-----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, M2DYNn14FC0pPDLjAEmuLSKpR2vTTD6Ylo+I43z96lykQFl0d6appE9Ub0OLjSBx 2HJkfBKjaTGiTM6zv9HVQg== 0000080249-99-000008.txt : 20000211 0000080249-99-000008.hdr.sgml : 20000211 ACCESSION NUMBER: 0000080249-99-000008 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19990930 EFFECTIVENESS DATE: 19990930 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE NEW INCOME FUND INC CENTRAL INDEX KEY: 0000080249 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 520980581 FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-48848 FILM NUMBER: 99720878 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-02396 FILM NUMBER: 99720879 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4105472000 FORMER COMPANY: FORMER CONFORMED NAME: PRICE T ROWE NEW INCOME FUND INC ET AL DATE OF NAME CHANGE: 19920703 485BPOS 1 NIF REG STMT Registration Nos. 002-48848/811-2396 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ Post-Effective Amendment No. 50 /X/ AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ Amendment No. 25 /X/ T. ROWE PRICE NEW INCOME FUND, INC. ----------------------------------- Exact Name of Registrant as Specified in Charter 100 East Pratt Street, Baltimore, Maryland 21202 ------------------------------------------------ Address of Principal Executive Offices 410-345-2000 ------------ Registrant's Telephone Number, Including Area Code Henry H. Hopkins 100 East Pratt Street, Baltimore, Maryland 21202 ------------------------------------------------ Name and Address of Agent for Service Approximate Date of Proposed Public Offering October 1, 1999 --------------- It is proposed that this filing will become effective (check appropriate box): / / Immediately upon filing pursuant to paragraph (b) /X/ On October 1, 1999, pursuant to paragraph (b) / / 60 days after filing pursuant to paragraph (a)(1) / / On (date), pursuant to paragraph (a)(1) / / 75 days after filing pursuant to paragraph (a)(2) / / On (date) pursuant to paragraph (a)(2) of Rule 485 If appropriate, check the following box: / / This post-effective amendment designates a new effective date for a previously filed post-effective amendment. PROSPECTUS October 1, 1999 T. ROWE PRICE New Income Fund A bond fund willing to assume principal risk to achieve an attractive level of income. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. TROWEPRICERAMLOGO T. Rowe Price New Income Fund, Inc. Prospectus October 1, 1999
1 ABOUT THE FUND Objective, Strategy, Risks, and Expenses 1 ----------------------------------------------- Other Information About the Fund 5 ----------------------------------------------- Some Basics of Fixed Income Investing 7 ----------------------------------------------- 2 ABOUT YOUR ACCOUNT Pricing Shares and Receiving 9 Sale Proceeds ----------------------------------------------- Distributions and Taxes 10 ----------------------------------------------- Transaction Procedures and 12 Special Requirements ----------------------------------------------- 3 MORE ABOUT THE FUND Organization and Management 16 ----------------------------------------------- Understanding Performance Information 17 ----------------------------------------------- Investment Policies and Practices 19 ----------------------------------------------- Financial Highlights 27 ----------------------------------------------- 4 INVESTING WITH T. ROWE PRICE Account Requirements 29 and Transaction Information ----------------------------------------------- Opening a New Account 29 ----------------------------------------------- Purchasing Additional Shares 31 ----------------------------------------------- Exchanging and Redeeming 31 ----------------------------------------------- Rights Reserved by the Fund 33 ----------------------------------------------- Information About Your Services 34 ----------------------------------------------- T. Rowe Price Brokerage 36 ----------------------------------------------- Investment Information 37 -----------------------------------------------
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates, Inc., and its affiliates managed $159.2 billion for more than seven million individual and institutional investor accounts as of June 30, 1999. Mutual fund shares are not deposits or obligations of, or guaranteed by, any depository institution. Shares are not insured by the FDIC, Federal Reserve, or any other government agency, and are subject to investment risks, including possible loss of the principal amount invested. ABOUT THE FUND OBJECTIVE, STRATEGY, RISKS, AND EXPENSES ---------------------------------------------------------- To help you decide whether this fund is appropriate for you, this section reviews its major characteristics. What is the fund's objective? The fund seeks the highest level of income consistent with the preservation of capital over time by investing primarily in marketable debt securities. What is the fund's principal investment strategy? We will invest at least 80% of the fund's total assets in income-producing securities, which may include U.S. government and agency obligations, mortgage- and asset-backed securities, corporate bonds, foreign securities, collateralized mortgage obligations (CMOs), and others, including, on occasion, equities. All securities purchased by the fund must be rated investment grade (AAA, AA, A, or BBB) by at least one major credit rating agency or, if unrated, must have a T. Rowe Price equivalent rating. Up to 15% of total assets may be invested in "split-rated securities," or those rated investment grade by at least one rating agency, but below investment grade by others. However, none of the fund's remaining assets can be invested in bonds rated below investment grade by Standard & Poor's, Moody's, or Fitch IBCA, Inc. We have considerable flexibility in seeking high yield for the fund. There are no maturity restrictions, so we can purchase longer-term bonds which tend to have higher yields than shorter-term issues. However, the portfolio's weighted average maturity is expected to be between four and 15 years. In addition, when there is a large yield difference between the various quality levels, we may move down the credit scale and purchase lower-rated bonds with higher yields. When the difference is small, we may concentrate investments in the higher-rated issues. We may also invest in other securities, including futures and options, in keeping with the fund's objective. The fund may sell securities for a variety of reasons, such as to adjust the portfolio's average maturity, or to shift assets into higher-yielding securities. . For details about the fund's investment program, please see the Investment Policies and Practices section. T. ROWE PRICE 2 What are the main risks of investing in the fund? . Interest rate risk Investors should be concerned primarily with this risk. An increase in interest rates could cause the fund's share price to fall, resulting in a loss of principal (see Table 3). That's because the bonds and notes in the fund's portfolio become less attractive to other investors when securities with higher yields become available. Even GNMAs and other securities whose principal and interest payments are guaranteed can decline in price if rates rise. The longer a bond's maturity, the greater its potential for price declines if rates rise and for price gains if rates fall. Because the fund may invest in bonds of any maturity, it carries more interest rate risk than short-term corporate funds. . Credit risk This is the chance that any of a fund's holdings will have its credit rating downgraded or will default (fail to make scheduled interest or principal payments), potentially reducing the fund's income level and share price. While the fund's overall credit quality is high, BBB securities are more susceptible to adverse economic conditions and some may have speculative characteristics. . The fund may continue to hold a security that has been downgraded or loses its investment-grade rating after purchase. . Foreign investing risk To the extent the fund holds foreign bonds, it will be subject to special risks whether the bonds are denominated in U.S. dollars or foreign currencies. These risks include potentially adverse political and economic developments overseas, greater volatility, lower liquidity, and the possibility that foreign currencies will decline against the dollar, lowering the value of securities denominated in those currencies and possibly the fund's share price. Currency risk affects the fund primarily to the extent that it holds nondollar foreign bonds. . Prepayment risk and extension risk A mortgage-backed bond, unlike most other bonds, can be hurt when interest rates fall, because homeowners tend to refinance and prepay principal. The loss of high-yielding underlying mortgages and the reinvestment of proceeds at lower interest rates can reduce the bond's potential price gain in response to falling interest rates, reduce the bond's yield, or even cause the bond's price to fall below what an investor paid for it, resulting in a capital loss. Any of these developments could cause a decrease in the fund's income, share price, or total return. Extension risk refers to a rise in interest rates that causes a fund's average maturity to lengthen unexpectedly due to a drop in mortgage prepayments. This would increase the fund's sensitivity to rising rates and its potential for price declines. . Derivatives risk Shareholders are also exposed to derivatives risk, the potential that our investments in these complex and volatile instruments could affect the fund's share price. In addition to CMOs and better-known instruments such as futures, other derivatives that may be used in limited fashion by the fund MORE ABOUT THE FUND 3 include interest-only (IO) and principal-only (PO) securities known as "strips." The value of these instruments is derived from an underlying pool of mortgage-backed securities or a CMO. All these instruments can be highly volatile, and their value can fall dramatically in response to rapid or unexpected changes in the mortgage or interest rate environment. As with any mutual fund, there can be no guarantee the fund will achieve its objective. . The fund's share price may decline, so when you sell your shares, you may lose money. How can I tell if the fund is appropriate for me? Consider your investment goals, your time horizon for achieving them, and your tolerance for risk. The fund may be appropriate for you if you seek an attractive level of income and are willing to accept the risk of a declining share price when interest rates rise. Steadily reinvesting the fund's income is a conservative strategy for building capital over time. If you are investing primarily for safety and liquidity, you should consider a money market fund. The fund can be used in both regular and tax-deferred accounts, such as IRAs. . The fund should not represent your complete investment program or be used for short-term trading purposes. How has the fund performed in the past? The bar chart and the average annual total return table indicate risk by illustrating how much returns can differ from one year to the next. The fund's past performance is no guarantee of its future returns. The fund can also experience short-term performance swings, as shown by the best and worst calendar quarter returns during the years depicted in the chart.
Calendar Year Total Returns "89" "90" "91" "92" "93" "94" "95" "96" "97" "98" ---------------------------------------------------------------------------------------- 12.22 8.77 15.51 4.96 9.58 -2.22 18.36 2.38 9.32 5.04 ----------------------------------------------------------------------------------------
Quarter ended Total return Best quarter 6/30/89 6.63% Worst quarter 3/31/96 -2.53% The fund's total return for the six months ended 6/30/99 was -1.69%. Table 1 Average Annual Total Returns
Periods ended December 31, 1998 1 year 5 years 10 years ----------------------------------------------------------------------- New Income Fund 5.04% 9.35% 8.24% ----------------------------------- Lehman Aggregate Bond Index 8.69 7.27 9.26 Lipper Corp. Debt Funds A-Rated 7.47 6.54 8.82 Average -----------------------------------------------------------------------
T. ROWE PRICE 4 These figures include changes in principal value, reinvested dividends, and capital gain distributions, if any. What fees or expenses will I pay? The fund is 100% no load. There are no fees or charges to buy or sell fund shares, reinvest dividends, or exchange into other T. Rowe Price funds. There are no 12b-1 fees. Like all mutual funds, the fund charges the following: . A management fee The percent of fund assets paid to the fund's investment manager. The fund's fee comprises a group fee, 0.32% as of June 30, 1999, and an individual fund fee of 0.15%. . "Other" administrative expenses Primarily the servicing of shareholder accounts, such as providing statements and reports, disbursing dividends, and providing custodial services. Table 2 Fees and Expenses of the Fund
Annual fund operating expenses (expenses that are deducted from fund assets) ------------------------------------------------------------------------------------- Management fee 0.47%/ // / Other expenses 0.25% Total annual fund operating 0.72%/ // / expenses -------------------------------------------------------------------------------------
Example. The following table gives you a rough idea of how expense ratios may translate into dollars and helps you to compare the cost of investing in this fund with that of other funds. Although your actual costs may be higher or lower, the table shows how much you would pay if operating expenses remain the same, you invest $10,000, you earn a 5% annual return, and you hold the investment for the following periods:
1 year 3 years 5 years 10 years ---------------------------------------------------- $74 $230 $401 $894 ----------------------------------------------------
MORE ABOUT THE FUND 5 OTHER INFORMATION ABOUT THE FUND ---------------------------------------------------------- What are the fund's potential rewards? The fund can provide an attractive level of income to investors who want only a modest level of credit risk. It should offer higher yields than money market and short-term bond funds and generally less volatility than longer-term bond funds. In addition, the portfolio is widely diversified among various fixed income securities, thus reducing the effect of a single bond's price fluctuations on the fund's share price or total return. How does the portfolio manager try to reduce risk? Consistent with the fund's objective, the portfolio manager uses various tools to try to reduce risk and increase total return, including: . Diversification of assets to reduce the impact of a single holding on the fund's net asset value. . Thorough credit research by our own analysts. . Adjustment of fund duration-a concept related to maturity-to try to reduce the drop in price when interest rates rise or to benefit from the rise in price when rates fall. Duration, which indicates a fund's price sensitivity to interest rate changes, is explained later in this section. Is the fund a substitute for a money market fund? No. Money market funds, which have an average maturity under one year, ordinarily generate lower income in return for stability of net asset value. The fund's total return is expected to fluctuate more than a money market fund's and, as such, it should be viewed as a longer-term investment. Do mortgage-backed securities differ from other high-quality bonds? Yes, in one major respect. Most bonds repay principal (face value of the bond) when their maturity date is reached, but most mortgage-backed securities repay principal continually as homeowners make mortgage payments. Homeowners have the option of paying either part or all of the loan balance before maturity, perhaps to refinance or buy a new home. As a result, the effective maturity of a mortgage-backed security is virtually always shorter than its stated maturity. For example, a new GNMA certificate backed by 30-year, fixed rate mortgages will generally have a far shorter life than 30 years - probably 12 or less. Therefore, it will usually be about as volatile as a 10-year Treasury note. It is possible to estimate the average life of an entire mortgage pool backing a particular security with some accuracy, but not with certainty. T. ROWE PRICE 6 Why are yields on mortgage-backed securities higher than yields on Treasuries of similar maturity? The structure of mortgage-backed securities is much more complex, and their effective maturities are uncertain because of unscheduled prepayments. Higher yields compensate investors for these potentially negative features. See the previous discussion of prepayment risk and extension risk. What are derivatives and can the fund invest in them? A derivative is a financial instrument whose value is derived from an underlying security, such as a stock or bond, or from a market benchmark such as an interest rate index. Many types of investments representing a wide range of potential risks and rewards are derivatives, including conventional instruments such as callable bonds, futures, and options, as well as more exotic investments such as stripped mortgage securities and structured notes. Investment managers have used derivatives for many years. We invest in derivatives only if the expected risks and rewards are consistent with the fund's objective, policies, and overall risk profile described in this prospectus. We use derivatives in situations where they may enable the fund to increase yield, hedge against a decline in principal, invest in other asset classes more efficiently and at a lower cost, or adjust duration. We will not invest in any high-risk, highly leveraged derivative that we believe would cause the portfolio to be more volatile than a long-term, investment-grade bond. Is there other information I can review before making a decision? Investment Policies and Practices in Section 3 discusses various types of portfolio securities the fund may purchase as well as types of investment management practices the fund may use. SOME BASICS OF FIXED INCOME INVESTING ---------------------------------------------------------- Is a fund's yield fixed or will it vary? It will vary. We calculate the yield every day by dividing a fund's net income per share, expressed at annual rates, by the share price. Since income and share price fluctuate, a fund's yield also varies. MORE ABOUT THE FUND 7 Is yield the same as total return? Not for bond funds. A fund's total return is the result of reinvested distributions from income and capital gains and the change in share price for a given period. Income is always a positive contributor to total return and can either enhance a rise in share price or help offset a price decline. What is credit quality and how does it affect yield? Credit quality refers to a bond issuer's expected ability to make all required interest and principal payments on time. Because highly rated issuers represent less risk, they can borrow at lower interest rates than less creditworthy issuers. Therefore, a fund investing in high-quality securities should have a lower yield than an otherwise comparable fund investing in lower-quality securities. What is meant by a bond fund's maturity? Every bond has a stated maturity date when the issuer must repay the bond's entire principal value to the investor. However, many bonds are "callable," meaning their principal can be repaid earlier, on or after specified call dates. Bonds are most likely to be called when interest rates are falling because the issuer can refinance at a lower rate, just as a homeowner refinances a mortgage. In that environment, a bond's "effective maturity" is usually its nearest call date. For example, the rate at which homeowners pay down their mortgage principal determines the effective maturity of mortgage-backed bonds. A bond mutual fund has no real maturity, but it does have a weighted average maturity and a weighted average effective maturity. This number is an average of the stated or effective maturities of the underlying bonds, with each bond's maturity "weighted" by the percentage of fund assets it represents. Some funds target effective maturities rather than stated maturities when computing the average. This provides additional flexibility in portfolio management. What is meant by a bond fund's duration? Duration is a calculation that seeks to measure the price sensitivity of a bond or a bond fund to changes in interest rates. It is expressed in years, like maturity, but it is a better indicator of price sensitivity than maturity because it takes into account the time value of cash flows generated over the bond's life. Future interest and principal payments are discounted to reflect their present value and then are multiplied by the number of years they will be received to produce a value expressed in years - the duration. "Effective" duration takes into account call features and sinking fund payments that may shorten a bond's life. T. ROWE PRICE 8 Since duration can also be computed for bond funds, you can estimate the effect of interest rates on share price by multiplying fund duration by an expected change in interest rates. For example, the price of a bond fund with a duration of five years would be expected to fall approximately 5% if rates rose by one percentage point. (T. Rowe Price bond fund shareholder reports show duration.) How is a bond's price affected by changes in interest rates? When interest rates rise, a bond's price usually falls, and vice versa. In general, the longer a bond's maturity, the greater the price increase or decrease in response to a given change in rates, as shown in Table 3. Table 3 How Interest Rates May Affect Bond Prices
Price per $1,000 of bond face value if interest rates: Bond maturity Coupon Increase Decrease 1 point 2 points 1 point 2 poi < 1 year 5.10% $990 $981 $1,010 $1, 5 years 5.79 958 918 1,044 1, 10 years 5.91 929 864 1,078 1, 30 years 6.11 877 776 1,153 1, -----------------------------------------------------------------------------------------------------------------------------------
The table reflects yields on Treasury securities as of July 31, 1999. The table may not be as representative of price changes for other types of bonds, including mortgage-backed securities, because of prepayments. This is an illustration and does not represent expected yields or share price changes of any T. Rowe Price fund. ABOUT YOUR ACCOUNT PRICING SHARES AND RECEIVING SALE PROCEEDS ---------------------------------------------------------- Here are some procedures you should know when investing in a T. Rowe Price fund. How and when shares are priced The share price (also called "net asset value" or NAV per share) for a fund is calculated at the close of the New York Stock Exchange, normally 4 p.m. ET, each day the New York Stock Exchange is open for business. To calculate the NAV, the fund's assets are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. Current market values are used to price fund shares. . The various ways you can buy, sell, and exchange shares are explained at the end of this prospectus and on the New Account Form. These procedures may differ for institutional and employer-sponsored retirement accounts. How your purchase, sale, or exchange price is determined If we receive your request in correct form by 4 p.m. ET, your transaction will be priced at that day's NAV. If we receive it after 4 p.m., it will be priced at the next business day's NAV. We cannot accept orders that request a particular day or price for your transaction or any other special conditions. Fund shares may be purchased through various third-party intermediaries including banks, brokers, and investment advisers. Where authorized by a fund, orders will be priced at the NAV next computed after receipt by the intermediary. Consult your intermediary to determine when your orders will be priced. The intermediary may charge a fee for its services. Note: The time at which transactions and shares are priced and the time until which orders are accepted may be changed in case of an emergency or if the New York Stock Exchange closes at a time other than 4 p.m. ET. How you can receive the proceeds from a sale . 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 MORE ABOUT THE FUND 10 financial institution account. The ACH system is supported by over 20,000 banks, savings banks, and credit unions. Proceeds sent by bank wire should be credited to your account the next business day. . Exception: Under certain circumstances and when deemed to be in the fund's best interests, your proceeds may not be sent for up to seven calendar days after we receive your redemption request. . If for some reason we cannot accept your request to sell shares, we will contact you. 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 day of the reinvestment and to reinvest all subsequent distributions in shares of the fund. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Income dividends . Bond funds declare income dividends daily at 4 p.m. ET to shareholders of record at that time provided payment has been received on the previous business day. . Dividends are ordinarily paid on the first business day of each month. . Fund shares will earn dividends through the date of redemption; also, shares redeemed on a Friday or prior to a holiday will continue to earn dividends until the next business day. Generally, if you redeem all of your shares at any time during the month, you will also receive all dividends earned through the date of redemption in the same check. When you redeem only a portion of your shares, all dividends accrued on those shares will be reinvested, or paid in cash, on the next dividend payment date. MORE ABOUT THE FUND 11 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. 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 most new accounts or those opened by exchange in 1984 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. Distributions are generally taxable to you for the year in which they were paid. You will be sent any additional information you need to determine your taxes on fund distributions, such as the portion of your dividends, 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 T. ROWE PRICE 12 as ordinary income and long-term gains on securities held more than 12 months are taxed at a maximum rate of 20%. However, if you realized a loss on the sale or exchange of fund shares that you held six months or less, your short-term loss will be reclassified to a long-term loss to the extent of any long-term capital gain distribution received during the period you held the shares. Gains and losses from the sale of foreign currencies and the foreign currency gain or loss resulting from the sale of a foreign debt security can increase or decrease a fund's ordinary income dividend. Net foreign currency losses may cause a fund's dividend to be classified as a return of capital. . Distributions are taxable whether reinvested in additional shares or received in cash. Tax effect of buying shares before a capital gain distribution If you buy shares shortly before or on the "record date" - the date that establishes you as the person to receive the upcoming distribution - you will receive a portion of the money you just invested in the form of a taxable distribution. Therefore, you may wish to find out a fund's record date before investing. Of course, a fund's share price may, at any time, reflect undistributed capital gains or income and unrealized appreciation, which may result in future taxable distributions. TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS ---------------------------------------------------------- . Following these procedures helps assure timely and accurate transactions. Purchase Conditions Nonpayment If you pay with a check or ACH transfer that does not clear or if your payment is not timely received, 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 MORE ABOUT THE FUND 13 your redemption request was sent by mail or mailgram, proceeds will be mailed no later than the seventh calendar day following receipt unless the check or ACH transfer has not cleared. If, during the clearing period, we receive a check drawn against your bond or money market account, it will be returned marked "uncollected." (These holding periods do not apply to purchases paid for by bank wire or automatic purchases through your paycheck.) Telephone, Tele*Access/(R)/, and personal computer transactions Exchange and redemption services through telephone and Tele*Access are established automatically when you sign the New Account Form unless you check the boxes that state you do not want these services. Personal computer transactions must be authorized separately. T. Rowe Price funds and their agents use reasonable procedures designed to verify the identity of the shareholder. If these procedures are followed, the funds and their agents are not liable for any losses that may occur from acting on unauthorized instructions. A confirmation is sent promptly after a transaction. Please review it carefully and contact T. Rowe Price immediately about any transaction you believe to be unauthorized. 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. To deter such activity, we have adopted an 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. . 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. T. ROWE PRICE 14 Two types of transactions are exempt from this policy: 1) trades solely in money market funds (exchanges between a money fund and a nonmoney fund are not exempt); and 2) systematic purchases or redemptions (see Information About Your Services). . Trades placed through intermediaries If you purchase fund shares through an intermediary including a broker, bank, investment adviser, or other third party and hold them for less than 60 calendar days, you are in violation of our excessive trading policy. 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 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. MORE ABOUT THE FUND 15 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. MORE ABOUT THE FUND ORGANIZATION AND MANAGEMENT ---------------------------------------------------------- How is the fund organized? The fund was incorporated in Maryland in 1973 and is a "diversified, open-end investment company," or mutual fund. Mutual funds pool money received from shareholders and invest it to try to achieve specified objectives. . Shareholders benefit from T. Rowe Price's 62 years of investment management experience. What is meant by "shares"? As with all mutual funds, investors purchase shares when they put money in a fund. These shares are part of a fund's authorized capital stock, but share certificates are not issued. Each share and fractional share entitles the shareholder to: . Receive a proportional interest in a fund's income and capital gain distributions. . Cast one vote per share on certain fund matters, including the election of fund directors, changes in fundamental policies, or approval of changes in the fund's management contract. Do T. Rowe Price funds have annual shareholder meetings? The funds are not required to hold annual meetings and, to avoid unnecessary costs to fund shareholders, do not do so except when certain matters, such as a change in fundamental policies, must be decided. In addition, shareholders representing at least 10% of all eligible votes may call a special meeting, if they wish, for the purpose of voting on the removal of any fund director or trustee. If a meeting is held and you cannot attend, you can vote by proxy. Before the meeting, the fund will send you proxy materials that explain the issues to be decided and include instructions on voting by mail or telephone, or on the Internet. Who runs the fund? General Oversight The fund is governed by a Board of Directors that meets regularly to review the fund's investments, performance, expenses, and other business affairs. The Board elects the fund's officers. The policy of the fund is that the majority of Board members are independent of T. Rowe Price Associates, Inc. (T. Rowe Price). . All decisions regarding the purchase and sale of fund investments are made by T. Rowe Price - specifically by the fund's portfolio managers. MORE ABOUT THE FUND 17 Portfolio Management The fund has an Investment Advisory Committee with the following members: William T. Reynolds, Chairman, Connice A. Bavely, Steven G. Brooks, Alan D. Levenson, Edmund M. Notzon, Robert M. Rubino, and Daniel O. Shackelford. The committee chairman has day-to-day responsibility for managing the fund and works with the committee in developing and executing the fund's investment program. Mr. Reynolds became chairman of the fund's committee in 1998. He joined T. Rowe Price in 1981 and has been managing investments since 1978. The Management Fee This fee has two parts - an "individual fund fee," which reflects a fund's particular characteristics, and a "group fee." The group fee, which is designed to reflect the benefits of the shared resources of the T. Rowe Price investment management complex, is calculated daily based on the combined net assets of all T. Rowe Price funds (except 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. Group Fee Schedule
0.334%/a/ First $50 billion 0.305% Next $30 billion 0.300% Next $40 billion 0.295% Thereafter --------------------------------------
/a/ Represents a blended group fee rate containing various break points. 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 $96 billion at June 30, 1999, the group fee was 0.32%. The individual fund fee is 0.15%. 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 T. Rowe Price advertisements; and in the media. T. ROWE PRICE 18 Total Return This tells you how much an investment in a fund has changed in value over a given time period. It reflects any net increase or decrease in the share price and assumes that all dividends and capital gains (if any) paid during the period were reinvested in additional shares. Therefore, total return numbers include the effect of compounding. Advertisements for a fund may include cumulative or average annual total return figures, which may be compared with various indices, other performance measures, or other mutual funds. Cumulative Total Return This is the actual return of an investment for a specified period. A cumulative return does not indicate how much the value of the investment may have fluctuated during the period. For example, a fund could have a 10-year positive cumulative return despite experiencing some negative years during that time. Average Annual Total Return This is always hypothetical and should not be confused with actual year-by-year results. It smooths out all the variations in annual performance to tell you what constant year-by-year return would have produced the investment's actual cumulative return. This gives you an idea of an investment's annual contribution to your portfolio, provided you held it for the entire period. Yield The current or "dividend" yield on a fund or any investment tells you the relationship between the investment's current level of annual income and its price on a particular day. The dividend yield reflects the actual income paid to shareholders for a given period, annualized, and divided by the price at the end of the period. For example, a fund providing $5 of annual income per share and a price of $50 has a current yield of 10%. Yields can be calculated for any time period. The advertised or SEC yield is found by determining the net income per share (as defined by the Securities and Exchange Commission) earned by a fund during a 30-day base period and dividing this amount by the per share price on the last day of the base period. The SEC yield-also called the standardized yield-may differ from the dividend yield. MORE ABOUT THE FUND 19 INVESTMENT POLICIES AND PRACTICES ---------------------------------------------------------- This section takes a detailed look at some of the types of securities the fund may hold in its portfolio and the various kinds of investment practices that may be used in day-to-day portfolio management. The fund's investment program is subject to further restrictions and risks described in the Statement of Additional Information. Shareholder approval is required to substantively change the fund's objective and certain investment restrictions noted in the following section as "fundamental policies." The managers follow certain "operating policies," which can be changed without shareholder approval. However, significant changes are discussed with shareholders in fund reports. The fund adheres to applicable investment restrictions and policies at the time it makes an investment. A later change in circumstances will not require the sale of an investment if it was proper at the time it was made. The fund's holdings of certain kinds of investments cannot exceed maximum percentages of total assets, which are set forth in this prospectus. For instance, this 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 the 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 the fund's share price than its weighting in the portfolio. The net effect of a particular investment depends on its volatility and the size of its overall return in relation to the performance of all the fund's other investments. Changes in the fund's holdings, the 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 fund achieve its objective. Types of Portfolio Securities In seeking to meet its investment objective, the fund 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 fund's investment program. The following pages describe various types of portfolio securities and investment management practices of the fund. Fundamental policy The fund will not purchase a security if, as a result, with respect to 75% of its total assets, more than 5% of its total assets would be invested in securities of a single issuer, or if more than 10% of the outstanding T. ROWE PRICE 20 voting securities of the issuer would be held by the fund. These limitations do not apply to the fund's purchase of securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities. Bonds A bond is an interest-bearing security - an IOU - issued by companies or governmental units. The issuer has a contractual obligation to pay interest at a stated rate on specific dates and to repay principal (the bond's face value) on a specified date. An issuer may have the right to redeem or "call" a bond before maturity, and the investor may have to reinvest the proceeds at lower market rates. A bond's annual interest income, set by its coupon rate, is usually fixed for the life of the bond. Its yield (income as a percent of current price) will fluctuate to reflect changes in interest rate levels. A bond's price usually rises when interest rates fall, and vice versa, so its yield stays current. Bonds may be unsecured (backed by the issuer's general creditworthiness only) or secured (also backed by specified collateral). Certain bonds have interest rates that are adjusted periodically. These interest rate adjustments tend to minimize fluctuations in the bonds' principal values. The maturity of those securities may be shortened under certain specified conditions. Bonds may be designated as senior or subordinated obligations. Senior obligations generally have the first claim on a corporation's earnings and assets and, in the event of liquidation, are paid before subordinated debt. 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 fund 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 noncon- MORE ABOUT THE FUND 21 vertible 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). Operating policy Without regard to quality, the fund may invest up to 25% of its total assets (not including cash) in preferred and common stocks and convertible securities, convertible into or which carry warrants for common stocks or other equity securities. Foreign Securities The fund may invest in foreign securities. These include nondollar-denominated securities traded outside of the U.S. and dollar-denominated securities of foreign issuers traded in the U.S. (such as ADRs). Such investments increase a portfolio's diversification and may enhance return, but they also involve some special risks such as exposure to potentially adverse local political and economic developments; nationalization and exchange controls; potentially lower liquidity and higher volatility; possible problems arising from accounting, disclosure, settlement, and regulatory practices that differ from U.S. standards; and the chance that fluctuations in foreign exchange rates will decrease the investment's value (favorable changes can increase its value). These risks are heightened for investments in developing countries. Operating policy The fund may invest without limitation in U.S. dollar-denominated debt securities issued by foreign issuers, foreign branches of U.S. banks, and U.S. branches of foreign banks. The fund may also invest up to 20% of its total assets (excluding reserves) in non-U.S. dollar-denominated fixed income securities principally traded in financial markets outside the United States. Asset-Backed Securities An underlying pool of assets, such as credit card or automobile trade receivables or corporate loans or bonds, backs these bonds and provides the interest and principal payments to investors. Credit quality depends primarily on the quality of the underlying assets and the level of credit support, if any, provided by the issuer. The underlying assets (i.e., loans) are sometimes subject to prepayments which can shorten the security's weighted average life and may lower its return. The value of these securities also may change because of actual or perceived changes in the creditworthiness of the originator, servicing agent, or of the financial institution providing the credit support. There is no limit on the fund's investment in these securities. T. ROWE PRICE 22 Mortgage-Backed Securities The fund may invest in a variety of mortgage-backed securities. Mortgage lenders pool individual home mortgages with similar characteristics to back a certificate or bond, which is sold to investors such as the fund. Interest and principal payments generated by the underlying mortgages are passed through to the investors. The "big three" issuers are the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac). GNMA certificates are backed by the full faith and credit of the U.S. government, while others, such as Fannie Mae and Freddie Mac certificates, are only supported by the ability to borrow from the U.S. Treasury or supported only by the credit of the agency. Private mortgage bankers and other institutions also issue mortgage-backed securities. Mortgage-backed securities are subject to scheduled and unscheduled principal payments as homeowners pay down or prepay their mortgages. As these payments are received, they must be reinvested when interest rates may be higher or lower than on the original mortgage security. Therefore, these securities are not an effective means of locking in long-term interest rates. In addition, when interest rates fall, the pace of mortgage prepayments picks up. These refinanced mortgages are paid off at face value (par), causing a loss for any investor who may have purchased the security at a price above par. In such an environment, this risk limits the potential price appreciation of these securities and can negatively affect the fund's net asset value. When rates rise, the prices of mortgage-backed securities can be expected to decline, although historically these securities have experienced smaller price declines than comparable quality bonds. In addition, when rates rise and prepayments slow, the effective duration of mortgage-backed securities extends, resulting in increased volatility. . There is no limit on the fund's investment in mortgage-backed securities. Additional mortgage-backed securities in which the fund may invest include: . Collateralized Mortgage Obligations (CMOs) CMOs are debt securities that are fully collateralized by a portfolio of mortgages or mortgage-backed securities. All interest and principal payments from the underlying mortgages are passed through to the CMOs in such a way as to create some classes with more stable average lives than the underlying mortgages and other classes with more volatile average lives. CMO classes may pay fixed or variable rates of interest, and certain classes have priority over others with respect to the receipt of prepayments. . Stripped Mortgage Securities Stripped mortgage securities (a type of potentially high-risk derivative) are created by separating the interest and principal payments generated by a pool of mortgage-backed securities or a CMO to create additional classes of securities. Generally, one class receives only interest payments (IOs), MORE ABOUT THE FUND 23 and another receives principal payments (POs). Unlike with other mortgage-backed securities and POs, the value of IOs tends to move in the same direction as interest rates. The fund can use IOs as a hedge against falling prepayment rates (interest rates are rising) and/or a bear market environment. POs can be used as a hedge against rising prepayment rates (interest rates are falling) and/or a bull market environment. IOs and POs are acutely sensitive to interest rate changes and to the rate of principal prepayments. A rapid or unexpected increase in prepayments can severely depress the price of IOs, while a rapid or unexpected decrease in prepayments could have the same effect on POs. Of course, under the opposite conditions these securities may appreciate in value. These securities can be very volatile in price and may have lower liquidity than most other mortgage-backed securities. Certain non-stripped CMO classes may also exhibit these qualities, especially those that pay variable rates of interest that adjust inversely with, and more rapidly than, short-term interest rates. In addition, if interest rates rise rapidly and prepayment rates slow more than expected, certain CMO classes, in addition to losing value, can exhibit characteristics of longer-term securities and become more volatile. There is no guarantee the fund's investment in CMOs, IOs, or POs will be successful, and the fund's total return could be adversely affected as a result. Operating policy The fund may invest up to 10% of its total assets in stripped mortgage securities. 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 or interest rate of a hybrid could be tied (positively or negatively) to the price of some commodity, currency, or securities index or another interest rate (each a "benchmark"). Hybrids can be used as an efficient means of pursuing a variety of investment goals, including currency hedging, duration management, and increased total return. Hybrids may not bear interest or pay dividends. The value of a hybrid or its interest rate may be a multiple of a benchmark and, as a result, may be leveraged and move (up or down) more steeply and rapidly than the benchmark. These benchmarks may be sensitive to economic and political events, such as commodity shortages and currency devaluations, which cannot be readily foreseen by the purchaser of a hybrid. Under certain conditions, the redemption value of a hybrid could be zero. Thus, an investment in a hybrid may entail significant market risks that are not associated with a similar investment in a traditional, U.S. dollar-denominated bond that has a fixed principal amount and pays a fixed rate or floating rate of interest. The purchase of hybrids also exposes the fund to the credit risk of the issuer of the hybrid. These risks may cause significant fluctuations in the net asset value of the fund. T. ROWE PRICE 24 . Hybrids can have volatile prices and limited liquidity, and their use by the fund may not be successful. Operating policy The fund may invest up to 10% of its total assets in hybrid instruments. Deferrable Subordinated Securities Recently, securities have been issued which have long maturities and are deeply subordinated in the issuer's capital structure. They generally have 30-year maturities and permit the issuer to defer distributions for up to five years. These characteristics give the issuer more financial flexibility than is typically the case with traditional bonds. As a result, the securities may be viewed as possessing certain "equity-like" features by rating agencies and bank regulators. However, the securities are treated as debt securities by market participants, and the fund intends to treat them as such as well. These securities may offer a mandatory put or remarketing option that creates an effective maturity date significantly shorter than the stated one. The fund will invest in these securities to the extent their yield, credit, and maturity characteristics are consistent with the fund's investment objective and program. Private Placements These securities are sold directly to a small number of investors, usually institutions. Unlike public offerings, such securities are not registered with the SEC. Although certain of these securities may be readily sold, for example, under Rule 144A, others may be illiquid, and their sale may involve substantial delays and additional costs. Operating policy The fund may invest up to 15% of its net assets in illiquid securities. Utility Industry Concentration The fund may, under certain circumstances, invest a substantial amount of its assets in the utility industry. Investments in this industry may be affected by environmental conditions, energy conservation programs, fuel shortages, availability of capital to finance operations and construction programs, and federal and state legislative and regulatory actions. T. Rowe Price believes that any risk to the fund which might result from concentrating in any such industry will be minimized by diversification of the fund's investments. Operating policy The fund has no current intention of concentrating in the utility industry. Fundamental policy The fund will, under certain conditions, invest up to 50% of its assets in any one of the following industries: gas utility, gas transmission utility, electric utility, telephone utility, and petroleum. MORE ABOUT THE FUND 25 Types of Investment Management Practices Reserve Position The fund will hold a certain portion of its assets in money market reserves. The fund's reserve position is expected to consist primarily of shares of one or more T. Rowe Price internal money market funds. Short-term, high-quality U.S. and foreign dollar-denominated money market securities, including repurchase agreements, may also be held. For temporary, defensive purposes, the fund may invest without limitation in money market reserves. The effect of taking such a position is that the fund may not achieve its investment objective. The reserve position provides flexibility in meeting redemptions, expenses, and the timing of new investments and can serve as a short-term defense during periods of unusual market volatility. Borrowing Money and Transferring Assets The fund can borrow money from banks and other Price funds as a temporary measure for emergency purposes, to facilitate redemption requests, or for other purposes consistent with the fund's investment objective and program. Such borrowings may be collateralized with fund assets, subject to restrictions. Fundamental policy Borrowings may not exceed 33/1//\\/3/\\% of total fund assets. Operating policy The fund may not transfer as collateral any portfolio securities except as necessary in connection with permissible borrowings or investments, and then such transfers may not exceed 33/1//\\/3/\\% of the fund's total assets. The fund may not purchase additional securities when borrowings exceed 5% of total assets. Futures and Options Futures, a type of potentially high-risk derivative, are often used to manage or hedge risk because they enable the investor to buy or sell an asset in the future at an agreed-upon price. Options, another type of potentially high-risk derivative, give the investor the right (where the investor purchases the option), or the obligation (where the investor "writes" or sells the option), to buy or sell an asset at a predetermined price in the future. The fund may buy and sell futures and options contracts for any number of reasons, including: to manage its exposure to changes in interest rates, bond prices, and foreign currencies; as an efficient means of adjusting its overall exposure to certain markets; in an effort to enhance income; to protect the value of portfolio securities; as a cash management tool; and to adjust portfolio duration. The fund may purchase, sell, or write call and put options on securities, financial indices, and foreign currencies. Futures contracts and options may not always be successful hedges; their prices can be highly volatile. Using them could lower the fund's total return, and the potential loss from the use of futures can exceed the fund's initial investment in such contracts. T. ROWE PRICE 26 Operating policies Futures: Initial margin deposits and premiums on options used for nonhedging purposes will not exceed 5% of the fund's net asset value. Options on securities: The total market value of securities against which the fund writes call or put options may not exceed 25% of its total assets. The fund will not commit more than 5% of its total assets to premiums when purchasing call or put options. Managing Foreign Exchange Risk Investors in foreign securities may "hedge" their exposure to potentially unfavorable currency changes by purchasing a contract to exchange one currency for another on some future date at a specified exchange rate. In certain circumstances, a "proxy currency" may be substituted for the currency in which the investment is denominated, a strategy known as "proxy hedging." The fund may also use these contracts to create a synthetic bond - issued by a U.S. company, for example, but with the dollar component transformed into a foreign currency. If the fund were to engage in foreign currency transactions, they would be used primarily to protect the fund's foreign securities from adverse currency movements relative to the dollar. Such transactions involve the risk that anticipated currency movements will not occur, and the fund's total return could be reduced. Operating policy The fund will not commit more than 20% of its total assets to forward currency contracts. Lending of Portfolio Securities Like other mutual funds, the fund may lend securities to broker-dealers, other institutions, or other persons to earn additional income. The principal risk is the potential insolvency of the broker-dealer or other borrower. In this event, the fund could experience delays in recovering its securities and possibly capital losses. Fundamental policy The value of loaned securities may not exceed 33/1//\\/3/\\% of total fund assets. When-Issued Securities and Forward Commitment Contracts The fund may purchase securities on a when-issued or delayed delivery basis or may purchase or sell securities on a forward commitment basis. There is no limit on the fund's investment in these securities. The price of these securities is fixed at the time of the commitment to buy, but delivery and payment can take place a month or more later. During the interim period, the market value of the securities can fluctuate, and no interest accrues to the purchaser. At the time of delivery, the value of the securities may be more or less than the purchase or sale price. To the extent the fund remains fully or almost fully invested (in securities with a remaining maturity of more than one year) at the same time it purchases these securities, there will be greater fluctuations in the fund's net asset value than if the fund did not purchase them. MORE ABOUT THE FUND 27 Portfolio Turnover Although the fund will not generally trade for short-term profits, circumstances may warrant a sale without regard to the length of time a security was held. A high turnover rate may increase transaction costs and result in additional taxable gains. The fund's portfolio turnover rates for the fiscal years ended May 31, 1999, 1998, and 1997, were 94.3%, 147.3%, and 87.1%, respectively. Year 2000 Processing Issue Many computer programs use two digits rather than four to identify the year. These programs, if not adapted, will not correctly handle the change from "99" to "00" on January 1, 2000, and will not be able to perform necessary functions. The Year 2000 issue affects virtually all companies and organizations. T. Rowe Price has implemented steps intended to assure that major computer systems and processes are capable of Year 2000 processing. While we have worked with third parties to assess the adequacy of their compliance efforts and have developed contingency plans intended to assure that third-party noncompliance will not materially affect T. Rowe Price's operations, there is no guarantee our operations will not be affected by Year 2000 problems. Companies, organizations, governmental entities, and markets in which the T. Rowe Price funds invest will be affected by the Year 2000 issue, but at this time the funds cannot predict the degree of impact. For funds that invest in foreign markets, especially emerging markets, it is possible foreign companies and markets will not be as prepared for Year 2000 as domestic companies and markets. To the extent the effect of Year 2000 is negative, the fund's returns could be reduced. FINANCIAL HIGHLIGHTS ---------------------------------------------------------- Table 4, which provides information about the fund's financial history, is based on a single share outstanding throughout each fiscal year. The table is part of the fund's financial statements, which are included in its annual report and are incorporated by reference into the Statement of Additional Information (available upon request). The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and distributions). The financial statements in the annual report were audited by the fund's independent accountants, PricewaterhouseCoopers LLP. T. ROWE PRICE 28 Table 4 Financial Highlights
Year ended May 31 1995 1996 1997 1998 1999 ------------------------------------------------------------------------------ Net asset value, beginning of period $ 8.65 $ 8.97 $ 8.70 $ 8.77 $ 9.09 Income From Investment Operations Net investment income 0.58 0.60 0.58 0.57 0.54 --------------------------------------------- Net gains or losses on securities (both realized 0.34 (0.27) 0.07 0.36 (0.45) and unrealized) --------------------------------------------- Total from investment operations 0.92 0.33 0.65 0.93 0.09 Less Distributions Dividends (from net (0.58) (0.60) (0.58) (0.57) (0.54) investment income) --------------------------------------------- Distributions (from (0.02) -- -- (0.04) (0.14) capital gains) --------------------------------------------- Returns of capital -- -- -- -- -- --------------------------------------------- Total distributions (0.60) (0.60) (0.58) (0.61) (0.68) --------------------------------------------- Net asset value, end $ 8.97 $ 8.70 $ 8.77 $ 9.09 $ 8.50 of period --------------------------------------------- Total return 11.13% 3.70% 7.70% 10.84% 1.02% Ratios/Supplemental Data Net assets, end of period $1,566 $1,634 $1,711 $2,076 $1,943 (in millions) --------------------------------------------- Ratio of expenses to 0.78% 0.75% 0.74% 0.71% 0.72% average net assets --------------------------------------------- Ratio of net income to 6.95% 6.66% 6.65% 6.31% 6.16% average net assets --------------------------------------------- Portfolio turnover rate 54.1% 35.5% 87.1% 147.3% 94.3% ------------------------------------------------------------------------------
