO. 3 TRANSFER AGENCY AND SERVICE AGREEMENT BETWEEN T. ROWE PRICE SERVICES, INC. AND THE T. ROWE PRICE FUNDS The Transfer Agency and Service Agreement of January 1, 1998, as amended January 21, 1998, and October 30, 1998 between T. Rowe Price Services, Inc., and each of the Parties listed on Appendix A thereto is hereby amended, as of November 11, 1998, by adding thereto T. Rowe Price International Funds, Inc., on behalf of T. Rowe Price International Growth & Income Fund. T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE FIXED INCOME SERIES, INC. T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index 500 Fund T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund INSTITUTIONAL EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. Rowe Price International Growth & Income Fund T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Stock Portfolio T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. Rowe Price Prime Reserve Fund--PLUS Class T. ROWE PRICE REAL ESTATE FUND, INC. RESERVE INVESTMENT FUNDS, INC. Reserve Investment Fund Government Reserve Investment Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE SMALL-CAP STOCK FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund New Jersey Tax-Free Bond Fund Virginia Tax-Free Bond Fund Virginia Short-Term Tax-Free Bond Fund Florida Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. Rowe Price Tax-Exempt Money Fund--PLUS Class T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund T. ROWE PRICE VALUE FUND, INC. Attest: /s/Patricia S. Lippert /s/Carmen F. Deyesu ______________________ ______________________________ Patricia S. Lippert, By: Carmen F. Deyesu Secretary Treasurer Attest: T. ROWE PRICE SERVICES, INC. /s/Barbara A. Van Horn /s/Henry H. Hopkins ______________________ ______________________________ Barbara A. Van Horn, By: Henry H. Hopkins, Assistant Secretary Vice President EX-99.B9B-FUNDACCT 5 FUND ACCOUNTING AGREEMENT The Agreement between T. Rowe Price Associates, Inc. and T. Rowe Price Funds for Fund Accounting Services, dated January 1, 1998, as amended. AGREEMENT between T. ROWE PRICE ASSOCIATES, INC. and THE T. ROWE PRICE FUNDS for FUND ACCOUNTING SERVICES TABLE OF CONTENTS Page Article A Terms of Appointment/Duties of Price Associates 1 Article B Fees and Out-of-Pocket Expenses 3 Article C Representations and Warranties of Price Associates3 Article D Representations and Warranties of the Fund 4 Article E Ownership of Software and Related Material 4 Article F Quality Service Standards 4 Article G Standard of Care/Indemnification 4 Article H Dual Interests 7 Article I Documentation 7 Article J Recordkeeping/Confidentiality 7 Article K Compliance with Governmental Rules and Regulations 8 Article L Terms and Termination of Agreement 8 Article M Notice 9 Article N Assignment 9 Article O Amendment/Interpretive Provisions 9 Article P Further Assurances 10 Article Q Maryland Law to Apply 10 Article R Merger of Agreement 10 Article S Counterparts 10 Article T The Parties 10 Article U Directors, Trustee and Shareholders and Massachusetts Business Trust 10 Article V Captions 11 AGREEMENT made as of the first day of January, 1998, by and between T. ROWE PRICE ASSOCIATES, INC., a Maryland corporation having its principal office and place of business at 100 East Pratt Street, Baltimore, Maryland 21202 ("Price Associates"), and each Fund which is listed on Appendix A (as such Appendix may be amended from time to time) and which evidences its agreement to be bound hereby by executing a copy of this Agreement (each such Fund individually hereinafter referred to as "the Fund", whose definition may be found in Article T); WHEREAS, Price Associates has the capability of providing the Funds with certain accounting services ("Accounting Services"); WHEREAS, the Fund desires to appoint Price Associates to provide these Accounting Services and Price Associates desires to accept such appointment; WHEREAS, the Board of Directors of the Fund has authorized the Fund to utilize various pricing services for the purpose of providing to Price Associates securities prices for the calculation of the Fund's net asset value. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: A. Terms of Appointment/Duties of Price Associates Subject to the terms and conditions set forth in this Agreement, the Fund hereby employs and appoints Price Associates to provide, and Price Associates agrees to provide, the following Accounting Services: a.Maintain for each Fund a daily trial balance, a general ledger, subsidiary records and capital stock accounts; b. Maintain for each Fund an investment ledger, including amortized bond and foreign dollar denominated costs where applicable; c. Maintain for each Fund all records relating to the Fund's income and expenses; d. Provide for the daily valuation of each Fund's portfolio securities and the computation of each Fund's daily net asset value per share. Such daily valuations shall be made in accordance with the valuation policies established by each of the Fund's Board of Directors including, but not limited to, the utilization of such pricing valuation sources and/or pricing services as determined by the Boards. Price Associates shall have no liability for any losses or damages incurred by the Fund as a result of erroneous portfolio security evaluations provided by such designated sources and/or pricing services; provided that, Price Associates reasonably believes the prices are accurate, has adhered to its normal verification control procedures, and has otherwise met the standard of care as set forth in Article G of this Agreement; e. Provide daily cash flow and transaction status information to each Fund's adviser; f. Authorize the payment of Fund expenses, either through instruction of custodial bank or utilization of custodian's automated transfer system; g. Prepare for each Fund such financial information that is reasonably necessary for shareholder reports, reports to the Board of Directors and to the officers of the Fund, and reports to the Securities and Exchange Commission, the Internal Revenue Service and other Federal and state regulatory agencies; h. Provide each Fund with such advice that may be reasonably necessary to properly account for all financial transactions and to maintain the Fund's accounting procedures and records so as to insure compliance with generally accepted accounting and tax practices and rules; i. Maintain for each Fund all records that may be reasonably required in connection with the audit performed by each Fund's independent accountant, the Securities and Exchange Commission, the Internal Revenue Service or such other Federal or state regulatory agencies; and j. Cooperate with each Fund's independent public accountants and take all reasonable action in the performance of its obligations under the Agreement to assure that the necessary information is made available to such accountants for the expression of their opinion without any qualification as to the scope of their examination including, but not limited to, their opinion included in each such Fund's annual report on Form N-SAR and annual amendment to Form N-1A. B. Fees and Out-of-Pocket Expenses Each Fund shall pay to Price Associates for its Accounting Services hereunder, fees as set forth in the Schedule attached hereto. In addition, each Fund will reimburse Price Associates for out-of-pocket expenses such as postage, printed forms, voice and data transmissions, record retention, disaster recovery, third party vendors, equipment leases and other similar items as may be agreed upon between Price Associates and the Fund. Some invoices will contain costs for both the Funds and other funds serviced by Price Associates. In these cases, a reasonable allocation methodology will be used to allocate these costs to the Funds. C. Representations and Warrantees of Price Associates Price Associates represents and warrants to the Fund that: 1. It is a corporation duly organized and existing in good standing under the laws of Maryland. 2. It is duly qualified to carry on its business in Maryland. 3. It is empowered under applicable laws and by its charter and By-Laws to enter into and perform this Agreement. 4. All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 5. It has, and will continue to have, access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. D. Representations and Warrantees of the Fund The Fund represents and warrants to Price Associates that: 1. It is a corporation or business trust, as the case may be, duly organized and existing and in good standing under the laws of Maryland or Massachusetts, as the case may be. 2. It is empowered under applicable laws and by its Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws have been taken to authorize it to enter into and perform this Agreement. 