INVESTING WITH T. ROWE PRICE 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.) 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 Roll- T. ROWE PRICE 30 over checks that are properly endorsed. In addition, the fund does not accept purchases made by credit card check. Mail via United States Postal Service T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD 21297-1300 Mail via private carriers/overnight services T. Rowe Price Account Services Mailcode 17300 4515 Painters Mill Road Owings Mills, MD 21117-4903 By Wire Call Investor Services for an account number and give the following wire information to your bank: Receiving Bank: PNC Bank, N.A. (Pittsburgh) Receiving Bank ABA#: 043000096 Beneficiary: T. Rowe Price [fund name] Beneficiary Account: 1004397951 Originator to Beneficiary Information (OBI): name of owner(s) and account number Complete a New Account Form and mail it to one of the appropriate addresses listed previously. Note: No services will be established and IRS penalty withholding may occur until a signed New Account Form is received. Also, retirement plan accounts and IRAs cannot be opened by wire. By Exchange Call Shareholder Services or use Tele*Access or your personal computer (see Automated Services under Information About Your Services). The new account will have the same registration as the account from which you are exchanging. Services for the new account may be carried over by telephone request if preauthorized on the existing account. For limitations on exchanging, see explanation of Excessive Trading under Transaction Procedures and Special Requirements. In Person Drop off your New Account Form at any location listed on the back cover and obtain a receipt. MORE ABOUT THE FUND 31 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 listed 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. Mail via United States Postal Service T. Rowe Price Funds Account Services P.O. Box 17300 Baltimore, MD 21297-1300 /(For //mail via private carriers and overnight services//, see previous / /section.)/ By Automatic Asset Builder Fill out the Automatic Asset Builder section on the New Account or Shareholder Services Form. EXCHANGING AND REDEEMING SHARES ---------------------------------------------------------- Exchange Service You can move money from one account to an existing identically registered account or open a new identically registered account. Remember, exchanges are purchases and sales for tax purposes. (Exchanges into a state tax-free fund are limited to investors living in states where the fund is registered.) T. ROWE PRICE 32 Redemptions Redemption proceeds can be mailed to your account address, sent by ACH transfer to your bank, or wired to your bank (provided your bank information is already on file). For charges, see Electronic Transfers - By Wire under Information About Your Services. 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, one year, or two years, as specified in the prospectus. The fee is paid to the fund. By Phone Call Shareholder Services If you find our phones busy during unusually volatile markets, please consider placing your order by your personal computer or Tele*Access (if you have previously authorized these services), mailgram, or express mail. For exchange policies, please see Transaction Procedures and Special Requirements - Excessive Trading. By Mail For each account involved, provide the account name, number, fund name, and exchange or redemption amount. For exchanges, be sure to specify any fund you are exchanging out of and the fund or funds you are exchanging into. T. Rowe Price requires the signatures of all owners exactly as registered, and possibly a signature guarantee (see Transaction Procedures and Special Requirements - Signature Guarantees). Please use the appropriate address below: Mail via United States Postal Service for nonretirement and IRA accounts T. Rowe Price Account Services P.O. Box 17302 Baltimore, MD 21297-1302 Mail via private carriers/overnight services T. Rowe Price Account Services Mailcode 17302 4515 Painters Mill Road Owings Mills, MD 21117-4903 For employer-sponsored retirement accounts via U.S. Postal Service: T. Rowe Price Trust Company P.O. Box 17479 Baltimore, MD 21297-1479 MORE ABOUT THE FUND 33 via private carriers and overnight services: T. Rowe Price Trust Company Mailcode 17479 4515 Painters Mill Road Owings Mills, MD 21117-1479 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 FUND ---------------------------------------------------------- The 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; and (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 the fund from the possible adverse effects of a substantial redemption in a large account, as a matter of general policy, no shareholder or group of shareholders controlled by the same person or group of persons will knowingly be permitted to T. ROWE PRICE 34 purchase in excess of 5% of the outstanding shares of the fund, except upon approval of the fund's management. INFORMATION ABOUT YOUR SERVICES ---------------------------------------------------------- Shareholder Services 1-800-225-5132 Investor Services 1-800-638-5660 Many services are available to you as a T. Rowe Price shareholder; some you receive automatically, and others you must authorize or request on the New Account Form. By signing up for services on the New Account Form rather than later on, you avoid having to complete a separate form and obtain a signature guarantee. This section discusses some of the services currently offered. Our Services Guide, which we mail to all new shareholders, contains detailed descriptions of these and other services. Note: Corporate and other institutional accounts require an original or certified resolution to establish services and to redeem by mail. For more information, call Investor Services. Retirement Plans We offer a wide range of plans for individuals, institutions, and large and small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs (profit sharing, money purchase pension), 401(k), and 403(b)(7). For information on IRAs, call Investor Services. For information on all other retirement plans, including our no-load variable annuity, please call our Trust Company at 1-800-492-7670. Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days Tele*Access 24-hour service via toll-free number enables you to (1) access information on fund yields, prices, distributions, account balances, and your latest transaction; (2) request checks, prospectuses, services forms, duplicate statements, and tax forms; and (3) initiate purchase, redemption, and exchange transactions in your accounts (see Electronic Transfers in this section). MORE ABOUT THE FUND 35 Web Address www.troweprice.com After authorizing this service, account transactions may also be conducted through our Web site on the Internet. If you subscribe to America Online/(R)/, you can access our Web site via keyword "T. Rowe Price" and conduct transactions in your account. Plan Account Line 1-800-401-3279 Plan Account Line This 24-hour service is similar to Tele*Access but is designed specifically to meet the needs of retirement plan investors. Telephone and Walk-In Services Buy, sell, or exchange shares by calling one of our service representatives or by visiting one of our investor center locations whose addresses are listed on the back cover. 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: 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. T. ROWE PRICE 36 Automatic Exchange You can set up systematic investments from one fund account into another, such as from a money fund into a stock fund. T. ROWE PRICE BROKERAGE ---------------------------------------------------------- To Open an Account 1-800-638-5660 For Existing Brokerage Investors 1-800-225-7720 This service gives you the opportunity to consolidate all of your investments with one company. Investments available through our brokerage service include stocks, options, bonds, and others at commission savings over full-service brokers. We also provide a wide range of services, including: Automated Telephone and Computer Services You can enter stock and option orders, access quotes, and review account information around the clock by phone with Tele-Trader or via the Internet with Internet-Trader. Any trades entered through Tele-Trader save you an additional 10% on commissions. For stock trades entered through Internet-Trader, you will pay a commission of $24.95 for up to 1,000 shares plus $.02 for each share over 1,000. Option trades entered through Internet-Trader save you 10% over our standard commission schedule. All trades are subject to a $35 minimum commission except stock trades placed through Internet-Trader. Investor Information A variety of informative reports, such as our Brokerage Insights series and S&P Market Month newsletter, as well as access to on-line research tools can help you better evaluate economic trends and investment opportunities. Dividend Reinvestment Service Virtually all stocks held in customer accounts are eligible for this free service. /T. Rowe Price// Brokerage is a division of //T. Rowe Price// Investment / /Services, Inc., Member NASD/SIPC./ MORE ABOUT THE FUND 37 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 performance. 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 P.O. Box 17630, Baltimore, Maryland 21297-1630. 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. To help you achieve your financial goals, T. Rowe Price offers a wide range of stock, bond, and money market investments, as well as convenient services and informative reports. A Statement of Additional Information about the fund has been filed with the Securities and Exchange Commission and is incorporated by reference into this prospectus. Further information about the fund's investments, including a review of market conditions and the manager's recent strategies and their impact on performance, is available in the annual and semiannual shareholder reports. To obtain free copies of any of these documents, or for shareholder inquiries, call 1-800-638-5660. Fund reports and Statements of Additional Information are also available from the Securities and Exchange Commission by calling 1-800-SEC-0330 or by writing the SEC's Public Reference Section, Washington, D.C. 20549-6009 (you will be charged a duplicating fee); by visiting the SEC's public reference room; or by consulting the SEC's Web site at www.sec.gov. Walk-in Investor Centers For directions, call 1-800-225-5132 or visit our Web site Baltimore Area Downtown 101 East Lombard Street Owings Mills 10090 Red Run Blvd. After October 18, 1999: Three Financial Center 4515 Painters Mill Rd. Boston Area 386 Washington Street Wellesley Colorado Springs 4410 ArrowsWest Drive Los Angeles Area Warner Center 21800 Oxnard Street Suite 270 Woodland Hills Tampa 4200 West Cypress St. 10th Floor Washington, D.C. 900 17th Street, N.W. Farragut Square For Mutual Fund or T. Rowe Price Brokerage Information Investor Services 1-800-638-5660 For Existing Accounts Shareholder Services 1-800-225-5132 For Yields, Prices, Account Information, or to Conduct Transactions Tele*Access/(R)/ 24 hours, 7 days 1-800-638-2587 Internet Address www.troweprice.com Plan Account Line For retirement plan investors: The appropriate 800 number appears on your retirement account statement. LOGO T. Rowe Price Associates, Inc. 100 East Pratt Street Baltimore, MD 21202 1940 Act File No. 811-2396 F43-040 10/1/99 STATEMENT OF ADDITIONAL INFORMATION The date of this Statement of Additional Information is October 1, 1999. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE GNMA FUND T. ROWE PRICE HIGH YIELD FUND, 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 (A Separate Class of T. Rowe Price Prime Reserve Fund, Inc.) RESERVE INVESTMENT FUNDS, INC. Government Reserve Investment Fund Reserve Investment Fund T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. and T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money 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 October 1, 1999, which may be obtained from T. Rowe Price Investment Services, Inc. ("Investment Services"). Shareholders of the T. Rowe Price Prime Reserve Fund-PLUS Class should refer to the Prime Reserve Fund for information relating to their investment. Each fund's financial statements for the year ended May 31, 1999, and the report of independent accountants are included in each fund's Annual Report and incorporated by reference into this Statement of Additional Information. If you would like a prospectus or an annual or semiannual shareholder report for a fund of which you are not a shareholder, please call 1-800-638-5660. A prospectus with more complete information, including management fees and expenses, will be sent to you. Please read it carefully. Government Reserve and Reserve Investment Funds are not available for direct purchase by members of the public. C22-043 10/1/99
TABLE OF CONTENTS ----------------- Page Page ---- ---- Capital Stock Management of the Funds - ------------------------------ ----------------------------------------------- Code of Ethics Net Asset Value Per Share - ------------------------------ ----------------------------------------------- Custodian Portfolio Management Practices - ------------------------------ ----------------------------------------------- Distributor for the Portfolio Transactions Funds - ------------------------------ ----------------------------------------------- Dividends and Pricing of Securities Distributions - ------------------------------ ----------------------------------------------- Federal Registration Principal Holders of Securities of Shares - ------------------------------ ----------------------------------------------- Independent Ratings of Commercial Paper Accountants - ------------------------------ ----------------------------------------------- Investment Management Ratings of Corporate Debt Securities Services - ------------------------------ ----------------------------------------------- Investment Objectives Risk Factors and Policies - ------------------------------ ----------------------------------------------- Investment Performance Shareholder Services by Outside Parties - ------------------------------ ----------------------------------------------- Investment Program Tax Status - ------------------------------ ----------------------------------------------- Investment Yield Information Restrictions - ------------------------------ ----------------------------------------------- Legal Counsel - ------------------------------ -----------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES ------------------------------------------------------------------------------- The following information supplements the discussion of each fund's investment objectives and policies discussed in each fund's prospectus. The funds will not make a material change in their investment objectives without obtaining shareholder approval. Unless otherwise specified, the investment programs and restrictions of the funds are not fundamental policies. Each fund's operating policies are subject to change by each Board of Directors/Trustees without shareholder approval. However, shareholders will be notified of a material change in an operating policy. Each fund's fundamental policies may not be changed without the approval of at least a majority of the outstanding shares of the fund or, if it is less, 67% of the shares represented at a meeting of shareholders at which the holders of 50% or more of the shares are represented. References to the following are as indicated: Investment Company Act of 1940 ("1940 Act") Securities and Exchange Commission ("SEC") T. Rowe Price Associates, Inc. ("T. Rowe Price") Moody's Investors Service, Inc. ("Moody's") Standard & Poor's Corporation ("S&P") Internal Revenue Code of 1986 ("Code") Rowe Price-Fleming International, Inc. ("Price-Fleming") 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 ------------------------------------------------------------------------------- Reference is also made to the sections entitled "Types of Securities" and "Portfolio Management Practices" for discussions of the risks associated with the investments and practices described therein as they apply to the fund. All Funds Debt Obligations Yields on short-, intermediate-, and long-term debt securities are dependent on a variety of factors, including the general conditions of the money and bond markets, the size of a particular offering, the maturity of the obligation, and the credit quality and rating of the issue. Debt securities with longer maturities tend to have higher yields and are generally subject to potentially greater capital appreciation and depreciation than obligations with shorter maturities and lower yields. The market prices of debt securities usually vary, depending upon available yields. An increase in interest rates will generally reduce the value of portfolio debt securities, and a decline in interest rates will generally increase the value of portfolio debt securities. The ability of the fund to achieve its investment objective is also dependent on the continuing ability of the issuers of the debt securities in which the fund invests to meet their obligations for the payment of interest and principal when due. Although the fund seeks to reduce risk by portfolio diversification, credit analysis, and attention to trends in the economy, industries and financial markets, such efforts will not eliminate all risk. There can, of course, be no assurance that the fund will achieve its investment objective. After purchase by the fund, a debt security may cease to be rated or its rating may be reduced below the minimum required for purchase by the fund. For the Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds, the procedures set forth in Rule 2a-7, under the 1940 Act, may require the prompt sale of any such security. For the other funds, neither event will require a sale of such security by the fund. However, T. Rowe Price will consider such event in its determination of whether the fund should continue to hold the security. To the extent that the ratings given by Moody's or S&P may change as a result of changes in such organizations or their rating systems, the fund will attempt to use comparable ratings as standards for investments in accordance with the investment policies contained in the prospectus. When purchasing unrated securities, T. Rowe Price, under the supervision of the fund's Board of Directors/Trustees, determines whether the unrated security is of a quality comparable to that which the fund is allowed to purchase. Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds There can be no assurance that the fund will achieve its investment objective or be able to maintain its net asset value per share at $1.00. The price of the fund is not guaranteed or insured by the U.S. government and its yield is not fixed. An increase in interest rates could reduce the value of the fund's portfolio investments, and a decline in interest rates could increase the value. All Funds except Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds Because of its investment policy, the fund may or may not be suitable or appropriate for all investors. The fund is not a money market fund and is not an appropriate investment for those whose primary objective is principal stability. The value of the portfolio securities of the fund will fluctuate based upon market conditions. Although the fund seeks to reduce risk by investing in a diversified portfolio, such diversification does not eliminate all risk. There can, of course, be no assurance that the fund will achieve its investment objective. Mortgage-backed securities differ from conventional bonds in that principal is paid back over the life of the security rather than at maturity. As a result, the holder of a mortgage-backed security (i.e., the fund) receives monthly scheduled payments of principal and interest, and may receive unscheduled principal payments representing prepayments on the underlying mortgages. The incidence of unscheduled principal prepayments is also likely to increase in mortgage pools owned by the fund when prevailing mortgage loan rates fall below the mortgage rates of the securities underlying the individual pool. The effect of such prepayments in a falling rate environment is to (1) cause the fund to reinvest principal payments at the then lower prevailing interest rate, and (2) reduce the potential for capital appreciation beyond the face amount of the security. Conversely, the fund may realize a gain on prepayments of mortgage pools trading at a discount. Such prepayments will provide an early return of principal which may then be reinvested at the then higher prevailing interest rate. The market value of adjustable rate mortgage securities ("ARMs"), like other U.S. government securities, will generally vary inversely with changes in market interest rates, declining when interest rates rise and rising when interest rates decline. Because of their periodic adjustment feature, ARMs should be more sensitive to short-term interest rates than long-term rates. They should also display less volatility than long-term mortgage-backed securities. Thus, while having less risk of a decline during periods of rapidly rising rates, ARMs may also have less potential for capital appreciation than other investments of comparable maturities. Interest rate caps on mortgages underlying ARM securities may prevent income on the ARM from increasing to prevailing interest rate levels and cause the securities to decline in value. In addition, to the extent ARMs are purchased at a premium, mortgage foreclosures and unscheduled principal prepayments may result in some loss of the holders' principal investment to the extent of the premium paid. On the other hand, if ARMs are purchased at a discount, both a scheduled payment of principal and an unscheduled prepayment of principal will increase current and total returns and will accelerate the recognition of income which when distributed to shareholders will be taxable as ordinary income. Corporate Income, High Yield, and Personal Strategy Funds Special Risks of Investing in Junk Bonds The following special considerations are additional risk factors associated with the fund's investments in lower-rated debt securities. . Youth and Growth of the Lower-Rated Debt Securities Market The market for lower-rated debt securities is relatively new and its growth has paralleled a long economic expansion. Past experience may not, therefore, provide an accurate indication of future performance of this market, particularly during periods of economic recession. An economic downturn or increase in interest rates is likely to have a greater negative effect on this market, the value of lower-rated debt securities in the fund's portfolio, the fund's net asset value and the ability of the bonds' issuers to repay principal and interest, meet projected business goals and obtain additional financing than on higher-rated securities. These circumstances also may result in a higher incidence of defaults than with respect to higher-rated securities. An investment in this fund is more speculative than investment in shares of a fund which invests only in higher-rated debt securities. . Sensitivity to Interest Rate and Economic Changes Prices of lower-rated debt securities may be more sensitive to adverse economic changes or corporate developments than higher-rated investments. Debt securities with longer maturities, which may have higher yields, may increase or decrease in value more than debt securities with shorter maturities. Market prices of lower-rated debt securities structured as zero coupon or pay-in-kind securities are affected to a greater extent by interest rate changes and may be more volatile than securities which pay interest periodically and in cash. Where it deems it appropriate and in the best interests of fund shareholders, the fund may incur additional expenses to seek recovery on a debt security on which the issuer has defaulted and to pursue litigation to protect the interests of security holders of its portfolio companies. . Liquidity and Valuation Because the market for lower-rated securities may be thinner and less active than for higher-rated securities, there may be market price volatility for these securities and limited liquidity in the resale market. Nonrated securities are usually not as attractive to as many buyers as rated securities are, a factor which may make nonrated securities less marketable. These factors may have the effect of limiting the availability of the securities for purchase by the fund and may also limit the ability of the fund to sell such securities at their fair value either to meet redemption requests or in response to changes in the economy or the financial markets. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of lower-rated debt securities, especially in a thinly traded market. To the extent the fund owns or may acquire illiquid or restricted lower-rated securities, these securities may involve special registration responsibilities, liabilities and costs, and liquidity and valuation difficulties. Changes in values of debt securities which the fund owns will affect its net asset value per share. If market quotations are not readily available for the fund's lower-rated or nonrated securities, these securities will be valued by a method that the fund's Board of Directors believes accurately reflects fair value. Judgment plays a greater role in valuing lower-rated debt securities than with respect to securities for which more external sources of quotations and last sale information are available. . Taxation Special tax considerations are associated with investing in lower-rated debt securities structured as zero coupon or pay-in-kind securities. The fund accrues income on these securities prior to the receipt of cash payments. The fund must distribute substantially all of its income to its shareholders to qualify for pass-through treatment under the tax laws and may, therefore, have to dispose of its portfolio securities to satisfy distribution requirements. Corporate Income, High Yield, New Income, Personal Strategy, and Short-Term Bond Funds . Risk Factors of Foreign Investing There are special risks in foreign investing. Certain of these risks are inherent in any 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. . 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 1998, there was substantial turmoil in markets throughout the world. 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. In 1998, the government of Malaysia imposed currency controls which effectively made it impossible for foreign investors to convert Malaysian ringgits to foreign currencies. . Market Characteristics It is contemplated that most foreign securities will be purchased in over-the-counter markets or on securities 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 American Depository Receipts ("ADRs") traded in the United States. Foreign securities 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. Securities may trade at price/earnings multiples higher than comparable United States securities and such levels may not be sustainable. Commissions on foreign securities are generally higher than commissions on United States exchanges, and while there is an increasing number of overseas securities 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 securities 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. The collapse of the ruble from its crawling peg exchange rate against the U.S. dollar has set back the path of reform for several years. 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 1940 Act 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. INVESTMENT PROGRAM ------------------------------------------------------------------------------- Types of Securities Set forth below is additional information about certain of the investments described in each fund's prospectus. Debt Securities Fixed income securities in which the fund may invest include, but are not limited to, those described below. All Funds . U.S. Government Obligations Bills, notes, bonds, and other debt securities issued by the U.S. Treasury. These are direct obligations of the U.S. government and differ mainly in the length of their maturities. . U.S. Government Agency Securities Issued or guaranteed by U.S. government-sponsored enterprises and federal agencies. These include securities issued by the Federal National Mortgage Association, Government National Mortgage Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home Administration, Banks for Cooperatives, Federal Intermediate Credit Banks, Federal Financing Bank, Farm Credit Banks, the Small Business Association, and the Tennessee Valley Authority. Some of these securities are supported by the full faith and credit of the U.S. Treasury; the remainder are supported only by the credit of the instrumentality, which may or may not include the right of the issuer to borrow from the Treasury. The GNMA, U.S. Treasury Money, Intermediate, and Long-Term Funds and GRIF may only invest in these securities if they are supported by the full faith and credit of the U.S. government. All Funds except GNMA, Government Reserve Investment, U.S. Treasury Money, Intermediate, and Long-Term Funds . Bank Obligations Certificates of deposit, bankers' acceptances, and other short-term debt obligations. Certificates of deposit are short-term obligations of commercial banks. A bankers' acceptance is a time draft drawn on a commercial bank by a borrower, usually in connection with international commercial transactions. Certificates of deposit may have fixed or variable rates. The fund may invest in U.S. banks, foreign branches of U.S. banks, U.S. branches of foreign banks, and foreign branches of foreign banks. . Corporate Debt Securities Outstanding nonconvertible corporate debt securities (e.g., bonds and debentures) which have one year or less remaining to maturity. Corporate notes may have fixed, variable, or floating rates. . Commercial Paper Short-term promissory notes issued by corporations primarily to finance short-term credit needs. Certain notes may have floating or variable rates. . Foreign Government Securities Issued or guaranteed by a foreign government, province, instrumentality, political subdivision, or similar unit thereof. . Savings and Loan Obligations Negotiable certificates of deposit and other short-term debt obligations of savings and loan associations. . Supranational Agencies Securities of certain supranational entities, such as the International Development Bank. All Funds except Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds Mortgage-Related Securities Mortgage-related securities in which the fund may invest include, but are not limited to, those described below. The GNMA, U.S. Treasury Intermediate and U.S. Treasury Long-Term Funds may only invest in these securities to the extent they are backed by the full faith and credit of the U.S. government. . Mortgage-Backed Securities Mortgage-backed securities are securities representing an interest in a pool of mortgages. The mortgages may be of a variety of types, including adjustable rate, conventional 30-year fixed rate, graduated payment, and 15-year. Principal and interest payments made on the mortgages in the underlying mortgage pool are passed through to the fund. This is in contrast to traditional bonds where principal is normally paid back at maturity in a lump sum. Unscheduled prepayments of principal shorten the securities' weighted average life and may lower their total return. (When a mortgage in the underlying mortgage pool is prepaid, an unscheduled principal prepayment is passed through to the fund. This principal is returned to the fund at par. As a result, if a mortgage security were trading at a premium, its total return would be lowered by prepayments, and if a mortgage security were trading at a discount, its total return would be increased by prepayments.) The value of these securities also may change because of changes in the market's perception of the creditworthiness of the federal agency that issued them. In addition, the mortgage securities market in general may be adversely affected by changes in governmental regulation or tax policies. . U.S. Government Agency Mortgage-Backed Securities These are obligations issued or guaranteed by the United States government or one of its agencies or instrumentalities, such as the Government National Mortgage Association ("Ginnie Mae" or "GNMA"), the Federal National Mortgage Association ("Fannie Mae" or "FNMA") the Federal Home Loan Mortgage Corporation ("Freddie Mac" or "FHLMC"), and the Federal Agricultural Mortgage Corporation ("Farmer Mac" or "FAMC"). FNMA, FHLMC, and FAMC obligations are not backed by the full faith and credit of the U.S. government as GNMA certificates are, but they are supported by the instrumentality's right to borrow from the United States Treasury. U.S. Government Agency Mortgage-Backed Certificates provide for the pass-through to investors of their pro-rata share of monthly payments (including any prepayments) made by the individual borrowers on the pooled mortgage loans, net of any fees paid to the guarantor of such securities and the servicer of the underlying mortgage loans. Each of GNMA, FNMA, FHLMC, and FAMC guarantees timely distributions of interest to certificate holders. GNMA and FNMA guarantee timely distributions of scheduled principal. FHLMC has in the past guaranteed only the ultimate collection of principal of the underlying mortgage loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCS) which also guarantee timely payment of monthly principal reductions. . Ginnie Mae Certificates Ginnie Mae is a wholly owned corporate instrumentality of the United States within the Department of Housing and Urban Development. The National Housing Act of 1934, as amended (the "Housing Act"), authorizes Ginnie Mae to guarantee the timely payment of the principal of and interest on certificates that are based on and backed by a pool of mortgage loans insured by the Federal Housing Administration under the Housing Act, or Title V of the Housing Act of 1949 ("FHA Loans"), or guaranteed by the Department of Veterans Affairs under the Servicemen's Readjustment Act of 1944, as amended ("VA Loans"), or by pools of other eligible mortgage loans. The Housing Act provides that the full faith and credit of the United States government is pledged to the payment of all amounts that may be required to be paid under any guaranty. In order to meet its obligations under such guaranty, Ginnie Mae is authorized to borrow from the United States Treasury with no limitations as to amount. . Fannie Mae Certificates Fannie Mae is a federally chartered and privately owned corporation organized and existing under the Federal National Mortgage Association Charter Act of 1938. FNMA Certificates represent a pro-rata interest in a group of mortgage loans purchased by Fannie Mae. FNMA guarantees the timely payment of principal and interest on the securities it issues. The obligations of FNMA are not backed by the full faith and credit of the U.S. government. . Freddie Mac Certificates Freddie Mac is a corporate instrumentality of the United States created pursuant to the Emergency Home Finance Act of 1970, as amended ("FHLMC Act"). Freddie Mac Certificates represent a pro-rata interest in a group of mortgage loans ("Freddie Mac Certificates") purchased by Freddie Mac. Freddie Mac guarantees timely payment of interest and principal on certain securities it issues and timely payment of interest and eventual payment of principal on other securities it issues. The obligations of Freddie Mac are obligations solely of Freddie Mac and are not backed by the full faith and credit of the U.S. government. . Farmer Mac Certificates Farmer Mac is a federally chartered instrumentality of the United States established by Title VIII of the Farm Credit Act of 1971, as amended ("Charter Act"). Farmer Mac was chartered primarily to attract new capital for financing of agricultural real estate by making a secondary market in certain qualified agricultural real estate loans. Farmer Mac provides guarantees of timely payment of principal and interest on securities representing interests in, or obligations backed by, pools of mortgages secured by first liens on agricultural real estate ("Farmer Mac Certificates"). Similar to Fannie Mae and Freddie Mac, Farmer Mac Certificates are not supported by the full faith and credit of the U.S. government; rather, Farmer Mac may borrow from the U.S. Treasury to meet its guaranty obligations. As discussed above, prepayments on the underlying mortgages and their effect upon the rate of return of a mortgage-backed security, is the principal investment risk for a purchaser of such securities, like the fund. Over time, any pool of mortgages will experience prepayments due to a variety of factors, including (1) sales of the underlying homes (including foreclosures), (2) refinancings of the underlying mortgages, and (3) increased amortization by the mortgagee. These factors, in turn, depend upon general economic factors, such as level of interest rates and economic growth. Thus, investors normally expect prepayment rates to increase during periods of strong economic growth or declining interest rates, and to decrease in recessions and rising interest rate environments. Accordingly, the life of the mortgage-backed security is likely to be substantially shorter than the stated maturity of the mortgages in the underlying pool. Because of such variation in prepayment rates, it is not possible to predict the life of a particular mortgage-backed security, but FHA statistics indicate that 25- to 30-year single family dwelling mortgages have an average life of approximately 12 years. The majority of Ginnie Mae Certificates are backed by mortgages of this type, and, accordingly, the generally accepted practice treats Ginnie Mae Certificates as 30-year securities which prepay in full in the 12th year. FNMA and Freddie Mac Certificates may have differing prepayment characteristics. Fixed rate mortgage-backed securities bear a stated "coupon rate" which represents the effective mortgage rate at the time of issuance, less certain fees to GNMA, FNMA and FHLMC for providing the guarantee, and the issuer for assembling the pool and for passing through monthly payments of interest and principal. Payments to holders of mortgage-backed securities consist of the monthly distributions of interest and principal less the applicable fees. The actual yield to be earned by a holder of mortgage-backed securities is calculated by dividing interest payments by the purchase price paid for the mortgage-backed securities (which may be at a premium or a discount from the face value of the certificate). Monthly distributions of interest, as contrasted to semiannual distributions which are common for other fixed interest investments, have the effect of compounding and thereby raising the effective annual yield earned on mortgage-backed securities. Because of the variation in the life of the pools of mortgages which back various mortgage-backed securities, and because it is impossible to anticipate the rate of interest at which future principal payments may be reinvested, the actual yield earned from a portfolio of mortgage-backed securities will differ significantly from the yield estimated by using an assumption of a certain life for each mortgage-backed security included in such a portfolio as described above. . Collateralized Mortgage Obligations (CMOs) CMOs are bonds that are collateralized by whole loan mortgages or mortgage pass-through securities. The bonds issued in a CMO deal are divided into groups, and each group of bonds is referred to as a "tranche." Under the traditional CMO structure, the cash flows generated by the mortgages or mortgage pass-through securities in the collateral pool are used to first pay interest and then pay principal to the CMO bondholders. The bonds issued under such CMO structure are retired sequentially as opposed to the pro-rata return of principal found in traditional pass-through obligations. Subject to the various provisions of individual CMO issues, the cash flow generated by the underlying collateral (to the extent it exceeds the amount required to pay the stated interest) is used to retire the bonds. Under the CMO structure, the repayment of principal among the different tranches is prioritized in accordance with the terms of the particular CMO issuance. The "fastest-pay" tranche of bonds, as specified in the prospectus for the issuance, would initially receive all principal payments. When that tranche of bonds is retired, the next tranche, or tranches, in the sequence, as specified in the prospectus, receive all of the principal payments until they are retired. The sequential retirement of bond groups continues until the last tranche, or group of bonds, is retired. Accordingly, the CMO structure allows the issuer to use cash flows of long maturity, monthly-pay collateral to formulate securities with short, intermediate and long final maturities and expected average lives. In recent years, new types of CMO tranches have evolved. These include floating rate CMOs, planned amortization classes, accrual bonds and CMO residuals. These newer structures affect the amount and timing of principal and interest received by each tranche from the underlying collateral. Under certain of these new structures, given classes of CMOs have priority over others with respect to the receipt of prepayments on the mortgages. Therefore, depending on the type of CMOs in which the fund invests, the investment may be subject to a greater or lesser risk of prepayment than other types of mortgage-related securities. The primary risk of any mortgage security is the uncertainty of the timing of cash flows. For CMOs, the primary risk results from the rate of prepayments on the underlying mortgages serving as collateral and from the structure of the deal (priority of the individual tranches not prepayments). An increase or decrease in prepayment rates (resulting from a decrease or increase in mortgage interest rates) will affect the yield, average life and price of CMOs. The prices of certain CMOs, depending on their structure and the rate of prepayments, can be volatile. Some CMOs may also not be as liquid as other securities. . U.S. Government Agency Multiclass Pass-Through Securities Unlike CMOs, U.S. Government Agency Multiclass Pass-Through Securities, which include FNMA Guaranteed REMIC Pass-Through Certificates and FHLMC Multi-Class Mortgage Participation Certificates, are ownership interests in a pool of Mortgage Assets. Unless the context indicates otherwise, all references herein to CMOs include multiclass pass-through securities. . Multi-Class Residential Mortgage Securities Such securities represent interests in pools of mortgage loans to residential home buyers made by commercial banks, savings and loan associations or other financial institutions. Unlike GNMA, FNMA and FHLMC securities, the payment of principal and interest on Multi-Class Residential Mortgage Securities is not guaranteed by the U.S. government or any of its agencies. Accordingly, yields on Multi-Class Residential Mortgage Securities have been historically higher than the yields on U.S. government mortgage securities. However, the risk of loss due to default on such instruments is higher since they are not guaranteed by the U.S. government or its agencies. Additionally, pools of such securities may be divided into senior or subordinated segments. Although subordinated mortgage securities may have a higher yield than senior mortgage securities, the risk of loss of principal is greater because losses on the underlying mortgage loans must be borne by persons holding subordinated securities before those holding senior mortgage securities. . Privately Issued Mortgage-Backed Certificates These are pass-through certificates issued by non-governmental issuers. Pools of conventional residential mortgage loans created by such issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government guarantees of payment. Timely payment of interest and principal of these pools is, however, generally supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance. The insurance and guarantees are issued by government entities, private insurance or the mortgage poolers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets the fund's quality standards. The fund may buy mortgage-related securities without insurance or guarantees if through an examination of the loan experience and practices of the poolers, the investment manager determines that the securities meet the fund's quality standards. . Stripped Mortgage-Backed Securities These instruments are a type of potentially high-risk derivative. They represent interests in a pool of mortgages, the cash flow of which has been separated into its interest and principal components. "IOs" (interest only securities) receive the interest portion of the cash flow while "POs" (principal only securities) receive the principal portion. IOs and POs are usually structured as tranches of a CMO. Stripped Mortgage-Backed Securities may be issued by U.S. government agencies or by private issuers similar to those described above with respect to CMOs and privately issued mortgage-backed certificates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. The value of the other mortgage-backed securities described herein, like other debt instruments, will tend to move in the opposite direction compared to interest rates. Under the Code, POs may generate taxable income from the current accrual of original issue discount, without a corresponding distribution of cash to the fund. The cash flows and yields on IO and PO classes are extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets. In the case of IOs, prepayments affect the amount, but not the timing, of cash flows provided to the investor. In contrast, prepayments on the mortgage pool affect the timing, but not the amount, of cash flows received by investors in POs. For example, a rapid or slow rate of principal payments may have a material adverse effect on the prices of IOs or POs, respectively. If the underlying mortgage assets experience greater than anticipated prepayments of principal, an investor may fail to fully recoup its initial investment in an IO class of a stripped mortgage-backed security, even if the IO class is rated AAA or Aaa or is derived from a full faith and credit obligation. Conversely, if the underlying mortgage assets experience slower than anticipated prepayments of principal, the price on a PO class will be affected more severely than would be the case with a traditional mortgage-backed security. The staff of the SEC has advised the fund that it believes the fund should treat IOs and POs, other than government-issued IOs or POs backed by fixed rate mortgages, as illiquid securities and, accordingly, limit its investments in such securities, together with all other illiquid securities, to 15% of the fund's net assets. Under the staff's position, the determination of whether a particular government-issued IO or PO backed by fixed rate mortgages is liquid may be made on a case by case basis under guidelines and standards established by the fund's Board of Directors/Trustees. The fund's Board of Directors/Trustees has delegated to T. Rowe Price the authority to determine the liquidity of these investments based on the following guidelines: the type of issuer; type of collateral, including age and prepayment characteristics; rate of interest on coupon relative to current market rates and the effect of the rate on the potential for prepayments; complexity of the issue's structure, including the number of tranches; size of the issue and the number of dealers who make a market in the IO or PO. . Adjustable Rate Mortgage Securities ARMs, like fixed rate mortgages, have a specified maturity date, and the principal amount of the mortgage is repaid over the life of the mortgage. Unlike fixed rate mortgages, the interest rate on ARMs is adjusted at regular intervals based on a specified, published interest rate "index" such as a Treasury rate index. The new rate is determined by adding a specific interest amount, the "margin," to the interest rate of the index. Investment in ARM securities allows the fund to participate in changing interest rate levels through regular adjustments in the coupons of the underlying mortgages, resulting in more variable current income and lower price volatility than longer-term fixed rate mortgage securities. ARM securities are a less effective means of locking in long-term rates than fixed rate mortgages since the income from adjustable rate mortgages will increase during periods of rising interest rates and decline during periods of falling rates. . Characteristics of Adjustable Rate Mortgage Securities-Interest Rate Indices The interest rates paid on adjustable rate securities are readjusted periodically to an increment over some predetermined interest rate index. Such readjustments occur at intervals ranging from one to 60 months or longer. There are three main categories of indexes: (1) those based on U.S. Treasury securities; (2) those derived from a calculated measure such as a cost of funds index ("COFI") or a moving average of mortgage rates; and (3) those based on actively traded or prominently posted short-term, interest rates. Commonly utilized indexes include the one-year, three-year and five-year constant maturity Treasury rates, the three-month Treasury bill rate, the 180-day Treasury bill rate, rates on longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost of Funds, the National Median Cost of Funds, the one-month, three-month, six-month or one-year London Interbank Offered Rate ("LIBOR"), the prime rate of a specific bank, or commercial paper rates. Some indexes, such as the one-year constant maturity Treasury rate, closely mirror changes in market interest rate levels. Others, such as the 11th District Home Loan Bank Cost of Funds index, tend to lag behind changes in market rate levels. The market value of the fund's assets and of the net asset value of the fund's shares will be affected by the length of the adjustment period, the degree of volatility in the applicable indexes and the maximum increase or decrease of the interest rate adjustment on any one adjustment date, in any one year and over the life of the securities. These maximum increases and decreases are typically referred to as "caps" and "floors," respectively. A number of factors affect the performance of the COFI and may cause the COFI to move in a manner different from indices based upon specific interest rates, such as the One Year Treasury Index. Additionally, there can be no assurance that the COFI will necessarily move in the same direction or at the same rate as prevailing interest rates. Furthermore, any movement in the COFI as compared to other indices based upon specific interest rates may be affected by changes instituted by the FHLB of San Francisco in the method used to calculate the COFI. To the extent that the COFI may reflect interest changes on a more delayed basis than other indices, in a period of rising interest rates, any increase may produce a higher yield later than would be produced by such other indices, and in a period of declining interest rates, the COFI may remain higher than other market interest rates which may result in a higher level of principal prepayments on mortgage loans which adjust in accordance with the COFI than mortgage loans which adjust in accordance with other indices. LIBOR is the interest rate that the most creditworthy international banks dealing in U.S. dollar-denominated deposits and loans charge each other for large dollar-denominated loans. LIBOR is also usually the base rate for large dollar-denominated loans in the international market. LIBOR is generally quoted for loans having rate adjustments at one-, three-, six- or 12- month intervals. Caps and Floors ARMs will frequently have caps and floors which limit the maximum amount by which the interest rate to the residential borrower may move up or down, respectively, each adjustment period and over the life of the loan. Interest rate caps on ARM securities may cause them to decrease in value in an increasing interest rate environment. Such caps may also prevent their income from increasing to levels commensurate with prevailing interest rates. Conversely, interest rate floors on ARM securities may cause their income to remain higher than prevailing interest rate levels and result in an increase in the value of such securities. However, this increase may be tempered by the acceleration of prepayments. Mortgage securities generally have a maximum maturity of up to 30 years. However due to the adjustable rate feature of ARM securities, their prices are considered to have volatility characteristics which approximate the average period of time until the next adjustment of the interest rate. As a result, the principal volatility of ARM securities may be more comparable to short- and intermediate-term securities than to longer-term fixed rate mortgage securities. Prepayments however, will increase their principal volatility. See also the discussion of Mortgage-Backed Securities. Several characteristics of ARMs may make them more susceptible to prepayments than other Mortgage-Backed Securities. An adjustable rate mortgagor has greater incentives to refinance into a fixed rate mortgage during favorable interest rate environments, in order to avoid interest rate risk. Also, homes financed with adjustable rate mortgages may be sold more frequently because of the prevalence of first-time home buyers in the adjustable rate mortgage market. Also, delinquency and foreclosure rates are higher in this market since many buyers use adjustable rate mortgages to purchase homes that they could not otherwise finance on a fixed rate basis. Significant increases in the index rates for the adjustable rate mortgages may also result in increased delinquency and default rates, which in turn, may affect prepayment rates on the ARMs. . Other Mortgage-Related Securities The fund expects that governmental, government-related or private entities may create mortgage loan pools offering pass-through investments in addition to those described above. The mortgages underlying these securities may be alternative mortgage instruments, that is, mortgage instruments whose principal or interest payments may vary or whose terms to maturity may differ from customary long-term fixed rate mortgages. As new types of mortgage-related securities are developed and offered to investors, the investment manager will, consistent with the fund's objective, policies and quality standards, consider making investments in such new types of securities. All Funds except GNMA, Government Reserve Investment, U.S. Treasury Money, Intermediate, and Long-Term Funds Asset-Backed Securities The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities and the amount and quality of any credit support provided to the securities. The rate of principal payment on asset-backed securities generally depends on the rate of principal payments received on the underlying assets which in turn may be affected by a variety of economic and other factors. As a result, the yield on any asset-backed security is difficult to predict with precision and actual yield to maturity may be more or less than the anticipated yield to maturity. Asset-backed securities may be classified as pass-through certificates or collateralized obligations. Pass-through certificates are asset-backed securities which represent an undivided fractional ownership interest in an underlying pool of assets. Pass-through certificates usually provide for payments of principal and interest received to be passed through to their holders, usually after deduction for certain costs and expenses incurred in administering the pool. Because pass-through certificates represent an ownership interest in the underlying assets, the holders thereof bear directly the risk of any defaults by the obligors on the underlying assets not covered by any credit support. See "Types of Credit Support." Asset-backed securities issued in the form of debt instruments, also known as collateralized obligations, are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Such assets are most often trade, credit card or automobile receivables. The assets collateralizing such asset-backed securities are pledged to a trustee or custodian for the benefit of the holders thereof. Such issuers generally hold no assets other than those underlying the asset-backed securities and any credit support provided. As a result, although payments on such asset-backed securities are obligations of the issuers, in the event of defaults on the underlying assets not covered by any credit support (see "Types of Credit Support"), the issuing entities are unlikely to have sufficient assets to satisfy their obligations on the related asset-backed securities. . Methods of Allocating Cash Flows While many asset-backed securities are issued with only one class of security, many asset-backed securities are issued in more than one class, each with different payment terms. Multiple class asset-backed securities are issued for two main reasons. First, multiple classes may be used as a method of providing credit support. This is accomplished typically through creation of one or more classes whose right to payments on the asset-backed security is made subordinate to the right to such payments of the remaining class or classes. See "Types of Credit Support." Second, multiple classes may permit the issuance of securities with payment terms, interest rates or other characteristics differing both from those of each other and from those of the underlying assets. Examples include so-called "strips" (asset-backed securities entitling the holder to disproportionate interests with respect to the allocation of interest and principal of the assets backing the security), and securities with class or classes having characteristics which mimic the characteristics of non-asset-backed securities, such as floating interest rates (i.e., interest rates which adjust as a specified benchmark changes) or scheduled amortization of principal. Asset-backed securities in which the payment streams on the underlying assets are allocated in a manner different than those described above may be issued in the future. The fund may invest in such asset-backed securities if such investment is otherwise consistent with its investment objectives and policies and with the investment restrictions of the fund. . Types of Credit Support Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failures by obligors on underlying assets to make payments, such securities may contain elements of credit support. Such credit support falls into two classes: liquidity protection and protection against ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that scheduled payments on the underlying pool are made in a timely fashion. Protection against ultimate default ensures ultimate payment of the obligations on at least a portion of the assets in the pool. Such protection may be provided through guarantees, insurance policies or letters of credit obtained from third parties "external credit enhancement", through various means of structuring the transaction "internal credit enhancement" or through a combination of such approaches. Examples of asset-backed securities with credit support arising out of the structure of the transaction include "senior-subordinated securities" (multiple class asset-backed securities with certain classes subordinate to other classes as to the payment of principal thereon, with the result that defaults on the underlying assets are borne first by the holders of the subordinated class) and asset-backed securities that have "reserve funds" (where cash or investments, sometimes funded from a portion of the initial payments on the underlying assets, are held in reserve against future losses) or that have been "over collateralized" (where the scheduled payments on, or the principal amount of, the underlying assets substantially exceeds that required to make payment of the asset-backed securities and pay any servicing or other fees). The degree of credit support provided on each issue is based generally on historical information respecting the level of credit risk associated with such payments. Depending upon the type of assets securitized, historical information on credit risk and prepayment rates may be limited or even unavailable. Delinquency or loss in excess of that anticipated could adversely affect the return on an investment in an asset-backed security. . Automobile Receivable Securities The fund may invest in asset-backed securities which are backed by receivables from motor vehicle installment sales contracts or installment loans secured by motor vehicles ("Automobile Receivable Securities"). Since installment sales contracts for motor vehicles or installment loans related thereto ("Automobile Contracts") typically have shorter durations and lower incidences of prepayment, Automobile Receivable Securities generally will exhibit a shorter average life and are less susceptible to prepayment risk. Most entities that issue Automobile Receivable Securities create an enforceable interest in their respective Automobile Contracts only by filing a financing statement and by having the servicer of the Automobile Contracts, which is usually the originator of the Automobile Contracts, take custody thereof. In such circumstances, if the servicer of the Automobile Contracts were to sell the same Automobile Contracts to another party, in violation of its obligation not to do so, there is a risk that such party could acquire an interest in the Automobile Contracts superior to that of the holders of Automobile Receivable Securities. Also, although most Automobile Contracts grant a security interest in the motor vehicle being financed, in most states the security interest in a motor vehicle must be noted on the certificate of title to create an enforceable security interest against competing claims of other parties. Due to the large number of vehicles involved, however, the certificate of title to each vehicle financed, pursuant to the Automobile Contracts underlying the Automobile Receivable Security, usually is not amended to reflect the assignment of the seller's security interest for the benefit of the holders of the Automobile Receivable Securities. Therefore, there is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on the securities. In addition, various state and federal securities laws give the motor vehicle owner the right to assert against the holder of the owner's Automobile Contract certain defenses such owner would have against the seller of the motor vehicle. The assertion of such defenses could reduce payments on the Automobile Receivable Securities. . Credit Card Receivable Securities The fund may invest in asset-backed securities backed by receivables from revolving credit card agreements ("Credit Card Receivable Securities"). Credit balances on revolving credit card agreements ("Accounts") are generally paid down more rapidly than are Automobile Contracts. Most of the Credit Card Receivable Securities issued publicly to date have been Pass-Through Certificates. In order to lengthen the maturity of Credit Card Receivable Securities, most such securities provide for a fixed period during which only interest payments on the underlying Accounts are passed through to the security holder and principal payments received on such Accounts are used to fund the transfer to the pool of assets supporting the related Credit Card Receivable Securities of additional credit card charges made on an Account. The initial fixed period usually may be shortened upon the occurrence of specified events which signal a potential deterioration in the quality of the assets backing the security, such as the imposition of a cap on interest rates. The ability of the issuer to extend the life of an issue of Credit Card Receivable Securities thus depends upon the continued generation of additional principal amounts in the underlying account during the initial period and the non-occurrence of specified events. An acceleration in cardholders' payment rates or any other event which shortens the period during which additional credit card charges on an Account may be transferred to the pool of assets supporting the related Credit Card Receivable Security could shorten the weighted average life and yield of the Credit Card Receivable Security. Credit cardholders are entitled to the protection of a number of state and federal consumer credit laws, many of which give such holder the right to set off certain amounts against balances owed on the credit card, thereby reducing amounts paid on Accounts. In addition, unlike most other asset-backed securities, Accounts are unsecured obligations of the cardholder. . Other Assets Asset-backed securities backed by assets other than those described above, including, but not limited to, small-business loans and accounts receivable, equipment leases, commercial real estate loans, boat loans and manufacturing housing loans. The fund may invest in such securities in the future if such investment is otherwise consistent with its investment objective and policies. There are, of course, other types of securities that are, or may become available, which are similar to the foregoing and the funds may invest in these securities. High Yield Fund Collateralized Bond or Loan Obligations Collateralized Bond Obligations ("CBOs") are bonds collateralized by corporate bonds and Collateralized Loan Obligations ("CLOs") are bonds collateralized by bank loans. CBOs and CLOs are structured into tranches, and payments are allocated such that each tranche has a predictable cash flow stream and average life. CBOs are fairly recent entrants to the fixed income market. Most CBOs issued to date have been collateralized by high yield bonds or loans, with heavy credit enhancement. Loan Participations and Assignments Loan participations and assignments (collectively "participations") will typically be participating interests in loans made by a syndicate of banks, represented by an agent bank which has negotiated and structured the loan, to corporate borrowers to finance internal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs and other corporate activities. Such loans may also have been made to governmental borrowers, especially governments of developing countries which is referred to as Loans to Developing Countries debt ("LDC debt"). LDC debt will involve the risk that the governmental entity responsible for the repayment of the debt may be unable or unwilling to do so when due. The loans underlying such participations may be secured or unsecured, and the fund may invest in loans collateralized by mortgages on real property or which have no collateral. The loan participations themselves may extend for the entire term of the loan or may extend only for short "strips" that correspond to a quarterly or monthly floating rate interest period on the underlying loan. Thus, a term or revolving credit that extends for several years may be subdivided into shorter periods. The loan participations in which the fund will invest will also vary in legal structure. Occasionally, lenders assign to another institution both the lender's rights and obligations under a credit agreement. Since this type of assignment relieves the original lender of its obligations, it is called a novation. More typically, a lender assigns only its right to receive payments of principal and interest under a promissory note, credit agreement or similar document. A true assignment shifts to the assignee the direct debtor-creditor relationship with the underlying borrower. Alternatively, a lender may assign only part of its rights to receive payments pursuant to the underlying instrument or loan agreement. Such partial assignments, which are more accurately characterized as "participating interests," do not shift the debtor-creditor relationship to the assignee, who must rely on the original lending institution to collect sums due and to otherwise enforce its rights against the agent bank which administers the loan or against the underlying borrower. There may not be a recognizable, liquid public market for loan participations. To the extent this is the case, the fund would consider the loan participation as illiquid and subject to the fund's restriction on investing no more than 15% of its net assets in illiquid securities. Where required by applicable SEC positions, the fund will treat both the corporate borrower and the bank selling the participation interest as an issuer for purposes of its fundamental investment restriction on diversification. Various service fees received by the fund from loan participations, may be treated as non-interest income depending on the nature of the fee (commitment, takedown, commission, service or loan origination). To the extent the service fees are not interest income, they will not qualify as income under Section 851(b) of the Code. Thus the sum of such fees plus any other non-qualifying income earned by the fund cannot exceed 10% of total income. Trade Claims Trade claims are non-securitized rights of payment arising from obligations other than borrowed funds. Trade claims typically arise when, in the ordinary course of business, vendors and suppliers extend credit to a company by offering payment terms. Generally, when a company files for bankruptcy protection, payments on these trade claims cease and the claims are subject to compromise along with the other debts of the company. Trade claims typically are bought and sold at a discount reflecting the degree of uncertainty with respect to the timing and extent of recovery. In addition to the risks otherwise associated with low-quality obligations, trade claims have other risks, including the possibility that the amount of the claim may be disputed by the obligor. Over the last few years a market for the trade claims of bankrupt companies has developed. Many vendors are either unwilling or lack the resources to hold their claim through the extended bankruptcy process with an uncertain outcome and timing. Some vendors are also aggressive in establishing reserves against these receivables, so that the sale of the claim at a discount may not result in the recognition of a loss. Trade claims can represent an attractive investment opportunity because these claims typically are priced at a discount to comparable public securities. This discount is a reflection of both a less liquid market, a smaller universe of potential buyers and the risks peculiar to trade claim investing. It is not unusual for trade claims to be priced at a discount to public securities that have an equal or lower priority claim. As noted above, investing in trade claims does carry some unique risks which include: . Establishing the Amount of the Claim Frequently, the supplier's estimate of its receivable will differ from the customer's estimate of its payable. Resolution of these differences can result in a reduction in the amount of the claim. This risk can be reduced by only purchasing scheduled claims (claims already listed as liabilities by the debtor) and seeking representations from the seller. . Defenses to Claims The debtor has a variety of defenses that can be asserted under the bankruptcy code against any claim. Trade claims are subject to these defenses, the most common of which for trade claims relates to preference payments. (Preference payments are all payments made by the debtor during the 90 days prior to the filing. These payments are presumed to have benefited the receiving creditor at the expense of the other creditors. The receiving creditor may be required to return the payment unless it can show the payments were received in the ordinary course of business.) While none of these defenses can result in any additional liability of the purchaser of the trade claim, they can reduce or wipe out the entire purchased claim. This risk can be reduced by seeking representations and indemnification from the seller. . Documentation/Indemnification Each trade claim purchased requires documentation that must be negotiated between the buyer and seller. This documentation is extremely important since it can protect the purchaser from losses such as those described above. Legal expenses in negotiating a purchase agreement can be fairly high. Additionally, it is important to note that the value of an indemnification depends on the seller's credit. . Volatile Pricing Due to Illiquid Market There are only a handful of brokers for trade claims and the quoted price of these claims can be volatile. Generally, it is expected that Trade Claims would be considered illiquid investments. . No Current Yield/Ultimate Recovery Trade claims are almost never entitled to earn interest. As a result, the return on such an investment is very sensitive to the length of the bankruptcy, which is uncertain. Although not unique to trade claims, it is worth noting that the ultimate recovery on the claim is uncertain and there is no way to calculate a conventional yield to maturity on this investment. Additionally, the exit for this investment is a plan of reorganization which may include the distribution of new securities. These securities may be as illiquid as the original trade claim investment. . Tax Issue Although the issue is not free from doubt, it is likely that Trade Claims would be treated as non-securities investments. As a result, any gains would be considered "non-qualifying" under the Code. The fund may have up to 10% of its gross income (including capital gains) derived from non-qualifying sources. Zero Coupon and Pay-in-Kind Bonds A zero coupon security has no cash coupon payments. Instead, the issuer sells the security at a substantial discount from its maturity value. The interest received by the investor from holding this security to maturity is the difference between the maturity value and the purchase price. The advantage to the investor is that reinvestment risk of the income received during the life of the bond is eliminated. However, zero-coupon bonds, like other bonds, retain interest rate and credit risk and usually display more price volatility than those securities that pay a cash coupon. Pay-in-Kind ("PIK") Instruments are securities that pay interest in either cash or additional securities, at the issuer's option, for a specified period. PIKs, like zero coupon bonds, are designed to give an issuer flexibility in managing cash flow. PIK bonds can be either senior or subordinated debt and trade flat (i.e., without accrued interest). The price of PIK bonds is expected to reflect the market value of the underlying debt plus an amount representing accrued interest since the last payment. PIK's are usually less volatile than zero coupon bonds, but more volatile than cash pay securities. For federal income tax purposes, these types of bonds will require the recognition of gross income each year even though no cash may be paid to the fund until the maturity or call date of the bond. The fund will nonetheless be required to distribute substantially all of this gross income each year to comply with the Internal Revenue Code, and such distributions could reduce the amount of cash available for investment by the fund. High Yield, New Income, and Personal Strategy Funds Warrants The fund may acquire warrants. Warrants can be highly volatile and 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 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. Corporate Income, High Yield, New Income, Personal Strategy, Short-Term Bond, and Short-Term U.S. Government Funds Hybrid Instruments Hybrid Instruments (a type of potentially high-risk derivative) have been developed and combine the elements of futures contracts or options with those of debt, preferred equity, or a depository instrument (hereinafter "Hybrid Instruments"). Generally, a Hybrid Instrument will be a debt security, preferred stock, depository share, trust certificate, certificate of deposit, or other evidence of indebtedness on which a portion of or all interest payments, and/or the principal or stated amount payable at maturity, redemption, or retirement, is determined by reference to prices, changes in prices, or differences between prices, of securities, currencies, intangibles, goods, articles, or commodities (collectively "Underlying Assets") or by another objective index, economic factor, or other measure, such as interest rates, currency exchange rates, commodity indices, and securities indices (collectively "Benchmarks"). Thus, Hybrid Instruments may take 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. The various risks discussed above, particularly the market risk of such instruments, may in turn cause significant fluctuations in the net asset value of the fund. Accordingly, the fund will limit its investments in Hybrid Instruments to 10% of total assets. However, because of their volatility, it is possible that the fund's investment in Hybrid Instruments will account for more than 10% of the fund's return (positive or negative). All Funds When-Issued Securities and Forward Commitment Contracts The price of such securities, which may be expressed in yield terms, is fixed at the time the commitment to purchase is made, but delivery and payment take place at a later date. Normally, the settlement date occurs within 90 days of the purchase for When-Issueds, but may be substantially longer for Forwards. During the period between purchase and settlement, no payment is made by the fund to the issuer and no interest accrues to the fund. The purchase of these securities will result in a loss if their value declines prior to the settlement date. This could occur, for example, if interest rates increase prior to settlement. The longer the period between purchase and settlement, the greater the risks are. At the time the fund makes the commitment to purchase these securities, it will record the transaction and reflect the value of the security in determining its net asset value. The fund will cover these securities by maintaining cash, liquid, high-grade debt securities, or other suitable cover as permitted by the SEC with its custodian bank equal in value to commitments for them during the time between the purchase and the settlement. Therefore, the longer this period, the longer the period during which alternative investment options are not available to the fund (to the extent of the securities used for cover). Such securities either will mature or, if necessary, be sold on or before the settlement date. To the extent the fund remains fully or almost fully invested (in securities with a remaining maturity of more than one year) at the same time it purchases these securities, there will be greater fluctuations in the fund's net asset value than if the fund did not purchase them. Additional Adjustable Rate Securities Certain securities may be issued with adjustable interest rates that are reset periodically by predetermined formulas or indexes in order to minimize movements in the principal value of the investment. Such securities may have long-term maturities, but may be treated as a short-term investment under certain conditions. Generally, as interest rates decrease or increase, the potential for capital appreciation or depreciation on these securities is less than for fixed-rate obligations. These securities may take the following forms: Variable Rate Securities Variable rate instruments are those whose terms provide for the adjustment of their interest rates on set dates and which, upon such adjustment, can reasonably be expected to have a market value that approximates it par value. A variable rate instrument, the principal amount of which is scheduled to be paid in 397 days or less, is deemed to have a maturity equal to the period remaining until the next readjustment of the interest rate. A variable rate instrument which is subject to a demand feature entitles the purchaser to receive the principal amount of the underlying security or securities, either (i) upon notice of no more than 30 days or (ii) at specified intervals not exceeding 397 days and upon no more than 30 days' notice, is deemed to have a maturity equal to the longer of the period remaining until the next readjustment of the interest rate or the period remaining until the principal amount can be recovered through demand. Floating Rate Securities Floating rate instruments are those whose terms provide for the adjustment of their interest rates whenever a specified interest rate changes and which, at any time, can reasonably be expected to have a market value that approximates its par value. The maturity of a floating rate instrument is deemed to be the period remaining until the date (noted on the face of the instrument) on which the principal amount must be paid, or in the case of an instrument called for redemption, the date on which the redemption payment must be made. Floating rate instruments with demand features are deemed to have a maturity equal to the period remaining until the principal amount can be recovered through demand. Put Option Bonds Long-term obligations with maturities longer than one year may provide purchasers an optional or mandatory tender of the security at par value at predetermined intervals, often ranging from one month to several years (e.g., a 30-year bond with a five-year tender period). These instruments are deemed to have a maturity equal to the period remaining to the put date. Corporate Income, High Yield, New Income, Personal Strategy, Prime Reserve, Reserve Investment, Short-Term Bond, and Short-Term U.S. Government Funds Illiquid or Restricted Securities Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where registration is required, the fund may be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the time of the decision to sell and the time the fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in accordance with procedures prescribed by the fund's Board of Directors/Trustees. If, through the appreciation of illiquid securities or the depreciation of liquid securities, the fund should be in a position where more than 15% (10% for Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds) 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. T. Rowe Price, under the supervision of the fund's Board of Directors/Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the fund's restriction of investing no more than 15% (10% for Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds) of its net assets in illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, T. Rowe Price will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, T. Rowe Price could consider the following: (1) frequency of trades and quotes; (2) number of dealers and potential purchases; (3) dealer undertakings to make a market; and (4) the nature of the security and of marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A securities would be monitored and, if as a result of changed conditions it is determined that a Rule 144A security is no longer liquid, the fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the fund does not invest more than 15% (10% for Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds) 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. New Income and Short-Term Bond Funds Industry Concentration When the market for corporate debt securities is dominated by issues in the gas utility, gas transmission utility, electric utility, telephone utility, or petroleum industry, the fund will as a matter of Fundamental policy concentrate 25% or more, but not more than 50%, of its assets, in any one such industry, if the fund has cash for such investment (i.e., the fund will not sell portfolio securities to raise cash) and, if in T. Rowe Price's judgment, the return available and the marketability, quality, and availability of the debt securities of such industry justifies such concentration in light of the fund's investment objectives. Domination would exist with respect to any one such industry, when, in the preceding 30-day period, more than 25% of all new-issue corporate debt offerings (within the four highest grades of Moody's or S&P's and with maturities of 10 years or less) of $25,000,000 or more consisted of issues in such industry. Although the fund will normally purchase corporate debt securities in the secondary market as opposed to new offerings, T. Rowe Price believes that the new issue-based dominance standard, as defined above, is appropriate because it is easily determined and represents an accurate correlation to the secondary market. Investors should understand that concentration in any industry may result in increased risk. Investments in any of these industries may be affected by environmental conditions, energy conservation programs, fuel shortages, difficulty in obtaining adequate return on capital in financing operations and large construction programs, and the ability of the capital markets to absorb debt issues. In addition, it is possible that the public service commissions which have jurisdiction over these industries may not grant future increases in rates sufficient to offset increases in operating expenses. These industries also face numerous legislative and regulatory uncertainties at both federal and state government levels. Management believes that any risk to the fund which might result from concentration in any industry will be minimized by the fund's practice of diversifying its investments in other respects. The fund's policy with respect to industry concentration is a Fundamental policy. (For investment restriction on industry concentration, see "Investment Restrictions"). PORTFOLIO MANAGEMENT PRACTICES ------------------------------------------------------------------------------- Lending of Portfolio Securities Securities loans are made to broker-dealers or institutional investors or other persons, pursuant to agreements requiring that the loans be continuously secured by collateral at least equal at all times to the value of the securities lent, marked to market on a daily basis. The collateral received will consist of cash, U.S. government securities, letters of credit or such other collateral as may be permitted under its investment program. While the securities are being lent, the fund will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as interest on the investment of the collateral or a fee from the borrower. The fund has a right to call each loan and obtain the securities, within such period of time which coincides with the normal settlement period for purchases and sales of such securities in the respective markets. The fund will not have the right to vote on securities while they are being lent, but it will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Loans will only be made to firms deemed by T. Rowe Price to be of good standing and will not be made unless, in the judgment of T. Rowe Price, the consideration to be earned from such loans would justify the risk. Interfund Borrowing and Lending The fund is a party to an exemptive order received from the SEC on December 8, 1998, that permits it to borrow money from and/or lend money to other funds in the T. Rowe Price complex ("Price Funds"). All loans are set at an interest rate between the rate charged on overnight repurchase agreements and short-term bank loans. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds. The program is subject to the oversight and periodic review of the Boards of Directors of the Price Funds. Repurchase Agreements 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. 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) (A) Prime Reserve, U.S. Treasury Money, Government Reserve Investment, and Reserve Investment Funds--the underlying securities are either U.S. government securities or securities that, at the time the repurchase agreement is entered into, are rated in the highest rating category by the requisite number of NRSROs (as required by Rule 2a-7 under the 1940 Act) and otherwise are of the type (excluding maturity limitations) which the fund's investment guidelines would allow it to purchase directly, (B) GNMA, High Yield, New Income, Personal Strategy, Short-Term Bond, Short-Term U.S. Government, and U.S. Treasury Intermediate and Long-Term Funds--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 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. Reverse Repurchase Agreements Although the fund has no current intention of engaging in reverse repurchase agreements, the fund reserves the right to do so. Reverse repurchase agreements are ordinary repurchase agreements in which a fund is the seller of, rather than the investor in, securities, and agrees to repurchase them at an agreed upon time and price. Use of a reverse repurchase agreement may be preferable to a regular sale and later repurchase of the securities because it avoids certain market risks and transaction costs. A reverse repurchase agreement may be viewed as a type of borrowing by the fund, subject to Investment Restriction (1). (See "Investment Restrictions.") 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. (The Prime Reserve and U.S. Treasury Money Funds will not purchase shares of either fund, and the GNMA and U.S. Treasury Intermediate and U.S. Treasury Long-Term Funds can only purchase shares of GRF.) Additional series may be created in the future. These funds were created and operate under an Exemptive Order issued by the SEC (Investment Company Act Release No. IC-22770, July 29, 1997). Both funds must comply with the requirements of Rule 2a-7 under the 1940 Act governing money market funds. The RIF invests at least 95% of its total assets in prime money market instruments receiving the highest credit rating. The GRF invests primarily in a portfolio of U.S. government-backed securities, primarily U.S. Treasuries, and repurchase agreements thereon. The RIF and GRF provide a very efficient means of managing the cash reserves of the fund. While neither RIF or GRF pay an advisory fee to the Investment Manager, they will incur other expenses. However, the RIF and GRF are expected by T. Rowe Price to operate at very low expense ratios. The fund will only invest in RIF or GRF to the extent it is consistent with its objective and program. Neither fund is insured or guaranteed by the U.S. government, and there is no assurance they will maintain a stable net asset value of $1.00 per share. High Yield Fund Short Sales The fund may make short sales for hedging purposes to protect the fund against companies whose credit is deteriorating. Short sales are transactions in which the fund sells a security it does not own in anticipation of a decline in the market value of that security. The fund's short sales would be limited to situations where the fund owns a debt security of a company and would sell short the common or preferred stock or another debt security at a different level of the capital structure of the same company. No securities will be sold short if, after the effect is given to any such short sale, the total market value of all securities sold short would exceed 2% of the value of the fund's net assets. To complete a short sale transaction, the fund must borrow the security to make delivery to the buyer. The fund then is obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the fund. Until the security is replaced, the fund is required to pay to the lender amounts equal to any dividends or interest which accrue during the period of the loan. To borrow the security, the fund also may be required to pay a premium, which would increase the cost of the security sold. The proceeds of the short sale will be retained by the broker, to the extent necessary to meet margin requirements, until the short position is closed out. Until the fund replaces a borrowed security in connection with a short sale, the fund will: (a) maintain daily a segregated account, containing cash, U.S. government securities or other suitable cover as permitted by the SEC, at such a level that (i) the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current value of the security sold short and (ii) the amount deposited in the segregated account plus the amount deposited with the broker as collateral will not be less than the market value of the security at the time its was sold short; or (b) otherwise cover its short position. The fund will incur a loss as a result of the short sale if the price of the security sold short increases between the date of the short sale and the date on which the fund replaces the borrowed security. The fund will realize a gain if the security sold short declines in price between those dates. This result is the opposite of what one would expect from a cash purchase of a long position in a security. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of any premium, dividends or interest the fund may be required to pay in connection with a short sale. Any gain or loss on the security sold short would be separate from a gain or loss on the fund security being hedged by the short sale. The Taxpayer Relief Act of 1997 requires a mutual fund to recognize gain upon entering into a constructive sale of stock, a partnership interest, or certain debt positions occurring after June 8, 1997. A constructive sale is deemed to occur if the fund enters into a short sale, an offsetting notional principal contract, or a futures or forward contract which is substantially identical to the appreciated position. Some of the transactions in which the fund is permitted to invest may cause certain appreciated positions in securities held by the fund to qualify as a "constructive sale," in which case it would be treated as sold and the resulting gain subjected to tax or, in the case of a mutual fund, distributed to shareholders. If this were to occur, the fund would be required to distribute such gains even though it would receive no cash until the later sale of the security. Such distributions could reduce the amount of cash available for investment by the fund. Because these rules do not apply to "straight" debt transactions, it is not anticipated that they will have a significant impact on the fund; however, the effect cannot be determined until the issuance of clarifying regulations. All Funds except Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds 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 T. Rowe Price's opinion, are not expected to have any major price increases or moves in the near future but which, over the long term, are deemed to be attractive investments for the fund. A call option gives the holder (buyer) the "right to purchase", and the writer (seller) has the obligation to sell, 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 generally will write only covered call options. This means that the fund will either 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. From time to time, the fund will write a call option that is not covered as indicated above but where the fund 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. While such an option would be "covered" with sufficient collateral to satisfy SEC prohibitions on issuing senior securities, this type of strategy would expose the fund to the risks of writing uncovered options. 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 generally 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. If the fund writes an uncovered option as described above, it will bear the risk of having to purchase the security subject to the option at a price higher than the exercise price of the option. As the price of a security could appreciate substantially, the fund's loss could be significant. The premium received is the market value of an option. The premium the fund will receive from writing a call option will reflect, among other things, the current market price of the underlying security or currency, the relationship of the exercise price to such market price, the historical price volatility of the underlying security or currency, and the length of the option period. Once the decision to write a call option has been made, T. Rowe Price, in determining whether a particular call option should be written on a particular security or currency, will consider the reasonableness of the anticipated premium and the likelihood that a liquid secondary market will exist for those options. The premium received by the fund for writing covered call options will be recorded as a liability of the fund. This liability will be adjusted daily to the option's current market value, which will be the latest sale price at the time at which the net asset value per share of the fund is computed (close of the New York Stock Exchange), or, in the absence of such sale, the latest asked price. The option will be terminated upon expiration of the option, the purchase of an identical option in a closing transaction, or delivery of the underlying security or currency upon the exercise of the option. Closing transactions will be effected in order to realize a profit on an outstanding call option, to prevent an underlying security or currency from being called, or, to permit the sale of the underlying security or currency. Furthermore, effecting a closing transaction will permit the fund to write another call option on the underlying security or currency with either a different exercise price or expiration date or both. If the fund desires to sell a particular security or currency from its portfolio on which it has written a call option, or purchased a put option, it will seek to effect a closing transaction prior to, or concurrently with, the sale of the security or currency. There is, of course, no assurance that the fund will be able to effect such closing transactions at favorable prices. If the fund cannot enter into such a transaction, it may be required to hold a security or currency that it might otherwise have sold. When the fund writes a covered call option, it runs the risk of not being able to participate in the appreciation of the underlying securities or currencies above the exercise price, as well as the risk of being required to hold on to securities or currencies that are depreciating in value. This could result in higher transaction costs. The fund will pay transaction costs in connection with the writing of options to close out previously written options. Such transaction 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 T. Rowe Price wishes to purchase the underlying security or currency for the fund's portfolio at a price lower than the current market price of the security or currency. In such event the fund would write a put option at an exercise price which, reduced by the premium received on the option, reflects the lower price it is willing to pay. Since the fund would also receive interest on debt securities or currencies maintained to cover the exercise price of the option, this technique could be used to enhance current return during periods of market uncertainty. The risk in such a transaction would be that the market price of the underlying security or currency would decline below the exercise price less the premiums received. Such a decline could be substantial and result in a significant loss to the fund. In addition, the fund, because it does not own the specific securities or currencies which it may be required to purchase in exercise of the put, cannot benefit from appreciation, if any, with respect to such specific securities or currencies. The fund will not write a covered put option if, as a result, the aggregate market value of all portfolio securities or currencies covering put or call options exceeds 25% of the market value of the fund's net assets. In calculating the 25% limit, the fund will offset, against the value of assets covering written puts and calls, the value of purchased puts and calls on identical securities or currencies with identical maturity dates. Purchasing Put Options The fund may purchase American or European style put options. As the holder of a put option, the fund has the right to sell the underlying security or currency at the exercise price at any time during the option period (American style) or at the expiration of the option (European style). The fund may enter into closing sale transactions with respect to such options, exercise them or permit them to expire. The fund may purchase put options for defensive purposes in order to protect against an anticipated decline in the value of its securities or currencies. An example of such use of put options is provided next. The fund may purchase a put option on an underlying security or currency (a "protective put") owned by the fund as a defensive technique in order to protect against an anticipated decline in the value of the security or currency. Such hedge protection is provided only during the life of the put option when the fund, as the holder of the put option, is able to sell the underlying security or currency at the put exercise price regardless of any decline in the underlying security's market price or currency's exchange value. For example, a put option may be purchased in order to protect unrealized appreciation of a security or currency where T. Rowe Price deems it desirable to continue to hold the security or currency because of tax considerations. The premium paid for the put option and any transaction costs would reduce any capital gain otherwise available for distribution when the security or currency is eventually sold. The fund may also purchase put options at a time when the fund does not own the underlying security or currency. By purchasing put options on a security or currency it does not own, the fund seeks to benefit from a decline in the market price of the underlying security or currency. If the put option is not sold when it has remaining value, and if the market price of the underlying security or currency remains equal to or greater than the exercise price during the life of the put option, the fund will lose its entire investment in the put option. In order for the purchase of a put option to be profitable, the market price of the underlying security or currency must decline sufficiently below the exercise price to cover the premium and transaction costs, unless the put option is sold in a closing sale transaction. The fund will not commit more than 5% of its assets to premiums when purchasing put and call options. The premium paid by the fund when purchasing a put option will be recorded as an asset of the fund. This asset will be adjusted daily to the option's current market value, which will be the latest sale price at the time at which the net asset value per share of the fund is computed (close of New York Stock Exchange), or, in the absence of such sale, the latest bid price. This asset will be terminated upon expiration of the option, the selling (writing) of an identical option in a closing transaction, or the delivery of the underlying security or currency upon the exercise of the option. Purchasing Call Options The fund may purchase American or European style call options. As the holder of a call option, the fund has the right to purchase the underlying security or currency at the exercise price at any time during the option 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 Over-the-Counter ("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. High Yield Fund Spread Option Transactions The fund may purchase from and sell to securities dealers covered spread options. Such covered spread options are not presently exchange listed or traded. The purchase of a spread option gives the fund the right to put, or sell, a security that it owns at a fixed dollar spread or fixed yield spread in relationship to another security that the fund does not own, but which is used as a benchmark. The risk to the fund in purchasing covered spread options is the cost of the premium paid for the spread options and any transaction costs. In addition, there is no assurance that closing transactions will be available. The purchase of spread options will be used to protect the fund against adverse changes in prevailing credit quality spreads, i.e., the yield spread between high-quality and lower-quality securities. Such protection is only provided during the life of the spread option. The security covering the spread option will be maintained in a segregated account by the fund's custodian. The fund does not consider a security covered by a spread option to be "pledged" as that term is used in the fund's policy limiting the pledging or mortgaging of its assets. The fund may also buy and sell uncovered spread options. Such options would be used for the same purposes and be subject to similar risks as covered spread options. However, in an uncovered spread option, the fund would not own either of the securities involved in the spread. All Funds except Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds Futures Contracts Futures contracts are a type of potentially high-risk derivative. Transactions in Futures The funds may enter into futures contracts including stock index, interest rate, and currency futures ("futures" or "futures contracts"). Stock index futures contracts may be used to provide a hedge for a portion of the fund's portfolio, as a cash management tool, or as an efficient way for T. Rowe Price to implement either an increase or decrease in portfolio market exposure in response to changing market conditions. 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 cannot exceed 5% of the liquidation value of the fund after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; provided, however, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in calculating the 5% limitation. For purposes of this policy, options on futures contracts and foreign currency options traded on a commodities exchange will be considered "related options." This policy may be modified by the Board of Directors/Trustees 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 debt security) for a specified price, date, time and place designated at the time the contract is made. Brokerage fees are incurred when a futures contract is bought or sold and margin deposits must be maintained. Entering into a contract to buy is commonly referred to as buying or purchasing a contract or holding a long position. Entering into a contract to sell is commonly referred to as selling a contract or holding a short position. Unlike when the fund purchases or sells a security, no price would be paid or received by the fund upon the purchase or sale of a futures contract. Upon entering into a futures contract, and to maintain the fund's open positions in futures contracts, the fund would be required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash, or liquid assets known as "initial margin." The margin required for a particular futures contract is set by the exchange on which the contract is traded, and may be significantly modified from time to time by the exchange during the term of the contract. Futures contracts are customarily purchased and sold on margins that may range upward from less than 5% of the value of the contract being traded. If the price of an open futures contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the futures contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the futures contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the fund. These subsequent payments, called "variation margin," to and from the futures broker, are made on a daily basis as the price of the underlying assets fluctuate, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market." Although certain futures contracts, by their terms, require actual future delivery of and payment for the underlying instruments, in practice most futures contracts are usually closed out before the delivery date. Closing out an open futures contract purchase or sale is effected by entering into an offsetting futures contract sale or purchase, respectively, for the same aggregate amount of the identical securities and the same delivery date. If the offsetting purchase price is less than the original sale price, the fund realizes a gain; if it is more, the fund realizes a loss. Conversely, if the offsetting sale price is more than the original purchase price, the fund realizes a gain; if it is less, the fund realizes a loss. The transaction costs must also be included in these calculations. There can be no assurance, however, that the fund will be able to enter into an offsetting transaction with respect to a particular futures contract at a particular time. If the fund is not able to enter into an offsetting transaction, the fund will continue to be required to maintain the margin deposits on the futures contract. As an example of an offsetting transaction in which the underlying instrument is not delivered, the contractual obligations arising from the sale of one contract of September Treasury bills on an exchange may be fulfilled at any time before delivery of the contract is required (i.e., on a specified date in September, the "delivery month") by the purchase of one contract of September Treasury bills on the same exchange. In such instance, the difference between the price at which the futures contract was sold and the price paid for the offsetting purchase, after allowance for transaction costs, represents the profit or loss to the fund. For example, the S&P's 500 Stock Index is made up of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The S&P 500 Index assigns relative weightings to the common stocks included in the Index, and the Index fluctuates with changes in the market values of those common stocks. In the case of futures contracts on the S&P 500 Index, the contracts are to buy or sell 250 units. Thus, if the value of the S&P 500 Index were $150, one contract would be worth $37,500 (250 units x $150). The stock index futures contract specifies that no delivery of the actual stocks making up the index will take place. Instead, settlement in cash occurs. Over the life of the contract, the gain or loss realized by the fund will equal the difference between the purchase (or sale) price of the contract and the price at which the contract is terminated. For example, if the fund enters into a futures contract to buy 250 units of the S&P 500 Index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the fund will gain $1,000 (250 units x gain of $4). If the fund enters into a futures contract to sell 250 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 Index is at $152 on that future date, the fund will lose $500 (250 units x loss of $2). Special Risks of Transactions in Futures Contracts . Volatility and Leverage The prices of futures contracts are volatile and are influenced, among other things, by actual and anticipated changes in the market and interest rates, which in turn are affected by fiscal and monetary policies and national and international political and economic events. Most United States futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of futures contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses. 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. T. Rowe Price will, however, attempt to reduce this risk by entering into futures contracts whose movements, in its judgment, will have a significant correlation with movements in the prices of the fund's underlying instruments sought to be hedged. Successful use of futures contracts by the fund for hedging purposes is also subject to T. Rowe Price's ability to correctly predict movements in the direction of the market. It is possible that, when the fund has sold futures to hedge its portfolio against a decline in the market, the index, indices, or instruments underlying futures might advance and the value of the underlying instruments held in the fund's portfolio might decline. If this were to occur, the fund would lose money on the futures and also would experience a decline in value in its underlying instruments. However, while this might occur to a certain degree, T. Rowe Price believes that over time the value of the fund's portfolio will tend to move in the same direction as the market indices used to hedge the portfolio. It is also possible that, if the fund were to hedge against the possibility of a decline in the market (adversely affecting the underlying instruments held in its portfolio) and prices instead increased, the fund would lose part or all of the benefit of increased value of those underlying instruments that it has hedged, because it would have offsetting losses in its futures positions. In addition, in such situations, if the fund had insufficient cash, it might have to sell underlying instruments to meet daily variation margin requirements. Such sales of underlying instruments might be, but would not necessarily be, at increased prices (which would reflect the rising market). The fund might have to sell underlying instruments at a time when it would be disadvantageous to do so. In addition to the possibility that there might be an imperfect correlation, or no correlation at all, between price movements in the futures contracts and the portion of the portfolio being hedged, the price movements of futures contracts might not correlate perfectly with price movements in the underlying instruments due to certain market distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors might close futures contracts through offsetting transactions, which could distort the normal relationship between the underlying instruments and futures markets. Second, the margin requirements in the futures market are less onerous than margin requirements in the securities markets and, as a result, the futures market might attract more speculators than the securities markets do. Increased participation by speculators in the futures market might also cause temporary price distortions. Due to the possibility of price distortion in the futures market and also because of imperfect correlation between price movements in the underlying instruments and movements in the prices of futures contracts, even a correct forecast of general market trends by T. Rowe Price might not result in a successful hedging transaction over a very short time period. 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 interest rate 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: (1) there may be insufficient trading interest in certain options; (2) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (3) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options, or underlying instruments; (4) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (5) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (6) 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. U.S. Treasury Intermediate and Long-Term Funds Limitations on Futures and Options for Intermediate and Long-Term Funds The funds will not purchase a futures contract or option thereon if, with respect to positions in futures or options on futures which do not represent bona fide hedging, the aggregate initial margin and premiums on such positions would exceed 5% of the fund's net asset value. In addition, neither of the funds will enter into a futures transaction if it would be obligated to purchase or deliver under outstanding open futures contracts amounts which would exceed 15% of the fund's total assets. A fund will not write a covered call option if, as a result, the aggregate market value of all portfolio securities covering call options or subject to delivery under put options exceeds 15% of the market value of the fund's total assets. A fund will not write a covered put option if, as a result, the aggregate market value of all portfolio securities subject to such put options or covering call options exceeds 15% of the market value of the fund's total assets. The funds have no current intention of investing in options on securities. However, they reserve the right to do so in the future and could be subject to the following limitations: a fund may invest up to 15% of its total assets in premiums on put options and 15% of its total assets in premiums on call options. The total amount of a fund's total assets invested in futures and options will not exceed 15% of the fund's total assets. Corporate Income, High Yield, New Income, Personal Strategy, and Short-Term Bond Funds Foreign Currency Transactions A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are principally traded in the interbank market conducted directly between currency traders (usually large, commercial banks) and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. The fund may enter into forward contracts for a variety of purposes in connection with the management of the foreign securities portion of its portfolio. The fund's use of such contracts would include, but not be limited to, the following: First, when the fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security. By entering into a forward contract for the purchase or sale, for a fixed amount of dollars, of the amount of foreign currency involved in the underlying security transactions, the fund will be able to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the subject foreign currency during the period between the date the security is purchased or sold and the date on which payment is made or received. Second, when T. Rowe Price believes that one currency may experience a substantial movement against another currency, including the U.S. dollar, it may enter into a forward contract to sell or buy the amount of the former foreign currency, approximating the value of some or all of the fund's portfolio securities denominated in such foreign currency. Alternatively, where appropriate, the fund may hedge all or part of its foreign currency exposure through the use of a basket of currencies or a proxy currency where such currency or currencies act as an effective proxy for other currencies. In such a case, the fund may enter into a forward contract where the amount of the foreign currency to be sold exceeds the value of the securities denominated in such currency. The use of this basket hedging technique may be more efficient and economical than entering into separate forward contracts for each currency held in the fund. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movement is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Under normal circumstances, consideration of the prospect for currency parties will be incorporated into the longer term investment decisions made with regard to overall diversification strategies. However, T. Rowe Price believes that it is important to have the flexibility to enter into such forward contracts when it determines that the best interests of the fund will be served. Third, the fund may use forward contracts when the fund wishes to hedge out of the dollar into a foreign currency in order to create a synthetic bond or money market instrument-the security would be issued in U.S. dollars but the dollar component would be transformed into a foreign currency through a forward contract. The fund may enter into forward contacts for any other purpose consistent with the fund's investment objective and program. However, the fund will not enter into a forward contract, or maintain exposure to any such contract(s), if the amount of foreign currency required to be delivered thereunder would exceed the fund's holdings of liquid, high-grade debt securities, currency available for cover of the forward contract(s) or other suitable cover as permitted by the SEC. In determining the amount to be delivered under a contract, the fund may net offsetting positions. At the maturity of a forward contract, the fund may sell the portfolio security and make delivery of the foreign currency, or it may retain the security and either extend the maturity of the forward contract (by "rolling" that contract forward) or may initiate a new forward contract. If the fund retains the portfolio security and engages in an offsetting transaction, the fund will incur a gain or a loss (as described below) to the extent that there has been movement in forward contract prices. If the fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline during the period between the fund's entering into a forward contract for the sale of a foreign currency and the date it enters into an offsetting contract for the purchase of the foreign currency, the fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the fund will suffer a loss to the extent of the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. The fund's dealing in forward foreign currency exchange contracts will generally be limited to the transactions described above. However, the fund reserves the right to enter into forward foreign currency contracts for different purposes and under different circumstances. Of course, the fund is not required to enter into forward contracts with regard to its foreign currency-denominated securities and will not do so unless deemed appropriate by T. Rowe Price. It also should be realized that this method of hedging against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange at a future date. Additionally, although such contracts tend to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time, they tend to limit any potential gain which might result from an increase in the value of that currency. Although the fund values its assets daily in terms of U.S. dollars, it does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. It will do so from time to time, and there are costs associated with 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. See "Portfolio Management Practices-Short Sales" for further discussion. 