3. All proceedings required by said Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws have been taken to authorize it to enter into and perform this Agreement. E. Ownership of Software and Related Material All computer programs, magnetic tapes, written procedures, and similar items purchased and/or developed and used by Price Associates in performance of the Agreement shall be the property of Price Associates and will not become the property of the Funds. F. Quality Service Standards Price Associates and the Fund may, from time to time, agree to certain quality service standards, with respect to Price Associates' services hereunder. G. Standard of Care/Indemnification Notwithstanding anything to the contrary in this Agreement: 1.Where a Pricing Error results in loss or dilution to a Fund of less than $10,000, the determination of liability for the error will be made by Price Associates. Where a Pricing Error results in loss or dilution to a Fund of $10,000 or more but less than $100,000, liability for the error will be resolved through negotiations between Fund Counsel and Price Associates. Where a Pricing Error results in loss or dilution to a Fund of the lesser of 1/2 of 1% of NAV or $100,000 or more, the error will be promptly reported to the Board of Directors of the Fund (unless the Fund is fully compensated for the loss or dilution), provided that final settlement with respect to such errors will not be made until approved by the Board of Directors of the Fund. A summary of all Pricing Errors and their effect on the Funds will be reported to the Funds' Audit Committee on an annual basis. In determining the liability of Price Associates for a Pricing Error, an error or omission will not be deemed to constitute negligence when it is determined that: o Price Associates had in place "appropriate procedures and an adequate system of internal controls;" o the employee responsible for the error or omission had been reasonably trained and was being appropriately monitored; and o the error or omission did not result from wanton or reckless conduct on the part of the employee. It is understood that Price Associates is not obligated to have in place separate procedures to prevent each and every conceivable type of error or omission. The term "appropriate procedures and adequate system of internal controls" shall mean procedures and controls reasonably designed to prevent and detect errors and omissions. In determining the reasonableness of such procedures and controls, weight will be given to such factors as are appropriate, including the prior occurrence of any similar errors or omissions, when such procedures and controls were in place and fund accounting industry standards in place at the time of the error. 2. The Fund shall indemnify and hold Price Associates harmless from and against all losses, costs, damages, claims, actions, and expenses, including reasonable expenses for legal counsel, incurred by Price Associates resulting from: (i) any action or omission by Price Associates or its agents or subcontractors in the performance of their duties hereunder; (ii) Price Associates acting upon instructions believed by it to have been executed by a duly authorized officer of the Fund; or (iii) Price Associates acting upon information provided by the Fund in form and under policies agreed to by Price Associates and the Fund. Price Associates shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or willful misconduct of Price Associates or where Price Associates has not exercised reasonable care in selecting or monitoring the performance of its agents or subcontractors. 3. Price Associates shall indemnify and hold harmless the Fund from all losses, costs, damages, claims, actions and expenses, including reasonable expenses for legal counsel, incurred by the Fund resulting from the negligence or willful misconduct of Price Associates or which result from Price Associates' failure to exercise reasonable care in selecting or monitoring the performance of its agents or subcontractors. The Fund shall not be entitled to such indemnification with respect to actions or omissions constituting negligence or willful misconduct of such Fund or its agents or subcontractors; unless such negligence or misconduct is attributable to Price Associates. 4. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes or other causes reasonably beyond its control, such party shall not be liable to the other party for any loss, cost, damage, claim, action or expense resulting from such failure to perform or otherwise from such causes. 5. In order that the indemnification provisions contained in this Article G shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim, or to defend against said claim in its own name or in the name of the other party. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. 6.Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement. H. Dual Interests It is understood that some person or persons may be directors, officers, or shareholders of both the Fund and Price Associates (including Price Associates' affiliates), and that the existence of any such dual interest shall not affect the validity of this Agreement or of any transactions hereunder except as otherwise provided by a specific provision of applicable law. I. Documentation As requested by Price Associates, the Fund shall promptly furnish to Price Associates such documents as it may reasonably request and as are necessary for Price Associates to carry out its responsibilities hereunder. J. Recordkeeping/Confidentiality 1. Price Associates shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable, provided that Price Associates shall keep all records in such form and in such manner as required by applicable law, including the Investment Company Act of 1940 ("the Act") and the Securities Exchange Act of 1934 ("the '34 Act"). 2. Price Associates and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except: (a) after prior notification to and approval in writing by the other party hereto, which approval shall not be unreasonably withheld and may not be withheld where Price Associates or Fund may be exposed to civil or criminal contempt proceedings for failure to comply; (b) when requested to divulge such information by duly constituted governmental authorities; or (c) after so requested by the other party hereto. K. Compliance With Governmental Rules and Regulations Except as otherwise provided in the Agreement and except for the accuracy of information furnished to the Funds by Price Associates, each Fund assumes full responsibility for the preparation, contents and distribution of its prospectuses, and for complying with all applicable requirements of the Act, the '34 Act, the Securities Act of 1933 (the "33 Act"), and any laws, rules and regulations of governmental authorities having jurisdiction over the Funds. L. Term and Termination of Agreement 1.This Agreement shall run for a period of one (1) year from the date first written above and will be renewed from year to year thereafter unless terminated by either party as provided hereunder. 2. This Agreement may be terminated by the Fund upon sixty (60) days' written notice to Price Associates; and by Price Associates, upon three hundred sixty-five (365) days' writing notice to the Fund. 3.Upon termination hereof, the Fund shall pay to Price Associates such compensation as may be due as of the date of such termination, and shall likewise reimburse for out-of-pocket expenses related to its services hereunder. M. Notice Any notice as required by this Agreement shall be sufficiently given (i) when sent to an authorized person of the other party at the address of such party set forth above or at such other address as such party may from time to time specify in writing to the other party; or (ii) as otherwise agreed upon by appropriate officers of the parties hereto. N. Assignment Neither this Agreement nor any rights or obligations hereunder may be assigned either voluntarily or involuntarily, by operation of law or otherwise, by either party without the prior written consent of the other party, provided this shall not preclude Price Associates from employing such agents and subcontractors as it deems appropriate to carry out its obligations set forth hereunder. O. Amendment/Interpretive Provisions The parties by mutual written agreement may amend this Agreement at any time. In addition, in connection with the operation of this Agreement, Price Associates and the Fund may agree from time to time on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions are to be signed by all parties and annexed hereto, but no such provision shall contravene any applicable Federal or state law or regulation and no such interpretive or additional provision shall be deemed to be an amendment of this Agreement. P. Further Assurances Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. Q. Maryland Law to Apply This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of Maryland. R. Merger of Agreement This Agreement, including the attached Appendix and Schedule supersedes any prior agreement with respect to the subject hereof, whether oral or written. S. Counterparts This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instruments. T. The Parties All references herein to "the Fund" are to each of the Funds listed on Appendix A individually, as if this Agreement were between such individual Fund and Price Associates. In the case of a series Fund or trust, all references to "the Fund" are to the individual series or portfolio of such Fund or trust, or to such Fund or trust on behalf of the individual series or portfolio, as appropriate. The "Fund" also includes any T. Rowe Price Funds which may be established after the execution of this Agreement. Any reference in this Agreement to "the parties" shall mean Price Associates and such other individual Fund as to which the matter pertains. U. Directors, Trustees and Shareholders and Massachusetts Business Trust It is understood and is expressly stipulated that neither the holders of shares in the Fund nor any Directors or Trustees of the Fund shall be personally liable hereunder. With respect to any Fund which is a party to this Agreement and which is organized as a Massachusetts business trust, the term "Fund" means and refers to the trustees from time to time serving under the applicable trust agreement (Declaration of Trust) of such Trust as the same may be amended from time to time. It is expressly agreed that the obligations of any such Trust hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but bind only the trust property of the Trust, as provided in the Declaration of Trust of the Trust. The execution and delivery of this Agreement has been authorized by the trustees and signed by an authorized officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them, but shall bind only the trust property of the Trust as provided in its Declaration of Trust. V. Captions The captions in the Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers. T. ROWE PRICE ASSOCIATES, INC. T. ROWE PRICE FUNDS /s/Alvin Younger, Jr. /s/Carmen F. Deyesu BY: ____________________ BY: _____________________ Alvin Younger, Jr. Carmen F. Deyesu DATED: __________________ DATED: _____________________ APPENDIX A T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE FIXED INCOME SERIES, INC. T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund INSTITUTIONAL EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Stock Portfolio T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE REAL ESTATE FUND, INC. RESERVE INVESTMENT FUNDS, INC. Reserve Investment Fund Government Reserve Investment Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE SMALL-CAP STOCK FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund New Jersey Tax-Free Bond Fund Virginia Tax-Free Bond Fund Virginia Short-Term Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund T. ROWE PRICE VALUE FUND, INC. AMENDMENT NO. 1 AGREEMENT BETWEEN T. ROWE PRICE ASSOCIATES, INC. AND THE T. ROWE PRICE FUNDS FOR FUND ACCOUNTING SERVICES The Agreement for Fund Accounting Services of January 1, 1998, between T. Rowe Price Associates, Inc. and each of the Parties listed on Appendix A thereto is hereby amended, as of January 21, 1998, by adding thereto T. Rowe Price Index Trust, Inc., on behalf of T. Rowe Price Extended Equity Market Index Fund and T. Rowe Price Total Equity Market Index Fund. T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE FIXED INCOME SERIES, INC. T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index 500 Fund T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund INSTITUTIONAL EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Stock Portfolio T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE REAL ESTATE FUND, INC. RESERVE INVESTMENT FUNDS, INC. Reserve Investment Fund Government Reserve Investment Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE SMALL-CAP STOCK FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund New Jersey Tax-Free Bond Fund Virginia Tax-Free Bond Fund Virginia Short-Term Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund T. ROWE PRICE VALUE FUND, INC. Attest: /s/Patricia S. Butcher /s/Carmen F. Deyesu ________________________ ______________________________ Patricia S. Butcher, By: Carmen F. Deyesu Assistant Secretary Treasurer Attest: T. ROWE PRICE ASSOCIATES, INC. /s/Barbara A. Van Horn /s/Henry H. Hopkins ________________________ ______________________________ Barbara A. Van Horn, By: Henry H. Hopkins, Assistant Secretary Managing Director AMENDMENT NO. 2 AGREEMENT BETWEEN T. ROWE PRICE ASSOCIATES, INC. AND THE T. ROWE PRICE FUNDS FOR FUND ACCOUNTING SERVICES The Agreement for Fund Accounting Services of January 1, 1998, as amended January 21, 1998 between T. Rowe Price Associates, Inc. and each of the Parties listed on Appendix A thereto is hereby further amended, as of October 30, 1998, by adding thereto T. Rowe Price Prime Reserve Fund, Inc., on behalf of T. Rowe Price Prime Reserve Fund--PLUS Class and T. Rowe Price Tax-Exempt Money Fund, Inc., on behalf of T. Rowe Price Tax-Exempt Money Fund--PLUS Class. T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE FIXED INCOME SERIES, INC. T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index 500 Fund T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund INSTITUTIONAL EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Stock Portfolio T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE REAL ESTATE FUND, INC. T. Rowe Price Prime Reserve Fund--PLUS Class RESERVE INVESTMENT FUNDS, INC. Reserve Investment Fund Government Reserve Investment Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE SMALL-CAP STOCK FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund New Jersey Tax-Free Bond Fund Virginia Tax-Free Bond Fund Virginia Short-Term Tax-Free Bond Fund Florida Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. Rowe Price Tax-Exempt Money Fund--PLUS Class T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund T. ROWE PRICE VALUE FUND, INC. Attest: /s/Patricia S. Lippert /s/Carmen F. Deyesu ________________________ ______________________________ Patricia S. Lippert, By: Carmen F. Deyesu Secretary Treasurer Attest: T. ROWE PRICE ASSOCIATES, INC. /s/Barbara A. Van Horn /s/Henry H. Hopkins ________________________ ______________________________ Barbara A. Van Horn, By: Henry H. Hopkins, Assistant Secretary Managing Director AMENDMENT NO. 3 AGREEMENT BETWEEN T. ROWE PRICE ASSOCIATES, INC. AND THE T. ROWE PRICE FUNDS FOR FUND ACCOUNTING SERVICES The Agreement for Fund Accounting Services of January 1, 1998, as amended January 21, 1998, and October 30, 1998 between T. Rowe Price Associates, Inc. and each of the Parties listed on Appendix A thereto is hereby further amended, as of November 11, 1998, by adding thereto T. Rowe Price International Funds, Inc., on behalf of T. Rowe Price International Growth & Income Fund. T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST California Tax-Free Bond Fund California Tax-Free Money Fund T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE FIXED INCOME SERIES, INC. T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index 500 Fund T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund INSTITUTIONAL EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. Rowe Price International Growth & Income Fund T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Stock Portfolio T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE REAL ESTATE FUND, INC. T. Rowe Price Prime Reserve Fund--PLUS Class RESERVE INVESTMENT FUNDS, INC. Reserve Investment Fund Government Reserve Investment Fund T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE SMALL-CAP STOCK FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE STATE TAX-FREE INCOME TRUST Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund New Jersey Tax-Free Bond Fund Virginia Tax-Free Bond Fund Virginia Short-Term Tax-Free Bond Fund Florida Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. Rowe Price Tax-Exempt Money Fund--PLUS Class T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund T. ROWE PRICE VALUE FUND, INC. Attest: /s/Patricia S. Lippert /s/Carmen F. Deyesu ________________________ ______________________________ Patricia S. Lippert, By: Carmen F. Deyesu Secretary Treasurer Attest: T. ROWE PRICE ASSOCIATES, INC. /s/Barbara A. Van Horn /s/Henry H. Hopkins ________________________ ______________________________ Barbara A. Van Horn, By: Henry H. Hopkins, Assistant Secretary Managing Director EX-99.B9C-RPS 6 RPS AGREEMENT The Agreement between T. Rowe Price Retirement Plan Services, Inc. and the Taxable Funds, dated January 1, 1998, as amended. AGREEMENT between T. ROWE PRICE RETIREMENT PLAN SERVICES, INC. and EACH OF THE PARTIES INDICATED ON APPENDIX A TABLE OF CONTENTS Page Article A Terms of Appointment 2 Article B Duties of RPS 2 1. Contributions - Retirement Plans and Retirement Accounts 2 2. Retirement Plans - Redemptions to Cover Distributions 3 3. Other Provisions 4 4. Exchanges 5 5. Books and Records 5 6. Tax Information 6 7. Other Information to be Furnished to the Funds 6 8. Telephone 6 9. Correspondence 6 10. Prospectuses/Confirmation