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/Trustees without shareholder approval. Any investment restriction which involves a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the percentage occurs immediately after, and is caused by, an acquisition of securities or assets of, or borrowings by, the fund. Calculation of the fund's total assets for compliance with any of the following fundamental or operating policies or any other investment restrictions set forth in the fund's prospectus or Statement of Additional Information will not include cash collateral held in connection with securities lending activities. Fundamental Policies As a matter of fundamental policy, the fund may not: (1) Borrowing Borrow money except that the fund may (i) borrow for non-leveraging, temporary or emergency purposes; and (ii) engage in reverse repurchase agreements and make other investments or engage in other transactions, which may involve a borrowing, in a manner consistent with the fund's investment objective and program, provided that the combination of (i) and (ii) shall not exceed 33/1//\\/3/\\% of the value of the fund's total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law. Any borrowings which come to exceed this amount will be reduced in accordance with applicable law. The fund may borrow from banks, other Price Funds, or other persons to the extent permitted by applicable law; (2) Commodities Purchase or sell physical commodities; except that the fund (other than the Prime Reserve, U.S. Treasury Money, Government Reserve Investment, and Reserve Investment Funds) may enter into futures contracts and options thereon; (3) (a) Industry Concentration (All Funds except High Yield, New Income, Prime Reserve, Reserve Investment, and Short-Term Bond Funds) 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; (b) Industry Concentration (High Yield Fund) 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; provided, however, that the fund will normally concentrate 25% or more of its assets in securities of the banking industry when the fund's position in issues maturing in one year or less equals 35% or more of the fund's total assets; (c) Industry Concentration (New Income Fund) 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; provided, however, that the fund will invest more than 25% of its total assets, but not more than 50%, in any one of the gas utility, gas transmission utility, electric utility, telephone utility, and petroleum industries under certain circumstances, and further provided that this limitation does not apply to securities of the banking industry including, but not limited to, certificates of deposit and bankers' acceptances; (d) Industry Concentration (Prime Reserve and Reserve Investment Funds) 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; provided, however, that this limitation does not apply to securities of the banking industry including, but not limited to, certificates of deposit and bankers' acceptances; and (e) Industry Concentration (Short-Term Bond Fund) 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; provided, however, that the fund will normally invest more than 25% of its total assets in the securities of the banking industry including, but not limited to, bank certificates of deposit and bankers' acceptances when the fund's position in issues maturing in one year or less equals 35% or more of the fund's total assets; provided, further, that the fund will invest more than 25% of its total assets, but not more than 50%, in any one of the gas utility, gas transmission utility, electric utility, telephone utility, and petroleum industries under certain circumstances; (4) Loans Make loans, although the fund may (i) lend portfolio securities and participate in an interfund lending program with other Price Funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33/1//\\/3/\\% of the value of the fund's total assets; (ii) purchase money market securities and enter into repurchase agreements; and (iii) acquire publicly distributed or privately placed debt securities and purchase debt; (5) Percent Limit on Assets Invested in Any One Issuer Purchase a security if, as a result, with respect to 75% of the value of its total assets, more than 5% of the value of the fund's total assets would be invested in the securities of a single issuer, except securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities; (6) Percent Limit on Share Ownership of Any One Issuer Purchase a security if, as a result, with respect to 75% of the value of the fund's total assets, more than 10% of the outstanding voting securities of any issuer would be held by the fund (other than obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities); (7) Real Estate Purchase or sell real estate, including limited partnership interests therein, unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business); (8) Senior Securities Issue senior securities except in compliance with the 1940 Act; 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 1933 Act 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 restriction (1), the Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds have no current intention of engaging in any borrowing transactions. With respect to investment restriction (2), the fund does not consider currency contracts or hybrid investments to be commodities. For purposes of investment restriction (3), U.S., state or local governments, or related agencies or instrumentalities, are not considered an industry. Industries are determined by reference to the classifications of industries set forth in the fund's semiannual and annual reports. It is the position of the Staff of the SEC that foreign governments are industries for purposes of this restriction. 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. For purposes of investment restriction (5), the fund will consider a repurchase agreement fully collateralized with U.S. government securities to be U.S. government securities. 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) (a) Equity Securities (All Funds except High Yield and New Income Funds) Purchase any equity security or security convertible into an equity security except as set forth in its prospectus and operating policy on investment companies; (b) Equity Securities (High Yield Fund) Invest more than 20% of the fund's total assets in equity securities (including up to 5% in warrants); (c) Equity Securities (New Income Fund) Invest more than 25% of the fund's total assets in equity securities; (4) Futures Contracts Purchase a futures contract or an option thereon, if, with respect to positions in futures or options on futures which do not represent bona fide hedging, the aggregate initial margin and premiums on such options would exceed 5% of the fund's net asset value; (5) Illiquid Securities Purchase illiquid securities if, as a result, more than 15% (10% for the Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds) of its net assets would be invested in such securities; (6) Investment Companies Purchase securities of open-end or closed-end investment companies except (i) in compliance with the 1940 Act; (ii) securities of the Reserve Investment or Government Reserve Investment Funds; or (iii) in the case of the Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds, only securities of other money market funds; (7) Margin Purchase securities on margin, except (i) for use of short-term credit necessary for clearance of purchases of portfolio securities and (ii) it may make margin deposits in connection with futures contracts or other permissible investments; (8) Mortgaging Mortgage, pledge, hypothecate or, in any manner, transfer any security owned by the fund as security for indebtedness except as may be necessary in connection with permissible borrowings or investments and then such mortgaging, pledging or hypothecating may not exceed 33/1//\\/3/\\% of the fund's total assets at the time of borrowing or investment; (9) Oil and Gas Programs Purchase participations or other direct interests 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; (10) Options, etc. Invest in puts, calls, straddles, spreads, or any combination thereof, except to the extent permitted by the prospectus and Statement of Additional Information; (11) (a) Short Sales (All Funds except High Yield Fund) Effect short sales of securities; (b) Short Sales (High Yield Fund) Effect short sales of securities, other than as set forth in its prospectus and Statement of Additional Information; or (12) 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. Personal Strategy Funds Notwithstanding anything in the above fundamental and operating restrictions to the contrary, the fund may invest all of its assets in a single investment company or a series thereof in connection with a "master-feeder" arrangement. Such an investment would be made where the fund (a "Feeder"), and one or more other funds with the same investment objective and program as the fund, sought to accomplish its investment objective and program by investing all of its assets in the shares of another investment company (the "Master"). The Master would, in turn, have the same investment objective and program as the fund. The fund would invest in this manner in an effort to achieve the economies of scale associated with having a Master fund make investments in portfolio companies on behalf of a number of Feeder funds. MANAGEMENT OF THE FUNDS ------------------------------------------------------------------------------- The officers and directors/trustees 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/trustees who are considered "interested persons" of T. Rowe Price as defined under Section 2(a)(19) of the 1940 Act are noted with an asterisk (*). These directors/trustees are referred to as inside directors by virtue of their officership, directorship, and/or employment with T. Rowe Price. All Funds except Personal Strategy Funds Independent Directors/Trustees/(a)/ CALVIN W. BURNETT, PH.D., 3/16/32, President, Coppin State College; Director, Maryland Chamber of Commerce and Provident Bank of Maryland; Former President, Baltimore Area Council Boy Scouts of America; Vice President, Board of Directors, The Walters Art Gallery; Address: 2500 West North Avenue, Baltimore, Maryland 21216 ANTHONY W. DEERING, 1/28/45, Director, Chairman of the Board, President and Chief Operating Officer, The Rouse Company, real estate developers, Columbia, Maryland; Advisory Director, Kleinwort, Benson (North America) Corporation, a registered broker-dealer; Address: 10275 Little Patuxent Parkway, Columbia, Maryland 21044 F. PIERCE LINAWEAVER, 8/22/34, President, F. Pierce Linaweaver & Associates, Inc.; Consulting Environmental & Civil Engineer(s); formerly (1987-1991) Executive Vice President, EA Engineering, Science, and Technology, Inc., and President, EA Engineering, Inc., Baltimore, Maryland; Address: Green Spring Station, 2360 West Joppa Road, Suite 224, Lutherville, Maryland 21093 JOHN G. SCHREIBER, 10/21/46, Owner/President, Schreiber Investments, Inc., a real estate investment company; Director, AMLI Residential Properties Trust and Urban Shopping Centers, Inc.; Partner, Blackstone Real Estate Partners, L.P.; Director and formerly Executive Vice President, JMB Realty Corporation, a national real estate investment manager and developer; Address: 1115 East Illinois Road, Lake Forest, Illinois 60045 Personal Strategy Funds DONALD W. DICK, JR., 1/27/43, 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: 925 Cleveland Street, #177, Greenville, South Carolina 29601 DAVID K. FAGIN, 4/9/38, Chairman and Chief Executive Officer, Western Exploration and Development, Ltd.; Director Golden Star Resources Ltd. and Miranda Mining Development Corporation; formerly (7/91- 9/97) Chairman, Chief Executive Officer, Golden Star Resources Ltd.; (1986-7/91) President, Chief Operating Officer and Director, Homestake Mining Company; Address: 1700 Lincoln Street, Suite 4710, Denver, Colorado 80203 HANNE M. MERRIMAN, 11/16/41, 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, 8/2/33, Owner/President, Stonington Capital Corporation, a private investment company; Address: 1114 State Street, Suite 247, P.O. Box 90409, Santa Barbara, California 93190-0409 PAUL M. WYTHES, 6/23/33, 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 (a) Unless otherwise indicated, the Independent Directors/Trustees have been at their respective companies for at least five years. Inside Directors/Trustees/Officers All Funds * JAMES S. RIEPE, 6/25/43, Director/Trustee and Vice President -Vice Chairman of the Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President, and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and General Re Corporation HENRY H. HOPKINS, 12/23/42, Vice President-Vice President, Price-Fleming and T. Rowe Price Retirement Plan Services, Inc.; Director and Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc. and T. Rowe Price Trust Company PATRICIA S. LIPPERT, 1/12/53, Secretary-Assistant Vice President, T. Rowe Price and T. Rowe Price Investment Services, Inc. CARMEN F. DEYESU, 8/1/41, Treasurer-Vice President, T. Rowe Price, T. Rowe Price Services, Inc., and T. Rowe Price Trust Company DAVID S. MIDDLETON, 1/18/56, Controller-Vice President, T. Rowe Price and T. Rowe Price Trust Company INGRID I. VORDEMBERGE, 9/27/35, Assistant Vice President-Employee, T. Rowe Price Corporate Income Fund * WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board-Director and Managing Director, T. Rowe Price; Chartered Financial Analyst * M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director, 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 ROBERT M. RUBINO, 8/2/53, President-Vice President, T. Rowe Price MARK J. VASELKIV, 7/22/58, Executive Vice President-Vice President, T. Rowe Price STEVEN G. BROOKS, 8/5/54, Vice President-Vice President, T. Rowe Price; Chartered Financial Analyst PATRICK S. CASSIDY, 8/27/64, Vice President-Vice President, T. Rowe Price; Chartered Financial Analyst DEBRA R. DIES, 5/12/71, Vice President-Credit Analyst, T. Rowe Price; formerly employed at J.P. Morgan Securities VIRGINIA A. STIRLING, 9/5/51, Vice President-Vice President, T. Rowe Price THOMAS E. TEWKSBURY, 8/1/61, Vice President-Vice President, T. Rowe Price; formerly senior bond trader, Scudder, Stevens & Clark, New York, New York THEA N. WILLIAMS, 12/20/61, Vice President-Vice President, T. Rowe Price GNMA Fund * WILLIAM T. REYNOLDS, 5/26/48, Trustee-Director and Managing Director, T. Rowe Price; Chartered Financial Analyst * M. DAVID TESTA, 4/22/44, Trustee-Chairman of the Board and Director, 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 CONNICE A. BAVELY, 3/5/51, President-Vice President and Senior Portfolio Manager, T. Rowe Price; formerly founding partner and Senior Vice President of Atlantic Asset Management Partners, LLC; Special Partner and Portfolio Manager at Weiss Peck and Greer DEBORAH L. BOYER, 1/2/68, Executive Vice President-Assistant Vice President, T. Rowe Price; formerly Assistant Vice President and Government Bond Trader for First Chicago NBD Corporation ALAN D. LEVENSON, 7/17/58, Vice President-Vice President, T. Rowe Price EDMUND M. NOTZON, 10/1/45, Vice President-Managing Director, T. Rowe Price; Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price Government Reserve Investment and Reserve Investment Funds * WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board-Director and Managing Director, T. Rowe Price; Chartered Financial Analyst * M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director, 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 EDWARD A. WIESE, 4/12/59, President-Vice President, T. Rowe Price; Chartered Financial Analyst ROBERT P. CAMPBELL, 1/31/56, Executive Vice President-Vice President, T. Rowe Price and Price-Fleming JAMES M. MCDONALD, 9/29/49, Executive Vice President-Vice President, T. Rowe Price PATRICE BERCHTENBREITER ELY, 1/13/53, Vice President-Vice President, T. Rowe Price BRIAN E. BURNS, 10/6/60, Vice President-Assistant Vice President, T. Rowe Price JOAN R. POTEE, 11/23/47, Vice President-Vice President, T. Rowe Price ROBERT M. RUBINO, 8/2/53, Vice President-Vice President, T. Rowe Price EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price High Yield Fund * WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board-Director and Managing Director, T. Rowe Price; Chartered Financial Analyst * M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director, 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 MARK J. VASELKIV, 7/22/58, President-Vice President, T. Rowe Price JANET G. ALBRIGHT, 3/31/57, Vice President-Vice President, T. Rowe Price ANDREW M. BROOKS, 2/16/56, Vice President-Vice President, T. Rowe Price PAUL A. KARPERS, 11/14/67, Vice President-Employee, T. Rowe Price; formerly an Investment Analyst at the Vanguard Group, Philadelphia, Pennsylvania NATHANIEL S. LEVY, 07/13/62, Vice President-Vice President, T. Rowe Price KEVIN P. LOOME, 10/19/67, Vice President-Employee, T. Rowe Price; formerly a Corporate Finance Analyst for Morgan Stanley in both London and New York MICHAEL J. MCGONIGLE, 10/14/66, Vice President-Assistant Vice President, T. Rowe Price EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price HUBERT M. STILES, JR., 6/22/47, Vice President-Vice President, T. Rowe Price THOMAS E. TEWKSBURY, 8/1/61, Vice President-Vice President, T. Rowe Price; formerly senior bond trader, Scudder, Stevens & Clark, New York, New York THEA N. WILLIAMS, 12/20/61, Vice President-Vice President, T. Rowe Price WALTER P. STUART, 3/27/60, Vice President-Employee, T. Rowe Price New Income Fund * WILLIAM T. REYNOLDS, 5/26/48, Director and President-Director and Managing Director, T. Rowe Price; Chartered Financial Analyst * M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director, 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 ROBERT M. RUBINO, 8/2/53, Executive Vice President-Vice President, T. Rowe Price CONNICE A. BAVELY, 3/5/51, Vice President-Vice President and Senior Portfolio Manager, T. Rowe Price; formerly founding partner and Senior Vice President of Atlantic Asset Management Partners, LLC; Special Partner and Portfolio Manager at Weiss Peck and Greer STEVEN G. BROOKS, 8/5/54, Vice President-Vice President, T. Rowe Price; Chartered Financial Analyst PATRICK S. CASSIDY, 8/27/64, Vice President-Vice President, T. Rowe Price; Chartered Financial Analyst DEBRA R. DIES, 5/12/71, Vice President-Credit Analyst, T. Rowe Price; formerly employed at J.P. Morgan Securities VEENA A. KUTLER, 12/22/56, Vice President-Vice President, T. Rowe Price, T. Rowe Price Trust Company, and Price-Fleming ALAN D. LEVENSON, 7/17/58, Vice President-Vice President, T. Rowe Price JAMES M. MCDONALD, 9/29/49, Vice President-Vice President, T. Rowe Price EDMUND M. NOTZON, 10/1/45, Vice President-Managing Director, T. Rowe Price; Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst JOAN R. POTEE, 11/23/47, Vice President-Vice President, T. Rowe Price THEODORE E. ROBSON, 2/10/65, Vice President-Assistant Vice President, T. Rowe Price EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price VIRGINIA A. STIRLING, 9/5/51, Vice President-Vice President, T. Rowe Price SUSAN G. TROLL, 8/27/66, Vice President-Vice President and Analyst, T. Rowe Price; formerly Vice President at Merrill Lynch Asset Management; Certified Public Accountant Personal Strategy Balanced, Growth, and Income Funds * JAMES A.C. KENNEDY, 8/17/53, Director-Director and Managing Director, T. Rowe Price; Chartered Financial Analyst * M. DAVID TESTA, 4/22/44, Chairman of the Board-Chairman of the Board and Director, 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 EDMUND M. NOTZON, 10/1/45, President-Managing Director, T. Rowe Price; Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst STEPHEN W. BOESEL, 12/28/44, Executive Vice President-Managing Director, T. Rowe Price LARRY J. PUGLIA, 8/25/60, Executive Vice President-Vice President, T. Rowe Price; Chartered Financial Analyst JOHN H. LAPORTE, JR., 7/26/45, Vice President-Director and Managing Director, T. Rowe Price; Chartered Financial Analyst MARY C. MUNOZ, 12/2/62, Vice President-Assistant Vice President, T. Rowe Price DONALD J. PETERS, 7/3/59, Vice President-Vice President, T. Rowe Price WILLIAM T. REYNOLDS, 5/26/48, Vice President-Director and Managing Director, T. Rowe Price; Chartered Financial Analyst BRIAN C. ROGERS, 6/27/55, Vice President-Director and Managing Director, T. Rowe Price; Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst MARK J. VASELKIV, 7/22/58, Vice President-Vice President, T. Rowe Price JUDITH B. WARD, 10/12/62, Vice President-Employee, T. Rowe Price RICHARD T. WHITNEY, 5/7/58, Vice President-Managing Director, T. Rowe Price; Vice President, Price-Fleming and T. Rowe Price Trust Company; Chartered Financial Analyst J. JEFFREY LANG, 1/10/62, Assistant Vice President-Assistant Vice President, T. Rowe Price; Vice President, T. Rowe Price Trust Company Prime Reserve Fund * WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board-Director and Managing Director, T. Rowe Price; Chartered Financial Analyst * M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director, 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 EDWARD A. WIESE, 4/12/59, President-Vice President, T. Rowe Price; Chartered Financial Analyst ROBERT P. CAMPBELL, 1/31/56, Executive Vice President-Vice President, T. Rowe Price and Price-Fleming JAMES M. MCDONALD, 9/29/49, Executive Vice President-Vice President, T. Rowe Price PATRICE BERCHTENBREITER ELY, 1/13/53, Vice President-Vice President, T. Rowe Price BRIAN E. BURNS, 10/6/60, Vice President-Assistant Vice President, T. Rowe Price JOAN R. POTEE, 11/23/47, Vice President-Vice President, T. Rowe Price ROBERT M. RUBINO, 8/2/53, Vice President-Vice President, T. Rowe Price EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price SUSAN G. TROLL, 8/27/66, Vice President-Vice President and Analyst, T. Rowe Price; formerly Vice President at Merrill Lynch Asset Management; Certified Public Accountant Short-Term Bond Fund * WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board-Director and Managing Director, T. Rowe Price; Chartered Financial Analyst * M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director, 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 EDWARD A. WIESE, 4/12/59, President-Vice President, T. Rowe Price; Chartered Financial Analyst CONNICE A. BAVELY, 3/5/51, Vice President-Vice President and Senior Portfolio Manager, T. Rowe Price; formerly founding partner and Senior Vice President of Atlantic Asset Management Partners, LLC; Special Partner and Portfolio Manager at Weiss Peck and Greer STEVEN G. BROOKS, 8/5/54, Vice President-Vice President, T. Rowe Price; Chartered Financial Analyst ROBERT P. CAMPBELL, 1/31/56, Vice President-Vice President, T. Rowe Price and Price-Fleming PATRICK S. CASSIDY, 8/27/64, Vice President-Vice President, T. Rowe Price; Chartered Financial Analyst DEBRA R. DIES, 5/12/71, Vice President-Credit Analyst, T. Rowe Price; formerly employed at J.P. Morgan Securities CHARLES B. HILL, 9/22/61, Vice President-Vice President, T. Rowe Price JAMES M. MCDONALD, 9/29/49, Vice President-Vice President, T. Rowe Price CHERYL A. MICKEL, 1/11/67, Vice President-Assistant Vice President, T. Rowe Price THEODORE E. ROBSON, 2/10/65, Vice President-Assistant Vice President, T. Rowe Price ROBERT M. RUBINO, 8/2/53, Vice President-Vice President, T. Rowe Price EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price VIRGINIA A. STIRLING, 9/5/51, Vice President-Vice President, T. Rowe Price Short-Term U.S. Government Fund * WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board-Director and Managing Director, T. Rowe Price; Chartered Financial Analyst * M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director, 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 CONNICE A. BAVELY, 3/5/51, President-Vice President and Senior Portfolio Manager, T. Rowe Price; formerly founding partner and Senior Vice President of Atlantic Asset Management Partners, LLC; Special Partner and Portfolio Manager at Weiss Peck and Greer JAMES M. MCDONALD, 9/29/49, Vice President-Vice President, T. Rowe Price EDMUND M. NOTZON, 10/1/45, Vice President-Managing Director, T. Rowe Price; Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price DANIEL O. SHACKELFORD, 3/11/58, Vice President-Vice President, T. Rowe Price EDWARD A. WIESE, 4/12/59, Vice President-Vice President, T. Rowe Price; Chartered Financial Analyst U.S. Treasury Intermediate, Long-Term, and Money Funds * WILLIAM T. REYNOLDS, 5/26/48, Director and President-Director and Managing Director, T. Rowe Price; Chartered Financial Analyst * M. DAVID TESTA, 4/22/44, Director-Chairman of the Board and Director, 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 EDWARD A. WIESE, 4/12/59, Executive Vice President-Vice President, T. Rowe Price; Chartered Financial Analyst CONNICE A. BAVELY, 3/5/51, Vice President-Vice President and Senior Portfolio Manager, T. Rowe Price; formerly founding partner and Senior Vice President of Atlantic Asset Management Partners, LLC; Special Partner and Portfolio Manager at Weiss Peck and Greer PATRICE BERCHTENBREITER ELY, 1/13/53, Vice President-Vice President, T. Rowe Price BRIAN E. BURNS, 10/6/60, Vice President-Assistant Vice President, T. Rowe Price ROBERT P. CAMPBELL, 1/31/56, Vice President-Vice President, T. Rowe Price and Price-Fleming JEROME A. CLARK, 1/2/61, Vice President-Vice President, T. Rowe Price ALAN D. LEVENSON, 7/17/58, Vice President-Vice President, T. Rowe Price JAMES M. MCDONALD, 9/29/49, Vice President-Vice President, T. Rowe Price CHERYL A. MICKEL, 1/11/67, Vice President-Assistant Vice President, T. Rowe Price EDMUND M. NOTZON, 10/1/45, Vice President-Managing Director, T. Rowe Price; Vice President, T. Rowe Price Trust Company; Chartered Financial Analyst JOAN R. POTEE, 11/23/47, Vice President-Vice President, T. Rowe Price ROBERT M. RUBINO, 8/2/53, Vice President-Vice President, T. Rowe Price EDWARD T. SCHNEIDER, 9/19/59, Vice President-Vice President, T. Rowe Price Compensation Table The funds do not pay pension or retirement benefits to their officers or directors/trustees. Also, any director/trustee of a fund who is an officer or employee of T. Rowe Price 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/ Trustees(b) - -------- -------------------------------------------- ----------- - ----------------------- -------------------------------------- Corporate Income Fund Calvin W. Burnett, Ph.D., $65 Trustee $1,476 ,000 81, Anthony W. Deering, Trustee 1,338 000 F. Pierce Linaweaver, Trustee 1,476 66,000 John G. Schreiber, Trustee 1,476 65,500 - ----------------------------------------------------------------------------------------------------------------------------------- GNMA Fund Calvin W. Burnett, Ph.D., $2, $65 Trustee 423 ,000 81, Anthony W. Deering, Trustee 1,677 000 F. Pierce Linaweaver, Trustee 2,423 66,000 John G. Schreiber, Trustee 2,423 65,500 - ----------------------------------------------------------------------------------------------------------------------------------- High Yield Fund Calvin W. Burnett, Ph.D., $65 Director $2,960 ,000 81, Anthony W. Deering, Director 1,917 000 F. Pierce Linaweaver, Director 2,960 66,000 John G. Schreiber, Director 2,960 65,500 - ----------------------------------------------------------------------------------------------------------------------------------- New Income Fund Calvin W. Burnett, Ph.D., $65 Director $3,334 ,000 81, Anthony W. Deering, Director 2,065 000 F. Pierce Linaweaver, Director 3,334 66,000 John G. Schreiber, Director 3,334 65,500 - ----------------------------------------------------------------------------------------------------------------------------------- Personal Strategy Balanced Fund Donald W. Dick, Jr., Director $1,150 $81,000 David K. Fagin, Director 1,256 65,000 Hanne M. Merriman, Director 1,256 65,000 Hubert D. Vos, Director 1,256 66,000 Paul M. Wythes, Director 1,150 80,000 - ----------------------------------------------------------------------------------------------------------------------------------- Personal Strategy Growth Fund Donald W. Dick, Jr., Director $1,074 $81,000 David K. Fagin, Director 1,114 65,000 Hanne M. Merriman, Director 1,114 65,000 Hubert D. Vos, Director 1,114 66,000 Paul M. Wythes, Director 1,074 80,000 - ----------------------------------------------------------------------------------------------------------------------------------- Personal Strategy Income Fund Donald W. Dick, Jr., Director $1,080 $81,000 David K. Fagin, Director 1,121 65,000 Hanne M. Merriman, Director 1,121 65,000 Hubert D. Vos, Director 1,121 66,000 Paul M. Wythes, Director 1,080 80,000 - ----------------------------------------------------------------------------------------------------------------------------------- Prime Reserve Fund Calvin W. Burnett, Ph.D., $65 Director $6,312 ,000 81, Anthony W. Deering, Director 3,109 000 F. Pierce Linaweaver, Director 6,312 66,000 John G. Schreiber, Director 6,312 65,500 - ----------------------------------------------------------------------------------------------------------------------------------- Short-Term Bond Fund Calvin W. Burnett, Ph.D., $65 Director $1,611 ,000 81, Anthony W. Deering, Director 1,396 000 F. Pierce Linaweaver, Director 1,611 66,000 John G. Schreiber, Director 1,611 65,500 - ----------------------------------------------------------------------------------------------------------------------------------- Short-Term U.S. Government Fund Calvin W. Burnett, Ph.D., $65 Director $1,479 ,000 81, Anthony W. Deering, Director 1,340 000 F. Pierce Linaweaver, Director 1,479 66,000 John G. Schreiber, Director 1,479 65,500 - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Intermediate Fund Calvin W. Burnett, Ph.D., $65 Director $1,567 ,000 81, Anthony W. Deering, Director 1,370 000 F. Pierce Linaweaver, Director 1,567 66,000 John G. Schreiber, Director 1,567 65,500 - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Long-Term Fund Calvin W. Burnett, Ph.D., $65 Director $1,960 ,000 81, Anthony W. Deering, Director 1,520 000 F. Pierce Linaweaver, Director 1,960 66,000 John G. Schreiber, Director 1,960 65,500 - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Money Fund Calvin W. Burnett, Ph.D., $65 Director $1,762 ,000 81, Anthony W. Deering, Director 1,446 000 F. Pierce Linaweaver, Director 1,762 66,000 John G. Schreiber, Director 1,762 65,500 - -----------------------------------------------------------------------------------------------------------------------------------
(a) Amounts in this column are based on accrued compensation from June 1, 1998 to May 31, 1999. (b) Amounts in this column are based on compensation received from January 1, 1998, to December 31, 1998. The T. Rowe Price complex included 88 funds as of December 31, 1998. Note: Government Reserve Investment and Reserve Investments Funds will not incur director's fees. All Funds The fund's Executive Committee, consisting of the fund's interested directors/trustees, has been authorized by its respective Board of Directors/Trustees to exercise all powers of the Board to manage the funds in the intervals between meetings of the Board, except the powers prohibited by statute from being delegated. PRINCIPAL HOLDERS OF SECURITIES ------------------------------------------------------------------------------- As of the date of the prospectus, the officers and directors/trustees of the fund, as a group, owned less than 1% of the outstanding shares of the fund. As of June 30, 1999, the following shareholders beneficially owned more than 5% of the outstanding shares of the fund: GNMA, High Yield, New Income, and U.S. Treasury Long-Term Funds: Yachtcrew & Co., T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, Maryland 21202; Government Reserve Investment Fund: Barnaclesail, c/o T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, Maryland 21202; Bridgesail & Co., c/o T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, Maryland 21202 Reserve Investment Fund: Eye & Co., c/o T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, Maryland 21202; Taskforce & Co., c/o T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, Maryland 21202; Shorebird & Co., c/o T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, Maryland 21202; Tuna & Co., c/o T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, Maryland 21202 U.S. Treasury Intermediate Fund: First American Trust Co., Managed Omnibus, 421 N Main Street, Santa Ana, California 92701-4699. INVESTMENT MANAGEMENT SERVICES ------------------------------------------------------------------------------- Services Under the Management Agreement, T. Rowe Price provides the fund with discretionary investment services. Specifically, T. Rowe Price is responsible for supervising and directing the investments of the fund in accordance with the fund's investment objectives, program, and restrictions as provided in its prospectus and this Statement of Additional Information. T. Rowe Price is also responsible for effecting all security transactions on behalf of the fund, including the negotiation of commissions and the allocation of principal business and portfolio brokerage. In addition to these services, T. Rowe Price provides the fund with certain corporate administrative services, including: maintaining the fund's corporate existence and corporate records; registering and qualifying fund shares under federal laws; monitoring the financial, accounting, and administrative functions of the fund; maintaining liaison with the agents employed by the fund such as the fund's custodian and transfer agent; assisting the fund in the coordination of such agents' activities; and permitting T. Rowe Price's employees to serve as officers, directors/trustees, and committee members of the fund without cost to the fund. The Management Agreement also provides that T. Rowe Price, its directors/trustees, 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. All Funds except Government Reserve Investment and Reserve Investment Funds Management Fee The fund pays T. Rowe Price a fee ("Fee") which consists of two components: a Group Management Fee ("Group Fee") and an Individual Fund Fee ("Fund Fee"). The Fee is paid monthly to T. Rowe Price on the first business day of the next succeeding calendar month and is calculated as described next. 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% Next $40 billion ------------------------------------------------------------------------------ 0.390% Next $1 billion 0.330% Next $10 billion 0.295% Thereafter ------------------------------------------------------------------------------ 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 Investment Services, (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:
Corporate Income Fund 0.15% GNMA Fund 0.15 High Yield Fund 0.30 New Income Fund 0.15 Personal Strategy Balanced Fund 0.25 Personal Strategy Growth Fund 0.30 Personal Strategy Income Fund 0.15 Prime Reserve Fund 0.05 Prime Reserve Fund-PLUS Class 0.05 Short-Term Bond Fund 0.10 Short-Term U.S. Government Fund 0.10 U.S. Treasury Intermediate Fund 0.05 U.S. Treasury Long-Term Fund 0.05 U.S. Treasury Money Fund 0.00
The following chart sets forth the total management fees, if any, paid to T. Rowe Price by each fund, during the last three years:
Fund 1999 1998 1997 ---- ---- ---- ---- Corporate Income $ 71,000 (a) (a) GNMA 5,388,000 $ 4,928,000 $ 4,398,000 High Yield 10,598,000 9,797,000 8,206,000 New Income 9,740,000 9,047,000 7,984,000 Personal Strategy Balanced 2,479,000 1,685,000 897,000 Personal Strategy Growth 1,010,000 514,000 92,000 Personal Strategy Income 897,000 206,000 22,000 Prime Reserve 18,779,000 17,281,000 16,431,000 Prime Reserve Fund-PLUS Class 15,000 (a) -- Short-Term Bond 1,423,000 1,478,000 1,795,000 Short-Term U.S. Government 457,000 317,000 250,000 U.S. Treasury Intermediate 931,000 724,000 694,000 U.S. Treasury Long-Term 1,150,000 687,000 276,000 U.S. Treasury Money 2,890,000 2,668,000 2,585,000 - ------------------------------- --------------------------------
(a) Due to the fund's expense limitation in effect at that time, no management fee was paid by the fund to T. Rowe Price. Limitation on Fund Expenses The Management Agreement between the fund and T. Rowe Price provides that the fund will bear all expenses of its operations not specifically assumed by T. Rowe Price. The following chart sets forth expense ratio limitations and the periods for which they are effective. For each, T. Rowe Price has agreed to bear any fund expenses which would cause the fund's ratio of expenses to average net assets to exceed the indicated percentage limitations. The expenses borne by T. Rowe Price are subject to reimbursement by the fund through the indicated reimbursement date, provided no reimbursement will be made if it would result in the fund's expense ratio exceeding its applicable limitation.
Fund Limitation Period Expense Ratio Reimbursement ---- ----------------- Limitation Date ---------- ---- Prime Reserve Fund- May 1, 1999 -April PLUS Class (a) 30, 2000 1.00% April 30, 2002 June 1, 1999 - May Corporate Income(b) 31, 2001 0.80 May 31, 2003 Personal Strategy June 1, 1998 - May Growth(c) 31, 2000 1.10 May 31, 2002 Personal Strategy June 1, 1998 -May 31, Income(d) 2000 0.90 May 31, 2002 Short-Term U.S. June 1, 1998 -May 31, 0.70 May 31, 2002 Government(e) 2000 - --------------------------------------------------------------------------------
(a) The Prime Reserve Fund-PLUS Class operated under a 1.00% limitation that expired April 30, 1999. The reimbursement period for this limitation extends through April 30, 2000. (b) The Corporate Income Fund operated under a 0.80% limitation that expired May 31, 1999. The reimbursement period for this limitation extends through May 31, 2001. (c) The Personal Strategy Growth Fund previously operated under a 1.10% limitation that expired May 31, 1998. The reimbursement period for this limitation extends through May 31, 2000. (d) The Personal Strategy Income Fund previously operated under a 0.95% limitation that expired May 31, 1998. The reimbursement period for this limitation extends through May 31, 2000. (e) The Short-Term U.S. Government Fund previously operated under a 0.70% limitation that expired May 31, 1998. The reimbursement period for this limitation extends through May 31, 2000. Each of the above-referenced fund's Management Agreement also provides that one or more additional expense limitations periods (of the same or different time periods) may be implemented after the expiration of the current expense limitation, and that with respect to any such additional limitation period, the fund may reimburse T. Rowe Price, provided the reimbursement does not result in the fund's aggregate expenses exceeding the additional expense limitation. Corporate Income Fund Pursuant to the current expense limitation, $171,000 of management fees were not accrued by the fund for the year ended May 31, 1999. Additionally, $149,000 of unaccrued fees and expenses related to a prior period are subject to reimbursement through May 31, 2000. U.S. Treasury Long-Term Fund The fund operated under a 0.80% limitation that expired May 31, 1999. The reimbursement period for this limitation extends through May 31, 2001. Personal Strategy Balanced Fund Pursuant to the previous expense limitation, $62,000 of unaccrued 1997 management fees were repaid during the year ended May 31, 1999. Personal Strategy Growth Fund Pursuant to the expense limitation, $77,000 of management fees were not accrued by the fund for the year ended May 31, 1999. Additionally, $287,000 of unaccrued management fees related to a previous expense limitation are subject to reimbursement through May 31, 2000. Personal Strategy Income Fund Pursuant to the expense limitation, $10,000 of management fees were not accrued by the fund for the year ended May 31, 1999. Additionally, $238,000 of unaccrued management fees related to a previous expense limitation are subject to reimbursement through May 31, 2000. Short-Term U.S. Government Fund Pursuant to the current expense limitation, $92,000 of management fees were not accrued by the fund for the year ended May 31, 1998. Additionally, $266,000 of unaccrued management fees remain subject to reimbursement through May 31, 2000. GNMA, High Yield, New Income, Short-Term Bond, and U.S. Treasury Long-Term Funds T. Rowe Price Spectrum Fund, Inc. The funds listed above are a party to a Special Servicing Agreement ("Agreement") between and among T. Rowe Price Spectrum Fund, Inc. ("Spectrum Fund"), T. Rowe Price, and various other T. Rowe Price funds which, along with the fund, are funds in which Spectrum Fund invests (collectively all such funds "Underlying Price Funds"). The Agreement provides that, if the Board of Directors/Trustees of any Underlying Price Fund determines that such Underlying Fund's share of the aggregate expenses of Spectrum Fund is less than the estimated savings to the Underlying Price Fund from the operation of Spectrum Fund, the Underlying Price Fund will bear those expenses in proportion to the average daily value of its shares owned by Spectrum Fund, provided further that no Underlying Price Fund will bear such expenses in excess of the estimated savings to it. Such savings are expected to result primarily from the elimination of numerous separate shareholder accounts which are or would have been invested directly in the Underlying Price Funds and the resulting reduction in shareholder servicing costs. Although such cost savings are not certain, the estimated savings to the Underlying Price Funds generated by the operation of Spectrum Fund are expected to be sufficient to offset most, if not all, of the expenses incurred by Spectrum Fund. Management Fee Government Reserve Investment and Reserve Investment Funds Neither fund pays T. Rowe Price an investment management fee. Management Related Services As noted above, the Management Agreement spells out the expenses to be paid by the fund. In addition to the Management Fee, the fund pays for the following: shareholder service expenses; custodial, accounting, legal, and audit fees; costs of preparing and printing prospectuses and reports sent to shareholders; registration fees and expenses; proxy and annual meeting expenses (if any); and director/trustee fees and expenses. T. Rowe Price Services, Inc., a wholly owned subsidiary of T. Rowe Price, 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. Additionally, T. Rowe Price, under a separate agreement with the funds, provides accounting services to the funds. The funds paid the expenses shown in the following table for the fiscal year ended May 31, 1999, to T. Rowe Price and its affiliates.
Transfer Agent and Retirement Fund Shareholder Services Subaccounting Accounting Services ---- -------------------- Services ------------------- -------- Corporate Income $ 88,000 $ 14,000 $ 73,000 GNMA 1,757,000 235,000 122,875 Government Reserve Investment -- -- 61,708 High Yield 2,401,000 194,000 168,000 New Income 2,604,000 1,523,000 110,116 Personal Strategy Balanced 153,000 1,070,000 74,000 Personal Strategy Growth 164,000 386,000 73,000 Personal Strategy Income 76,000 394,000 73,000 Prime Reserve 5,247,000 4,665,000 93,000 Prime Reserve Fund-PLUS Class 7,000 -- -- Reserve Investment 9,566 -- 61,708 Short-Term Bond 352,000 260,000 123,000 Short-Term U.S. Government 152,000 14,000 103,000 U.S. Treasury Intermediate 213,000 137,000 62,417 U.S. Treasury Long-Term 575,000 36,000 62,417 U.S. Treasury Money 633,835 542,245 61,708 - ------------------------
All Funds except Government Reserve Investment and Reserve Investment Funds DISTRIBUTOR FOR THE FUNDS ------------------------------------------------------------------------------- Investment Services, a Maryland corporation formed in 1980 as a wholly owned subsidiary of T. Rowe Price, serves as the fund's distributor. Investment Services is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. The offering of the fund's shares is continuous. 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 (other than GNMA, Prime Reserve, U.S. Treasury Intermediate, Long-Term, Money, Government Reserve Investment, and Reserve Investment Funds) 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 1940 Act. The address for The Chase Manhattan Bank, N.A., London is Woolgate House, Coleman Street, London, EC2P 2HD, England. SHAREHOLDER SERVICES BY OUTSIDE PARTIES ------------------------------------------------------------------------------- The fund from time to time may enter into agreements with outside parties through which shareholders hold fund shares. The shares would be held by such parties in omnibus accounts. The agreements would provide for payments by the fund to the outside party for shareholder services provided to shareholders in the omnibus accounts. CODE OF ETHICS ------------------------------------------------------------------------------- The fund's investment adviser (T. Rowe Price) has a written Code of Ethics which requires all employees to obtain prior clearance before engaging in personal securities transactions. In addition, all employees must report their personal securities transactions within 10 days of their execution. Employees will not be permitted to effect transactions in a security: if there are pending client orders in the security; the security has been purchased or sold by a client within seven calendar days; the security is being considered for purchase for a client; or the security is subject to internal trading restrictions. In addition, employees are prohibited from profiting from short-term trading (e.g., purchases and sales involving the same security within 60 days). Any material violation of the Code of Ethics is reported to the Board of the fund. The Board also reviews the administration of the Code of Ethics on an annual basis. PORTFOLIO TRANSACTIONS ------------------------------------------------------------------------------- Investment or Brokerage Discretion Decisions with respect to the purchase and sale of portfolio securities on behalf of the fund are made by T. Rowe Price. T. Rowe Price is also responsible for implementing these decisions, including the negotiation of commissions and the allocation of portfolio brokerage and principal business. The fund's purchases and sales of fixed income portfolio securities are normally done on a principal basis and do not involve the payment of a commission although they may involve the designation of selling concessions. That part of the discussion below relating solely to brokerage commissions would not normally apply to the fund (except to the extent it purchases equity securities (High Yield, New Income, and Personal Strategy Funds only)). However, it is included because T. Rowe Price does manage a significant number of common stock portfolios which do engage in agency transactions and pay commissions and because some research and services resulting from the payment of such commissions may benefit the fund. How Brokers and Dealers Are Selected Equity Securities In purchasing and selling equity securities, it is T. Rowe Price'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, T. Rowe Price 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, their expertise in particular markets and brokerage and research services provided by them. It is not the policy of T. Rowe Price 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 services. Fixed Income Securities Fixed income securities are generally purchased from the issuer or a primary market-maker acting as principal for the securities on a net basis, with no brokerage commission being paid by the client although the price usually includes an undisclosed compensation. Transactions placed through dealers serving as primary market-makers reflect the spread between the bid and asked prices. Securities may also be purchased from underwriters at prices which include underwriting fees. With respect to equity and fixed income securities, T. Rowe Price may effect principal transactions on behalf of the fund with a broker or dealer who furnishes brokerage and/or research services, designate any such broker or dealer to receive selling concessions, discounts or other allowances, or otherwise deal with any such broker or dealer in connection with the acquisition of securities in underwritings. T. Rowe Price may receive research services in connection with brokerage transactions, including designations in fixed price offerings. How Evaluations Are Made of the Overall Reasonableness of Brokerage Commissions Paid On a continuing basis, T. Rowe Price seeks to determine what levels of commission rates are reasonable in the marketplace for transactions executed on behalf of the fund. In evaluating the reasonableness of commission rates, T. Rowe Price considers: (a) historical commission rates; (b) rates which other institutional investors are paying, based on available public information; (c) rates quoted by brokers and dealers; (d) the size of a particular transaction, in terms of the number of shares, dollar amount, and number of clients involved; (e) the complexity of a particular transaction in terms of both execution and settlement; (f) the level and type of business done with a particular firm over a period of time; and (g) the extent to which the broker or dealer has capital at risk in the transaction. Descriptions of Research Services Received From Brokers and Dealers T. Rowe Price receives a wide range of research services from brokers and dealers. These services include information on the economy, industries, groups of securities, individual companies, statistical information, accounting and tax law interpretations, political developments, legal developments affecting portfolio securities, technical market action, pricing and appraisal services, credit analysis, risk measurement analysis, performance analysis and analysis of corporate responsibility issues. These services provide both domestic and international perspective. Research services are received primarily in the form of written reports, computer generated services, telephone contacts and personal meetings with security analysts. In addition, such services may be provided in the form of meetings arranged with corporate and industry spokespersons, economists, academicians and government representatives. In some cases, research services are generated by third parties but are provided to T. Rowe Price by or through broker-dealers. Research services received from brokers and dealers are supplemental to T. Rowe Price's own research effort and, when utilized, are subject to internal analysis before being incorporated by T. Rowe Price into its investment process. As a practical matter, it would not be possible for T. Rowe Price's Equity Research Division to generate all of the information presently provided by brokers and dealers. T. Rowe Price pays cash for certain research services received from external sources. T. Rowe Price also allocates brokerage for research services which are available for cash. While receipt of research services from brokerage firms has not reduced T. Rowe Price's normal research activities, the expenses of T. Rowe Price could be materially increased if it attempted to generate such additional information through its own staff. To the extent that research services of value are provided by brokers or dealers, T. Rowe Price may be relieved of expenses which it might otherwise bear. T. Rowe Price has a policy of not allocating brokerage business in return for products or services other than brokerage or research services. In accordance with the provisions of Section 28(e) of the Securities Exchange Act of 1934, T. Rowe Price may from time to time receive services and products which serve both research and non-research functions. In such event, T. Rowe Price makes a good faith determination of the anticipated research and non-research use of the product or service and allocates brokerage only with respect to the research component. Commissions to Brokers Who Furnish Research Services Certain brokers and dealers who provide quality brokerage and execution services also furnish research services to T. Rowe Price. With regard to the payment of brokerage commissions, T. Rowe Price has adopted a brokerage allocation policy embodying the concepts of Section 28(e) of the Securities Exchange Act of 1934, which permits an investment adviser to cause an account to pay commission rates in excess of those another broker or dealer would have charged for effecting the same transaction, if the adviser determines in good faith that the commission paid is reasonable in relation to the value of the brokerage and research services provided. The determination may be viewed in terms of either the particular transaction involved or the overall responsibilities of the adviser with respect to the accounts over which it exercises investment discretion. Accordingly, while T. Rowe Price cannot readily determine the extent to which commission rates or net prices charged by broker-dealers reflect the value of their research services, T. Rowe Price would expect to assess the reasonableness of commissions in light of the total brokerage and research services provided by each particular broker. T. Rowe Price may receive research, as defined in Section 28(e), in connection with selling concessions and designations in fixed price offerings in which the funds participate. Internal Allocation Procedures T. Rowe Price has a policy of not precommitting a specific amount of business to any broker or dealer over any specific time period. Historically, the majority of brokerage placement has been determined by the needs of a specific transaction such as market-making, availability of a buyer or seller of a particular security, or specialized execution skills. However, T. Rowe Price does have an internal brokerage allocation procedure for that portion of its discretionary client brokerage business where special needs do not exist, or where the business may be allocated among several brokers or dealers which are able to meet the needs of the transaction. Each year, T. Rowe Price assesses the contribution of the brokerage and research services provided by brokers or dealers, and attempts to allocate a portion of its brokerage business in response to these assessments. Research analysts, counselors, various investment committees, and the Trading Department each seek to evaluate the brokerage and research services they receive from brokers or dealers and make judgments as to the level of business which would recognize such services. In addition, brokers or dealers sometimes suggest a level of business they would like to receive in return for the various brokerage and research services they provide. Actual brokerage received by any firm may be less than the suggested allocations but can, and often does, exceed the suggestions, because the total business is allocated on the basis of all the considerations described above. In no case is a broker or dealer excluded from receiving business from T. Rowe Price because it has not been identified as providing research services. Miscellaneous T. Rowe Price's brokerage allocation policy is consistently applied to all its fully discretionary accounts, which represent a substantial majority of all assets under management. Research services furnished by brokers or dealers through which T. Rowe Price effects securities transactions may be used in servicing all accounts (including non-fund accounts) managed by T. Rowe Price. Conversely, research services received from brokers or dealers which execute transactions for the fund are not necessarily used by T. Rowe Price exclusively in connection with the management of the fund. From time to time, orders for clients may be placed through a computerized transaction network. The fund does not allocate business to any broker-dealer on the basis of its sales of the fund's shares. However, this does not mean that broker-dealers who purchase fund shares for their clients will not receive business from the fund. Some of T. Rowe Price's other clients have investment objectives and programs similar to those of the fund. T. Rowe Price may occasionally make recommendations to other clients which result in their purchasing or selling securities simultaneously with the fund. As a result, the demand for securities being purchased or the supply of securities being sold may increase, and this could have an adverse effect on the price of those securities. It is T. Rowe Price's policy not to favor one client over another in making recommendations or in placing orders. T. Rowe Price frequently follows the practice of grouping orders of various clients for execution which generally results in lower commission rates being attained. In certain cases, where the aggregate order is executed in a series of transactions at various prices on a given day, each participating client's proportionate share of such order reflects the average price paid or received with respect to the total order. T. Rowe Price has established a general investment policy that it will ordinarily not make additional purchases of a common stock of a company for its clients (including the T. Rowe Price Funds) if, as a result of such purchases, 10% or more of the outstanding common stock of such company would be held by its clients in the aggregate. At the present time, T. Rowe Price does not recapture commissions or underwriting discounts or selling group concessions in connection with taxable securities acquired in underwritten offerings. T. Rowe Price does, however, attempt to negotiate elimination of all or a portion of the selling-group concession or underwriting discount when purchasing tax-exempt municipal securities on behalf of its clients in underwritten offerings. Other For the fiscal years ended May 31, 1999, 1998, and 1997, the fund's engaged in portfolio transactions involving broker-dealers in the following amounts:
Fund 1999 1998 1997 ---- ---- ---- ---- Corporate Income $ 148,017,000 $ 151,154,000 $ 176,025,000 GNMA 1,928,467,000 3,404,198,000 3,521,560,000 Government Reserve Investment 125,867,962,000 46,218,342,000 -- High Yield 3,133,849,000 5,081,624,000 7,709,749,000 New Income 3,883,982,000 7,287,233,000 9,166,858,000 Personal Strategy Balanced 443,414,000 589,959,000 796,969,000 Personal Strategy Growth 177,166,000 225,909,000 354,770,000 Personal Strategy Income 263,137,000 188,714,000 350,204,000 Prime Reserve 32,055,326,000 64,296,588,000 84,827,266,000 Reserve Investment 82,675,097,000 66,138,193,000 -- Short-Term Bond 268,240,000 1,113,884,000 3,380,454,000 Short-Term U.S. Government 355,887,000 332,928,000 640,894,000 U.S. Treasury Intermediate 343,197,000 507,228,000 806,082,000 U.S. Treasury Long-Term 509,554,000 604,802,000 352,705,000 U.S. Treasury Money 4,583,442,000 5,373,760,000 6,115,390,000 - --------------------------- ----------------------------------
With respect to the GNMA, Government Reserve, Prime Reserve, Reserve Investment, Short-Term U.S. Government, U.S. Treasury Intermediate, Long-Term and Money Funds, the entire amount for each of these years represented principal transactions as to which the funds have no knowledge of the profits or losses realized by the respective broker-dealers for the fiscal years ended May 31, 1999, 1998, and 1997. With respect to the Corporate Income, High Yield, New Income, Short-Term Bond, Personal Strategy Balanced, Personal Strategy Growth, and Personal Strategy Income Funds, the following amounts consisted of principal transactions as to which the funds have no knowledge of the profits or losses realized by the respective broker-dealers for the fiscal years ended May 31, 1999, 1998, and 1997.
Fund 1999 1998 1997 ---- ---- ---- ---- Corporate Income $ 132,909,000 $ 147,537,000 $ 174,157,000 High Yield 2,667,387,000 3,854,884,000 7,056,968,000 New Income 3,624,940,000 7,223,043,000 9,061,109,000 Personal Strategy Balanced 245,489,000 441,500,000 630,132,000 Personal Strategy Growth 78,262,000 147,604,000 303,598,000 Personal Strategy Income 148,720,000 159,536,000 327,683,000 Short-Term Bond 237,228,000 1,085,314,000 3,372,793,000 - ---------------------------- --------------------------------
The following amounts involved trades with brokers acting as agents or underwriters for the fiscal years ended May 31, 1999, 1998, and 1997.
Fund 1999 1998 1997 ---- ---- ---- ---- Corporate Income $ 15,108,000 $ 3,617,000 $ 1,868,000 High Yield 466,462,000 1,226,740,000 652,781,000 New Income 259,042,000 64,189,000 105,749,000 Personal Strategy Balanced 197,925,000 148,459,000 472,000 Personal Strategy Growth 98,904,000 78,305,000 73,000 Personal Strategy Income 114,417,000 29,178,000 81,000 Short-Term Bond 31,012,000 28,570,000 7,661,000 - ---------------------------- -------------------------------
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 May 31, 1999, 1998, and 1997.
Fund 1999 1998 1997 ---- ---- ---- ---- Corporate Income $ 53,000 $ 79,000 $ 90,000 High Yield 11,755,000 30,944,000 17,280,000 New Income 1,041,000 133,000 74,000 Personal Strategy Balanced 281,000 174,000 75,000 Personal Strategy Growth 82,000 46,000 17,000 Personal Strategy Income 134,000 47,000 18,000 Short-Term Bond 105,000 123,000 23,000 - ---------------------------- --------------------------------
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 years ended May 31, 1999, 1998, and 1997, are shown below:
Fund 1999 1998 1997 ---- ---- ---- ---- Corporate Income 96% 92% 82% GNMA 86 98 98 Government Reserve Investment 78 97 N/A High Yield 95 88 83 New Income 94 95 87 Personal Strategy Balanced 20 21 14 Personal Strategy Growth 29 32 37 Personal Strategy Income 16 39 11 Prime Reserve 78 87 79 Reserve Investment 65 77 N/A Short-Term Bond 93 85 81 Short-Term U.S. Government 100 95 85 U.S. Treasury Intermediate 100 96 99 U.S. Treasury Long-Term 99 100 100 U.S. Treasury Money 61 57 71 - ------------------------------- --------------------------------
The portfolio turnover rates for the following funds for the fiscal years ended May 31, 1999, 1998, and 1997, are as follows:
Fund 1999 1998 1997 ---- ---- ---- ---- Corporate Income 140.8% 146.0% 119.5% GNMA 86.7 120.6 115.9 High Yield 95.6 129.6 111.3 New Income 94.3 147.3 87.1 Personal Strategy Balanced 34.3 41.5 54.0 Personal Strategy Growth 36.1 33.3 39.6 Personal Strategy Income 48.9 30.9 44.8 Short-Term Bond 51.6 73.0 103.9 Short-Term U.S. Government 145.3 107.5 82.9 U.S. Treasury Intermediate 61.2 112.8 57.9 U.S. Treasury Long-Term 74.1 80.8 67.6 - ---------------------------- --------------------------------
Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds The fund, in pursuing its objectives, may engage in short-term trading to take advantage of market variations. The fund will seek to protect principal, improve liquidity of its securities, or enhance yield by purchasing and selling securities based upon existing or anticipated market discrepancies. PRICING OF SECURITIES ------------------------------------------------------------------------------- Corporate Income, GNMA, High Yield, New Income, Personal Strategy, Short-Term Bond, Short-Term U.S. Government, U.S. Treasury Intermediate, and Long-Term Funds Debt securities are generally traded in the over-the-counter market. Investments in domestic securities with remaining maturities of one year or more and foreign securities are stated at fair value using a bid-side valuation as furnished by dealers who make markets in such securities or by an independent pricing service, which considers yield or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Domestic securities with remaining maturities less than one year are stated at fair value which is determined by using a matrix system that establishes a value for each security based on bid-side money market yields. The Personal Strategy Funds value short-term debt securities at their cost in local currency which, when combined with accrued interest, approximates fair value. There are a number of pricing services available, and the Board of Directors/Trustees, on the basis of an ongoing evaluation of these services, may use or may discontinue the use of any pricing service in whole or part. Corporate Income, High Yield, New Income, and Personal Strategy Funds 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/Trustees, or by persons delegated by the Board, best to reflect fair value. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds Securities are valued at amortized cost. Corporate Income, High Yield, New Income, Personal Strategy, and Short-Term Bond Funds 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. All Funds 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/Trustees. Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds Maintenance of Money Fund's Net Asset Value Per Share at $1.00 It is the policy of the fund to attempt to maintain a net asset value of $1.00 per share by using the amortized cost method of valuation permitted by Rule 2a-7 under the 1940 Act. Under this method, securities are valued by reference to the fund's acquisition cost as adjusted for amortization of premium or accumulation of discount rather than by reference to their market value. Under Rule 2a-7: (a) The Board of Directors must establish written procedures reasonably designed, taking into account current market conditions and the fund's investment objectives, to stabilize the fund's net asset value per share, as computed for the purpose of distribution, redemption and repurchase, at a single value; (b) The fund must (i) maintain a dollar-weighted average portfolio maturity appropriate to its objective of maintaining a stable price per share, (ii) not purchase any instrument with a remaining maturity greater than 397 days, and (iii) maintain a dollar-weighted average portfolio maturity of 90 days or less; (c) The fund must limit its purchase of portfolio instruments, including repurchase agreements, to those U.S. dollar-denominated instruments which the fund's Board of Directors determines present minimal credit risks, and which are eligible securities as defined by Rule 2a-7; and (d) The Board of Directors must determine that (i) it is in the best interest of the fund and its shareholders to maintain a stable net asset value per share under the amortized cost method; and (ii) the fund will continue to use the amortized cost method only so long as the Board of Directors believes that it fairly reflects the market based net asset value per share. Although the fund believes that it will be able to maintain its net asset value at $1.00 per share under most conditions, there can be no absolute assurance that it will be able to do so on a continuous basis. If the fund's net asset value per share declined, or was expected to decline, below $1.00 (rounded to the nearest one cent), the Board of Directors of the fund might temporarily reduce or suspend dividend payments in an effort to maintain the net asset value at $1.00 per share. As a result of such reduction or suspension of dividends, an investor would receive less income during a given period than if such a reduction or suspension had not taken place. Such action could result in an investor receiving no dividend for the period during which he holds his shares and in his receiving, upon redemption, a price per share lower than that which he paid. On the other hand, if the fund's net asset value per share were to increase, or were anticipated to increase above $1.00 (rounded to the nearest one cent), the Board of Directors of the fund might supplement dividends in an effort to maintain the net asset value at $1.00 per share. Prime Reserve and Reserve Investment Funds Prime Money Market Securities Defined Prime money market securities are those which are described as First Tier Securities under Rule 2a-7 of the 1940 Act. These include any security with a remaining maturity of 397 days or less that is rated (or that has been issued by an issuer that is rated with respect to a class of short-term debt obligations, or any security within that class that is comparable in priority and security with the security) by any two nationally recognized statistical rating organizations (NRSROs) (or if only one NRSRO has issued a rating, that NRSRO) in the highest rating category for short-term debt obligations (within which there may be sub-categories). First Tier Securities also include unrated securities comparable in quality to rated securities, as determined by T. Rowe Price under the supervision of the fund's Board of Director. All Funds NET ASSET VALUE PER SHARE ------------------------------------------------------------------------------- The purchase and redemption price of the fund's shares is equal to the fund's net asset value per share or share price. The fund determines its net asset value per share by subtracting its liabilities (including accrued expenses and dividends payable) from its total assets (the market value of the securities the fund holds plus cash and other assets, including income accrued but not yet received) and dividing the result by the total number of shares outstanding. The net asset value per share of the fund is normally calculated as of the close of trading on the New York Stock Exchange ("NYSE") every day the NYSE is open for trading. The NYSE is closed on the following days: New Year's Day, Dr. Martin Luther King, Jr. Holiday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Determination of net asset value (and the offering, sale redemption and repurchase of shares) for the fund may be suspended at times (a) during which the NYSE is closed, other than customary weekend and holiday closings, (b) during which trading on the NYSE is restricted, (c) during which an emergency exists as a result of which disposal by the fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for the fund fairly to determine the value of its net assets, or (d) during which a governmental body having jurisdiction over the fund may by order permit such a suspension for the protection of the fund's shareholders; provided that applicable rules and regulations of the SEC (or any succeeding governmental authority) shall govern as to whether the conditions prescribed in (b), (c), or (d) exist. DIVIDENDS AND DISTRIBUTIONS ------------------------------------------------------------------------------- Unless you elect otherwise, the fund's annual capital gain distribution, if any, will be reinvested on the reinvestment date using the NAV per share of that date. The reinvestment date normally precedes the payment date by one day, although the exact timing is subject to change and can be as great as 10 days. TAX STATUS ------------------------------------------------------------------------------- The fund intends to qualify as a "regulated investment company" under Subchapter M of the Code. A portion of the dividends paid by certain the Growth and Income Funds may be eligible for the dividends-received deduction applicable to corporate shareholders. The dividends of the Spectrum International Fund will not be eligible for this deduction, if, as expected, none of the fund's income consists of dividends paid by U.S. corporations. Long-term capital gain distributions paid from these funds are never eligible for the dividends-received deduction. For tax purposes, it does not make any difference whether dividends and capital gain distributions are paid in cash or in additional shares. Each fund must declare dividends by December 31 of each year equal to at least 98% of ordinary income (as of December 31) and capital gains (as of October 31) in order to avoid a federal excise tax and distribute within 12 months 100% of ordinary income and capital gains as of December 31 to avoid a federal income tax. At the time of your purchase, the fund's net asset value may reflect undistributed capital gains or net unrealized appreciation of securities held by the fund. A subsequent distribution to you of such amounts, although constituting a return of your investment, would be taxable as a capital gain distribution. For federal income tax purposes, the fund is permitted to carry forward its net realized capital losses, if any, for eight years and realize net capital gains up to the amount of such losses without being required to pay taxes on, or distribute, such gains. If, in any taxable year, the fund should not qualify as a regulated investment company under the code: (i) the fund would be taxed at normal corporate rates on the entire amount of its taxable income, if any, without deduction for dividends or other distributions to shareholders; and (ii) the fund's distributions to the extent made out of the fund's current or accumulated earnings and profits would be taxable to shareholders as ordinary dividends (regardless of whether they would otherwise have been considered capital gain dividends). Taxation of Foreign Shareholders The Code provides that dividends from net income will be subject to U.S. tax. For shareholders who are not engaged in a business in the U.S., this tax would be imposed at the rate of 30% upon the gross amount of the dividends in the absence of a Tax Treaty providing for a reduced rate or exemption from U.S. taxation. Distributions of net long-term capital gains realized by the fund are not subject to tax unless the foreign shareholder is a nonresident alien individual who was physically present in the U.S. during the tax year for more than 182 days. To the extent the fund invests in foreign securities, the following would apply: Passive Foreign Investment Companies The fund may purchase the securities of certain foreign investment funds or trusts called passive foreign investment companies. Such trusts have been the only or primary way to invest in certain countries. 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 and received cash to pay such distributions. Foreign Currency Gains and Losses Foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to foreign exchange rate fluctuations, are taxable as ordinary income. If the net effect of these transactions is a gain, the ordinary income dividend paid by the fund will be increased. If the result is a loss, the income dividend paid by the fund will be decreased, or to the extent such dividend has already been paid, it may be classified as a return of capital. Adjustments to reflect these gains and losses will be made at the end of the fund's taxable year. YIELD INFORMATION ------------------------------------------------------------------------------- GNMA and Short-Term U.S. Government Funds In conformity with regulations of the SEC, an income factor is calculated for each security in the portfolio based upon the security's coupon rate. The income factors are then adjusted for any gains or losses which have resulted from prepayments of principal during the period. The income factors are then totalled for all securities in the portfolio. Next, expenses of the fund for the period, net of expected reimbursements, are deducted from the income to arrive at net income, which is then converted to a per-share amount by dividing net income by the average number of shares outstanding during the period. The net income per share is divided by the net asset value on the last day of the period to produce a monthly yield which is then annualized. Quoted yield factors are for comparison purposes only, and are not intended to indicate future performance or forecast the dividend per share of the fund. The yields of the GNMA and Short-Term U.S. Government Funds calculated under the above-described method for the month ended May 31, 1999, were 6.08% and 4.69%, respectively. Corporate Income, High Yield, New Income, Short-Term Bond, U.S. Treasury Intermediate, and Long-Term Funds An income factor is calculated for each security in the portfolio based upon the security's market value at the beginning of the period and yield as determined in conformity with regulations of the SEC. The income factors are then totaled for all securities in the portfolio. Next, expenses of the fund for the period, net of expected reimbursements, are deducted from the income to arrive at net income, which is then converted to a per share amount by dividing net income by the average number of shares outstanding during the period. The net income per share is divided by the net asset value on the last day of the period to produce a monthly yield which is then annualized. If applicable, a taxable-equivalent yield is calculated by dividing this yield by one minus the effective federal, state, and/or city or local income tax rates. Quoted yield factors are for comparison purposes only, and are not intended to indicate future performance or forecast the dividend per share of the fund. The yields of the Corporate Income, High Yield, New Income, Short-Term Bond, Intermediate, and Long-Term Treasury Funds calculated under the above-described method for the month ended May 31, 1999, were 7.40%, 9.39%, 6.06%, 5.54%, 5.10%, and 5.48%, respectively. Government Reserve Investment, Prime Reserve, Reserve Investment, and U.S. Treasury Money Funds The fund's current and historical yield for a period is calculated by dividing the net change in value of an account (including all dividends accrued and dividends reinvested in additional shares) by the account value at the beginning of the period to obtain the base period return. This base period return is divided by the number of days in the period, then multiplied by 365 to arrive at the annualized yield for that period. The fund's annualized compound yield for such period is compounded by dividing the base period return by the number of days in the period, and compounding that figure over 365 days. The seven-day yields ending May 31, 1999, for the Prime Reserve, and U.S. Treasury Money Funds were 4.26% and 4.05%, respectively, and the funds' compound yield for the same period were 4.35% and 4.13%, respectively. All Funds INVESTMENT PERFORMANCE ------------------------------------------------------------------------------- Total Return Performance The fund's calculation of total return performance includes the reinvestment of all capital gain distributions and income dividends for the period or periods indicated, without regard to tax consequences to a shareholder in the fund. Total return is calculated as the percentage change between the beginning value of a static account in the fund and the ending value of that account measured by the then current net asset value, including all shares acquired through reinvestment of income and capital 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. 5 Yrs. 10 Yrs. % Since Inception Fund Ended Ended Ended Inception Date ---- 5/31/99 5/31/99 5/31/99 5/31/99 ---- ------- ------- ------- ------- Corporate Income -1.21% -- -- 24.35% 10/31/95 GNMA 3.88 44.08% 115.75% 174.85 11/26/85 High Yield 2.73 55.93 128.77 303.12 12/31/84 New Income 1.02 38.95 108.83 729.66 08/31/73 Personal Strategy Balanced 8.37 -- -- 104.17 07/29/94 Personal Strategy Growth 10.01 -- -- 128.60 07/29/94 Personal Strategy Income 6.43 -- -- 82.64 07/29/94 Prime Reserve 4.82 27.61 63.65 431.48 01/26/76 Prime Reserve Fund-PLUS Class -- -- -- 2.50 11/01/98 Short-Term Bond 4.23 28.03 80.15 180.43 03/02/84 Short-Term U.S. Government 4.39 31.84 -- 42.70 09/30/91 U.S. Treasury Intermediate 4.28 37.66 -- 99.08 09/29/89 U.S. Treasury Long-Term 3.06 53.60 -- 123.39 09/29/89 U.S. Treasury Money 4.46 26.13 60.03 161.60 06/28/82 - ------------------------------- -----------
Average Annual Compound Rates of Return 1 Yr. 5 Yrs. 10 Yrs. % Since Inception Fund Ended Ended Ended Inception Date ---- 5/31/99 5/31/99 5/31/99 5/31/99 ---- ------- ------- ------- ------- Corporate Income -1.21% -- -- 6.27% 10/31/95 GNMA 3.88 7.58% 7.99% 7.77 11/26/85 High Yield 2.73 9.29 8.63 10.16 12/31/84 New Income 1.02 6.80 7.64 8.56 08/31/73 Personal Strategy Balanced 8.37 -- -- 15.90 07/29/94 Personal Strategy Growth 10.01 -- -- 18.63 07/29/94 Personal Strategy Income 6.43 -- -- 13.30 07/29/94 Prime Reserve 4.82 5.00 5.05 7.42 01/26/76 Short-Term Bond 4.23 5.07 6.06 7.00 03/02/84 Short-Term U.S. Government 4.39 5.68 -- 4.75 09/30/91 U.S. Treasury Intermediate 4.28 6.60 -- 7.38 09/29/89 U.S. Treasury Long-Term 3.06 8.96 -- 8.67 09/29/89 U.S. Treasury Money 4.46 4.75 4.81 5.85 06/28/82 - ---------------------------- -----------
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: (a) a broad-based index; (b) other groups of mutual funds, including T. Rowe Price Funds, tracked by independent research firms ranking entities, or financial publications; (c) 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 and/or Investment Services may be made available. 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. All Funds except GNMA Fund CAPITAL STOCK ------------------------------------------------------------------------------- The fund's Charter authorizes the Board of Directors to classify and reclassify any and all shares which are then unissued, including unissued shares of capital stock into any number of classes or series, each class or series consisting of such number of shares and having such designations, such powers, preferences, rights, qualifications, limitations, and restrictions, as shall be determined by the Board subject to the Investment Company Act and other applicable law. The shares of any such additional classes or series might therefore differ from the shares of the present class and series of capital stock and from each other as to preferences, conversions or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption, subject to applicable law, and might thus be superior or inferior to the capital stock or to other classes or series in various characteristics. The Board of Directors may increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the fund has authorized to issue without shareholder approval. Except to the extent that the fund's Board of Directors might provide by resolution that holders of shares of a particular class are entitled to vote as a class on specified matters presented for a vote of the holders of all shares entitled to vote on such matters, there would be no right of class vote unless and to the extent that such a right might be construed to exist under Maryland law. The Charter contains no provision entitling the holders of the present class of capital stock to a vote as a class on any matter. Accordingly, the preferences, rights, and other characteristics attaching to any class of shares, including the present class of capital stock, might be altered or eliminated, or the class might be combined with another class or classes, by action approved by the vote of the holders of a majority of all the shares of all classes entitled to be voted on the proposal, without any additional right to vote as a class by the holders of the capital stock or of another affected class or classes. Shareholders are entitled to one vote for each full share held (and fractional votes for fractional shares held) and will vote in the election of or removal of directors (to the extent hereinafter provided) and on other matters submitted to the vote of shareholders. There will normally be no meetings of shareholders for the purpose of electing directors unless and until such time as less than a majority of the directors holding office have been elected by shareholders, at which time the directors then in office will call a shareholders' meeting for the election of directors. Except as set forth above, the directors shall continue to hold office and may appoint successor directors. Voting rights are not cumulative, so that the holders of more than 50% of the shares voting in the election of directors can, if they choose to do so, elect all the directors of the fund, in which event the holders of the remaining shares will be unable to elect any person as a director. As set forth in the By-Laws of the fund, a special meeting of shareholders of the fund shall be called by the Secretary of the fund on the written request of shareholders entitled to cast at least 10% of all the votes of the fund entitled to be cast at such meeting. Shareholders requesting such a meeting must pay to the fund the reasonably estimated costs of preparing and mailing the notice of the meeting. The fund, however, will otherwise assist the shareholders seeking to hold the special meeting in communicating to the other shareholders of the fund to the extent required by Section 16(c) of the 1940 Act. GNMA Fund Description of the Fund For tax and business reasons, the fund was organized in 1985 as a Massachusetts Business Trust, and is registered with the SEC under the 1940 Act as diversified, open-end investment companies, commonly known as "mutual fund." The Declaration of Trust permits the Board of Trustees to issue an unlimited number of full and fractional shares of a single class. The Declaration of Trust also provides that the Board of Trustees may issue additional series or classes of shares. Each share represents an equal proportionate beneficial interest in the fund. In the event of the liquidation of the fund, each share is entitled to a pro-rata share of the net assets of the fund. 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 trustees (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 trustees unless and until such time as less than a majority of the trustees holding office have been elected by shareholders, at which time the trustees then in office will call a shareholders' meeting for the election of trustees. Pursuant to Section 16(c) of the 1940 Act, holders of record of not less than two-thirds of the outstanding shares of the fund may remove a trustee by a vote cast in person or by proxy at a meeting called for that purpose. Except as set forth above, the trustees shall continue to hold office and may appoint successor trustees. Voting rights are not cumulative, so that the holders of more than 50% of the shares voting in the election of trustees can, if they choose to do so, elect all the trustees of the Trust, in which event the holders of the remaining shares will be unable to elect any person as a trustee. No amendments may be made to the Declaration of Trust without the affirmative vote of a majority of the outstanding shares of the Trust. Shares have no preemptive or conversion rights; the right of redemption and the privilege of exchange are described in the prospectus. Shares are fully paid and nonassessable, except as set forth below. The Trust may be terminated (i) upon the sale of its assets to another diversified, open-end management investment company, if approved by the vote of the holders of two-thirds of the outstanding shares of the Trust, or (ii) upon liquidation and distribution of the assets of the Trust, if approved by the vote of the holders of a majority of the outstanding shares of the Trust. If not so terminated, the Trust will continue indefinitely. Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the fund. However, the Declaration of Trust disclaims shareholder liability for acts or obligations of the fund and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the fund or a Trustee. The Declaration of Trust provides for indemnification from fund property for all losses and expenses of any shareholder held personally liable for the obligations of the fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the fund itself would be unable to meet its obligations, a possibility which T. Rowe Price believes is remote. Upon payment of any liability incurred by the fund, the shareholders of the fund paying such liability will be entitled to reimbursement from the general assets of the fund. The Trustees intend to conduct the operations of the fund is such a way so as to avoid, as far as possible, ultimate liability of the shareholders for liabilities of such fund. FEDERAL REGISTRATION OF SHARES ------------------------------------------------------------------------------- The fund's shares (except for Government Reserve and Reserve Investment Funds) are registered for sale under the 1933 Act. Registration of the fund's shares is not required under any state law, but the fund is required to make certain filings with and pay fees to the states in order to sell its shares in the states. LEGAL COUNSEL ------------------------------------------------------------------------------- Swidler Berlin Shereff Friedman, LLP, whose address is 919 Third Avenue, New York, New York 10022-9998, is legal counsel to the fund. INDEPENDENT ACCOUNTANTS ------------------------------------------------------------------------------- PricewaterhouseCoopers LLP, 250 West Pratt Street, 21st Floor, Baltimore, Maryland 21201, are the independent accountants to the funds. The financial statements of the funds for the year ended May 31, 1999, and the report of independent accountants are included in each fund's Annual Report for the year ended May 31, 1999. A copy of each Annual Report accompanies this Statement of Additional Information. The following financial statements and the report of independent accountants appearing in each Annual Report for the year ended May 31, 1999, are incorporated into this Statement of Additional Information by reference:
ANNUAL REPORT REFERENCES: CORPORATE GNMA PRIME INCOME FUND FUND RESERVE ----------- ---- FUND ---- Financial Highlights 8 7 8 Statement of Net Assets, May 31, 1999 9-14 8-10 9-18 Statement of Operations, year ended May 31, 1999 15 11 19 Statement of Changes in Net Assets, years ended May 31, 1999 and May 31, 1998 16 12 20 Notes to Financial Statements, May 31, 1999 17-20 13-16 21-22 Report of Independent Accountants 21 17 23
PERSONAL PERSONAL PERSONAL STRATEGY STRATEGY STRATEGY BALANCED FUND GROWTH FUND INCOME FUND ------------- ----------- ----------- Financial Highlights 2 2 2 Portfolio of Investments, May 31, 3-2 1999 7 3-26 3-26 Statement of Assets and 2 Liabilities, May 31, 1999 8 27 27 Statement of Operations, year ended 2 May 31, 1999 9 28 28 Statement of Changes in Net Assets, years ended May 31, 1999 and May 31, 1998 30 29 29 Notes to Financial Statements, May 31, 1999 31-34 30-33 30-34 Report of Independent Accountants 35 34 35
HIGH YIELD SHORT-TERM SHORT-TERM U.S. FUND BOND FUND GOVERNMENT FUND ---- --------- --------------- Financial Highlights 9 8 9 Statement of Net Assets, May 31, 1999 10-22 9-13 10-13 Statement of Operations, year ended May 31, 1999 23 14 14 Statement of Changes in Net Assets, years ended May 31, 1999 and May 31, 1998 24 15 15 Notes to Financial Statements, May 31, 1999 25-28 16-19 16-19 Report of Independent Accountants 29 20 20
U.S. TREASURY U.S. TREASURY U.S. TREASURY INTERMEDIATE LONG-TERM MONEY FUND FUND FUND ---- ---- ---- Financial Highlights 12 13 11 Statement of Net Assets, May 31, 1999 16-18 19-20 14-15 Statement of Operations, year ended May 31, 1999 21 21 21 Statement of Changes in Net Assets, years ended May 31, 1999 and May 31, 1998 23 24 22 Notes to Financial Statements, May 31, 1999 25-28 25-28 25-28 Report of Independent Accountants 29 29 29
RESERVE GOVERNMENT INVESTMENT FUND RESERVE --------------- INVESTMENT FUND --------------- Financial Highlights 1 2 Statement of Net Assets, May 31, 1999 3-5 6 Statement of Operations, period from August 25, 1997 (commencement of operations) to May 31, 1999 7 7 Statement of Changes in Net Assets, period from August 25, 1997 (commencement of operations) to May 31, 1999 8 9 Notes to Financial Statements, May 31, 1999 10-12 10-12 Report of Independent Accountants 13 13
NEW INCOME FUND ---- Financial Highlights 10 Portfolio of Investments, May 31, 1999 11-17 Statement of Assets and Liabilities, May 31, 1999 18 Statement of Operations, year ended May 31, 1999 19 Statement of Changes in Net Assets, years ended May 31, 1999 and May 31, 1998 20 Notes to Financial Statements, May 31, 1999 21-24 Report of Independent Accountants 25
RATINGS OF COMMERCIAL PAPER ------------------------------------------------------------------------------- Moody's Investors Service, Inc. The rating of Prime-1 is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning rating are the following: valuation of the management of the issuer; economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; evaluation of the issuer's products in relation to competition and customer acceptance; liquidity; amount and quality of long-term debt; trend of earnings over a period of 10 years; financial strength of the parent company and the relationships which exist with the issuer; and recognition by the management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. These factors are all considered in determining whether the commercial paper is rated P1, P2, or P3. Standard & Poor's Corporation Commercial paper rated A (highest quality) by S&P has the following characteristics: liquidity ratios are adequate to meet cash requirements; long-term senior debt is rated "A" or better, although in some cases "BBB" credits may be allowed. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend with allowance made for unusual circumstances. Typically, the issuer's industry is well established and the issuer has a strong position within the industry. The reliability and quality of management are unquestioned. The relative strength or weakness of the above factors determines whether the issuer's commercial paper is rated A1, A2, or A3. Fitch IBCA, Inc. Fitch 1-Highest grade Commercial paper assigned this rating is regarded as having the strongest degree of assurance for timely payment. Fitch 2-Very good grade Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than the strongest issues. Government Reserve Investment, Prime Reserve, and Reserve Investment Funds RATINGS OF CORPORATE DEBT SECURITIES ------------------------------------------------------------------------------- Moody's Investors Service, Inc. Aaa-Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Aa-Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally know as high-grade bonds. A-Bonds rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Baa-Bonds rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba-Bonds rated Ba are judged to have speculative elements: their futures cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterize bonds in this class. B-Bonds rated B generally lack the characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa-Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca-Bonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked short-comings. C-Bonds rated C represent the lowest-rated, and have extremely poor prospects of attaining investment standing. Standard & Poor's Corporation AAA-This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay principal and interest. AA-Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong. A-Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. BBB-Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in the A category. BB, B, CCC, CC, C-Bonds rated BB, B, CCC, and CC are regarded on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. D-In default. Fitch IBCA, Inc. AAA-High grade, broadly marketable, suitable for investment by trustees and fiduciary institutions, and liable to but slight market fluctuation other than through changes in the money rate. The prime feature of a "AAA" bond is the showing of earnings several times or many times interest requirements for such stability of applicable interest that safety is beyond reasonable question whenever changes occur in conditions. Other features may enter, such as wide margin of protection through collateral, security or direct lien on specific property. Sinking funds or voluntary reduction of debt by call or purchase or often factors, while guarantee or assumption by parties other than the original debtor may influence their rating. AA-Of safety virtually beyond question and readily salable. Their merits are not greatly unlike those of "AAA" class but a bond so rated may be junior though of strong lien, or the margin of safety is less strikingly broad. The issue may be the obligation of a small company, strongly secured, but influenced as to rating by the lesser financial power of the enterprise and more local type of market. A-Bonds rated A are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB-Bonds rated BBB are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions ad circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. BB, B, CCC, CC, and C are regarded on balance as predominantly speculative with respect to the issuer's capacity to repay interest and repay principal in accordance with the terms of the obligation for bond issues not in default. BB indicates the lowest degree of speculation and C the highest degree of speculation. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, and the current and prospective financial condition and operating performance of the issuer. PART C OTHER INFORMATION ITEM 23. EXHIBITS (1)(a) Articles of Incorporation of Registrant, dated July 1, 1983 (electronically filed with Amendment No. 19 dated April 25, 1994 (1)(b) Articles of Amendment, dated April 28, 1976, May 1, 1981, July 1, 1983 (electronically filed with Amendment No. 19 dated April 25, 1994) (1)(c) Articles Supplementary, dated November 7, 1991 (electronically filed with Amendment No. 19 dated April 25, 1994) (1)(d) Articles of Amendment, dated October 16, 1998 (2) By-Laws of Registrant (3) Article SEVENTH, Section I--Issue of the Corporation's Shares and Section II--Redemption and Repurchase of the Corporation's Shares, in their entirety, from the Registrant's Articles of Incorporation, is hereby incorporated by referenced from Amendment No. 19 electronically filed and dated April 25, 1994 and Article II, Stockholders, in its entirety, and Article VIII, Capital Stock, in its entirety, from the Registrant's By-Laws, are also hereby incorporated by reference from Amendment No. 19 electronically filed and dated April 25, 1994. (4) Investment Management Agreement between Registrant and T. Rowe Price Associates, Inc., dated July 1, 1987 (electronically filed with Amendment No. 19 dated April 25, 1994) (5) Underwriting Agreement between Registrant and T. Rowe Price Marketing, Inc., dated September 25, 1985 (electronically filed with Amendment No. 19 dated April 25, 1994) (6) Inapplicable (7) Custody Agreements (7)(a) Custodian Agreement between T. Rowe Price Funds and State Street Bank and Trust Company, dated January 28, 1998, as amended November 4, 1998 and April 21, 1999 (7)(b) Global Custody Agreement between The Chase Manhattan Bank, N.A., and T. Rowe Price Funds, dated January 3, 1994, as amended April 18, 1994, August 15, 1994, November 28, 1994, May 31, 1995, November 1, 1995, July 31, 1996, July 23, 1997, September 3, 1997, October 29, 1997, and December 15, 1998 (8) Other Agreements (8)(a) Transfer Agency and Service Agreement between T. Rowe Price Services, Inc. and T. Rowe Price Funds, dated January 1, 1999, as amended April 21, 1999 (8)(b) Agreement between T. Rowe Price Associates, Inc. and T. Rowe Price Funds for Fund Accounting Services, dated January 1, 1999, as amended April 21, 1999 (8)(c) Agreement between T. Rowe Price Retirement Plan Services, Inc. and the Taxable Funds, dated January 1, 1999 (9) Opinion of Counsel (10) Consent of Independent Accountants (11) Inapplicable (12) Inapplicable (13) Inapplicable (14) Financial Data Schedule (15) Inapplicable (16) Other Exhibits (a) Power of Attorney ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT None ITEM 25. INDEMNIFICATION The Registrant maintains comprehensive Errors and Omissions and Officers and Directors insurance policies written by the Evanston Insurance Company and ICI Mutual. These policies provide coverage for T. Rowe Price Associates, Inc. ("Manager"), and its subsidiaries and affiliates as listed in Item 26 of this Registration Statement (with the exception of the T. Rowe Price Associates Foundation, Inc.), and fifty other investment companies, all of which are mutual funds in the T. Rowe Price family of funds. In addition to the corporate insureds, the policies also cover the officers, directors, and employees of the Manager, its subsidiaries, and affiliates. The premium is allocated among the named corporate insureds in accordance with the provisions of Rule 17d-1(d)(7) under the Investment Company Act of 1940. GENERAL. The Charter of the Corporation provides that to the fullest extent permitted by Maryland or federal law, no director or officer of the Corporation shall be personally liable to the Corporation or the holders of Shares for money damages and each director and officer shall be indemnified by the Corporation; PROVIDED, HOWEVER, that nothing therein shall be deemed to protect any director or officer of the Corporation against any liability to the Corporation of the holders of Shares to which such director or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. Article X, Section 10.01 of the 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER Rowe Price-Fleming International, Inc. ("PRICE-FLEMING"), a Maryland corporation, is a corporate joint venture 50% owned by TRP Finance, Inc., a wholly owned subsidiary of the Manager. Price-Fleming was incorporated in Maryland in 1979 to provide investment counsel service with respect to foreign securities for institutional investors in the United States. In addition to managing private counsel client accounts, Price-Fleming also sponsors registered investment companies which invest in foreign securities, serves as general partner of RPFI International Partners, Limited Partnership, and provides investment advice to the T. Rowe Price Trust Company, trustee of the International Common Trust Fund. T. Rowe Price Investment Services, Inc. ("INVESTMENT SERVICES"), a wholly owned subsidiary of the Manager, was incorporated in Maryland in 1980 for the purpose of acting as the principal underwriter and distributor for the Investment Companies which Manager sponsors and serves as investment adviser (the "PRICE FUNDS"). Investment Services is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. In 1984, Investment Services expanded its activities to include a brokerage service. TRP Distribution, Inc., a wholly owned subsidiary of Investment Services, was incorporated in Maryland in 1991. It was organized for, and engages in, the sale of certain investment related products prepared by Investment Services and T. Rowe Price Retirement Plan Services. T. Rowe Price Associates Foundation, Inc. (the "FOUNDATION"), was incorporated in 1981 (and is not a subsidiary of the Manager). The Foundation's overall objective emphasizes various community needs by giving to a broad range of educational, civic, cultural, and health-related institutions. The Foundation has a very generous matching gift program whereby employee gifts designated to qualifying institutions are matched according to established guidelines. T. Rowe Price Services, Inc. ("PRICE SERVICES"), a wholly owned subsidiary of the Manager, was incorporated in Maryland in 1982 and is registered as a transfer agent under the Securities Exchange Act of 1934. Price Services provides transfer agent, dividend disbursing, and certain other services, including shareholder services, to the Price Funds. T. Rowe Price Retirement Plan Services, Inc. ("RPS"), a wholly owned subsidiary of the Manager, was incorporated in Maryland in 1991 and is registered as a transfer agent under the Securities Exchange Act of 1934. RPS provides administrative, recordkeeping, and subaccounting services to administrators of employee benefit plans. T. Rowe Price Trust Company ("TRUST COMPANY"), a wholly owned subsidiary of the Manager, is a Maryland-chartered limited-service trust company, organized in 1983 for the purpose of providing fiduciary services. The Trust Company serves as trustee and/or custodian for certain qualified employee benefit plans, individual retirement accounts, and common trust funds and as trustee/investment agent for one trust and other retirement plans. T. Rowe Price Investment Technologies, Inc. was incorporated in Maryland in 1996. A wholly owned subsidiary of the Manager, it owns the technology rights, hardware, and software of the Manager and affiliated companies and provides technology services to them. TRPH Corporation, a wholly owned subsidiary of the Manager, was organized in 1997 to acquire an interest in a UK-based corporate finance advisory firm. T. Rowe Price Threshold Fund Associates, Inc., a wholly owned subsidiary of the Manager, was incorporated in Maryland in 1994 and serves as the general partner of T. Rowe Price Threshold Fund III, L.P., a Delaware limited partnership. T. Rowe Price Threshold Fund III, L.P., a Delaware limited partnership, was organized in 1994 by the Manager and invests in private financings of small companies with high growth potential; the Manager is the General Partner of the partnership. RPFI International Partners, L.P., is a Delaware limited partnership organized in 1985 for the purpose of investing in a diversified group of small and medium-sized non-U.S. companies. Price-Fleming is the general partner of this partnership, and certain institutional investors, including advisory clients of Price-Fleming, are its limited partners. T. Rowe Price Stable Asset Management, Inc. ("STABLE ASSET MANAGEMENT"), was incorporated in Maryland in 1988 as a wholly owned subsidiary of the Manager. Stable Asset Management is registered as an investment adviser under the Investment Advisers Act of 1940, and specializes in the management of investment portfolios which seek stable and consistent investment returns through the use of guaranteed investment contracts, bank investment contracts, structured investment contracts issued by insurance companies and banks, as well as short-term fixed income securities. T. Rowe Price Recovery Fund Associates, Inc., a Maryland corporation, is a wholly owned subsidiary of the Manager organized in 1988 for the purpose of serving as General Partner of T. Rowe Price Recovery Fund, L.P., a Delaware limited partnership which invests in financially distressed companies. T. Rowe Price Recovery Fund II Associates, L.L.C., is a Maryland limited liability company organized in 1996. Wholly owned by the Manager and the Trust Company, it serves as General Partner of T. Rowe Price Recovery Fund II, L.P., a Delaware limited partnership which also invests in financially distressed companies. T. Rowe Price (Canada), Inc. ("TRP CANADA") is a Maryland corporation organized in 1988 as a wholly owned subsidiary of the Manager. This entity is registered as an investment adviser under the Investment Advisers Act of 1940 as well as with the Ontario Securities Commission to provide advisory services to individual and institutional clients residing in Canada. T. Rowe Price Insurance Agency, Inc., is a wholly owned subsidiary of the Manager, organized in Maryland in 1994 and licensed to do business in several states to act primarily as a distributor of proprietary variable annuity products. Since 1983, the Manager has organized several distinct Maryland limited partnerships, which are informally called the Pratt Street Ventures partnerships, for the purpose of acquiring interests in growth-oriented businesses. TRP Suburban, Inc., is a Maryland corporation organized in 1990 as a wholly owned subsidiary of the Manager. It entered into agreements with McDonogh School and CMANE-McDonogh-Rowe Limited Partnership to construct an office building in Owings Mills, Maryland, which currently houses the Manager's transfer agent, plan administrative services, retirement plan services, and operations support functions. TRP Suburban Second, Inc., a wholly owned Maryland subsidiary of T. Rowe Price Associates, Inc., was incorporated in 1995 to primarily engage in the development and ownership of real property located in Owings Mills, Maryland. TRP Finance, Inc., a wholly owned subsidiary of the Manager, is a Delaware corporation organized in 1990 to manage certain passive corporate investments and other intangible assets. T. Rowe Price Strategic Partners Fund II, L.P. ("STRATEGIC PARTNERS FUNDS") is a Delaware limited partnerships organized in 1992, for the purpose of investing in small public and private companies seeking capital for expansion or undergoing a restructuring of ownership. The general partner of T. Rowe Price Strategic Partners Fund II, L.P. is T. Rowe Price Strategic Partners II, L.P., a Delaware limited partnership whose general partner is T. Rowe Price Strategic Partners Associates, Inc. Listed below are the directors, executive officers and managing directors of the Manager who have other substantial businesses, professions, vocations, or employment aside from that of Director of the Manager: DIRECTORS JAMES E. HALBKAT, JR., Director of the Manager. Mr. Halbkat is President of U.S. Monitor Corporation, a provider of public response systems. Mr. Halbkat's address is: P.O. Box 23109, Hilton Head Island, South Carolina 29925. DONALD B. HEBB, JR., Director of the Manager. Mr. Hebb is the managing general partner of ABS Capital Partners. Mr. Hebb's address is One South Street, 25th Floor, Baltimore, Maryland 21202. RICHARD L. MENSCHEL, Director of the Manager. Mr. Menschel is a limited partner of The Goldman Sachs Group, L.P., an investment banking firm. Mr. Menschel's address is: 85 Broad Street, 2nd Floor, New York, New York 10004. ROBERT L. STRICKLAND, Director of the Manager. Mr. Strickland retired as Chairman of Lowe's Companies, Inc., a retailer of specialty home supplies, as of January 31, 1998 and continues to serve as a Director. He is a Director of Hannaford Bros., Co., a food retailer. Mr. Strickland's address is: 2000 W. First Street, Suite 604, Winston-Salem, North Carolina 27104. PHILIP C. WALSH, Director of the Manager. Mr. Walsh is a retired mining industry executive. Mr. Walsh's address is: Pleasant Valley, Peapack, New Jersey 07977. ANNE MARIE WHITTEMORE, Director of the Manager. Mrs. Whittemore is a partner of the law firm of McGuire, Woods, Battle & Boothe L.L.P. and a Director of Owens & Minor, Inc.; Fort James Corporation; and Albemarle Corporation. Mrs. Whittemore's address is: One James Center, Richmond, Virginia 23219. With the exception of Messrs. Halbkat, Hebb, Menschel, Strickland, Walsh, and Mrs. Whittemore, all of the following directors of the Manager are employees of the Manager. HENRY H. HOPKINS, Director and Managing Director of the Manager; Director of T. Rowe Price Insurance Agency, Inc.; Vice President and Director of T. Rowe Price (Canada), Inc., T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price Threshold Fund Associates, Inc., T. Rowe Price Trust Company, TRP Distribution, Inc., and TRPH Corporation; Director of T. Rowe Price Insurance Agency, Inc.; Vice President of Price-Fleming, T. Rowe Price Real Estate Group, Inc., T. Rowe Price Retirement Plan Services, Inc., T. Rowe Price Stable Asset Management, Inc., and T. Rowe Price Strategic Partners Associates, Inc. JAMES A.C. KENNEDY, Director and Managing Director of the Manager; President and Director of T. Rowe Price Strategic Partners Associates, Inc.; Director and Vice President of T. Rowe Price Threshold Fund Associates, Inc. JOHN H. LAPORTE, JR., Director and Managing Director of the Manager. WILLIAM T. REYNOLDS, Director and Managing Director of the Manager; Chairman of the Board of T. Rowe Price Stable Asset Management, Inc.; Director of TRP Finance, Inc. JAMES S. RIEPE, Vice-Chairman of the Board, Director, and Managing Director of the Manager; Chairman of the Board and President of T. Rowe Price Trust Company; Chairman of the Board of T. Rowe Price (Canada), Inc., T. Rowe Price Investment Services, Inc., T. Rowe Price Investment Technologies, Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Services, Inc.; Director of Price-Fleming, T. Rowe Price Insurance Agency, Inc., and TRPH Corporation; Director and President of TRP Distribution, Inc., TRP Suburban Second, Inc., and TRP Suburban, Inc.; and Director and Vice President of T. Rowe Price Stable Asset Management, Inc. GEORGE A. ROCHE, Chairman of the Board, President, and Managing Director of the Manager; Chairman of the Board of TRP Finance, Inc.; Director of Price-Fleming, T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Strategic Partners, Inc., and Director and Vice President of T. Rowe Price Threshold Fund Associates, Inc., TRP Suburban Second, Inc., and TRP Suburban, Inc. BRIAN C. ROGERS, Director and Managing Director of the Manager; Vice President of T. Rowe Price Trust Company. M. DAVID TESTA, Vice-Chairman of the Board, Director, Chief Investment Officer, and Managing Director of the Manager; Chairman of the Board of Price-Fleming; President and Director of T. Rowe Price (Canada), Inc.; Director and Vice President of T. Rowe Price Trust Company; and Director of TRPH Corporation. ADDITIONAL EXECUTIVE OFFICERS EDWARD C. BERNARD, Managing Director of the Manager; Director and President of T. Rowe Price Insurance Agency, Inc. and T. Rowe Price Investment Services, Inc.; Director of T. Rowe Price Services, Inc.; Vice President of TRP Distribution, Inc. MICHAEL A. GOFF, Managing Director of the Manager; Director and the President of T. Rowe Price Investment Technologies, Inc. CHARLES E. VIETH, Managing Director of the Manager; Director and President of T. Rowe Price Retirement Plan Services, Inc.; Director and Vice President of T. Rowe Price Investment Services, Inc. and T. Rowe Price Services, Inc.; Vice President of T. Rowe Price (Canada), Inc., T. Rowe Price Trust Company, and TRP Distribution, Inc. ALVIN M. YOUNGER, JR., Chief Financial Officer, Managing Director, Secretary, and Treasurer of the Manager; Director, Vice President, Treasurer, and Secretary of TRP Suburban Second, Inc. and TRP Suburban, Inc.; Director of TRP Finance, Inc.; Secretary and Treasurer for Price-Fleming, T. Rowe Price (Canada), Inc., T. Rowe Price Insurance Agency, Inc., T. Rowe Price Investment Services, Inc., T. Rowe Price Real Estate Group, Inc., T. Rowe Price Retirement Plan Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price Stable Asset Management, Inc., T. Rowe Price Strategic Partners Associates, Inc., T. Rowe Price Threshold Fund Associates, Inc., T. Rowe Price Trust Company, TRP Distribution, Inc., and TRPH Corporation; Treasurer and Clerk of T. Rowe Price Insurance Agency of Massachusetts, Inc. ADDITIONAL MANAGING DIRECTORS PRESTON G. ATHEY, Managing Director of the Manager. BRIAN W.H. BERGHUIS, Managing Director of the Manager. STEPHEN W. BOESEL, Managing Director of the Manager; Vice President of T. Rowe Price Trust Company. GREGORY A. McCRICKARD, Managing Director of the Manager; Vice President of T. Rowe Price Trust Company. MARY J. MILLER, Managing Director of the Manager. CHARLES A. MORRIS, Managing Director of the Manager. GEORGE A. MURNAGHAN, Managing Director of the Manager; Executive Vice President of Price-Fleming; Vice President of T. Rowe Price Investment Services, Inc. and T. Rowe Price Trust Company. EDMUND M. NOTZON III, Managing Director of the Manager; Vice President of T. Rowe Price Trust Company. WAYNE D. O'MELIA, Managing Director of the Manager; Director and President of T. Rowe Price Services, Inc.; Vice President of T. Rowe Price Trust Company. LARRY J. PUGLIA, Managing Director of the Manager; Vice President of T. Rowe Price (Canada), Inc. JOHN R. ROCKWELL, Managing Director of the Manager; Director and Senior Vice President of T. Rowe Price Retirement Plan Services, Inc.; Director and Vice President of T. Rowe Price Stable Asset Management, Inc. and T. Rowe Price Trust Company; Vice President of T. Rowe Price Investment Services, Inc. R. TODD RUPPERT, Managing Director of the Manager; President and Director of TRPH Corporation; Vice President of T. Rowe Price Retirement Plan Services, Inc. and T. Rowe Price Trust Company. ROBERT W. SMITH, Managing Director of the Manager; Vice President of Price-Fleming. WILLIAM J. STROMBERG, Managing Director of the Manager. RICHARD T. WHITNEY, Managing Director of the Manager; Vice President of Price-Fleming and T. Rowe Price Trust Company. Certain directors and officers of the Manager are also officers and/or directors of one or more of the Price Funds and/or one or more of the affiliated entities listed herein. See also "Management of Fund," in Registrant's Statement of Additional Information. ITEM 27. PRINCIPAL UNDERWRITERS (a) The principal underwriter for the Registrant is Investment Services. Investment Services acts as the principal underwriter for eighty-eight mutual funds, including the following investment companies: T. Rowe Price Growth Stock Fund, Inc., T. Rowe Price New Horizons Fund, Inc., T. Rowe Price New Era Fund, Inc., T. Rowe Price New Income Fund, Inc., T. Rowe Price Prime Reserve Fund, Inc., T. Rowe Price Tax-Free Income Fund, Inc., T. Rowe Price Tax-Exempt Money Fund, Inc., T. Rowe Price International Funds, Inc., T. Rowe Price Growth & Income Fund, Inc., T. Rowe Price Tax-Free Short-Intermediate Fund, Inc., T. Rowe Price Short-Term Bond Fund, Inc., T. Rowe Price High Yield Fund, Inc., T. Rowe Price Tax-Free High Yield Fund, Inc., T. Rowe Price New America Growth Fund, T. Rowe Price Equity Income Fund, T. Rowe Price GNMA Fund, T. Rowe Price Capital Appreciation Fund, T. Rowe Price California Tax-Free Income Trust, T. Rowe Price State Tax-Free Income Trust, T. Rowe Price Science & Technology Fund, Inc., T. Rowe Price Small-Cap Value Fund, Inc., Institutional International Funds, Inc., T. Rowe Price U.S. Treasury Funds, Inc., T. Rowe Price Index Trust, Inc., T. Rowe Price Spectrum Fund, Inc., T. Rowe Price Balanced Fund, Inc., T. Rowe Price Short-Term U.S. Government Fund, Inc., T. Rowe Price Mid-Cap Growth Fund, Inc., T. Rowe Price Small-Cap Stock Fund, Inc., T. Rowe Price Tax-Free Intermediate Bond Fund, Inc., T. Rowe Price Dividend Growth Fund, Inc., T. Rowe Price Blue Chip Growth Fund, Inc., T. Rowe Price Summit Funds, Inc., T. Rowe Price Summit Municipal Funds, Inc., T. Rowe Price Equity Series, Inc., T. Rowe Price International Series, Inc., T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Personal Strategy Funds, Inc., T. Rowe Price Value Fund, Inc., T. Rowe Price Capital Opportunity Fund, Inc., T. Rowe Price Corporate Income Fund, Inc., T. Rowe Price Health Sciences Fund, Inc., T. Rowe Price Mid-Cap Value Fund, Inc., Institutional Equity Funds, Inc., T. Rowe Price Financial Services Fund, Inc., T. Rowe Price Diversified Small-Cap Growth Fund, Inc., T. Rowe Price Tax-Efficient Funds, Inc., Reserve Investment Funds, Inc., T. Rowe Price Media & Telecommunications Fund, Inc., and T. Rowe Price Real Estate Fund, Inc. Investment Services is a wholly owned subsidiary of the Manager, is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. Investment Services has been formed for the limited purpose of distributing the shares of the Price Funds and will not engage in the general securities business. Since the Price Funds are sold on a no-load basis, Investment Services will not receive any commissions or other compensation for acting as principal underwriter. (b) The address of each of the directors and officers of Investment Services listed below is 100 East Pratt Street, Baltimore, Maryland 21202.