Statements 7 11. Proxies 7 12. Form N-SAR 7 13. Withholding 7 Article C Fee and Out-of-Pocket Expenses 7 1. Postage 8 2. Proxies 8 3. Communications 8 4. Record Retention 9 5. Disaster Recovery 9 Article D Representations and Warranties of RPS 9 Article E Representations and Warranties of the Fund 9 Article F Standard of Care/Indemnification 10 Article G Dual Interests 12 Article H Documentation 13 Article I Recordkeeping/Confidentiality 14 Article J Ownership of Software and Related Material 15 Article K As of Transactions 15 1. Reporting 15 2. Liability 16 Article L Term and Termination of Agreement 18 Article M Notice 19 Article N Assignment 19 Article O Amendment/Interpretive Provisions 19 Article P Further Assurances 19 Article Q Maryland Law to Apply 19 Article R Merger of Agreement 20 Article S Counterparts 20 Article T The Parties 20 Article U Directors, Trustees and Shareholders and Massachusetts Business Trust 20 Article V Captions 21 AGREEMENT, made as of the first day of January, 1998, by and between T. ROWE PRICE RETIREMENT PLAN SERVICES, INC., a Maryland corporation having its principal office and place of business at 100 East Pratt Street, Baltimore, Maryland 21202 ("RPS"), and EACH FUND WHICH IS LISTED ON APPENDIX A (as such Appendix may be amended from time to time) and which evidences its agreement to be bound hereby by executing a copy of this Agreement (each Fund hereinafter referred to as "the Fund") whose definition may be found in Article T; WHEREAS, the Funds are named investment options under various tax-sheltered plans, including, but not limited to, state and local government deferred compensation plans, 403(b) plans, and profit sharing, thrift, 401(k) and money purchase pension plans for self-employed individuals, professional partnerships and corporations (collectively referred to as "Retirement Plans"); and the Fund has determined that such investments of Retirement Plans in the Funds are in the best long-term interest of the Funds; WHEREAS, RPS has the capability of providing special services, on behalf of the Fund, for the accounts of individuals ("Participants") participating in these Retirement Plans ("Retirement Accounts"); WHEREAS, RPS represents that it is registered with the Securities and Exchange Commission as a Transfer Agent under Section 17A of the Securities Exchange Act of 1934 ("the '34 Act"); WHEREAS, RPS may subcontract or jointly contract with other parties on behalf of the Funds to perform certain of the functions described herein, RPS may also enter into, on behalf of the Funds, certain banking relationships to perform various banking services, including, but not limited to, check deposits, disbursements, automatic clearing house transactions ("ACH") and wire transfers. Subject to guidelines mutually agreed upon by the Funds and RPS, excess balances, if any, resulting from these banking relationships will be invested and the income therefrom will be used to offset fees which would otherwise be charged to the Funds under this Agreement; WHEREAS, the Fund desires to contract with RPS to provide the functions and services described herein in connection with the Retirement Plans and Retirement Accounts; NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: A. Terms of Appointment Subject to the terms and conditions set forth in this Agreement, the Fund hereby employs and appoints RPS to perform the services and functions described herein in connection with certain Retirement Plan and Retirement Accounts as agreed upon by the parties. B. Duties of RPS RPS agrees that it will perform the following services: 1. Contributions - Retirement Plans and Retirement Accounts After RPS has received monies from Retirement Plans and has determined the proper allocation of such monies to the Retirement Accounts of Participants based upon instructions received from Participants, Retirement Plans or their designees, or Retirement Plan Administrator(s) ("Administrator(s)"), RPS will, as a responsibility under the Agreement: a. In the case of a new Participant, establish and maintain a Retirement Account for such Participant; b. Compute the number of shares of each Fund to which the Participant is entitled in accordance with the price per share of such Fund as calculated and provided by the Fund for orders received at that time and date, and purchase the appropriate shares in each such Retirement Account; c. Calculate the aggregate of all purchases in the Retirement Accounts and transmit the net purchase order to T. Rowe Price Services, Inc. ("Services") or directly to the Fund, as the case may be, for purchase into an omnibus account established in each Fund registered in RPS' or its affiliates' name as agent for Retirement Plans or in the individual Retirement Plan's name ("Omnibus Account"); and d. Transmit to Services, by wire, at a time mutually agreed upon by both parties, the aggregate money allocated to coincide with the purchase order. 2. Retirement Plans - Redemptions to Cover Distributions. After RPS has received instructions from the Administrator regarding distributions to be made to Participants or their designated beneficiaries from Funds designated as investment options under the Retirement Plan, RPS will, as a responsibility under the Agreement: a. Compute the number of shares to be redeemed from each such Retirement Account for such distributions in accordance with the price per share of such Fund as calculated and provided by the Fund for orders received in good order at that time and date. b. After such computation, calculate the aggregate amount of all redemptions in the Retirement Accounts. c. Transmit any net redemption order to Services or directly to the Fund, as the case may be, for the Omnibus Account of each Fund. Services will wire proceeds to RPS to coincide with the redemption order for each Omnibus Account. RPS will Distribute to Participants or their designated beneficiaries the amount to be disbursed. d. After RPS has received instructions from the Administrator regarding disbursements to be made regarding the payment of fees due the Administrator, or other persons including RPS, RPS will, as a responsibility under this Agreement: i. Compute the number of shares to be redeemed from each Retirement Account to pay for such disbursements and the total number of all shares to be redeemed in accordance with the price per share for order received in good order at that time and date, of such Fund as calculated and provided by the Fund; ii. Inform Services, or the Funds directly, as the case may be, of the necessary Shares to be redeemed from the Omnibus Account of the Funds to cover such disbursements; and iii. Mail or wire to the Administrator or such other person as designated by the Administrator the amount to be disbursed. 3. Other Provisions a. If any instruction tendered by an Administrator to purchase or redeem shares in a Retirement Account is not satisfactory to RPS, RPS shall promptly notify the Administrator of such fact together with the reason therefor; b. The authority of RPS to perform its responsibilities under Paragraph B(2) with respect to each Fund shall be suspended upon RPS's receipt of notification from such Fund of the suspension of the determination of the Fund's net asset value per share and shall remain suspended until RPS receives proper notification from the Fund; and c. The Fund will promptly inform RPS of the declaration of any dividend or distribution on account of the capital stock of any Fund so that RPS may properly credit income and capital gain payments to each Retirement Account. 4. Exchanges Effect exchanges of shares of the Funds in the Retirement Accounts upon receipt of appropriate instructions from the Administrator and/or Participant in accordance with the price per share of the Funds as calculated and provided by the Fund for orders received in good order at that time and date. Calculate and transmit a net purchase and redemption order to Services or the Fund, as the case may be, for the Omnibus Account of each Fund. RPS will transmit by wire the aggregate monies allocated to each Fund to Services to coincide with any net purchase order or instruct Services to wire to it monies from each Fund's Omnibus Account to coincide with any net redemption order. 