NAME POSITIONS AND POSITIONS AND OFFICES WITH OFFICES WITH UNDERWRITER REGISTRANT James S. Riepe Chairman of the Board Director and Vice and Director President Edward C. Bernard President and Director None Henry H. Hopkins Vice President and Director Vice President Charles E. Vieth Vice President and Director None Patricia M. Archer Vice President None Steven J. Banks Vice President None John T. Bielski Vice President None Darrell N. Braman Vice President None Ronae M. Brock Vice President None Meredith C. Callanan Vice President None Ann R. Campbell Vice President None Christine M. Carolan Vice President None Joseph A. Carrier Vice President None Laura H. Chasney Vice President None Renee M. Christoff Vice President None Christopher W. Dyer Vice President None Christine S. Fahlund Vice President None Forrest R. Foss Vice President None Thomas A. Gannon Vice President None Andrea G. Griffin Vice President None Douglas E. Harrison Vice President None David J. Healy Vice President None Joseph P. Healy Vice President None Walter J. Helmlinger Vice President None Valerie King-Calloway Vice President None Eric G. Knauss Vice President None Sharon R. Krieger Vice President None Steven A. Larson Vice President None Jeanette M. LeBlanc Vice President None Keith W. Lewis Vice President None Kim Lewis-Collins Vice President None Gayle A. Lomax Vice President None Sarah McCafferty Vice President None Maurice A. Minerbi Vice President None Mark J. Mitchell Vice President None Nancy M. Morris Vice President None George A. Murnaghan Vice President None Steven E. Norwitz Vice President None Kathleen M. O'Brien Vice President None Barbara A. O'Connor Vice President None David Oestreicher Vice President None Robert Petrow Vice President None Pamela D. Preston Vice President None George D. Riedel Vice President None Lucy B. Robins Vice President None John R. Rockwell Vice President None Kenneth J. Rutherford Vice President None Alexander Savich Vice President None Kristin E. Seeberger Vice President None Donna B. Singer Vice President None William W. Strickland, Jr. Vice President None Jerome Tuccille Vice President None Charles E. Vieth Vice President None William F. Wendler II Vice President None Jane F. White Vice President None Thomas R. Woolley Vice President None Alvin M. Younger, Jr. Secretary and Treasurer None Barbara A. O'Connor Controller None Theodore J. Zamerski III Assistant Controller None Matthew B. Alstead Assistant Vice President None Kimberly B. Andersen Assistant Vice President None Richard J. Barna Assistant Vice President None Catherine L.Berkenkemper Assistant Vice President None Edwin J. Brooks III Assistant Vice President None Carl A. Cox Assistant Vice President None Charles R. Dicken Assistant Vice President None Cheryl L. Emory Assistant Vice President None John A. Galateria Assistant Vice President None Edward F. Giltenan Assistant Vice President None Jason L. Gounaris Assistant Vice President None Janelyn A. Healey Assistant Vice President None R. Emmett Higdon Assistant Vice President None Sandra J. Kiefler Assistant Vice President None Suzanne M. Knoll Assistant Vice President None Patricia S. Lippert Assistant Vice President Secretary Teresa M. Loeffert Assistant Vice President None C. Lillian Matthews Assistant Vice President None Janice D. McCrory Assistant Vice President None Quinn C. McDonald Assistant Vice President None Danielle N. Nicholson Assistant Vice President None JeanneMarie B. Patella Assistant Vice President None Kylelane Purcell Assistant Vice President None David A. Roscum Assistant Vice President None Matthew A. Scher Assistant Vice President None Carole H. Smith Assistant Vice President None John A. Stranovsky 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 28. LOCATION OF ACCOUNTS AND RECORDS All accounts, books, and other documents required to be maintained by the Registrant under Section 31(a) of the Investment Company Act of 1940 and the rules thereunder will be maintained by the Registrant at its offices at 100 East Pratt Street, Baltimore, Maryland 21202. Transfer, dividend disbursing, and shareholder service activities are performed by T. Rowe Price Services, Inc., at 10090 Red Run Blvd., Owings Mills, Maryland 21117. Custodian activities for the Registrant 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 29. MANAGEMENT SERVICES Registrant is not a party to any management-related service contract, other than as set forth in the Prospectus or Statement of Additional Information. ITEM 30. UNDERTAKINGS (a) Not applicable Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Baltimore, State of Maryland, this September 30, 1999. T. Rowe Price New Income Fund, Inc. /s/William T. Reynolds By: William T. Reynolds Director and President Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated: Signature Title Date - --------- ----- ---- /s/William T. Reynolds Director and President September 30, 1999 William T. Reynolds (Chief Executive Officer) /s/Carmen F. Deyesu Treasurer (Chief September 30, 1999 Carmen F. Deyesu Financial Officer) * Director September 30, 1999 Calvin W. Burnett * Director September 30, 1999 Anthony W. Deering * Director September 30, 1999 F. Pierce Linaweaver /s/James S. Riepe Director and September 30, 1999 James S. Riepe Vice President * Director September 30, 1999 John G. Schreiber /s/M. David Testa Director September 30, 1999 M. David Testa /s/Henry H. Hopkins Attorney-In-Fact September 30, 1999 Henry H. Hopkins EX-99.B1D-CHARTER/A 2 T. ROWE PRICE NEW INCOME FUND, INC. ----------------------------------- ARTICLES OF AMENDMENT --------------------- T. Rowe Price New Income Fund, Inc., a Maryland corporation, having its principal office in the City of Baltimore, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: The Charter of the Corporation is hereby amended by deleting in its ----- entirety Articles FIFTH and SEVENTH of the Articles of Incorporation and substituting in lieu thereof the following: FIFTH: (a) The total number of shares of stock of all classes and series which the Corporation shall have the authority to issue is Three Hundred Million (300,000,000) shares of capital stock of the par value of One Dollar ($1.00) each, and of the aggregate par value of Three Hundred Million Dollars ($300,000,000). All of such shares are classified as "COMMON STOCK" of the "T. ROWE PRICE NEW INCOME" series. The Board of Directors may classify and reclassify any unissued shares of capital stock (whether or not such shares have been previously classified or reclassified) by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption of such shares of stock. (b) The following is a description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the shares of Common Stock classified as the "T. ROWE PRICE NEW INCOME" series and any additional series of Common Stock of the Corporation (unless provided otherwise by the Board of Directors with respect to any such additional series at the time it is established and designated): (1)ASSETS BELONGING TO SERIES. All consideration received by the Corporation from the issue or sale of shares of a particular series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any investment or reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to that series for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Corporation. Such consideration, assets, income, earnings, profits and proceeds, together with any General Items allocated to that series as provided in the following sentence, are herein referred to collectively as "assets belonging to" that series. In the event that there are any assets, income, earnings, profits or proceeds which are not readily identifiable as belonging to any particular series (collectively, "GENERAL ITEMS"), such General Items shall be allocated by or under the supervision of the Board of Directors to and among any one or more of the series established and designated from time to time in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable; and any General Items so allocated to a particular series shall belong to that series. Each such allocation by the Board of Directors shall be conclusive and binding for all purposes. (2) LIABILITIES OF SERIES. The assets belonging to each particular series shall be charged with the liabilities of the Corporation in respect of that series and all expenses, costs, charges and reserves attributable to that series, and any general liabilities, expenses, costs, charges or reserves of the Corporation which are not readily identifiable as pertaining to any particular series, shall be allocated and charged by or under the supervision of the Board of Directors to and among any one or more of the series established and designated from time to time in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable. The liabilities, expenses, costs, charges and reserves allocated and so charged to a series are herein referred to collectively as "liabilities of" that series. Each allocation of liabilities, expenses, costs, charges and reserves by or under the supervision of the Board of Directors shall be conclusive and binding for all purposes. (3) DIVIDENDS AND DISTRIBUTIONS. Dividends and capital gains distributions on shares of a particular series may be paid with such frequency, in such form and in such amount as the Board of Directors may determine by resolution adopted from time to time, or pursuant to a standing resolution or resolutions adopted only once or with such frequency as the Board of Directors may determine, after providing for actual and accrued liabilities of that series. All dividends on shares of a particular series shall be paid only out of the income belonging to that series and all capital gains distributions on shares of a particular series shall be paid only out of the capital gains belonging to that series. All dividends and distributions on shares of a particular series shall be distributed pro rata to the holders of that series in proportion to the number of shares of that series held by such holders at the date and time of record established for the payment of such dividends or distributions, except that in connection with any dividend or distribution program or procedure, the Board of Directors may determine that no dividend or distribution shall be payable on shares as to which the shareholder's purchase order and/or payment have not been received by the time or times established by the Board of Directors under such program or procedure. Dividends and distributions may be paid in cash, property or additional shares of the same or another series, or a combination thereof, as determined by the Board of Directors or pursuant to any program that the Board of Directors may have in effect at the time for the election by shareholders of the form in which dividends or distributions are to be paid. Any such dividend or distribution paid in shares shall be paid at the current net asset value thereof. (4) VOTING. On each matter submitted to a vote of the shareholders, each holder of shares shall be entitled to one vote for each share standing in his name on the books of the Corporation, irrespective of the series thereof, and all shares of all series shall vote as a single class ("SINGLE CLASS VOTING"); provided, however, that (i) as to any matter with respect to which a separate vote of any series is required by the Investment Company Act or by the Maryland General Corporation Law, such requirement as to a separate vote by that series shall apply in lieu of Single Class Voting; (ii) in the event that the separate vote requirement referred to in (i) above applies with respect to one or more series, then, subject to (iii) below, the shares of all other series shall vote as a single class; and (iii) as to any matter which does not affect the interest of a particular series, including liquidation of another series as described in subsection (7) below, only the holders of shares of the one or more affected series shall be entitled to vote. (5) REDEMPTION BY SHAREHOLDERS. Each holder of shares of a particular series shall have the right at such times as may be permitted by the Corporation to require the Corporation to redeem all or any part of his shares of that series, at a redemption price per share equal to the net asset value per share of that series next determined after the shares are properly tendered for redemption, less such redemption fee or sales charge, if any, as may be established by the Board of Directors in its sole discretion and disclosed in the current Prospectus or Statement of Additional Information for the Corporation. Payment of the redemption price shall be in cash; provided, however, that if the Board of Directors determines, which determination shall be conclusive, that conditions exist which make payment wholly in cash unwise or undesirable, the Corporation may, to the extent and in the manner permitted by the Investment Company Act, make payment wholly or partly in securities or other assets belonging to the series of which the shares being redeemed are a part, at the value of such securities or assets used in such determination of net asset value. Notwithstanding the foregoing, the Corporation may postpone payment of the redemption price and may suspend the right of the holders of shares of any series to require the Corporation to redeem shares of that series during any period or at any time when and to the extent permissible under the Investment Company Act. (6)REDEMPTION BY CORPORATION. The Board of Directors may cause the Corporation to redeem at net asset value the shares of any series from a holder (i) if the Board of Directors of the Corporation determines in its sole discretion that failure to so redeem such shares may have materially adverse consequences to the holders of shares of the Corporation or any series, or (ii) upon such other conditions with respect to the maintenance of shareholder accounts of a minimum amount as may from time to time be established by the Board of Directors in its sole discretion and disclosed in the Prospectus or Statement of Additional Information for the Corporation. (7) LIQUIDATION. In the event of the liquidation of a particular series, the shareholders of the series that is being liquidated shall be entitled to receive, as a class, when and as declared by the Board of Directors, the excess of the assets belonging to that series over the liabilities of that series. The holders of shares of any particular series shall not be entitled thereby to any distribution upon liquidation of any other series. The assets so distributable to the shareholders of any particular series shall be distributed among such shareholders in proportion to the number of shares of that series held by them and recorded on the books of the Corporation. The liquidation of any particular series in which there are shares then outstanding may be authorized by vote of a majority of the Board of Directors then in office, subject to the approval of a majority of the outstanding voting securities of that series, as defined in the Investment Company Act, and without the vote of the holders of shares of any other series. The liquidation of a particular series may be accomplished, in whole or in part, by the transfer of assets of such series to another series or by the exchange of shares of such series for the shares of another series. (8) NET ASSET VALUE PER SHARE. The net asset value per share of any series shall be the quotient obtained by dividing the value of the net assets of that series (being the value of the assets belonging to that series less the liabilities of that series) by the total number of shares of that series outstanding, all as determined by or under the direction of the Board of Directors in accordance with generally accepted accounting principles and the Investment Company Act. Subject to the applicable provisions of the Investment Company Act, the Board of Directors, in its sole discretion, may prescribe and shall set forth in the By-Laws of the Corporation or in a duly adopted resolution of the Board of Directors such bases and times for determining the value of the assets belonging to, and the net asset value per share of outstanding shares of, each series, or the net income attributable to such shares, as the Board of Directors deems necessary or desirable. The Board of Directors shall have full discretion, to the extent not inconsistent with the Maryland General Corporation Law and the Investment Company Act, to determine which items shall be treated as income and which items as capital and whether any item of expense shall be charged to income or capital. Each such determination and allocation shall be conclusive and binding for all purposes. The Board of Directors may determine to maintain the net asset value per share of any series at a designated constant dollar amount and in connection therewith may adopt procedures not inconsistent with the Investment Company Act for the continuing declaration of income attributable to that series as dividends and for the handling of any losses attributable to that series. Such procedures may provide that in the event of any loss, each shareholder shall be deemed to have contributed to the capital of the Corporation attributable to that series his pro rata portion of the total number of shares required to be canceled in order to permit the net asset value per share of that series to be maintained, after reflecting such loss, at the designated constant dollar amount. Each shareholder of the Corporation shall be deemed to have agreed, by his investment in any series with respect to which the Board of Directors shall have adopted any such procedure, to make the contribution referred to in the preceding sentence in the event of any such loss. (9)CONVERSION OR EXCHANGE RIGHTS. Subject to compliance with the requirements of the Investment Company Act, the Board of Directors shall have the authority to provide that holders of shares of any series shall have the right to convert or exchange said shares into shares of one or more other classes or series of shares in accordance with such requirements and procedures as may be established by the Board of Directors and as disclosed in the Corporation's current Prospectus or Statement of Additional Information. (c) The shares of Common Stock of the Corporation, or of any series of Common Stock of the Corporation to the extent such Common Stock is divided into series, may be further subdivided into classes (which may, for convenience of reference, be referred by a term other than "class"). Unless otherwise provided in the Articles Supplementary establishing such classes, all such shares, or all shares of a series of Common Stock in a series, shall have identical voting, dividend, and liquidation rights. Shares of the classes shall also be subject to such front-end sales loads, contingent deferred sales charges, expenses (including, without limitation, distribution expenses under a Rule 12b-1 plan and administrative expenses under an administration or service agreement, plan or other arrangement, however designated), conversion rights, and class voting rights as shall be consistent with Maryland law, the Investment Company Act of 1940, and the rules and regulations of the National Association of Securities Dealers and shall be contained in Articles Supplementary establishing such classes. (d)For the purposes hereof and of any articles supplementary to the charter providing for the classification or reclassification of any shares of capital stock or of any other charter document of the Corporation (unless otherwise provided in any such articles or document), any class or series of stock of the Corporation shall be deemed to rank: (1)prior to another class or series either as to dividends or upon liquidation, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable on liquidation, dissolution or winding up, as the case may be, in preference or priority to holders of such other class or series; (2) on a parity with another class or series either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation price per share thereof be different from those of such others, if the holders of such class or series of stock shall be entitled to receipt of dividends or amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to their respective dividend rates or redemption or liquidation prices, without preference or priority over the holders of such other class or series; and (3)junior to another class or series either as to dividends or upon liquidation, if the rights of the holders of such class or series shall be subject or subordinate to the rights of the holders of such other class or series in respect of the receipt of dividends or the amounts distributable upon liquidation, dissolution or winding up, as the case may be. (e) Unless otherwise prohibited by law, so long as the Corporation is registered as an open-end management investment company under the Investment Company Act, the Board of Directors shall have the power and authority, without the approval of the holders of any outstanding shares, to increase or decrease the number of shares of capital stock or the number of shares of capital stock of any class or series that the Corporation has authority to issue. (f) The Corporation may issue and sell fractions of shares of capital stock having pro rata all the rights of full shares, including, without limitation, the right to vote and to receive dividends, and wherever the words "share" or "shares" are used in the charter or By-Laws of the Corporation, they shall be deemed to include fractions of shares, where the context does not clearly indicate that only full shares are intended. (g) The Corporation shall not be obligated to issue certificates representing shares of any class or series of capital stock. At the time of issue or transfer of shares without certificates, the Corporation shall provide the shareholder with such information as may be required under the Maryland General Corporation Law. SEVENTH: (a) The following provisions are hereby adopted for the purpose of defining, limiting, and regulating the powers of the Corporation and of the directors and shareholders: (1) The Board of Directors is hereby empowered to authorize the issuance from time to time of shares of its stock of any class or series, whether now or hereafter authorized, or securities convertible into shares of its stock of any class or series, whether now or hereafter authorized, for such consideration as may be deemed advisable by the Board of Directors and without any action by the shareholders. (2) No holder of any stock or any other securities of the Corporation, whether now or hereafter authorized, shall have any preemptive right to subscribe for or purchase any stock or any other securities of the Corporation other than such, if any, as the Board of Directors, in its sole discretion, may determine and at such price or prices and upon such other terms as the Board of Directors, in its sole discretion, may fix; and any stock or other securities which the Board of Directors may determine to offer for subscription may, as the Board of Directors in its sole discretion shall determine, be offered to the holders of any class, series or type of stock or other securities at the time outstanding to the exclusion of the holders of any or all other classes, series or types of stock or other securities at the time outstanding. (3)The Board of Directors of the Corporation shall, consistent with applicable law, have power in its sole discretion to determine from time to time in accordance with sound accounting practice or other reasonable valuation methods what constitutes annual or other net profits, earnings, surplus, or net assets in excess of capital; to determine that retained earnings or surplus shall remain in the hands of the Corporation; to set apart out of any funds of the Corporation such reserve or reserves in such amount or amounts and for such proper purpose or purposes as it shall determine and to abolish any such reserve or any part thereof; to distribute and pay distributions or dividends in stock, cash or other securities or property, out of surplus or any other funds or amounts legally available therefor, at such times and to the shareholders of record on such dates as it may, from time to time, determine; and to determine whether and to what extent and at what times and places and under what conditions and regulations the books, accounts and documents of the Corporation, or any of them, shall be open to the inspection of shareholders, except as otherwise provided by statute or by the By-Laws, and, except as so provided, no shareholder shall have any right to inspect any book, account or document of the Corporation unless authorized so to do by resolution of the Board of Directors. (4) Notwithstanding any provision of law requiring the authorization of any action by a greater proportion than a majority of the total number of shares of all classes and series of capital stock or of the total number of shares of any class or series of capital stock entitled to vote as a separate class, such action shall be valid and effective if authorized by the affirmative vote of the holders of a majority of the total number of shares of all classes and series outstanding and entitled to vote thereon, or of the class or series entitled to vote thereon as a separate class, as the case may be, except as otherwise provided in the charter of the Corporation. (5)The Corporation reserves the right from time to time to make any amendments of its charter which may now or hereafter be authorized by law, including any amendments changing the terms or contract rights, as expressly set forth in its charter, of any of its outstanding stock by classification, reclassification or otherwise. (b) The enumeration and definition of particular powers of the Board of Directors included in the foregoing shall in no way be limited or restricted by reference to or inference from the terms of any other clause of this or any other Article of the charter of the Corporation, or construed as or deemed by inference or otherwise in any manner to exclude or limit any powers conferred upon the Board of Directors under the General Laws of the State of Maryland now or hereafter in force. SECOND: The amendment does not change the outstanding capital stock of the ------ Corporation or the aggregate par value thereof. THIRD: The Board of Directors of the Corporation declared these Articles to ----- be advisable and adopted them at a meeting of the Board of Directors held on July 22, 1998. The Board of Directors then recommended that these Amendments to the Articles be submitted to the stockholders for approval. FOURTH: At a meeting of the stockholders held on October 15, 1998, the ------ Corporation's Common Stock, the only class of capital stock of the Corporation entitled to vote, adopted and approved these Articles of Amendment. FIFTH: The foregoing amendment shall be effective as of 12:01 a.m. on October ------ 16, 1998. IN WITNESS WHEREOF, T. ROWE PRICE NEW INCOME FUND, INC., has caused these Articles of Amendment to be signed in its name and on its behalf by its Chairman of the Board, and witnessed by its Secretary, on October 16, 1998, and its Chairman of the Board acknowledges under penalties of perjury that these Articles of Amendment are the corporate act of the Corporation and that to the best of his knowledge, information, and belief, these matters and facts set forth herein with respect to the authorization and approval thereof, are true in all material respects. T. ROWE PRICE NEW INCOME FUND, INC. By: /s/ William T. Reynolds William T. Reynolds, Chairman of the Board ATTEST: /s/Patricia S. Lippert Patricia S. Lippert, Secretary EX-99.B2-BYLAWS 3 BY-LAWS OF T. ROWE PRICE NEW INCOME FUND, INC. AS AMENDED: NOVEMBER 28, 1973 JANUARY 24, 1979 MAY 1, 1981 JANUARY 21, 1982 JANUARY 1, 1983 JANUARY 21, 1988 APRIL 20, 1990 JULY 1, 1991 JULY 20, 1993 JANUARY 18, 1994 JULY 21, 1999 TABLE OF CONTENTS ----------------- PAGE ---- ARTICLE I. NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL 1 1.01.Name 1 1.02.Principal Offices 1 1.03.Seal 1 ARTICLE II. STOCKHOLDERS 1 2.01.Annual Meetings 1 2.02.Special Meetings 2 2.03.Place of Meetings 2 2.04.Notice of Meetings 2 2.05.Voting - In General 3 2.06.Stockholders Entitled to Vote 3 2.07.Voting - Proxies 3 2.08.Quorum 3 2.09.Absence of Quorum 3 2.10.Stock Ledger and List of Stockholders 4 ARTICLE III. BOARD OF DIRECTORS 4 3.01.Number and Term of Office 4 3.02.Qualification of Directors 4 3.03.Election of Directors 4 3.04.Removal of Directors 5 3.05.Vacancies and Newly Created Directorships5 3.06.General Powers 5 3.07.Power to Issue and Sell Stock 5 3.08.Power to Declare Dividends 6 3.09.Annual and Regular Meetings 6 3.10.Special Meetings 6 3.11.Notice 6 3.12.Waiver of Notice 7 3.13.Quorum and Voting 7 3.14.Conference Telephone 7 3.15.Compensation 7 3.16.Action without a Meeting 7 3.17.Director Emeritus 7 ARTICLE IV. EXECUTIVE COMMITTEE AND OTHER COMMITTEES 7 4.01.How Constituted 7 4.02.Powers of the Executive Committee 8 4.03.Other Committees of the Board of Directors8 4.04.Proceedings, Quorum and Manner of Acting 8 4.05.Other Committees 8 ARTICLE V. OFFICERS 8 5.01.General 8 5.02.Election, Term of Office and Qualifications8 5.03.Resignation 9 5.04.Removal 9 5.05.Vacancies and Newly Created Offices 9 5.06.Chairman of the Board 9 5.07.President 9 5.08.Vice President 10 5.09.Treasurer and Assistant Treasurers 10 5.10.Secretary and Assistant Secretaries 10 5.11.Subordinate Officers 10 5.12.Remuneration 11 ARTICLE VI. CUSTODY OF SECURITIES AND CASH 11 6.01.Employment of a Custodian 11 6.02.Central Certificate Service 11 6.03.Cash Assets 11 6.04.Free Cash Accounts 11 6.05.Action Upon Termination of Custodian Agreement 12 ARTICLE VII. EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES 12 7.01.Execution of Instruments 12 7.02.Voting of Securities 12 ARTICLE VIII. CAPITAL STOCK 12 8.01.Ownership of Shares 12 8.02.Transfer of Capital Stock 13 8.03.Transfer Agents and Registrars 13 8.04.Transfer Regulations 13 8.05.Fixing of Record Date 13 8.06.Lost, Stolen or Destroyed Certificates 14 ARTICLE IX. FISCAL YEAR, ACCOUNTANT 14 9.01.Fiscal Year 14 9.02.Accountants 14 ARTICLE X. INDEMNIFICATION AND INSURANCE 15 10.01.Indemnification and Payment of Expenses in Advance 15 10.02.Insurance of Officers, Directors, Employees and Agents 16 ARTICLE XI. AMENDMENTS 17 11.01. General 17 11.02. By Stockholders Only 17 ARTICLE XII. MISCELLANEOUS 17 12.01Use of the Term "Annual Meeting" 17 T. ROWE PRICE NEW INCOME FUND, INC. (A Maryland Corporation) BY-LAWS ARTICLE I --------- NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL ---------------------------- Section 1.01. NAME: The name of the Corporation is T. ROWE PRICE NEW INCOME ---- FUND, INC. (Section 1.01. Name, as amended May 1, 1981.) ----- Section 1.02. PRINCIPAL OFFICES: The principal office of the Corporation in ----------------- the State of Maryland shall be located in the City of Baltimore. The Corporation may, in addition, establish and maintain such other offices and places of business, within or without the State of Maryland, as the Board of Directors may from time to time determine. [ MGCL, (S)(S)8, 9(a)(4) ] Section 1.03. SEAL: The corporate seal of the Corporation shall be circular ---- in form and shall bear the name of the Corporation, the year of its incorporation, and the words "Corporate Seal, Maryland". The form of the seal shall be subject to alteration by the Board of Directors and the seal may be used by causing it or a facsimile to be impressed or affixed or printed or otherwise reproduced. Any officer or Director of the Corporation shall have authority to affix the corporate seal of the Corporation to any document requiring the same. [ MGCL, (S)9(a)(3) ] ARTICLE II ---------- STOCKHOLDERS ------------ Section 2.01. ANNUAL MEETINGS: The Corporation shall not be required to --------------- hold an annual meeting of its shareholders in any year unless the Investment Company Act of 1940 requires an election of directors by shareholders. In the event that the Corporation shall be so required to hold an annual meeting, such meeting shall be held at a date and time set by the Board of Directors, which date shall be no later than 120 days after the occurrence of the event requiring the meeting. Any shareholders' meeting held in accordance with the preceding sentence shall for all purposes - ------------------------- Bracketed citations are to the General Corporation Law of the State of Maryland ("MGCL") or to the United States Investment Company Act of 1940, as amended (the "Investment Company Act"), or to Rules of the United States Securities and Exchange Commission thereunder ("SEC Rules"). The citations are inserted for reference only and do not constitute a part of the By-Laws. constitute the annual meeting of shareholders for the fiscal year of the Corporation in which the meeting is held. At any such meeting, the shareholders shall elect directors to hold the offices of any directors who have held office for more than one year or who have been elected by the Board of Directors to fill vacancies which result from any cause. Except as the Articles of Incorporation or statute provides otherwise, Directors may transact any business within the powers of the Corporation as may properly come before the meeting. Any business of the Corporation may be transacted at the annual meeting without being specially designated in the notice, except such business as is specifically required by statute to be stated in the notice. [ MGCL, Section 2-501 ] (Section 2.01. Annual Meetings, as amended April 20, 1990) --------------- Section 2.02. SPECIAL MEETINGS: Special meetings of the shareholders may be ---------------- called at any time by the Chairman of the Board, the President, any Vice President, or by the Board of Directors. Special meetings of the shareholders shall be called by the Secretary on the written request of shareholders entitled to cast at least ten (10) percent of all the votes entitled to be cast at such meeting, provided that (a) such request shall state the purpose or purposes of the meeting and the matters proposed to be acted on, and (b) the shareholders requesting the meeting shall have paid to the Corporation the reasonably estimated cost of preparing and mailing the notice thereof, which the Secretary shall determine and specify to such shareholders. Unless requested by shareholders entitled to cast a majority of all the votes entitled to be cast at the meeting, a special meeting need not be called to consider any matter which is substantially the same as a matter voted upon at any special meeting of the shareholders held during the preceding twelve (12) months. [ MGCL, (S)38(c) ] (Section 2.02. Special Meetings, as amended July 20, 1993) ---------------- Section 2.03. PLACE OF MEETINGS: All stockholders' meetings shall be held ----------------- at such place within the United States as may be fixed from time to time by the Board of Directors. [ MGCL, (S)38(a) ] Section 2.04. NOTICE OF MEETINGS: Not less than ten (10) days, nor more ------------------ than ninety (90) days before each shareholders' meeting, the Secretary or an Assistant Secretary of the Corporation shall give to each shareholder entitled to vote at the meeting, and each other shareholder entitled to notice of the meeting, written notice stating (1) the time and place of the meeting, and (2) the purpose or purposes of the meeting if the meeting is a special meeting or if notice of the purpose is required by statute to be given. Such notice shall be personally delivered to the shareholder, or left at his residence or usual place of business, or mailed to him at this address or transmitted to the shareholder by electronic mail to any electronic mail address of the shareholder or by any other electronic means in all cases as such address appears on the records of the Corporation. No notice of a shareholders' meeting need be given to any shareholder who shall sign a written waiver of such notice, whether before or after the meeting, which is filed with the records of shareholders' meetings, or to any shareholder who is present at the meeting in person or by proxy. Notice of adjournment of a shareholders' meeting to another time or place need not be given if such time and place are announced at the meeting, unless the adjournment is for more than one hundred twenty (120) days after the original record date. [ MGCL, Sections 2-504, 2-511(d) ] (Section 2.04. Notice of Meetings, as amended July 21, 1999) ------------------- Section 2.05. VOTING - IN GENERAL: At every stockholders' meeting each ------------------- stockholder shall be entitled to one vote for each share of stock of the Corporation validly issued and outstanding and held by such stockholder, except that no shares held by the Corporation shall be entitled to a vote. Fractional shares shall be entitled to fractional votes. Except as otherwise specifically provided in the Articles of Incorporation or these By-Laws or as required by provisions of the United States Investment Company Act, as amended from time to time, all matters shall be decided by a vote of the majority of the votes cast. The vote upon any question shall be by ballot whenever requested by any person entitled to vote, but, unless such a request is made, voting may be conducted in any way approved by the meeting. [ MGCL, (S)(S)42(a), 43 ] Section 2.06. STOCKHOLDERS ENTITLED TO VOTE: If, pursuant to Section 8.05 ----------------------------- hereof, a record date has been fixed for the determination of stockholders entitled to notice of or to vote at any stockholders' meeting, each stockholder of the Corporation shall be entitled to vote, in person or by proxy, each share or fraction of a share of stock standing in his name on the books of the Corporation on such record date and outstanding at the time of the meeting. If no record date has been fixed for the determination of stockholders, the record date for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day on which notice of the meeting is mailed or the day 30 days before the meeting, whichever is the closer date to the meeting, or, if notice is waived by all stockholders, at the close of business on the tenth day next preceding the day on which the meeting is held. [ MGCL, (S)40 ] Section 2.07. VOTING - PROXIES: A shareholder may authorize another person ---------------- to act as proxy for the shareholder by: (i) signing a writing authorizing another person to act as proxy, (ii) the shareholder's authorized agent signing the writing or causing the shareholder's signature to be affixed to the writing by any reasonable means, including facsimile signature, or (iii) transmitting, or authorizing the transmission of, an authorization for the person to act as proxy to the person authorized to act as proxy or any other person authorized to receive the proxy authorization on behalf of the person authorized to act as the proxy, including a proxy solicitation firm or proxy support service organization. The authorization may be transmitted by a telegram, cablegram, datagram, electronic mail, or any other electronic or telephonic means. A copy, facsimile telecommunication, or other reliable reproduction of the writing or transmission may be substituted for the original writing or transmission for any purpose for which the original writing or transmission could be used. No proxy shall be valid more than eleven (11) months after its date unless it provides for a longer period. [ MGCL, Section 2-507(b) and (c) ] (Section 2.07. Voting - Proxies, as amended July 21, 1999) ---------------- Section 2.08. QUORUM: The presence at any stockholders' meeting, in person ------ or by proxy, of stockholders entitled to cast a majority of the votes thereat shall be necessary and sufficient to constitute a quorum for the transaction of business. [ MGCL, (S)41 ] Section 2.09. ABSENCE OF QUORUM: In the absence of a quorum, the holders of ----------------- a majority of shares entitled to vote at the meeting and present thereat in person or by proxy, or, if no stockholder entitled to vote is present thereat in person or by proxy, any officer present thereat entitled to preside or act as Secretary of such meeting, may adjourn the meeting sine die or from time to -------- time. Any business that might have been transacted at the meeting originally called may be transacted at any such adjourned meeting at which a quorum is present. Section 2.10. STOCK LEDGER AND LIST OF STOCKHOLDERS: It shall be the duty ------------------------------------- of the Secretary or Assistant Secretary of the Corporation to cause an original or duplicate stock ledger to be maintained at the office of the Corporation's transfer agent, containing the names and addresses of all stockholders and the number of shares of each class held by each stockholder. Such stock ledger may be in written form or any other form capable of being converted into written form within a reasonable time for visual inspection. Any one or more persons, each of whom has been a stockholder of record of the Corporation for more than six months next preceding such request, who owns in the aggregate 5% or more of the outstanding capital stock of the Corporation, may submit (unless the Corporation at the time of the request maintains a duplicate stock ledger at its principal office in Maryland) a written request to any officer of the Corporation or its resident agent in Maryland for a list of the stockholders of the Corporation. Within 20 days after such a request, there shall be prepared and filed at the Corporation's principal office in Maryland a list containing the names and addresses of all stockholders of the Corporation and the number of shares of each class held by each stockholder, certified as correct by any officer of the Corporation, by its stock transfer agent, or by its registrar. [ MGCL, (S)(S)50, 51 ] ARTICLE III ----------- BOARD OF DIRECTORS ------------------ Section 3.01. NUMBER AND TERM OF OFFICE: The Board of Directors shall ------------------------- consist of seven Directors, which number may be increased or decreased by a resolution of a majority of the entire Board of Directors, provided that the number of Directors shall not be less than three nor more than 15. Each Director (whenever elected) shall hold office until the next annual meeting of stockholders or until his successor is elected and qualifies or until his earlier death, resignation or removal. [ MGCL, (S)53 ] Section 3.02. QUALIFICATION OF DIRECTORS: No member of the Board of -------------------------- Directors need be a stockholder of the Corporation but at least one member of the Board of Directors shall be a person who is not an interested person (as such term is defined in the Investment Company Act of 1940, as amended) of the investment adviser of the Corporation nor an officer or employee of the Corporation. [ Investment Company Act, (S) 10(d) ] Section 3.03. ELECTION OF DIRECTORS: Until the first annual meeting of --------------------- shareholders or until successors are duly elected and qualified, the Board of Directors shall consist of the persons named as such in the Articles of Incorporation. Thereafter except as otherwise provided in Sections 3.04 and 3.05 hereof, at each annual meeting, the shareholders shall elect Directors to hold office until the next annual meeting and/or until their successors are elected and qualify. In the event that Directors are not elected at an annual shareholders' meeting, then Directors may be elected at a special shareholders' meeting. Directors shall be elected by vote of the holders of a majority of the shares present in person or by proxy and entitled to vote thereon. [ MGCL, Section 2-404 ] (Section 3.03. Election of Directors, as amended January 21, 1988) --------------------- Section 3.04. REMOVAL OF DIRECTORS: At any meeting of stockholders, duly -------------------- called and at which a quorum is present, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any Director or Directors from office, either with or without cause, and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed Directors. [ MGCL, (S)52 ] Section 3.05. VACANCIES AND NEWLY CREATED DIRECTORSHIPS: If any vacancies ----------------------------------------- shall occur in the Board of Directors by reason of resignation, removal or otherwise, or if the authorized number of Directors shall be increased, the Directors then in office shall continue to act, and such vacancies (if not previously filled by the stockholders) may be filled by a majority of the Directors then in office, whether or not a quorum, provided that, immediately -------- after filling such vacancy, at least two-thirds of the Directors then holding office shall have been elected to such office by the stockholders of the Corporation. In the event that at any time, other than the time preceding the first meeting of stockholders, less than a majority of the Directors of the Corporation holding office at that time were so elected by the stockholders, a meeting of the stockholders shall be held promptly and in any event within 60 days for the purpose of electing Directors to fill any existing vacancies in the Board of Directors unless the Securities and Exchange Commission shall by order extend such period. Except as provided in Section 3.04 hereof, a Director elected by the Board of Directors to fill a vacancy shall be elected to hold office until the next annual meeting of stockholders or until his successor is elected and qualifies. [ MGCL, (S)54, Investment Company Act, (S)16(a) ] Section 3.06. GENERAL POWERS: -------------- (a) The property, affairs and business of the Corporation shall be managed by the Board of Directors, which may exercise all the powers of the Corporation except such as are by law, by the Articles of Incorporation or by these By-Laws conferred upon or reserved to the stockholders of the Corporation. [ MGCL, (S)52(a) ] (b) All acts done by any meeting of the Directors or by any person acting as a Director, so long as his successor shall not have been duly elected or appointed, shall, notwithstanding that it be afterwards discovered that there was some defect in the election of the Directors or such person acting as a Director or that they or any of them were disqualified, be as valid as if the Directors or such person, as the case may be, had been duly elected and were or was qualified to be Directors or a Director of the Corporation. Section 3.07. POWER TO ISSUE AND SELL STOCK: The Board of Directors may ------------------------------ from time to time authorize by resolution the issuance and sale of any of the Corporation's authorized shares to such persons as the Board of Directors shall deem advisable and such resolution shall fix the consideration or minimum consideration for which such shares are to be issued, or a formula or method pursuant to which such consideration is to be fixed and determined, and shall include a fair description of any consideration other than money and a statement of the actual value of such consideration as then determined in the opinion of the Board of Directors or a statement that in the opinion of the Board of Directors such consideration is or will be not less than a stated sum. [ MGCL, (S)20(c) ] Section 3.08. POWER TO DECLARE DIVIDENDS: -------------------------- (a) The Board of Directors, from time to time as they may deem advisable, may declare and the Corporation pay dividends, in cash, property or shares of the Corporation available for dividends, to the stockholders according to their respective rights and interests. [ MGCL, (S)37 ] (b) The Board of Directors shall cause to be accompanied by a written statement any dividend payment wholly or partly from any source other than the Corporation's accumulated undistributed net income (determined in accordance with good accounting practice and the rules and regulations of the Securities and Exchange Commission then in effect) not including profits or losses realized upon the sale of securities or other properties. Such statement shall adequately disclose the source or sources of such payment and the basis of calculation and shall be otherwise in such form as the Securities and Exchange Commission may prescribe. [ Investment Company Act, (S) 19; SEC Rule 19a-1; MGCL, (S)37 ] (c) Notwithstanding the above provisions of this Section 3.08, the Board of Directors may at any time declare and distribute pro rata among the stockholders a stock dividend out of the Corporation's authorized but unissued shares of stock, including any shares previously purchased by the Corporation, provided -------- that such dividend shall not be distributed in shares of any class with respect to any shares of a different class. The shares so distributed shall be issued at the par value thereof, and there shall be transferred to stated capital, at the time such dividend is paid, an amount of surplus equal to the aggregate par value of the shares issued as a dividend and there may be transferred from earned surplus to capital surplus such additional amount as the Board of Directors may determine. [ MGCL, (S)37 ] Section 3.09. ANNUAL AND REGULAR MEETINGS: The annual meeting of the Board --------------------------- of Directors for choosing officers and transacting other proper business shall be held immediately after the annual shareholders' meeting at such place as may be specified in the notice of such meeting of the Board of Directors, or, in the absence of such annual shareholders' meeting, at such time and place as the Board of Directors may provide. The Board of Directors from time to time may provide by resolution for the holding of regular meetings and fix their time and place (within or outside the State of Maryland). [ MGCL, Section 2-409(a) ] (Section 3.09. Annual and Regular Meetings, as amended January 21, 1988) --------------------------- Section 3.l0. SPECIAL MEETINGS: Special meetings of the Board of Directors ---------------- shall be held whenever called by the Chairman of the Board, the President (or, in the absence or disability of the President, by any Vice President), the Treasurer, or two or more Directors, at the time and place (within or outside the State of Maryland) specified in the respective notices or waivers of notice of such meetings. Section 3.11. NOTICE: Notice of annual, regular, and special meetings, ------ stating the time and place, shall be mailed to each Director at his residence or regular place of business or caused to be delivered to him personally or to be transmitted to him by telegraph, cable or wireless at least two days before the day on which the meeting is to be held. Such notice need not include a statement of the business to be transacted at, or the purpose of, the meeting. [ MGCL, (S)56(b) ] Section 3.12. WAIVER OF NOTICE: No notice of any meeting need be given to ---------------- any Director who attends such meeting in person or to any Director who waives notice of such meeting in writing (which waiver shall be filed with the records of such meeting), whether before or after the holding of the meeting. [ MGCL, (S)46 ] Section 3.13. QUORUM AND VOTING: At all meetings of the Board of Directors ----------------- the presence of one-third of the total number of Directors authorized, but not less than two Directors, shall constitute a quorum for the transaction of business. In the absence of a quorum, a majority of the Directors present may adjourn the meeting, from time to time, until a quorum shall be present. The action of a majority of the Directors present at a meeting at which a quorum is present shall be the action of the Board of Directors unless the concurrence of a greater proportion is required for such action by law, by the Articles of Incorporation or by these By-Laws. [ MGCL, (S)56 ] Section 3.14. CONFERENCE TELEPHONE: Members of the Board of Directors or of -------------------- any committee designated by the Board may participate in a meeting of the Board or of such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at such meeting. [ MGCL, (S)56(e) ] Section 3.15. COMPENSATION: Each Director may receive such remuneration for ------------ his services as shall be fixed from time to time by resolution of the Board of Directors. Section 3.16. ACTION WITHOUT A MEETING: Any action required or permitted to ------------------------ be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee and such written consent is filed with the minutes of proceedings of the Board or committee. [ MGCL, (S)58 ] Section 3.17. DIRECTOR EMERITUS: Upon the retirement of a Director of the ----------------- Corporation, the Board of Directors may designate such retired Director as a Director Emeritus. The position of Director Emeritus shall be honorary only and shall not confer upon such Director Emeritus any responsibility, or voting authority, whatsoever with respect to the Corporation. A Director Emeritus may, but shall not be required to attend the meetings of the Board of Directors and receive materials normally provided Directors relating to the Corporation. The Board of Directors may establish such compensation as it may deem appropriate under the circumstances to be paid by the Fund to a Director Emeritus. (Section 3.17. Director Emeritus, as amended January 24, 1979) ----------------- ARTICLE IV ---------- EXECUTIVE COMMITTEE AND OTHER COMMITTEES ---------------------------------------- Section 4.01. HOW CONSTITUTED: By resolution adopted by the Board of --------------- Directors the Board may appoint from among its members one or more committees, including an Executive Committee, each consisting of at least two Directors. Each member of a committee shall hold office during the pleasure of the Board. The President shall be a member of the Executive Committee. [ MGCL, (S)59 ] Section 4.02. POWERS OF THE EXECUTIVE COMMITTEE: Unless otherwise provided --------------------------------- by resolution of the Board of Directors, the Executive Committee, in the intervals between meetings of the Board of Directors, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation except the power to declare a dividend, to issue stock, or to recommend to stockholders any action requiring stockholders' approval. [ MGCL, (S)59 ] Section 4.03. OTHER COMMITTEES OF THE BOARD OF DIRECTORS: To the extent ------------------------------------------ provided by resolution of the Board, other committees shall have and may exercise any of the powers that may lawfully be granted to the Executive Committee. [ MGCL, (S)59 ] Section 4.04. PROCEEDINGS, QUORUM AND MANNER OF ACTING: In the absence of ---------------------------------------- appropriate resolution of the Board of Directors, each committee may adopt such rules and regulations governing its proceedings, quorum and manner of acting as it shall deem proper and desirable, provided that the quorum shall not be less than two Directors. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint a member of the Board of Directors to act in the place of such absent member. [ MGCL, (S)59 ] Section 4.05. OTHER COMMITTEES: The Board of Directors may appoint other ---------------- committees, each consisting of one or more persons who need not be Directors. Each such committee shall have such powers and perform such duties as may be assigned to it from time to time by the Board of Directors, but shall not exercise any power which may lawfully be exercised only by the Board of Directors or a committee thereof. ARTICLE V --------- OFFICERS -------- Section 5.01. GENERAL: The officers of the Corporation shall be a ------- President, one or more Vice Presidents, a Secretary, and a Treasurer, and may include one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.11 hereof. The Board of Directors may elect, but shall not be required to elect, a Chairman of the Board. [ MGCL, (S)60(a) ] Section 5.02. ELECTION, TERM OF OFFICE AND QUALIFICATIONS: The officers of ------------------------------------------- the Corporation (except those appointed pursuant to Section 5.11 hereof) shall be elected by the Board of Directors at its first meeting and thereafter at each annual meeting of the Board. If any officer or officers are not elected at any such meeting, such officer or officers may be elected at any subsequent regular or special meeting of the Board. Except as provided in Sections 5.03, 5.04 and 5.05 hereof, each officer elected by the Board of Directors shall hold office until the next annual meeting of the Board of Directors and until his successor shall have been chosen and qualified. Any person may hold two or more offices of the Corporation, except that neither the Chairman of the Board nor the President may hold the office of Vice President, but no person shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required by law, the Articles of Incorporation or these By-Laws to be executed, acknowledged or verified by two or more officers. The Chairman of the Board and the President shall be selected from among the Directors of the Corporation and may hold such offices only so long as they continue to be Directors. No other officer need be a Director. [ MGCL, Sections 2-413, 2-415 ] (Section 5.02. Election, Term of Office and Qualifications, as amended January -------------------------------------------- 21, 1988) Section 5.03. RESIGNATION: Any officer may resign his office at any time by ----------- delivering a written resignation to the Board of Directors, the President, the Secretary, or any Assistant Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. Section 5.04. REMOVAL: Any officer may be removed from office by the Board ------- of Directors whenever in the Board's judgment the best interests of the Corporation will be served thereby. Section 5.05 VACANCIES AND NEWLY CREATED OFFICES: If any vacancy shall ----------------------------------- occur in any office by reason of death, resignation, removal, disqualification or other cause, or if any new office shall be created, such vacancies or newly created offices may be filled by the Board of Directors at any meeting or, in the case of any office created pursuant to Section 5.11 hereof, by any officer upon whom such power shall have been conferred by the Board of Directors. [ MGCL, (S)60 ] Section 5.06. CHAIRMAN OF THE BOARD: The Chairman of the Board, if there be --------------------- such an officer, shall preside at all stockholders' meetings, and at all meetings of the Board of Directors. He may sign (unless the President or a Vice President shall have signed) certificates representing stock of the Corporation authorized for issuance by the Board of Directors and shall have such other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors. [ MGCL, (S)60 ] Section 5.07. PRESIDENT: The President shall be the chief executive and --------- operating officer of the Corporation and, at the request of or in the absence or disability of the Chairman of the Board or if no Chairman of the Board has been chosen, he shall preside at all stockholders' meetings and at all meetings of the Board of Directors and shall in general exercise the powers and perform the duties of the Chairman of the Board. He shall be ex officio a member of all ---------- standing committees of the Board of Directors. Subject to the supervision of the Board of Directors, he shall have general charge of the business, affairs, property and operation of the Corporation and its officers, employees, and agents. He may sign (unless the Chairman or a Vice President shall have signed) certificates representing stock of the Corporation authorized for issuance by the Board of Directors. Except as the Board of Directors may otherwise order, he may sign in the name and on behalf of the Corporation all deeds, bonds, contracts or agreements. He shall exercise such other powers and perform such other duties as from time to time may be assigned to him by the Board of Directors. [ MGCL, (S)60 ] Section 5.08. VICE PRESIDENT: The Board of Directors shall, from time to -------------- time, designate and elect one or more Vice Presidents who shall have such powers and perform such duties as from time to time may be assigned to them by the Board of Directors or the President. At the request or in the absence or disability of the President, then the Vice President (or, if there are two or more Vice Presidents, then the senior of the Vice Presidents present and able to act) may perform all the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign (unless the Chairman, the President or another Vice President shall have signed) certificates representing stock of the Corporation authorized for issuance by the Board of Directors. [ MGCL, (S)60 ] Section 5.09. TREASURER AND ASSISTANT TREASURERS: The Treasurer shall be ---------------------------------- the principal financial and accounting officer of the Corporation and shall have general charge of the finances and books of account of the Corporation. Except as otherwise provided by the Board of Directors, he shall have general supervision of the funds and property of the Corporation and of the performance by the custodian of its duties with respect thereto. He may countersign (unless an Assistant Treasurer or Secretary or Assistant Secretary shall have countersigned) certificates representing stock of the Corporation authorized for issuance by the Board of Directors. He shall render to the Board of Directors, whenever directed by the Board, an account of the financial condition of the Corporation and of all his transactions as Treasurer; and as soon as possible after the close of each fiscal year he shall make and submit to the Board of Directors a like report for such fiscal year. He shall cause to be prepared annually a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year, which shall be submitted at the annual meeting of stockholders and filed within 20 days thereafter at the principal office of the Corporation in the State of Maryland. He shall perform all the acts incidental to the office of Treasurer, subject to the control of the Board of Directors. Any Assistant Treasurer may perform such duties of the Treasurer as the Treasurer or the Board of Directors may assign, and, in the absence of the Treasurer, he may perform all the duties of the Treasurer. [ MGCL, (S)49(b) ] Section 5.10. SECRETARY AND ASSISTANT SECRETARIES: The Secretary shall ----------------------------------- attend to the giving and serving of all notices of the Corporation and shall record all proceedings of the meetings of the stockholders and Directors in one or more books to be kept for that purpose. He shall keep in safe custody the seal of the Corporation and shall have charge of the records of the Corporation, including the stock books and such other books and papers as the Board of Directors may direct and such books, reports, certificates and other documents required by law to be kept, all of which shall at all reasonable times be open to inspection by any Director. He shall countersign (unless the Treasurer, an Assistant Treasurer or an Assistant Secretary shall have countersigned) certificates representing stock of the Corporation authorized for issuance by the Board of Directors. He shall perform such other duties as appertain to his office or as may be required by the Board of Directors. Any Assistant Secretary may perform such duties of the Secretary as the Secretary or the Board of Directors may assign, and, in the absence of the Secretary, he may perform all the duties of the Secretary. [ MGCL, (S)60 ] Section 5.11. SUBORDINATE OFFICERS: The Board of Directors from time to -------------------- time may appoint such other officers or agents as it may deem advisable, each of whom shall have such title, hold office for such period, have such authority and perform such duties as the Board of Directors may determine. The Board of Directors from time to time may delegate to one or more officers or agents the power to appoint any such subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties. [ MGCL, (S)60(a) ] Section 5.12. REMUNERATION: The salaries or other compensation of the ------------ officers of the Corporation shall be fixed from time to time by resolution of the Board of Directors, except that the Board of Directors may by resolution delegate to any person or group of persons the power to fix the salaries or other compensation of any subordinate officers or agents appointed in accordance with the provisions of Section 5.11 hereof. ARTICLE VI ---------- CUSTODY OF SECURITIES AND CASH ------------------------------ Section 6.01. EMPLOYMENT OF A CUSTODIAN: The Corporation shall place and ------------------------- maintain its securities and similar investments in the custody of a bank or banks, each having an aggregate capital, surplus and undivided profits of not less than $10,000,000. Each such custodian bank shall be appointed and its remuneration fixed by the Board of Directors. [ Investment Company Act, (S)17(f) ] Section 6.02. CENTRAL CERTIFICATE SERVICE: Subject to such rules, --------------------------- regulations and orders as the Securities and Exchange Commission may adopt as necessary or appropriate for the protection of investors, the Corporation's custodian may deposit all or any part of the securities owned by the Corporation in a system for the central handling of securities established by a national securities exchange or national securities association registered with the Commission under the Securities Exchange Act of 1934, or such other person as may be permitted by the Commission, pursuant to which system all securities of any particular class or series of any issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of such securities. [ Investment Company Act, (S)17(f) ] Section 6.03. CASH ASSETS: The cash proceeds from the sale of securities ----------- and similar investments and other cash assets of the Corporation shall be kept in the custody of a bank or banks appointed pursuant to Section 6.01 hereof, or in accordance with such rules and regulations or orders as the Securities and Exchange Commission may from time to time prescribe for the protection of investors, except that the Corporation may maintain a checking account in a bank or banks, each having an aggregate capital, surplus and undivided profits of not less than $10,000,000, provided that the balance of such account or the -------- aggregate balances of such accounts shall at no time exceed the amount of the fidelity bond, maintained pursuant to the requirements of the Investment Company Act of 1940 and rules and regulations thereunder, covering the officers or employees authorized to draw on such account or accounts. [ Investment Company Act, (S)17(f) ] Section 6.04. FREE CASH ACCOUNTS: The Corporation may, upon resolution of ------------------ its Board of Directors, maintain a petty cash account free of the foregoing requirements of this Article VI in an amount not to exceed $500, provided that -------- such account is operated under the imprest system and is maintained subject to adequate controls approved by the Board of Directors over disbursements and reimbursements including, but not limited to, fidelity bond coverage for persons having access to such funds. [ Investment Company Act, Rule 17f-3 ] Section 6.05. ACTION UPON TERMINATION OF CUSTODIAN AGREEMENT: Upon ---------------------------------------------- resignation of a custodian of the Corporation or inability of a custodian to continue to serve, the Board of Directors shall promptly appoint a successor custodian, but in the event that no successor custodian can be found who has the required qualifications and is willing to serve, the Board of Directors shall call as promptly as possible a special meeting of the stockholders to determine whether the Corporation shall function without a custodian or shall be liquidated. If so directed by vote of the holders of a majority of the outstanding shares of stock of the Corporation, the custodian shall deliver and pay over all property of the Corporation held by it as specified in such vote. ARTICLE VII ----------- EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES ---------------------------------------------- Section 7.01. EXECUTION OF INSTRUMENTS: All deeds, documents, transfers, ------------------------ contracts, agreements, requisitions or orders, promissory notes, assignments, endorsements, checks and drafts for the payment of money by the Corporation, and other instruments requiring execution by the Corporation shall be signed by the Chairman, the President, a Vice President, or the Treasurer, or as the Board of Directors may otherwise, from time to time, authorize. Any such authorization may be general or confined to specific instances. Section 7.02. VOTING OF SECURITIES: Unless otherwise ordered by the Board -------------------- of Directors, the Chairman, the President, or any Vice President shall have full power and authority on behalf of the Corporation to attend and to act and to vote, or in the name of the Corporation to execute proxies to vote, at any meeting of stockholders of any company in which the Corporation may hold stock. At any such meeting such officer shall possess and may exercise (in person or by proxy) any and all rights, powers and privileges incident to the ownership of such stock. The Board of Directors may by resolution from time to time confer like powers upon any other person or persons. [ MGCL, (S)44(a) ] ARTICLE VIII ------------ CAPITAL STOCK ------------- Section 8.01. OWNERSHIP OF SHARES: ------------------- (a) Certificates certifying the ownership of shares of the Corporation will not be issued for shares purchased or otherwise acquired after July 1, 1991. The ownership of shares, full or fractional, shall be recorded on the books of the Corporation or its agent. The record books of the Corporation as kept by the Corporation or its agent, as the case may be, shall be conclusive as to the number of shares held from time to time by each such shareholder. The Corporation reserves the right to require the surrender of outstanding certificates if the Board of Directors so determines. [ MGCL, Section 2-210(c) ] (b) Every certificate exchanged, surrendered for redemption or otherwise returned to the Corporation shall be marked "Cancelled" with the date of cancellation. (Section 8.01. Ownership of Shares, as amended July 1, 1991) ------------------- Section 8.02. TRANSFER OF CAPITAL STOCK: ------------------------- (a) Shares of stock of the Corporation shall be transferable only upon the books of the Corporation kept for such purpose and, if one or more certificates representing such shares have been issued, upon surrender to the Corporation or its transfer agent or agents of such certificate or certificates duly endorsed or accompanied by appropriate evidence of assignment, transfer, succession or authority to transfer. (b) The Corporation shall be entitled to treat the holder of record of any share of stock as the absolute owner thereof for all purposes, and accordingly shall not be bound to recognize any legal, equitable or other claim or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by the statutes of the State of Maryland. Section 8.03. TRANSFER AGENTS AND REGISTRARS: The Board of Directors may, ------------------------------ from time to time, appoint or remove transfer agents and registrars of transfers of shares of stock of the Corporation, and it may appoint the same person as both transfer agent and registrar. (Section 8.03. Transfer Agents and Registrars, as amended July 1, 1991) ------------------------------ Section 8.04. TRANSFER REGULATIONS: The shares of stock of the Corporation -------------------- may be freely transferred, and the Board of Directors may, from time to time, adopt lawful rules and regulations with reference to the method of transfer of the shares of stock of the Corporation. Section 8.05. FIXING OF RECORD DATE: The Board of Directors may fix in --------------------- advance a date as a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock, or for any other proper purpose, provided that -------- such record date shall be a date not more than 60 days nor, in the case of a meeting of stockholders, less than 10 days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. In such case, only such stockholders as shall be stockholders of record on the record date so fixed shall be entitled to such notice of, and to vote at, such meeting or adjournment, or to give such consent, or to receive payment of such dividend or other distribution, or to receive such allotment of rights, or to exercise such rights, or to take other action, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after any such record date. [ MGCL, (S)40 ] Section 8.06. LOST, STOLEN OR DESTROYED CERTIFICATES: If a certificate for -------------------------------------- stock of the Corporation is alleged to have been lost, stolen or destroyed, no new certificate will be issued. Instead, ownership of the shares formerly represented by the lost, stolen or destroyed certificate shall be recorded on the books of the Corporation or its agent, in accordance with the provisions of Section 8.01 of these By-Laws. Before recording ownership of such shares, the Board of Directors, or any officer authorized by the Board, may, in its discretion, require the owner of the lost, stolen, or any destroyed certificate (or his legal representative) to give the Corporation a bond or other indemnity, in such form and in such amount as the Board or any such officer may direct and with such surety or sureties as may be satisfactory to the Board of any such officer, sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate. [ MGCL, Section 2-213 ] (Section 8.06. Lost, Stolen or Destroyed Certificates, as amended July 1, 1991 -------------------------------------- ARTICLE IX ---------- FISCAL YEAR, ACCOUNTANT ----------------------- Section 9.01. FISCAL YEAR: The fiscal year of the Corporation shall be the ----------- twelve (12) calendar months beginning on the 1st day of June in each year and ending on the last day of the following May, or such other period of twelve (12) calendar months as the Board of Directors may by resolution prescribe. (Section 9.01. Fiscal Year: as amended November 28, 1973, ------------ January 1, 1983, and January 18, 1994.) Section 9.02. ACCOUNTANTS: ----------- (a) The Corporation shall employ an independent public accountant or firm of independent public accountants as its accountant to examine the accounts of the Corporation and to sign and certify financial statements filed by the Corporation. The accountant's certificates and reports shall be addressed both to the Board of Directors and to the stockholders. (b) A majority of the members of the Board of Directors who are not interested persons (as such term is defined in the Investment Company Act of 1940, as amended) of the Corporation shall select the accountant, by vote cast in person, at any meeting held before the first annual stockholders' meeting, and thereafter shall select the accountant annually, by vote cast in person, at a meeting held within 30 days before or after the beginning of the fiscal year of the Corporation or 30 days before the annual stockholders' meeting in that year. Such selection shall be submitted for ratification or rejection at the next succeeding annual stockholders' meeting. If such meeting shall reject such selection, the accountant shall be selected by majority vote of the Corporation's outstanding voting securities, either at the meeting at which the rejection occurred or at a subsequent meeting of stockholders called for the purpose. (c) Any vacancy occurring between annual meetings, due to the death or resignation of the accountant, may be filled by the vote of a majority of those members of the Board of Directors who are not interested persons (as so defined) of the Corporation, cast in person at a meeting called for the purpose of voting on such action. (d) The employment of the accountant shall be conditioned upon the right of the Corporation by vote of a majority of the outstanding voting securities at any meeting called for the purpose to terminate such employment forthwith without any penalty. [ Investment Company Act, (S)32(a) ] ARTICLE X --------- INDEMNIFICATION AND INSURANCE ----------------------------- Section 10.01. INDEMNIFICATION AND PAYMENT OF EXPENSES IN ADVANCE: The -------------------------------------------------- Corporation shall indemnify any individual ("Indemnitee") who is a present or former director, officer, employee, or agent of the Corporation, or who is or has been serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, who, by reason of his position was, is, or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter collectively referred to as a "Proceeding") against any judgments, penalties, fines, settlements, and reasonable expenses (including attorneys' fees) incurred by such Indemnitee in connection with any Proceeding, to the fullest extent that such indemnification may be lawful under 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. 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. [ MGCL, Section 2-418(k) ] (ARTICLE X, as amended January 21, 1982) --------- ARTICLE XI ---------- AMENDMENTS ---------- Section 11.01. GENERAL: Except as provided in Section 11.02 hereof, all ------- By-Laws of the Corporation, whether adopted by the Board of Directors or the stockholders, shall be subject to amendment, alteration, or repeal, and new By-Laws may be made, by the affirmative vote of a majority of either: (a) the holders of record of the outstanding shares of stock of the Corporation entitled to vote, at any annual or special meeting the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration, repeal, or new By-Law; or (b) the Directors present at any regular or special meeting at which a quorum is present if the notice or waiver of notice thereof or material sent to the Directors in connection therewith on or prior to the last date for the giving of such notice under these By-Laws shall have specified or summarized the proposed amendment, alteration, repeal, or new By-Law. Section 11.02. BY STOCKHOLDERS ONLY: -------------------- (a) No amendment of any section of these By-Laws shall be made except by the stockholders of the Corporation if the stockholders shall have provided in the By-Laws that such section may not be amended, altered, or repealed except by the stockholders. (b) From and after the issue of any shares of the Capital Stock of the Corporation, no amendment of this Article XI shall be made except by the stockholders of the Corporation. ARTICLE XII ----------- MISCELLANEOUS ------------- Section 12.01. USE OF THE TERM "ANNUAL MEETING": The use of the term -------------------------------- "annual meeting" in these By-Laws shall not be construed as implying a requirement that a shareholder meeting be held annually. (ARTICLE XII, MISCELLANEOUS, added January 21, 1988) ------------- EX-99.B8A-CUSTODIAN 4 CUSTODIAN AGREEMENT The Custodian Agreement dated January 28, 1998, as amended, between State Street Bank and Trust Company and T. Rowe Price Funds. 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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"), L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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)) L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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, L:\Trpprod\Edg\Agmts.edg\98Custod.fm (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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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; L:\Trpprod\Edg\Agmts.edg\98Custod.fm (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; L:\Trpprod\Edg\Agmts.edg\98Custod.fm (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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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. L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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. L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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. L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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. L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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. L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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) L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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: ______________________________ L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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: ______________________________ L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS The Custodian Contract of January 28, 1998, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of November 4, 1998, by adding thereto T. Rowe Price 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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. L:\Trpprod\Edg\Agmts.edg\98Custod.fm T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund T. ROWE PRICE VALUE FUND, INC. /s/Henry H. Hopkins By: _____________________________________ Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/Stephen F. Brown By: _____________________________________ Stephen F. Brown, Vice President AMENDMENT NO. 2 TO CUSTODIAN CONTRACT BETWEEN STATE STREET BANK AND TRUST COMPANY AND THE T. ROWE PRICE FUNDS The Custodian Contract of January 28, 1998, as amended November 4, 1998 between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of April 21, 1999, by adding thereto T. Rowe Price Tax-Efficient Funds, Inc., on behalf of T. Rowe Price Tax-Efficient Balanced Fund and T. Rowe Price Tax-Efficient Growth 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm 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 L:\Trpprod\Edg\Agmts.edg\98Custod.fm T. ROWE PRICE TAX-EFFICIENT FUNDS, INC. T. Rowe Price Tax-Efficient Balanced Fund T. Rowe Price Tax-Efficient Growth Fund T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund T. ROWE PRICE SUMMIT FUNDS, INC. T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund T. ROWE PRICE VALUE FUND, INC. /s/ Henry H. Hopkins By: _____________________________________ Henry H. Hopkins, Vice President STATE STREET BANK AND TRUST COMPANY /s/ Ronald E. Logue By: _____________________________________ Ronald E. Logue, Vice Chairman EX-99.B8B-SUBCUST 5 GLOBAL CUSTODY AGREEMENT The Global Custody Agreement dated January 3, 1994, as amended, between The Chase Manhattan Bank, N.A. and T. Rowe Price Funds. GLOBAL CUSTODY AGREEMENT This AGREEMENT is effective January 3, 1994, and is between THE CHASE MANHATTAN BANK, N.A. (the "Bank") and EACH OF THE ENTITIES LISTED ON SCHEDULE A HERETO, Individually and Separately (each individually, the "Customer"). 1. CUSTOMER ACCOUNTS. The Bank agrees to establish and maintain the following accounts ("Accounts"): (a) A custody account in the name of the Customer ("Custody Account") for any and all stocks, shares, bonds, debentures, notes, mortgages or other obligations for the payment of money, bullion, coin and any certificates, receipts, warrants or other instruments representing rights to receive, purchase or subscribe for the same or evidencing or representing any other rights or interests therein and other similar property whether certificated or uncertificated as may be received by the Bank or its Subcustodian (as defined in Section 3) for the account of the Customer ("Securities"); and (b) A deposit account in the name of the Customer ("Deposit Account") for any and all cash in any currency received by the Bank or its Subcustodian for the account of the Customer, which cash shall not be subject to withdrawal by draft or check. The Customer warrants its authority to: 1) deposit the cash and Securities ("Assets") received in the Accounts and 2) give Instructions (as defined in Section 11) concerning the Accounts. The Bank may deliver securities of the same class in place of those deposited in the Custody Account. Upon written agreement between the Bank and the Customer, additional Accounts may be established and separately accounted for as additional Accounts under the terms of this Agreement. 2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS. Unless Instructions specifically require another location acceptable to the Bank: (a) Securities will be held in the country or other jurisdiction in which the principal trading market for such Securities is located, where such Securities are to be presented for payment or where such Securities are acquired; and (b) Cash will be credited to an account in a country or other jurisdiction in which such cash may be legally deposited or is the legal currency for the payment of public or private debts. Cash may be held pursuant to Instructions in either interest or non-interest bearing accounts as may be available for the particular currency. To the extent Instructions are issued and the Bank can comply with such Instructions, the Bank is authorized to maintain cash balances on deposit for the Customer with itself or one of its affiliates at such reasonable rates of interest as may from time to time be paid on such accounts, or in non-interest bearing accounts as the Customer may direct, if acceptable to the Bank. If the Customer wishes to have any of its Assets held in the custody of an institution other than the established Subcustodians as defined in Section 3 (or their securities depositories), such arrangement must be authorized by a written agreement, signed by the Bank and the Customer. 3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES. The Bank may act under this Agreement through the subcustodians listed in Schedule B of this Agreement with which the Bank has entered into subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank to hold Assets in the Accounts in accounts which the Bank has established with one or more of its branches or Subcustodians. The Bank and Subcustodians are authorized to hold any of the Securities in their account with any securities depository in which they participate. The Bank reserves the right to add new, replace or remove Subcustodians. The Customer will be given reasonable notice by the Bank of any amendment to Schedule B. Upon request by the Customer, the Bank will identify the name, address and principal place of business of any Subcustodian of the Customer's Assets and the name and address of the governmental agency or other regulatory authority that supervises or regulates such Subcustodian. 4. USE OF SUBCUSTODIAN. (a) The Bank will identify such Assets on its books as belonging to the Customer. (b) A Subcustodian will hold such Assets together with assets belonging to other customers of the Bank in accounts identified on such Subcustodian's books as special custody accounts for the exclusive benefit of customers of the Bank. (c) Any Assets in the Accounts held by a Subcustodian will be subject only to the instructions of the Bank or its agent. Any Securities held in a securities depository for the account of a Subcustodian will be subject only to the instructions of such Subcustodian. (d) Any agreement the Bank enters into with a Subcustodian for holding its customer's assets shall provide that such assets will not be subject to any right, charge, security interest, lien or claim of any kind in favor of such Subcustodian or its creditors except for a claim for payment for safe custody or administration, and that the beneficial ownership of such assets will be freely transferable without the payment of money or value other than for safe custody or administration. The foregoing shall not apply to the extent of any special agreement or arrangement made by the Customer with any particular Subcustodian. 5. DEPOSIT ACCOUNT TRANSACTIONS. (a) The Bank or its Subcustodians will make payments from the Deposit Account upon receipt of Instructions which include all information required by the Bank. (b) In the event that any payment to be made under this Section 5 exceeds the funds available in the Deposit Account, the Bank, in its discretion, may advance the Customer such excess amount which shall be deemed a loan payable on demand, bearing interest at the rate customarily charged by the Bank on similar loans. (c) If the Bank credits the Deposit Account on a payable date, or at any time prior to actual collection and reconciliation to the Deposit Account, with interest, dividends, redemptions or any other amount due, the Customer will promptly return any such amount upon oral or written notification: (i) that such amount has not been received in the ordinary course of business or (ii) that such amount was incorrectly credited. If the Customer does not promptly return any amount upon such notification, the Bank shall be entitled, upon oral or written notification to the Customer, to reverse such credit by debiting the Deposit Account for the amount previously credited. The Bank or its Subcustodian shall have no duty or obligation to institute legal proceedings, file a claim or a proof of claim in any insolvency proceeding or take any other action with respect to the collection of such amount, but may act for the Customer upon Instructions after consultation with the Customer. 6. CUSTODY ACCOUNT TRANSACTIONS. (a) Securities will be transferred, exchanged or delivered by the Bank or its Subcustodian upon receipt by the Bank of Instructions which include all information required by the Bank. Settlement and payment for Securities received for, and delivery of Securities out of, the Custody Account may be made in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivery of Securities to a purchaser, dealer or their agents against a receipt with the expectation of receiving later payment and free delivery. Delivery of Securities out of the Custody Account may also be made in any manner specifically required by Instructions acceptable to the Bank. (b) The Bank, in its discretion, may credit or debit the Accounts on a contractual settlement date with cash or Securities with respect to any sale, exchange or purchase of Securities. Otherwise, such transactions will be credited or debited to the Accounts on the date cash or Securities are actually received by the Bank and reconciled to the Account. (i) The Bank may reverse credits or debits made to the Accounts in its discretion if the related transaction fails to settle within a reasonable period, determined by the Bank in its discretion, after the contractual settlement date for the related transaction. (ii) If any Securities delivered pursuant to this Section 6 are returned by the recipient thereof, the Bank may reverse the credits and debits of the particular transaction at any time. 7. ACTIONS OF THE BANK. The Bank shall follow Instructions received regarding assets held in the Accounts. However, until it receives Instructions to the contrary, the Bank will: (a) Present for payment any Securities which are called, redeemed or retired or otherwise become payable and all coupons and other income items which call for payment upon presentation, to the extent that the Bank or Subcustodian is actually aware of such opportunities. (b) Execute in the name of the Customer such ownership and other certificates as may be required to obtain payments in respect of Securities. (c) Exchange interim receipts or temporary Securities for definitive Securities. (d) Appoint brokers and agents for any transaction involving the Securities, including, without limitation, affiliates of the Bank or any Subcustodian. (e) Issue statements to the Customer, at times mutually agreed upon, identifying the Assets in the Accounts. The Bank will send the Customer an advice or notification of any transfers of Assets to or from the Accounts. Such statements, advices or notifications shall indicate the identity of the entity having custody of the Assets. Unless the Customer sends the Bank a written exception or objection to any Bank statement within ninety (90) days of receipt, the Customer shall be deemed to have approved such statement. The Bank shall, to the extent permitted by law, be released, relieved and discharged with respect to all matters set forth in such statement or reasonably implied therefrom as though it had been settled by the decree of a court of competent jurisdiction in an action where the Customer and all persons having or claiming an interest in the Customer or the Customer's Accounts were parties if: (a) the Customer has failed to provide a written exception or objection to any Bank statement within ninety (90) days of receipt and where the Customer's failure to so provide a written exception or objection within such ninety (90) day period has limited the Bank's (i) access to the records, materials and other information required to investigate the Customer's exception or objection, and (ii) ability to recover from third parties any amounts for which the Bank may become liable in connection with such exception or objection, or (b) where the Customer has otherwise explicitly approved any such statement. All collections of funds or other property paid or distributed in respect of Securities in the Custody Account shall be made at the risk of the Customer. The Bank shall have no liability for any loss occasioned by delay in the actual receipt of notice by the Bank or by its Subcustodians of any payment, redemption or other transaction regarding Securities in the Custody Account in respect of which the Bank has agreed to take any action under this Agreement. 8. CORPORATE ACTIONS; PROXIES. Whenever the Bank receives information concerning the Securities which requires discretionary action by the beneficial owner of the Securities (other than a proxy), such as subscription rights, bonus issues, stock repurchase plans and rights offerings, or legal notices or other material intended to be transmitted to securities holders ("Corporate Actions"), the Bank will give the Customer notice of such Corporate Actions to the extent that the Bank's central corporate actions department has actual knowledge of a Corporate Action in time to notify its customers. When a rights entitlement or a fractional interest resulting from a rights issue, stock dividend, stock split or similar Corporate Action is received which bears an expiration date, the Bank will endeavor to obtain Instructions from the Customer or its Authorized Person, but if Instructions are not received in time for the Bank to take timely action, or actual notice of such Corporate Action was received too late to seek Instructions, the Bank is authorized to sell such rights entitlement or fractional interest and to credit the Deposit Account with the proceeds or take any other action it deems, in good faith, to be appropriate in which case it shall be held harmless for any such action. The Bank will deliver proxies to the Customer or its designated agent pursuant to special arrangements which may have been agreed to in writing. Such proxies shall be executed in the appropriate nominee name relating to Securities in the Custody Account registered in the name of such nominee but without indicating the manner in which such proxies are to be voted; and where bearer Securities are involved, proxies will be delivered in accordance with Instructions. 9. NOMINEES. Securities which are ordinarily held in registered form may be registered in a nominee name of the Bank, Subcustodian or securities depository, as the case may be. The Bank may without notice to the Customer cause any such Securities to cease to be registered in the name of any such nominee and to be registered in the name of the Customer. In the event that any Securities registered in a nominee name are called for partial redemption by the issuer, the Bank may allot the called portion to the respective beneficial holders of such class of security pro rata or in any other manner that is fair, equitable and practicable. The Customer agrees to hold the Bank, Subcustodians, and their respective nominees harmless from any liability arising directly or indirectly from their status as a mere record holder of Securities in the Custody Account. 10. AUTHORIZED PERSONS. As used in this Agreement, the term "Authorized Person" means employees or agents including investment managers as have been designated by written notice from the Customer or its designated agent to act on behalf of the Customer under this Agreement. Such persons shall continue to be Authorized Persons until such time as the Bank receives Instructions from the Customer or its designated agent that any such employee or agent is no longer an Authorized Person. 11. INSTRUCTIONS. The term "Instructions" means instructions of any Authorized Person received by the Bank, via telephone, telex, TWX, facsimile transmission, bank wire or other teleprocess or electronic instruction or trade information system acceptable to the Bank which the Bank believes in good faith to have been given by Authorized Persons or which are transmitted with proper testing or authentication pursuant to terms and conditions which the Bank may specify. Unless otherwise expressly provided, all Instructions shall continue in full force and effect until canceled or superseded. Any Instructions delivered to the Bank by telephone shall promptly thereafter be confirmed in writing by an Authorized Person (which confirmation may bear the facsimile signature of such Person), but the Customer will hold the Bank harmless for the failure of an Authorized Person to send such confirmation in writing, the failure of such confirmation to conform to the telephone instructions received or the Bank's failure to produce such confirmation at any subsequent time. The Bank may electronically record any Instructions given by telephone, and any other telephone discussions with respect to the Custody Account. The Customer shall be responsible for safeguarding any testkeys, identification codes or other security devices which the Bank shall make available to the Customer or its Authorized Persons. 