5. Books and Records RPS shall maintain records showing for each Retirement Plan or Retirement Account, the following: a. Names, addresses and tax identification numbers, when provided; b. Number of shares held of each Fund; c. Historical information regarding the account of each Participant and/or Retirement Plan, including dividends and capital gain distributions invested in shares; d. Any instructions from a Participant or Administrator, including all forms executed by a Participant with respect to elections with respect to payment options in connection with the redemption of shares or distribution elections, if applicable; and e. Any information required in order for RPS to perform the calculations contemplated under this Agreement. Any such records maintained pursuant to Rule 31a-1 under the Investment Company Act of 1940 ("the Act") will be preserved for the periods prescribed in Rule 31a-2 thereunder. Disposition of such records after such prescribed periods shall be as mutually agreed upon from time to time by RPS and the Funds. The retention of such records, which may be inspected by the Fund at reasonable times, shall be at the expense of the Funds. All records maintained by RPS in connection with the performance of its duties under this Agreement will remain the property of the Funds and, in the event of termination of this Agreement, will be delivered to the Fund as of the date of termination of this agreement or at such other time as may be mutually agreed upon. 6. Tax Information RPS shall also prepare and file with appropriate federal and state agencies, such information returns and reports as required by applicable Federal statutes relating to redemptions effected in Retirement Accounts which constitute reportable distributions. RPS will also prepare and submit to Participants, such reports containing information as is required by applicable Federal law. 7. Other Information to be Furnished to the Funds RPS will furnish to the Fund, such information, including Participant lists and statistical information as may be agreed upon from time to time between RPS and the Fund. Permission of the Administrator may also be required. 8. Telephone RPS will promptly respond to any telephone calls from Administrators and/or Participants relating to the Retirement Accounts and/or questions pertaining to the Funds. 9. Correspondence RPS will promptly and fully answer correspondence from Administrators and Participants relating to Retirement Accounts and transfer agent procedures, and such other correspondence as may from time to time be mutually agreed upon with the Funds. Copies of all correspondence will be retained by RPS in accordance with applicable law. 10. Prospectuses/Confirmation Statements RPS will be responsible for mailing all confirmations and statements of transactions, prospectuses, semi-annual and annual reports of the Funds and other enclosures and mailings, as may be requested by the Funds or required by applicable Federal law. 11. Proxies As requested by the Funds, RPS shall assist in the mailing of proxy cards and other material required to be mailed by the Fund in connection with shareholder meetings of the Fund and shall assist in the receipt, examination and tabulation of returned proxies and the certification of the vote to the Fund. 12. Form N-SAR RPS shall maintain such records, if any, as shall enable the Fund to fulfill the requirements of Form N-SAR. 13. Withholding The Fund and RPS shall agree to procedures to be followed with respect to RPS's responsibilities in connection with compliance for federal withholding on distributions to Participants from Retirement Accounts. C. Fees and Out-of-Pocket Expenses Each Fund shall pay to RPS for its services hereunder fees computed as set forth in the Schedule attached hereto. Except as provided below, RPS will be responsible for all expenses relating to the providing of services. Each Fund, however, will reimburse RPS for the following out-of-pocket expenses and charges incurred in providing services: 1. Postage. The cost of postage and freight for mailing materials, including confirmations and statements as well as Fund prospectuses and Fund shareholder reports, to Participants, or their agents, including overnight delivery, UPS and other express mail services and special courier services required to transport mail between RPS locations and mail processing vendors. 2. Proxies. The cost to mail proxy cards and other material supplied to it by the Fund and costs related to the receipt, examination and tabulation of returned proxies and the certification of the vote to the Fund. 3. Communications a. Print. The printed forms used internally and externally for documentation and processing Participant, or their agent's, inquiries and requests; paper and envelope supplies for letters, notices, and other written communications sent to Administrators and Participants, or their agents. b. Print & Mail House. The cost of internal and third party printing and mail house services, including printing of statements and reports. c. Voice and Data. The cost of equipment (including associated maintenance), supplies and services used for communicating with the Participants or their Administrator, the Fund's transfer agent, other Fund offices, and other agents of either the Fund or RPS. These charges shall include: o telephone toll charges (both incoming and outgoing, local, long distance and mailgrams); and o data and telephone lines and associated equipment such as modems, multiplexers, and facsimile equipment. 4.Record Retention. The cost of maintenance and supplies used to maintain, microfilm, copy, record, index, display, retrieve, and store, in microfiche or microfilm form, documents and records. 5.Disaster Recovery. The cost of services, equipment, facilities and other charges necessary to provide disaster recovery for any and all services listed in this Agreement. D. Representations and Warranties of RPS RPS represents and warrants to the Fund that: 1. It is a corporation duly organized and existing and in good standing under the laws of Maryland. 2. It is duly qualified to carry on its business in Maryland. 3. It is empowered under applicable laws and by its charter and by-laws to enter into and perform this Agreement. 4. All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 5. It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. 6. It is registered with the Securities and Exchange Commission as a Transfer Agent pursuant to Section 17A of the '34 Act. E. Representations and Warranties of the Fund The Fund represents and warrants to RPS that: 1. It is a corporation or business trust duly organized and existing and in good standing under the laws of Maryland, or Massachusetts, as the case may be. 2. It is empowered under applicable laws and by its Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws to enter into and perform this Agreement. 3. All proceedings required by said Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws have been taken to authorize it to enter into and perform this Agreement. 4. It is an investment company registered under the Act. 5. A registration statement under the Securities Act of 1933 ("the '33 Act") is currently effective and will remain effective, and appropriate state securities law filing have been made and will continue to be made, with respect to all shares of the Fund being offered for sale. F. Standard of Care/Indemnification Notwithstanding anything to the contrary in this Agreement: 1. RPS shall not be liable to the Fund for any act or failure to act by it or its agents or subcontractors on behalf of the Fund in carrying or attempting to carry out the terms and provisions of this Agreement provided RPS has acted in good faith and without negligence or willful misconduct and selected and monitored the performance of its agents and subcontractors with reasonable care. 2. The Fund shall indemnify and hold RPS harmless from and against all losses, costs, damages, claims, actions and expenses, including reasonable expenses for legal counsel, incurred by RPS resulting from: (i) any action or omission by RPS or its agents or subcontractors in the performance of their duties hereunder; (ii) RPS acting upon instructions reasonably believed by it to have been executed by a duly authorized officer of the Fund; or (iii) RPS acting upon information provided by the Fund in form and under policies agreed to by RPS and the Fund. RPS shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or willful misconduct of RPS or where RPS has not exercised reasonable care in selecting or monitoring the performance of its agents or subcontractors. 3. Except as provided in Article K of this Agreement, RPS shall indemnify and hold harmless the Fund from all losses, costs, damages, claims, actions and expenses, including reasonable expenses for legal counsel, incurred by the Fund resulting from negligence or willful misconduct of RPS or which result from RPS' failure to exercise reasonable care in selecting or monitoring the performance of its agents or subcontractors. The Fund shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or willful misconduct of such Fund or its agents or subcontractors; unless such negligence or misconduct is attributable to RPS. 4. In determining RPS' liability, an isolated error or omission will normally not be deemed to constitute negligence when it is determined that: o RPS had in place "appropriate procedures". o the employees responsible for the error or omission had been reasonably trained and were being appropriately monitored; and o the error or omission did not result from wanton or reckless conduct on the part of the employees. It is understood that RPS is not obligated to have in place separate procedures to prevent each and every conceivable type of error or omission. The term "appropriate procedures" shall mean procedures reasonably designed to prevent and detect errors and omissions. In determining the reasonableness of such procedures, weight will be given to such factors as are appropriate, including the prior occurrence of any similar errors or omissions when such procedures were in place and transfer agent industry standards in place at the time of the occurrence. 5. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes or other causes reasonably beyond its control, such party shall not be liable to the other party for any loss, cost, damage, claims, actions or expense resulting from such failure to perform or otherwise from such causes. 6. In order that the indemnification provisions contained in this Article F shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim, or to defend against said claim in its own name or in the name of the other party. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. 7.Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement. G. Dual Interests It is understood that some person or persons may be directors, officers, or shareholders of both RPS and the Fund and that the existence of any such dual interest shall not affect the validity of this Agreement or of any transactions hereunder except as otherwise provided by a specific provision of applicable law. H. Documentation 1. As requested by RPS, the Fund shall promptly furnish to RPS the following: a. A certified copy of the resolution of the Directors/ Trustees of the Fund authorizing the appointment of RPS and the execution and delivery of this Agreement; b. A copy of the Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws of the Fund and all amendments thereto; c. An opinion of counsel for the Fund with respect to the validity of the stock, the number of Shares authorized, the status of redeemed Shares, and the number of Shares with respect to which a Registration Statement has been filed and is in effect; and d. A copy of the Fund's current and new prospectuses and shareholder reports issued by the Fund. The delivery of any such document to either party hereto for the purpose of any other agreement to which the Fund and RPS are or were parties shall be deemed to be delivery for the purposes of this Agreement. 2. As requested by RPS, the Fund will also furnish to RPS from time to time the following documents: a. Each resolution of the Board of Directors/Trustees of the Fund authorizing the original issue of its shares; b. Each Registration Statement filed with the Securities and Exchange Commission and amendments and orders thereto in effect with respect to the sale of shares with respect to the Fund; c. A certified copy of each amendment to the Articles of Incorporation or Declaration of Trust, and the By-Laws of the Fund; d. Certified copies of each vote of the Board of Directors/Trustees authorizing officers to give instructions to the Fund; and e. Such other documents or opinions which RPS, in its discretion, may reasonably deem necessary or appropriate in the proper performance of its duties under this Agreement. 3. RPS hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of check forms and facsimile signature imprinting devices, if any, and for the preparation or use, and for keeping account of, such forms and devices. I. Recordkeeping/Confidentiality 1. RPS shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable, provided that RPS shall keep all records in such form and in such manner as required by applicable law, including the Act and the '34 Act. 2. RPS and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except: (a) after prior notification to and approval in writing by the other party hereto, which approval shall not be unreasonably withheld and may not be withheld where RPS or the Fund may be exposed to civil or criminal contempt proceedings for failure to comply; (b) when requested to divulge such information by duly constituted governmental authorities; (c) after so requested by the other party hereto; or (d) by the Administrator. The permission of the Administrator may be required before disclosure is made to the Funds. J. Ownership of Software and Related Material All computer programs, magnetic tapes, written procedures and similar items purchased and/or developed and used by RPS in performance of the Agreement shall be the property of RPS and will not become the property of the Fund. K. As Of Transactions For purposes of this Article K, the term "Transaction" shall mean any single or "related transaction" (as defined below) involving the purchase or redemption of shares (including exchanges) processed at a time other than the time of the computation of the Fund's net asset value per share next computed after receipt of any such transaction order by RPS due to an act or omission of RPS. "As Of Processing" refers to the processing of these Transactions. If more than one Transaction ("Related Transaction") in the Fund is caused by or occurs as a result of the same act or omission, such transactions shall be aggregated with other transactions in the Fund and be considered as one Transaction. 1. Reporting RPS shall: a. Utilize a system to identify all Transactions, and shall compute the net effect of such Transactions upon the Fund on a daily, monthly and rolling 365 day basis. The Monthly and rolling 365 day periods are hereinafter referred to as "Cumulative." b. Supply to the Fund, from time to time as mutually agreed upon, a report summarizing the Transactions and the daily and Cumulative net effects of such Transactions both in terms of aggregate dilution and loss ("Dilution") or gain and negative dilution ("Gain") experienced by the Fund, and the impact such Gain or Dilution has had upon the Fund's net asset value per share. c. With respect to any Transaction which causes Dilution to the Fund of $100,000 or more, immediately provide the Fund: (i) a report identifying the Transaction and the Dilution resulting therefrom, (ii) the reason such Transaction was processed as described above, and (iii) the action that RPS has or intends to take to prevent the reoccurrence of such as of processing ("Report"). 2. Liability a. It will be the normal practice of the Fund not to hold RPS liable with respect to any Transaction which causes Dilution to any single Fund of less than $25,000. RPS will, however, closely monitor for each Fund the daily and Cumulative Gain/Dilution which is caused by Transactions of less than $25,000. When the Cumulative Dilution to any Fund exceeds 3/10 of 1% per share, RPS, in consultation with counsel to the Fund, will make appropriate inquiry to determine whether it should take any remedial action. RPS will report to the Board of Directors/Trustees of the Fund ("Board"), as appropriate, any action it has taken. b. Where a Transaction causes Dilution to a Fund greater than $25,000 ("Significant Transaction") but less than $100,000, RPS will review with Counsel to the Fund the circumstances surrounding the underlying Significant Transaction to determine whether the Significant Transaction was caused by or occurred as a result of a negligent act or omission by RPS. If it is determined that the Dilution is the result of a negligent action or omission by RPS, RPS and outside counsel for the Fund will negotiate settlement. All such Significant Transactions will be reported to the Audit Committee at its annual meeting (unless the settlement fully compensates the Fund for any Dilution). Any Significant Transaction, however, causing Dilution in excess of the lesser of $100,000 or a penny per share will be PROMPTLY reported to the Board and resolved at the next scheduled Board Meeting. Settlement for Significant Transactions causing Dilution of $100,000 or more will not be entered into until approved by the Board. The factors to consider in making any determination regarding the settlement of a Significant Transaction would include but not be limited to: i. Procedures and controls adopted by RPS to prevent As Of Processing; ii. Whether such procedures and controls were being followed at the time of the Significant Transaction; iii. The absolute and relative volume of all transactions processed by RPS on the day of the Significant Transaction; iv. The number of Transactions processed by RPS during prior relevant periods, and the net Dilution/Gain as a result of all such Significant Transactions to the Fund and to all other Funds; and v. The prior response of RPS to recommendations made by the Funds regarding improvement to RPS's As Of Processing procedures. c.In determining RPS' liability with respect to Significant Transaction, an isolated error or omission will normally not be deemed to constitute negligence when it is determined that: o RPS had in place "appropriate procedures". o the employees responsible for the error or omission had been reasonably trained and were being appropriately monitored; and o the error or omission did not result from wanton or reckless conduct on the part of the employees. It is understood that RPS is not obligated to have in place separate procedures to prevent each and every conceivable type of error or omission. The term "appropriate procedures" shall mean procedures reasonably designed to prevent and detect errors and omissions. In determining the reasonableness of such procedures, weight will be given to such factors as are appropriate, including the prior occurrence of any similar errors or omissions when such procedures were in place and transfer agent industry standards in place at the time of the occurrence. L. Term and Termination of Agreement 1.This Agreement shall run for a period of one (1) year from the date first written above and will be renewed from year to year thereafter unless terminated by either party as provided hereunder. 2. This Agreement may be terminated by the Funds upon one hundred twenty (120) days' prior written notice to RPS; and by RPS, upon three hundred sixty-five (365) days' prior written notice to the Fund. 3. Upon termination hereof, the Fund shall pay to RPS such compensation as may be due as of the date of such termination, and shall likewise reimburse for out-of-pocket expenses related to its services hereunder. M. Notice Any notice as required by this Agreement shall be sufficiently given (i) when sent to an authorized person of the other party at the address of such party set forth above or at such other address as such party may from time to time specify in writing to the other party; or (ii) as otherwise agreed upon by appropriate officers of the parties hereto. N. Assignment Neither this Agreement nor any rights or obligations hereunder may be assigned either voluntarily or involuntarily, by operation of law or otherwise, by either party without the prior written consent of the other party. O. Amendment/Interpretive Provisions The parties by mutual written agreement may amend this Agreement at any time. In addition, in connection with the operation of this Agreement, RPS and the Fund may agree from time to time on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions are to be signed by all parties and annexed hereto, but no such provision shall contravene any applicable federal or state law or regulation and no such interpretive or additional provision shall be deemed to be an amendment of this Agreement. P. Further Assurances Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. Q. Maryland Law to Apply This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of Maryland. R. Merger of Agreement This Agreement, including the attached Schedule supersede any prior agreement with respect to the subject hereof, whether oral or written. S. Counterparts This Agreement may be executed by the parties hereto in any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. T. The Parties All references herein to "the Fund" are to each of the Funds listed on Appendix A individually, as if this Agreement were between such individual Fund and RPS. In the case of a series Fund or trust, all references to "the Fund" are to the individual series or portfolio of such Fund or trust, or to such Fund or trust on behalf of the individual series or portfolio, as appropriate. Any reference in this Agreement to "the parties" shall mean RPS and such other individual Fund as to which the matter pertains. The "Fund" also includes any T. Rowe Price Fund which may be established after the date of this Agreement. Any reference in this Agreement to "the parties" shall mean the Funds and RPS. U. Directors, Trustees and Shareholders and Massachusetts Business Trust It is understood and is expressly stipulated that neither the holders of shares in the Fund nor any Directors or Trustees of the Fund shall be personally liable hereunder. With respect to any Fund which is a party to this Agreement and which is organized as a Massachusetts business trust, the term "Fund" means and refers to the trustees from time to time serving under the applicable trust agreement (Declaration of Trust) of such Trust as the same may be amended from time to time. It is expressly agreed that the obligations of any such Trust hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but bind only the trust property of the Trust, as provided in the Declaration of Trust of the Trust. The execution and delivery of this Agreement has been authorized by the Trustees and signed by an authorized officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them, but shall bind only the trust property of the Trust as provided in its Declaration of Trust. V. Captions The captions in the Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers. T. ROWE PRICE RETIREMENT PLAN T. ROWE PRICE FUNDS SERVICES, INC. /s/Charles E. Vieth /s/Carmen F. Deyesu BY: ____________________ BY: ___________________ Charles E. Vieth Carmen F. Deyesu DATED: ____________________ DATED: ___________________ APPENDIX A T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index Fund INSTITUTIONAL EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE REAL ESTATE FUND, INC. T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE SMALL-CAP STOCK FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of: T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE VALUE FUND, INC. AMENDMENT NO. 1 AGREEMENT BETWEEN T. ROWE PRICE RETIREMENT PLAN SERVICES, INC. AND EACH OF THE PARTIES INDICATED ON APPENDIX A The Retirement Plan Services Contract of January 1, 1998, between T. Rowe Price Retirement Plan Services, Inc. and each of the Parties listed on Appendix A thereto is hereby amended, as of January 21, 1998, by adding thereto T. Rowe Price Index Trust, Inc., on behalf of T. Rowe Price Extended Equity Market Index Fund and T. Rowe Price Total Equity Market Index Fund. T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index 500 Fund T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund INSTITUTIONAL EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. ROWE PRICE REAL ESTATE FUND, INC. T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE SMALL-CAP STOCK FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE VALUE FUND, INC. Attest: /s/Patricia S. Butcher /s/Carmen F. Deyesu _____________________ _________________________ Patricia S. Butcher, By: Carmen F. Deyesu Assistant Secretary Treasurer Attest: T. ROWE PRICE RETIREMENT PLAN SERVICES, INC. /s/Barbara A. Van Horn /s/Henry H. Hopkins _____________________ ____________________________ Barbara A. Van Horn, By: Henry H. Hopkins, Assistant Secretary Vice President AMENDMENT NO. 2 AGREEMENT BETWEEN T. ROWE PRICE RETIREMENT PLAN SERVICES, INC. AND EACH OF THE PARTIES INDICATED ON APPENDIX A The Retirement Plan Services Contract of January 1, 1998, as amended January 21, 1998 between T. Rowe Price Retirement Plan Services, Inc. and each of the Parties listed on Appendix A thereto is hereby further amended, as of October 30, 1998, by adding thereto T. Rowe Price Prime Reserve Fund, Inc., on behalf of T. Rowe Price Prime Reserve Fund--PLUS Class. T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index 500 Fund T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund INSTITUTIONAL EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. Rowe Price Prime Reserve Fund--PLUS Class T. ROWE PRICE REAL ESTATE FUND, INC. T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE SMALL-CAP STOCK FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE VALUE FUND, INC. Attest: /s/Patricia S. Lippert /s/Carmen F. Deyesu _____________________ _________________________ Patricia S. Lippert, By: Carmen F. Deyesu Secretary Treasurer Attest: T. ROWE PRICE RETIREMENT PLAN SERVICES, INC. /s/Barbara A. Van Horn /s/Henry H. Hopkins _____________________ ____________________________ Barbara A. Van Horn, By: Henry H. Hopkins, Assistant Secretary Vice President AMENDMENT NO. 3 AGREEMENT BETWEEN T. ROWE PRICE RETIREMENT PLAN SERVICES, INC. AND EACH OF THE PARTIES INDICATED ON APPENDIX A The Retirement Plan Services Contract of January 1, 1998, as amended January 21, 1998, and October 30, 1998 between T. Rowe Price Retirement Plan Services, Inc. and each of the Parties listed on Appendix A thereto is hereby further amended, as of November 11, 1998, by adding thereto T. Rowe Price International Funds, Inc., on behalf of T. Rowe Price International Growth & Income Fund. T. ROWE PRICE BALANCED FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE GNMA FUND T. ROWE PRICE GROWTH & INCOME FUND, INC. T. ROWE PRICE GROWTH STOCK FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE INDEX TRUST, INC. T. Rowe Price Equity Index 500 Fund T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund INSTITUTIONAL EQUITY FUNDS, INC. Mid-Cap Equity Growth Fund INSTITUTIONAL INTERNATIONAL FUNDS, INC. Foreign Equity Fund T. ROWE PRICE INTERNATIONAL FUNDS, INC. T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. Rowe Price International Growth & Income Fund T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE MID-CAP GROWTH FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE NEW ERA FUND, INC. T. ROWE PRICE NEW HORIZONS FUNDS, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. ROWE PRICE PRIME RESERVE FUND, INC. T. Rowe Price Prime Reserve Fund--PLUS Class T. ROWE PRICE REAL ESTATE FUND, INC. T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE SMALL-CAP STOCK FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. T. ROWE PRICE SPECTRUM FUND, INC. Spectrum Growth Fund Spectrum Income Fund Spectrum International Fund T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE VALUE FUND, INC. Attest: /s/Patricia S. Lippert /s/Carmen F. Deyesu _____________________ _________________________ Patricia S. Lippert, By: Carmen F. Deyesu Secretary Treasurer Attest: T. ROWE PRICE RETIREMENT PLAN SERVICES, INC. /s/Barbara A. Van Horn /s/Henry H. Hopkins _____________________ ____________________________ Barbara A. Van Horn, By: Henry H. Hopkins, Assistant Secretary Vice President EX-99.B11-CONSENT 7 CONSENT CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Statement of Additional Information constituting the registration statement on Form N-1A (the "Registration Statement") of our reports dated November 19, 1997, relating to the financial statements and financial highlights appearing in the October 31, 1997 Annual Reports to the Shareholders of the T. Rowe Price International Stock Fund, T. Rowe Price International Discovery Fund, T. Rowe Price European Stock Fund, T. Rowe Price Japan Fund, T. Rowe Price New Asia Fund, T. Rowe Price Latin America Fund, T. Rowe Price Emerging Markets Stock Fund, and T. Rowe Price Global Stock Fund, eight of the funds comprising T. Rowe Price International Funds, Inc., and Foreign Equity Fund, comprising the Institutional International funds, Inc., which are incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Independent Accountants" in the Statement of Additional Information. /s/PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Baltimore, Maryland November 16, 1998 EX-27 8 FINANCIAL DATA SCHEDULE-IDF
6 0000313212 T. ROWE PRICE INTERNATIONAL FUNDS, INC. 003 T. ROWE PRICE INTERNATIONAL DISCOVERY FUND 1,000 6-MOS OCT-31-1998 APR-30-1998 210,336 249,333 13,288 1,049 0 263,670 366 0 11,280 11,646 0 206,775 13,940 15,795 117 0 6,218 0 38,913 252,024 1,457 355 0 1,695 117 6,195 25,086 31,398 0 0 (3,754) 0 956 (3,048) 237 (2,406) 0 3,777 0 0 1,271 0 1,695 238,928 16.11 0.01 2.21 0 (0.25) 0 18.08 1.43 0 0 EX-27 9 FINANCIAL DATA SCHEDULE-ISF
6 0000313212 T. ROWE PRICE INTERNATIONAL FUNDS, INC. 001 T. ROWE PRICE INTERNATIONAL STOCK FUND 1,000 6-MOS OCT-31-1998 APR-30-1998 7,790,560 10,608,316 2,950,287 2,444 0 13,561,047 17,247 0 2,837,128 2,854,375 0 7,769,506 696,515 707,704 61,900 0 57,740 0 2,817,527 10,706,673 100,487 10,572 0 42,940 68,119 93,348 1,243,665 1,405,132 0 (138,108) (379,734) 0 97,314 (144,810) 36,307 701,503 131,889 344,126 0 0 33,788 0 42,940 10,129,243 14.14 0.10 1.88 (0.20) (0.55) 0 15.37 .85 0 0 EX-27 10 FINANCIAL DATA SCHEDULE-ESF
6 0000313212 T. ROWE PRICE INTERNATIONAL FUNDS, INC. 004 T. ROWE PRICE EUROPEAN STOCK FUND 1,000 6-MOS OCT-31-1998 APR-30-1998 882,154 1,349,475 273,160 1 0 1,622,726 15,986 0 244,746 260,732 0 835,601 58,652 49,596 6,123 0 52,968 0 467,302 1,361,994 10,198 1,803 0 5,839 6,162 57,313 184,255 247,730 0 (12,319) (49,758) 0 18,224 (12,225) 3,056 377,911 12,280 45,413 0 0 4,575 0 5,839 1,123,394 19.84 0.11 4.53 (0.25) (1.01) 0 23.22 1.05 0 0 EX-27 11 FINANCIAL DATA SCHEDULE-NAF
6 0000313212 T. ROWE PRICE INTERNATIONAL FUNDS, INC. 005 T. ROWE PRICE NEW ASIA FUND 1,000 6-MOS OCT-31-1998 APR-30-1998 826,117 746,258 101,632 15,284 0 863,174 1,371 0 91,552 92,923 0 1,098,889 138,104 147,340 3,245 0 0 (250,771) (81,112) 770,251 8,130 2,670 0 4,962 5,838 (245,070) 201,467 (37,765) 0 (11,045) 0 0 52,030 (63,117) 1,851 (106,536) 8,452 0 0 (5,701) 3,298 0 4,962 807,543 5.95 0.05 (0.34) (0.08) 0 0 5.58 1.24 0 0 EX-27 12 FINANCIAL DATA SCHEDULE-JAP
6 0000313212 T. ROWE PRICE INTERNATIONAL FUNDS,INC. 007 T. ROWE PRICE JAPAN FUND 1,000 6-MOS OCT-31-1998 APR-30-1998 172,647 153,091 18,887 80 0 172,058 3,716 0 15,989 19,705 0 216,282 21,714 21,440 0 (174) 0 (44,169) (19,586) 152,353 605 247 0 1,026 (174) (32,988) 12,215 (20,947) 0 0 0 0 16,255 (15,981) 0 (18,477) 0 0 0 (11,181) 664 0 1,026 162,524 7.97 (0.01) (0.94) 0 0 0 7.02 1.27 0 0 EX-27 13 FINANCIAL DATA SCHEDULE-LAF
6 0000313212 T. ROWE PRICE INTERNATIONAL FUNDS, INC. 009 T. ROWE PRICE LATIN AMERICA FUND 1,000 6-MOS OCT-31-1998 APR-30-1998 337,444 383,752 3,332 92 0 387,176 0 0 1,865 1,865 0 347,381 34,733 41,458 2,999 0 0 (11,368) 46,299 385,311 5,882 345 0 2,893 3,334 14,967 41,711 60,012 0 (4,783) 0 0 4,870 (12,029) 434 (12,755) 4,448 0 0 (26,335) 2,120 0 2,893 398,400 9.6 0.10 1.49 (0.12) 0 0.02 11.09 1.46 0 0 EX-27 14 FINANCIAL DATA SCHEDULE-EMS
6 0000313212 T. ROWE PRICE INTERNATIONAL FUNDS, INC. 010 T. ROWE PRICE EMERGING MARKETS STOCK FUND 1,000 6-MOS OCT-31-1998 APR-30-1998 116,626 122,464 1,309 761 0 124,533 831 0 889 1,720 0 123,320 9,994 10,763 89 0 0 (6,337) 5,741 122,813 1,018 96 0 1,025 89 (6,276) 19,659 13,472 0 0 (1,562) 0 1,623 (2,525) 133 3,528 0 1,501 0 0 675 0 1,025 118,141 11.08 0.01 1.33 0 (0.15) 0.02 12.29 1.75 0 0 EX-27 15 FINANCIAL DATA SCHEDULE-GLO
6 0000313212 T. ROWE PRICE INTERNATIONAL FUNDS, INC. 012 T. ROWE PRICE GLOBAL STOCK FUND 1,000 6-MOS OCT-31-1998 APR-30-1998 34,923 42,241 1,522 14 0 43,777 331 0 1,321 1,652 0 33,965 2,865 2,462 134 0 707 0 7,319 42,125 290 52 0 217 125 755 5,255 6,135 0 (153) (1,355) 0 933 (647) 117 10,105 162 1,307 0 0 41 0 217 36,499 13.01 0.04 2.24 (0.06) (0.53) 0 14.70 1.2 0 0 EX-27 16 FINANCIAL DATA SCHEDULE-T. ROWE PRICE INTERNATIONAL GROWTH & INCOME FUND
6 0000313212 T ROWE PRICE INTERNATIONAL FUNDS, INC. 13 T. ROWE PRICE INTERNATIONAL GROWTH & INCOME FUND 1000 OTHER OCT-31-1997 NOV-18-1998 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 EX-99.B11-POA 17 T. ROWE PRICE INTERNATIONAL FUNDS, INC. (on behalf of T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price European Stock Fund T. Rowe Price Global Bond Fund T. Rowe Price Global Stock Fund T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price New Asia Fund) INSTITUTIONAL INTERNATIONAL FUNDS, INC. (on behalf of Foreign Equity Fund) T. ROWE PRICE INTERNATIONAL SERIES, INC. (on behalf of T. Rowe Price International Stock Portfolio) POWER OF ATTORNEY RESOLVED, that each of the above listed Corporations (collectively the "Corporations" and individually the "Corporation") and each of its directors do hereby constitute and authorize, M. David Testa, Joel H. Goldberg, and Henry H. Hopkins, and each of them individually, their true and lawful attorneys and agents to take any and all action and execute any and all instruments which said attorneys and agents may deem necessary or advisable to enable the Corporation to comply with the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and any rules, regulations, orders or other requirements of the United States Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of 1933, as amended, of shares of the Corporation, to be offered by the Corporation, and the registration of the Corporation under the Investment Company Act of 1940, as amended, including specifically, but without limitation of the foregoing, power and authority to sign the name of the Corporation on its behalf, and to sign the names of each of such directors and officers on his behalf as such director or officer to any amendment or supplement (including Post-Effective Amendments) to the Registration Statement on Form N-1A of the Corporation filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the Registration Statement on Form N-1A of the Corporation under the Investment Company Act of 1940, as amended, and to any instruments or documents filed or to be filed as a part of or in connection with such Registration Statement. IN WITNESS WHEREOF, the Corporations have caused these presents to be signed and the same attested by their Secretary, each thereunto duly authorized by their Board of Directors, and each of the undersigned has hereunto set his hand and seal as of the day set opposite his name. /s/M. David Testa By:________________________________ M. David Testa, Chairman of the Board April 22, 1998 Attest: /s/Patricia S. Butcher ______________________________ Patricia S. Butcher, Secretary (Signatures Continued) /s/M. David Testa ____________________________ Chairman of the Board April 22, 1998 M. David Testa (Principal Executive Officer) /s/Martin G. Wade ____________________________ President and Director April 22, 1998 Martin G. Wade /s/Carmen F. Deyesu ____________________________ Treasurer (Principal April 22, 1998 Carmen F. Deyesu Financial Officer) /s/Anthony W. Deering ____________________________ Director April 22, 1998 Anthony W. Deering /s/Donald W. Dick, Jr. ____________________________ Director April 22, 1998 Donald W. Dick, Jr. /s/Paul M. Wythes ____________________________ Director April 22, 1998 Paul M. Wythes -----END PRIVACY-ENHANCED MESSAGE-----