12. STANDARD OF CARE; LIABILITIES. (a) The Bank shall be responsible for the performance of only such duties as are set forth in this Agreement or expressly contained in Instructions which are consistent with the provisions of this Agreement. Notwithstanding anything to the contrary in this Agreement: (i) The Bank will use reasonable care with respect to its obligations under this Agreement and the safekeeping of Assets. The Bank shall be liable to the Customer for any loss which shall occur as the result of the failure of a Subcustodian to exercise reasonable care with respect to the safekeeping of such Assets to the same extent that the Bank would be liable to the Customer if the Bank were holding such Assets in New York. In the event of any loss to the Customer by reason of the failure of the Bank or its Subcustodian to utilize reasonable care, the Bank shall be liable to the Customer only to the extent of the Customer's direct damages, and shall in no event be liable for any special or consequential damages. (ii) The Bank will not be responsible for any act, omission, default or for the solvency of any broker or agent which it or a Subcustodian appoints unless such appointment was made negligently or in bad faith or for any loss due to the negligent act of such broker or agent except to the extent that such broker or agent (other than a Subcustodian) performs in a negligent manner which is the cause of the loss to the Customer and the Bank failed to exercise reasonable care in monitoring such broker's or agent's performance where Customer has requested and Bank has agreed to accept such monitoring responsibility. (iii) The Bank shall be indemnified by, and without liability to the Customer for any action taken or omitted by the Bank whether pursuant to Instructions or otherwise within the scope of this Agreement if such act or omission was in good faith, without negligence. In performing its obligations under this Agreement, the Bank may rely on the genuineness of any document which it believes in good faith to have been validly executed. (iv)The Customer agrees to pay for and hold the Bank harmless from any liability or loss resulting from the imposition or assessment of any taxes or other governmental charges, and any related expenses with respect to income from or Assets in the Accounts, except to the extent that the Bank has failed to exercise reasonable care in performing any obligations which the Bank may have agreed to assume (in addition to those stated in this Agreement) with respect to taxes and such failure by the Bank is the direct cause of such imposition or assessment of such taxes, charges or expenses. (v) The Bank shall be entitled to rely, and may act, upon the advice of counsel (who may be counsel for the Customer) on all legal matters and shall be without liability for any action reasonably taken or omitted pursuant to such advice; provided, that the Bank gives (to the extent practicable) prior notice to Customer of Bank's intention to so seek advice of counsel and an opportunity for consultation with Customer on the proposed contact with counsel. (vi) The Bank represents and warrants that it currently maintain a banker's blanket bond which provides standard fidelity and non-negligent loss coverage with respect to the Securities and Cash which may be held by Subcustodians pursuant to this Agreement. The Bank agrees that if at any time it for any reason discontinues such coverage, it shall immediately give sixty (60) days' prior written notice to the Customer. The Bank need not maintain any insurance for the benefit of the Customer. (vii) Without limiting the foregoing, the Bank shall not be liable for any loss which results from: (1) the general risk of investing, or (2) investing or holding Assets in a particular country including, but not limited to, losses resulting from nationalization, expropriation or other governmental actions; regulation of the banking or securities industry; currency restrictions, devaluations or fluctuations; and market conditions which prevent the orderly execution of securities transactions or affect the value of Assets. (viii) Neither party shall be liable to the other for any loss due to forces beyond their control including, but not limited to strikes or work stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion, fission or radiation, or acts of God. (b) Consistent with and without limiting the first paragraph of this Section 12, it is specifically acknowledged that the Bank shall have no duty or responsibility to: (i) question Instructions or make any suggestions to the Customer or an Authorized Person regarding such Instructions; (ii) supervise or make recommendations with respect to investments or the retention of Securities; (iii) advise the Customer or an Authorized Person regarding any default in the payment of principal or income of any security other than as provided in Section 5(c) of this Agreement; (iv) evaluate or report to the Customer or an Authorized Person regarding the financial condition of any broker, agent (other than a Subcustodian) or other party to which Securities are delivered or payments are made pursuant to this Agreement; (v) review or reconcile trade confirmations received from brokers. The Customer or its Authorized Persons (as defined in Section 10) issuing Instructions shall bear any responsibility to review such confirmations against Instructions issued to and statements issued by the Bank. (c) The Customer authorizes the Bank to act under this Agreement notwithstanding that the Bank or any of its divisions or affiliates may have a material interest in a transaction, or circumstances are such that the Bank may have a potential conflict of duty or interest including the fact that the Bank or any of its affiliates may provide brokerage services to other customers, act as financial advisor to the issuer of Securities, act as a lender to the issuer of Securities, act in the same transaction as agent for more than one customer, have a material interest in the issue of Securities, or earn profits from any of the activities listed herein. 13. FEES AND EXPENSES. The Customer agrees to pay the Bank for its services under this Agreement such amount as may be agreed upon in writing, together with the Bank's reasonable out-of-pocket or incidental expenses, including, but not limited to, reasonable legal fees. The Bank shall have a lien on and is authorized to charge any Accounts of the Customer for any amount owing to the Bank under any provision of this Agreement upon notice to the Customer. 14. MISCELLANEOUS. (a) Foreign Exchange Transactions. Pursuant to Instructions, which may be ------------------------------ standing Instructions, to facilitate the administration of the Customer's trading and investment activity, the Bank is authorized to enter into spot or forward foreign exchange contracts with the Customer or an Authorized Person for the Customer and may also provide foreign exchange through its subsidiaries or Subcustodians. The Bank may establish rules or limitations concerning any foreign exchange facility made available. In all cases where the Bank, its subsidiaries, affiliates or Subcustodians enter into a foreign exchange contract related to Accounts, the terms and conditions of the then current foreign exchange contract of the Bank, its subsidiary, affiliate or Subcustodian and, to the extent not inconsistent, this Agreement shall apply to such transaction. (b) Certification of Residency, etc. The Customer certifies that it is a -------------------------------- resident of the United States and agrees to notify the Bank of any changes in residency. The Bank may rely upon this certification or the certification of such other facts as may be required to administer the Bank's obligations under this Agreement. The Customer will indemnify the Bank against all losses, liability, claims or demands arising directly or indirectly from any such certifications. (c) Access to Records. The Bank shall allow the Customer's independent public ------------------ accountants, officers and advisers reasonable access to the records of the Bank relating to the Assets as is required in connection with their examination of books and records pertaining to the Customer's affairs. Subject to restrictions under applicable law, the Bank shall also obtain an undertaking to permit the Customer's independent public accountants reasonable access to the records of any Subcustodian which has physical possession of any Assets as may be required in connection with the examination of the Customer's books and records. (d) Governing Law; Successors and Assigns. This Agreement shall be governed -------------------------------------- by the laws of the State of New York and shall not be assignable by either party, but shall bind the successors in interest of the Customer and the Bank. (e) Entire Agreement; Applicable Riders. Customer represents that the Assets ------------------------------------ deposited in the Accounts are (Check one): X <1> Employee Benefit Plan or other assets subject to the Employee -- ---- Retirement Income Security Act of 1974, as amended ("ERISA"); X /2/ Mutual Fund assets subject to certain Securities and Exchange -- Commission ("SEC") rules and regulations; X /3/ Neither of the above. -- With respect to each Customer, this Agreement consists exclusively of this document together with Schedules A, B, Exhibits I - _______ and the following Rider(s) to the extent indicated on Schedule A hereto opposite the name of the Customer under the column headed "Applicable Riders to Agreement": X ERISA - - X MUTUAL FUND - - SPECIAL TERMS AND CONDITIONS --- There are no other provisions of this Agreement and this Agreement supersedes any other agreements, whether written or oral, between the parties. Any amendment to this Agreement must be in writing, executed by both parties. (f) Severability. In the event that one or more provisions of this Agreement ------------- are held invalid, illegal or enforceable in any respect on the basis of any particular circumstances or in any jurisdiction, the validity, legality and enforceability of such provision or provisions under other circumstances or in other jurisdictions and of the remaining provisions will not in any way be affected or impaired. (g) Waiver. Except as otherwise provided in this Agreement, no failure or ------- delay on the part of either party in exercising any power or right under this Agreement operates as a waiver, nor does any single or partial exercise of any power or right preclude any other or further exercise, or the exercise of any other power or right. No waiver by a party of any provision of this Agreement, or waiver of any breach or default, is effective unless in writing and signed by the party against whom the waiver is to be enforced. (h) Notices. All notices under this Agreement shall be effective when -------- actually received. Any notices or other ------------------------- 1. With respect to each Customer listed on Schedule A hereto under the heading "ERISA Trusts." 2. With respect to each Customer listed on Schedule A hereto under the heading "Investment Companies/Portfolios Registered Under the Investment Company Act of 1940." 3. With respect to certain of the Customers listed on Schedule A hereto under the heading "Separate Accounts" as indicated on Schedule A. (h) Notices. All notices under this Agreement shall be effective when -------- actually received. Any notices or other EACH OF THE CUSTOMERS, INDIVIDUALLY AND SEPARATELY LISTED ON SECTION III OF SCHEDULE A HERETO By: /s/Alvin M. Younger Alvin M. Younger Treasurer THE CHASE MANHATTAN BANK, N.A. By: /s/Alan Naughton Alan Naughton Vice President Schedule A Page 1 of 2 LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO GLOBAL CUSTODY AGREEMENT WITH THE CHASE MANHATTAN BANK, N.A. DATED JANUARY 3, 1994 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT I. INVESTMENT COMPANIES/PORTFOLIOS The Mutual Fund Rider is REGISTERED UNDER THE INVESTMENT applicable to all Customers COMPANY ACT OF 1940 listed under Section I of this Schedule A. Equity Funds ------------ T. Rowe Price Balanced Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Capital Appreciation Fund T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. Institutional International Funds, Inc. on behalf of: Foreign Equity Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price European Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price New Asia Fund T. Rowe Price Mid-Cap Growth Fund, Inc. T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price OTC Fund, Inc. on behalf of: T. Rowe Price OTC Fund T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Small Cap Value Fund, Inc. CUNA Mutual Funds, Inc. on behalf of: CUNA Mutual Cornerstone Fund Schedule A Page 2 of 2 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT -------- ------------------------ Income Funds ------------ T. Rowe Price Adjustable Rate U.S. Government Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price New Income Fund, Inc. T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Summit Funds, Inc. on behalf of: T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Global Government Bond Fund T. Rowe Price International Bond Fund T. Rowe Price Short-Term Global Income Fund APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is applicable to all Customers Under Section II of this Schedule A. T. Rowe Price Trust Company as Trustee for the Johnson Matthey Salaried Common Trust Funds ------ ----- ----- T. Rowe Price Trust Company, as Trustee for the International Common Trust Fund on behalf of the Underlying Trusts: Foreign Discovery Trust Foreign Discovery Trust-Augment Pacific Discovery Trust European Discovery Trust Japan Discovery Trust Latin American Discovery Trust New York City International Common Trust Fund III. OTHER No Riders are applicable to the Customer listed RPFI International Partners, L.P. under Section III of this Schedule A. ERISA RIDER TO GLOBAL CUSTODY AGREEMENT BETWEEN THE CHASE MANHATTAN BANK, N.A. AND EACH OF THE ENTITIES LISTED ON SCHEDULE A HERETO EFFECTIVE JANUARY 3, 1994 Customer represents that the Assets being placed in the Bank's custody are subject to ERISA. It is understood that in connection therewith the Bank is a service provider and not a fiduciary of the plan and trust to which the assets are related. The Bank shall not be considered a party to the underlying plan and trust and the Customer hereby assumes all responsibility to assure that Instructions issued under this Agreement are in compliance with such plan and trust and ERISA. This Agreement will be interpreted as being in compliance with the Department of Labor Regulations Section 2550.404b-1 concerning the maintenance of indicia of ownership of plan assets outside of the jurisdiction of the district courts of the United States. The following modifications are made to the Agreement: Section 3. Subcustodians and Securities Depositories. ------------------------------------------ Add the following language to the end of Section 3: As used in this Agreement, the term Subcustodian and the term securities depositories include a branch of the Bank, a branch of a qualified U.S. bank, an eligible foreign custodian, or an eligible foreign securities depository, where such terms shall mean: (a) "qualified U.S. bank" shall mean a U.S. bank as described in paragraph (a)(2)(ii)(A)(1) of the Department of Labor Regulations Section 2550.404b-1; (b) "eligible foreign custodian" shall mean a banking institution incorporated or organized under the laws of a country other than the United States which is supervised or regulated by that country's government or an agency thereof or other regulatory authority in the foreign jurisdiction having authority over banks; and (c) "eligible foreign securities depository" shall mean a securities depository or clearing agency, incorporated or organized under the laws of a country other than the United States, which is supervised or regulated by that country's government or an agency thereof or other regulatory authority in the foreign jurisdiction having authority over such depositories or clearing agencies and which is described in paragraph (c)(2) of the Department of Labor Regulations Section 2550.404b-1. Section 4. Use of Subcustodian. -------------------- Subsection (d) of this section is modified by deleting the last sentence. Section 5. Deposit Account Payments. ------------------------- Subsection (b) is amended to read as follows: (b) In the event that any payment made under this Section 5 exceeds the funds available in the Deposit Account, such discretionary advance shall be deemed a service provided by the Bank under this Agreement for which it is entitled to recover its costs as may be determined by the Bank in good faith. Section 10. Authorized Persons. ------------------ Add the following paragraph at the end of Section 10: Customer represents that: a) Instructions will only be issued by or for a fiduciary pursuant to Department of Labor Regulation Section 404b-1 (a)(2)(i) and b) if Instructions are to be issued by an investment manager, such entity will meet the requirements of Section 3(38) of ERISA and will have been designated by the Customer to manage assets held in the Customer Accounts ("Investment Manager"). An Investment Manager may designate certain of its employees to act as Authorized Persons under this Agreement. Section 14(a). Foreign Exchange Transactions. ------------------------------ Add the following paragraph at the end of Subsection 14(a): Instructions to execute foreign exchange transactions with the Bank, its subsidiaries, affiliates or Subcustodians will include (1) the time period in which the transaction must be completed; (2) the location i.e., Chase New York, ---- Chase London, etc. or the Subcustodian with whom the contract is to be executed and (3) such additional information and guidelines as may be deemed necessary; and, if the Instruction is a standing Instruction, a provision allowing such Instruction to be overridden by specific contrary Instructions. MUTUAL FUND RIDER TO GLOBAL CUSTODY AGREEMENT BETWEEN THE CHASE MANHATTAN BANK, N.A. AND EACH OF THE ENTITIES LISTED ON SCHEDULE A HERETO EFFECTIVE JANUARY 3, 1994 Customer represents that the Assets being placed in the Bank's custody are subject to the Investment Company Act of 1940 (the Act), as the same may be amended from time to time. Except to the extent that the Bank has specifically agreed to comply with a condition of a rule, regulation, interpretation promulgated by or under the authority of the SEC or the Exemptive Order applicable to accounts of this nature issued to the Bank (Investment Company Act of 1940, Release No. 12053, November 20, 1981), as amended, or unless the Bank has otherwise specifically agreed, the Customer shall be solely responsible to assure that the maintenance of Assets under this Agreement complies with such rules, regulations, interpretations or exemptive order promulgated by or under the authority of the Securities Exchange Commission. The following modifications are made to the Agreement: Section 3. Subcustodians and Securities Depositories. ------------------------------------------ Add the following language to the end of Section 3: The terms Subcustodian and securities depositories as used in this Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign custodian or an eligible foreign securities depository, which are further defined as follows: (a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined in Rule 17f-5 under the Investment Company Act of 1940; (b) "eligible foreign custodian" shall mean (i) a banking institution or trust company incorporated or organized under the laws of a country other than the United States that is regulated as such by that country's government or an agency thereof and that has shareholders' equity in excess of $200 million in U.S. currency (or a foreign currency equivalent thereof), (ii) a majority owned direct or indirect subsidiary of a qualified U.S. bank or bank holding company that is incorporated or organized under the laws of a country other than the United States and that has shareholders' equity in excess of $100 million in U.S. currency (or a foreign currency equivalent thereof)(iii) a banking institution or trust company incorporated or organized under the laws of a country other than the United States or a majority owned direct or indirect subsidiary of a qualified U.S. bank or bank holding company that is incorporated or organized under the laws of a country other than the United States which has such other qualifications as shall be specified in Instructions and approved by the Bank; or (iv) any other entity that shall have been so qualified by exemptive order, rule or other appropriate action of the SEC; and (c) "eligible foreign securities depository" shall mean a securities depository or clearing agency, incorporated or organized under the laws of a country other than the United States, which operates (i) the central system for handling securities or equivalent book-entries in that country, or (ii) a transnational system for the central handling of securities or equivalent book-entries. The Customer represents that its Board of Directors has approved each of the Subcustodians listed in Schedule B to this Agreement and the terms of the subcustody agreements between the Bank and each Subcustodian, which are attached as Exhibits I through of Schedule B, and further represents that its Board ---- has determined that the use of each Subcustodian and the terms of each subcustody agreement are consistent with the best interests of the Fund(s) and its (their) shareholders. The Bank will supply the Customer with any amendment to Schedule B for approval. As requested by the Bank, the Customer will supply the Bank with certified copies of its Board of Directors resolution(s) with respect to the foregoing prior to placing Assets with any Subcustodian so approved. Section 11. Instructions. ------------- Add the following language to the end of Section 11: Deposit Account Payments and Custody Account Transactions made pursuant to Section 5 and 6 of this Agreement may be made only for the purposes listed below. Instructions must specify the purpose for which any transaction is to be made and Customer shall be solely responsible to assure that Instructions are in accord with any limitations or restrictions applicable to the Customer by law or as may be set forth in its prospectus. (a) In connection with the purchase or sale of Securities at prices as confirmed by Instructions; (b) When Securities are called, redeemed or retired, or otherwise become payable; (c) In exchange for or upon conversion into other securities alone or other securities and cash pursuant to any plan or merger, consolidation, reorganization, recapitalization or readjustment; (d) Upon conversion of Securities pursuant to their terms into other securities; (e) Upon exercise of subscription, purchase or other similar rights represented by Securities; (f) For the payment of interest, taxes, management or supervisory fees, distributions or operating expenses; (g) In connection with any borrowings by the Customer requiring a pledge of Securities, but only against receipt of amounts borrowed; (h) In connection with any loans, but only against receipt of adequate collateral as specified in Instructions which shall reflect any restrictions applicable to the Customer; (i) For the purpose of redeeming shares of the capital stock of the Customer and the delivery to, or the crediting to the account of, the Bank, its Subcustodian or the Customer's transfer agent, such shares to be purchased or redeemed; (j) For the purpose of redeeming in kind shares of the Customer against delivery to the Bank, its Subcustodian or the Customer's transfer agent of such shares to be so redeemed; (k) For delivery in accordance with the provisions of any agreement among the Customer, the Bank and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Customer; (l) For release of Securities to designated brokers under covered call options, provided, however, that such Securities shall be released only upon payment to the Bank of monies for the premium due and a receipt for the Securities which are to be held in escrow. Upon exercise of the option, or at expiration, the Bank will receive from brokers the Securities previously deposited. The Bank will act strictly in accordance with Instructions in the delivery of Securities to be held in escrow and will have no responsibility or liability for any such Securities which are not returned promptly when due other than to make proper request for such return; (m) For spot or forward foreign exchange transactions to facilitate security trading, receipt of income from Securities or related transactions; (n) For other proper purposes as may be specified in Instructions issued by an officer of the Customer which shall include a statement of the purpose for which the delivery or payment is to be made, the amount of the payment or specific Securities to be delivered, the name of the person or persons to whom delivery or payment is to be made, and a certification that the purpose is a proper purpose under the instruments governing the Customer; and o) Upon the termination of this Agreement as set forth in Section 14(i). Section 12. Standard of Care; Liabilities. ------------------------------ Add the following subsection (c) to Section 12: (c) The Bank hereby warrants to the Customer that in its opinion, after due inquiry, the established procedures to be followed by each of its branches, each branch of a qualified U.S. bank, each eligible foreign custodian and each eligible foreign securities depository holding the Customer's Securities pursuant to this Agreement afford protection for such Securities at least equal to that afforded by the Bank's established procedures with respect to similar securities held by the Bank and its securities depositories in New York. Section 14. Access to Records. ------------------ Add the following language to the end of Section 14(c): Upon reasonable request from the Customer, the Bank shall furnish the Customer such reports (or portions thereof) of the Bank's system of internal accounting controls applicable to the Bank's duties under this Agreement. The Bank shall endeavor to obtain and furnish the Customer with such similar reports as it may reasonably request with respect to each Subcustodian and securities depository holding the Customer's assets. GLOBAL CUSTODY AGREEMENT WITH ----------------------------------- DATE ----------------------------------- SPECIAL TERMS AND CONDITIONS RIDER ---------------------------------- January, 1994 B SUB-CUSTODIANS EMPLOYED BY -------------------------- THE CHASE MANHATTAN BANK, N.A. LONDON, GLOBAL CUSTODY ----------------------------------------------------- COUNTRY SUB-CUSTODIAN CORRESPONDENT BANK ARGENTINA The Chase Manhattan Bank, The Chase Manhattan N.A., Main Branch Bank, N.A. 25 De Mayo 130/140 Buenos Aires Buenos Aires ARGENTINA AUSTRALIA The Chase Manhattan Bank, The Chase Manhattan Bank Australia Limited Australia Limited Sydney 36th Floor World Trade Centre Jamison Street Sydney New South Wales 2000 AUSTRALIA AUSTRIA Creditanstalt - Bankvereln Credit Lyonnais Vienna Schottengasse 6 A - 1011, Vienna AUSTRIA BANGLADESH Standard Chartered Bank Standard Chartered Bank 18-20 Motijheel C.A. Dhaka Box 536, Dhaka-1000 BANGLADESH BELGIUM Generale Bank Credit Lyonnais Bank 3 Montagne Du Parc Brussels 1000 Bruxelles BELGIUM BOTSWANA Standard Chartered Bank Standard Chartered Bank Botswana Ltd. Botswana Ltd. 4th Floor Commerce House Gabarone The Mall Gaborone BOTSWANA BRAZIL Banco Chase Manhattan, S.A. Banco Chase Manhattan Chase Manhattan Center S.A., Sao Paolo Rua Verbo Divino, 1400 Sao Paulo, SP 04719-002 BRAZIL CANADA The Royal Bank of Canada Toronto Dominion Bank Royal Bank Plaza Toronto Toronto Ontario M5J 2J5 CANADA Canada Trust Toronto Dominion Bank Canada Trust Tower Toronto BCE Place 161 Bay at Front Toronto Ontario M5J 2T2 CANADA CHILE The Chase Manhattan Bank, The Chase Manhattan N.A., Agustinas 1235 Bank, N.A., Santiago Casilla 9192 Santiago CHILE COLOMBIA Cititrust Colombia S.A. Cititrust Colombia S.A. Sociedad Fiduciaria Sociedad Fiduciaria Av. Jimenez No 8-89 Santafe de Bogota Santafe de Bogota, DC COLOMBIA CZECH Ceskoslovenska Obchodni Ceskoslovenska REPUBLIC Banka, A.S.; Na Prikoope 14 Obchodni Banka, A.S. 115 20 Praha 1 Praha CZECH REPUBLIC DENMARK Den Danske Bank Den Danske Bak 2 Holmens Kanala DK 1091 Copenhagen Copenhagen DENMARK EUROBONDS Cedel S.A. A/c No. 17817 67 Blvd Grande Duchesse ECU:Lloyds Bank PLC Charlotte LUXEMBOURG International Banking Dividion A/c Chase Manhattan Bank, London N.A. London For all other currencies: see relevant country EURO CDS First Chicago Clearing Centre ECU:Lloyds Bank PLC 27 Leadenhall Street Banking Division London London EC3A 1AA For all other UK currencies: see relevant country FINLAND Kansallis-Osake-Pankki Kanasallis-Osake-Pankki Aleksanterinkatu 42 00100 Helsinki 10 FINLAND FRANCE Banque Paribas Societe Generale Paris Ref 256 BP 141 3, Rue D'Antin 75078 Paris Cedex 02 FRANCE GERMANY Chase Bank A.G. Chase Bank A.G. Alexanderstrasse 59 Frankfurt Postfach 90 01 09 60441 Frankfurt/Main GERMANY GREECE National Bank of Greece S.A. National Bank of Greece 38 Stadiou Street S.A. Athens Athens A/c Chase Manhattan GREECE Bank, N.A., London A/c No. 040/7/921578-68 HONG KONG The Chase Manhattan Bank,NA The Chase Manhattan 40/F One Exchange Square Bank, N.A., Hong Kong 8, Connaught Place Central, Hong Kong HONG KONG HUNGARY Citibank Budapest Rt. Citibank Budapest Rt. Vaci Utca 19-21 Budapest 1052 Budapest V HUNGARY INDIA The Hongkong and Shanghai The Hongkong and Banking Corporation Limited Shanghai Banking 52/60 Mahatma Gandhi Road Corporation Limited, Bombay 400 001 Bombay INDIA INDONESIA The Hongkong and Shanghai The Chase Manhattan Banking Corporation Limited Bank, N.A., Jakarta World Trade Center J1. Jend Sudirman Kav. 29-31 Jakarta 10023 INDONESIA IRELAND Bank of Ireland Allied Irish Bank Dublin International Financial Services Centre 1 Hargourmaster Place Dublin 1 IRELAND ISRAEL Bank Leumi Le-Israel B.M. Bank Leumi Le-Israel 19 Herzi Street B.M., Tel Aviv 65136 Tel Aviv ISRAEL ITALY The Chase Manhattan Bank, The Chase Manhattan N.A., Piazza Meda 1 Bank, N.A., Milan 20121 Milan ITALY JAPAN The Chase Manhattan Bank, The Chase Manhattan N.A.,1-3 Marunouchi 1-Chome Bank, N.A., Tokyo Chiyoda-Ku Tokyo 100 JAPAN JORDAN Arab Bank Limited Arab Bank Limited P.O. Box 950544-5 Amman Amman Shmeisani JORDAN LUXEMBOURG Banque Generale du Luxembourg Banque Generale du S.A., 27 Avenue Monterey Luxembourg S.A. LUXEMBOURG Luxembourg MALAYSIA The Chase Manhattan Bank, The Chase Manhattan N.A., Pernas International Bank, N.A., Kuala Lumpur Jalan Sultan Ismail 50250, Kuala Lumpur MALAYSIA MEXICO The Chase Manhattan Bank, No correspondent Bank N.A., Hamburgo 213, Piso 7 (Equities) 06660 Mexico D.F. MEXICO (Government Banco Nacional de Mexico, Banque Commerciale du Bonds) Avenida Juarez No. Maroc 104-11 Piso Casablanca 06040 Mexico D.F. MEXICO NETHERLANDS ABN AMRO N.V. Credit Lyonnais Securities Centre Bank Nederland N.V. P.O. Box 3200 Rotterdam 4800 De Breda NETHERLANDS NEW ZEALAND National Nominees Limited National Bank of New Zealand Level 2 BNZ Tower Wellington 125 Queen Street Auckland NEW ZEALAND NORWAY Den Norske Bank Den Norske Bank Kirkegaten 21 Oslo Oslo 1 NORWAY PAKISTAN Citibank N.A. Citibank N.A. State Life Building No.1 Karachi I.I. Chundrigar Road Karachi PAKISTAN PERU Citibank, N.A. Citibank N.A. Lima Camino Real 457 CC Torre Real - 5th Floor San Isidro, Lima 27 PERU PHILIPPINES The Hongkong and Shanghai The Hongkong and Shaghai Banking Corporation Limited Banking Corporation Hong Kong Bank Centre 3/F Limited, Manila San Miguel Avenue Ortigas Commercial Centre Pasig Metro Manila PHILIPPINES POLAND Bank Polska Kasa Opieki Bank Potska Kasa Opieki S.A., 6/12 Nowy Swiat Str S.A., Warsaw 00-920 Warsaw POLAND PORTUGAL Banco Espirito Santo & Banco Pinto & Comercial de Lisboa Sotto Mayor Servico de Gestaode Titulos Avenida Fontes R. Mouzinho da Silvelra, Pereira de Melo 36 r/c, 1200 Lisbon 1000 Lisbon PORTUGAL SHANGHAI The Hongkong and Shanghai The Chase Manhattan (CHINA) Banking Corporation Limited Bank, N.A.,Hong Kong Shanghai Branch Corporate Banking Centre Unit 504, 5/F Shanghai Centre 1376 Hanjing Xi Lu Shanghai THE PEOPLE'S REPUBLIC OF CHINA SCHENZHEN The Hongkong and Shanghai The Chase Manhattan (CHINA) Banking Corporation Limited Bank, N.A., Hong Kong 1st Floor Central Plaza Hotel No. 1 Chun Feng Lu Shenzhen THE PEOPLE'S REPUBLIC OF CHINA SINGAPORE The Chase Manhattan Bank, The Chase Manhattan N.A. Bank, N.A. Shell Tower Singapore 50 Raffles Place Singapore 0104 SINGAPORE SOUTH KOREA The Hongkong & Shanghai The Hongkong & Shanghai Banking Corporation Limited Banking Corporation 6/F Kyobo Building Limited, Seoul #1 Chongro, 1-ka Chongro-Ku, Seoul SOUGH KOREA SPAIN The Chase Manhattan Bank, Banco Zaragozano, S.A. N.A.,Calle Peonias 2 Madrid 7th Floor La Piovera 28042 Madrid SPAIN URUGUAY The First National Bank The First National Bank of Boston of Boston Zabala 1463 Montevideo Montevideo URUGUAY U.S.A The Chase Manhattan Bank, The Chase Manhattan N.A. Bank, N.A. 1 Chase Manhattan Plaza New York New York NY 10081 U.S.A. VENEZUELA Citibank N.A. Citibank N.A. Carmelitas a Altagracia Caracas Edificio Citibank Caracas 1010 VENEZUELA AMENDMENT AGREEMENT AMENDMENT AGREEMENT, dated as of April 18, 1994 (the "AMENDMENT AGREEMENT") to the Global Custody Agreement, effective January 3, 1994 (the "CUSTODY AGREEMENT") by and between each of the Entities listed in Attachment A hereto, separately and individually (each such entity referred to hereinafter as the "CUSTOMER") and THE CHASE MANHATTAN BANK, N.A. (the "BANK"). Terms defined in the Custody Agreement are used herein as therein defined. WITNESSETH: WHEREAS, the Customer wishes to appoint the Bank as its global custodian and the bank wishes to accept such appointment pursuant to the terms of the Custody Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Amendment. Section I of Schedule A of the Custody Agreement ("SCHEDULE --------- A") shall be amended to add each Customer listed in Attachment A hereto. The revised Schedule A incorporating these changes in the form attached hereto as Attachment B shall supersede the existing Schedule A in its entirety. 2. Agreement. The Customer agrees to be bound in all respects by all the --------- terms and conditions of the Custody Agreement and shall be fully liable thereunder as a "Customer" as defined in the Custody Agreement. 3. Confirmation of Agreement. Except as amended hereby, the Custody ------------------------- Agreement is in full force and effect and as so amended is hereby ratified, approved and confirmed by the Customer and the Bank in all respects. 4. Governing Law. This Amendment Agreement shall be construed in ------------- accordance with and governed by the law of the State of New York without regard to its conflict of law principles. IN WITNESS WHEREOF, the parties have executed this Amendment Agreement as of the day and year first above written. THE CHASE MANHATTAN BANK, N.A. By: /s/Alan P. Naughton Alan P. Naughton Vice President EACH OF THE CUSTOMERS LISTED IN ATTACHMENT A HERETO, SEPARATELY AND INDIVIDUALLY By: /s/Carmen F. Deyesu Carmen F. Deyesu Treasurer Attachment A LIST OF CUSTOMERS T. Rowe Price International Series, Inc. on behalf of the T. Rowe Price International Stock Portfolio T. Rowe Price Equity Series, Inc. on behalf of the T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price New America Growth Fund, Inc. T. Rowe Price Income Series, Inc. on behalf of T. Rowe Price Limited-Term Bond Portfolio Attachment B Schedule A Page 1 of 2 LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO GLOBAL CUSTODY AGREEMENT WITH THE CHASE MANHATTAN BANK, N.A. DATED JANUARY 3, 1993 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT I. INVESTMENT COMPANIES/PORTFOLIOS The Mutual Fund Rider is REGISTERED UNDER THE INVESTMENT applicable to all Customers COMPANY ACT OF 1940 listed under Section I of this Schedule A. Equity Funds ------------ T. Rowe Price Balanced Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Capital Appreciation Fund T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. Institutional International Funds, Inc. on behalf of: Foreign Equity Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price European Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price New Asia Fund T. Rowe Price International Series, Inc., on behalf of: T. Rowe Price International Stock Portfolio T. Rowe Price Mid-Cap Growth Fund, Inc. T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price OTC Fund, Inc. on behalf of: T. Rowe Price OTC Fund T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Small-Cap Value Fund, Inc. CUNA Mutual Funds, Inc. on behalf of: CUNA Mutual Cornerstone Fund T. Rowe Price Equity Series, Inc. on behalf of: T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price New America Growth Fund, Inc. Attachment B Schedule A Page 2 of 2 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY -------- -------------- AGREEMENT ---------- Income Funds ------------ T. Rowe Price Adjustable Rate U.S. Government Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price New Income Fund, Inc. T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Summit Funds, Inc. on behalf of: T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Global Government Income Fund T. Rowe Price International Bond Fund T. Rowe Price Short-Term Global Income Fund T. Rowe Price Income Series, Inc. on behalf of: T. Rowe Price Limited-Term Bond Portfolio II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is applicable to all Customers Under Section II of this Schedule A. T. Rowe Price Trust Company as Trustee for the Johnson Matthey Salaried Savings Plan Common Trust Funds ------------------ T. Rowe Price Trust Company, as Trustee for the International Common Trust Fund on behalf of the Underlying Trusts: Foreign Discovery Trust Foreign Discovery Trust-Augment Pacific Discovery Trust European Discovery Trust Japan Discovery Trust Latin American Discovery Trust New York City International Common Trust Fund III. OTHER No Riders are applicable to the Customer listed under RPFI International Section III of this Partners, L.P. Schedule A. AMENDMENT AGREEMENT AMENDMENT AGREEMENT, dated as of August 15, 1994 (the "AMENDMENT AGREEMENT") to the Global Custody Agreement, effective January 3, 1994, as amended (the "CUSTODY AGREEMENT") by and between each of the Entities listed in Attachment A hereto, separately and individually (each such entity referred to hereinafter as the "CUSTOMER") and THE CHASE MANHATTAN BANK, N.A. (the "BANK"). Terms defined in the Custody Agreement are used herein as therein defined. WITNESSETH: WHEREAS, the Customer wishes to appoint the Bank as its global custodian and the Bank wishes to accept such appointment pursuant to the terms of the Custody Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Amendment. Section I of Schedule A of the Custody Agreement ("SCHEDULE --------- A") shall be amended to add each Customer listed in Attachment A hereto. The revised Schedule A incorporating these changes in the form attached hereto as Attachment B shall supersede the existing Schedule A in its entirety. 2. Agreement. The Customer agrees to be bound in all respects by all the --------- terms and conditions of the Custody Agreement and shall be fully liable thereunder as a "Customer" as defined in the Custody Agreement. 3. Confirmation of Agreement. Except as amended hereby, the Custody ------------------------- Agreement is in full force and effect and as so amended is hereby ratified, approved and confirmed by the Customer and the Bank in all respects. 4. Governing Law. This Amendment Agreement shall be construed in ------------- accordance with and governed by the law of the State of New York without regard to its conflict of law principles. IN WITNESS WHEREOF, the parties have executed this Amendment Agreement as of the day and year first above written. THE CHASE MANHATTAN BANK, N.A. By: /s/Alan P. Naughton Alan P. Naughton Vice President EACH OF THE CUSTOMERS LISTED IN ATTACHMENT A HERETO, SEPARATELY AND INDIVIDUALLY By: /s/Carmen F. Deyesu Carmen F. Deyesu Treasurer Attachment A LIST OF CUSTOMERS T. Rowe Price Equity Series, Inc. on behalf of the T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Personal Strategy Funds, Inc. on behalf of T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund Attachment B Schedule A Page 1 of 2 LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO GLOBAL CUSTODY AGREEMENT WITH THE CHASE MANHATTAN BANK, N.A. DATED JANUARY 3, 1993 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT I. INVESTMENT COMPANIES/PORTFOLIOS The Mutual Fund Rider is REGISTERED UNDER THE INVESTMENT applicable to all Customers COMPANY ACT OF 1940 listed under Section I of this Schedule A. Equity Funds ------------ T. Rowe Price Balanced Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Capital Appreciation Fund T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. Institutional International Funds, Inc. on behalf of: Foreign Equity Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price European Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price New Asia Fund T. Rowe Price International Series, Inc., on behalf of: T. Rowe Price International Stock Portfolio T. Rowe Price Mid-Cap Growth Fund, Inc. T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price OTC Fund, Inc. on behalf of: T. Rowe Price OTC Fund T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Small-Cap Value Fund, Inc. CUNA Mutual Funds, Inc. on behalf of: CUNA Mutual Cornerstone Fund T. Rowe Price Equity Series, Inc. on behalf of: T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price New America Growth Fund, Inc. Attachment B Schedule A Page 2 of 3 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY -------- -------------- AGREEMENT ---------- Income Funds ------------ T. Rowe Price Adjustable Rate U.S. Government Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price New Income Fund, Inc. T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Summit Funds, Inc. on behalf of: T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Global Government Income Fund T. Rowe Price International Bond Fund T. Rowe Price Short-Term Global Income Fund T. Rowe Price Income Series, Inc. on behalf of: T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Personal Strategy Funds, Inc. on behalf of: T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is applicable to all Customers Under Section II of this Schedule A. T. Rowe Price Trust Company as Trustee for the Johnson Matthey Salaried Savings Plan Common Trust Funds ------------------ T. Rowe Price Trust company, as Trustee for the International Common Trust Fund on behalf of the Underlying Trusts: Foreign Discovery Trust Foreign Discovery Trust-Augment Pacific Discovery Trust European Discovery Trust Japan Discovery Trust Latin American Discovery Trust New York City International Common Trust Fund III. OTHER No Riders are applicable to the Customer listed under RPFI International Section III of this Partners, L.P. Schedule A. AMENDMENT AGREEMENT AMENDMENT AGREEMENT, dated as of November 28, 1994 (the "Amendment Agreement") to the Global Custody Agreement, effective January 3, 1994, as amended (the "Custody Agreement") by and between each of the Entities listed in Attachment A hereto, separately and individually (each such entity referred to hereinafter as the "Customer") and THE CHASE MANHATTAN BANK, N.A. (the "Bank"). Terms defined in the Custody Agreement are used herein as therein defined. WITNESSETH: WHEREAS, the Customer wishes to appoint the Bank as its global custodian and the Bank wishes to accept such appointment pursuant to the terms of the Custody Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Amendment. Section I of Schedule A of the Custody Agreement ("Schedule A") shall be amended to add each Customer listed in Attachment A hereto. The revised Schedule A incorporating these changes in the form attached hereto as Attachment B shall supersede the existing Schedule A in its entirety. 2. Agreement. The Customer agrees to be bound in all respects by all the terms and conditions of the Custody Agreement and shall be fully liable thereunder as a "Customer" as defined in the Custody Agreement. 3. Confirmation of Agreement. Except as amended hereby, the Custody Agreement is in full force and effect and as so amended is hereby ratified, approved and confirmed by the Customer and the Bank in all respects. 4. Governing Law. This Amendment Agreement shall be construed in accordance with and governed by the law of the State of New York without regard to its conflict of law principles. IN WITNESS WHEREOF, the parties have executed this Amendment Agreement as of the day and year first above written. THE CHASE MANHATTAN BANK, N.A. /s/Alan P. Naughton By :_________________________________ Alan P. Naughton Vice President EACH OF THE CUSTOMERS LISTED IN ATTACHMENT A HERETO, SEPARATELY AND INDIVIDUALLY /s/Carmen F. Deyesu By: _________________________________ Carmen F. Deyesu Treasurer Attachment A LIST OF CUSTOMERS T. Rowe Price Value Fund, Inc. T. Rowe Price Capital Opportunity Fund, Inc. T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Emerging Markets Bond Fund Attachment B Schedule A Page 1 of 2 LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO GLOBAL CUSTODY AGREEMENT WITH THE CHASE MANHATTAN BANK, N.A. DATED JANUARY 3, 1993 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT I. INVESTMENT COMPANIES/PORTFOLIOS The Mutual Fund Rider is REGISTERED UNDER THE INVESTMENT applicable to all Customers COMPANY ACT OF 1940 listed under Section I of this Schedule A. Equity Funds T. Rowe Price Balanced Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Capital Appreciation Fund T. Rowe Price Capital Opportunity Fund, Inc. T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. Institutional International Funds, Inc. on behalf of: Foreign Equity Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price European Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price New Asia Fund T. Rowe Price International Series, Inc., on behalf of: T. Rowe Price International Stock Portfolio T. Rowe Price Mid-Cap Growth Fund, Inc. T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price OTC Fund, Inc. on behalf of: T. Rowe Price OTC Fund T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Small-Cap Value Fund, Inc. CUNA Mutual Funds, Inc. on behalf of: CUNA Mutual Cornerstone Fund T. Rowe Price Equity Series, Inc. on behalf of: T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price New America Growth Fund, Inc. T. Rowe Price Value Fund, Inc. Attachment B Schedule A Page 2 of 2 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT Income Funds T. Rowe Price Adjustable Rate U.S. Government Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price New Income Fund, Inc. T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Summit Funds, Inc. on behalf of: T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Global Government Income Fund T. Rowe Price International Bond Fund T. Rowe Price Short-Term Global Income Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Income Series, Inc. on behalf of: T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Personal Strategy Funds, Inc. on behalf of: T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is applicable to all Customers Under Section II of this Schedule A. T. Rowe Price Trust Company as Trustee for the Johnson Matthey Salaried Savings Plan Common Trust Funds T. Rowe Price Trust company, as Trustee for the International Common Trust Fund on behalf of the Underlying Trusts: Foreign Discovery Trust Foreign Discovery Trust-Augment Pacific Discovery Trust European Discovery Trust Japan Discovery Trust Latin American Discovery Trust New York City International Common Trust Fund III. OTHER No Riders are applicable to the Customer listed under RPFI International Section III of this Partners, L.P. Schedule A. AMENDMENT AGREEMENT AMENDMENT AGREEMENT, dated as of May 31, 1995 (the "Amendment Agreement") to the Global Custody Agreement, effective January 3, 1994, as amended (the "Custody Agreement") by and between each of the Entities listed in Attachment A hereto, separately and individually (each such entity referred to hereinafter as the "Customer") and THE CHASE MANHATTAN BANK, N.A. (the "Bank"). Terms defined in the Custody Agreement are used herein as therein defined. WITNESSETH: WHEREAS, the Customer wishes to appoint the Bank as its global custodian and the Bank wishes to accept such appointment pursuant to the terms of the Custody Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Amendment. Section I of Schedule A of the Custody Agreement ("Schedule A") shall be amended to add and delete certain Customers as specified in Attachment A hereto. The revised Schedule A incorporating these changes in the form attached hereto as Attachment B shall supersede the existing Schedule A in its entirety. 2. Agreement. The Customer agrees to be bound in all respects by all the terms and conditions of the Custody Agreement and shall be fully liable thereunder as a "Customer" as defined in the Custody Agreement. 3. Confirmation of Agreement. Except as amended hereby, the Custody Agreement is in full force and effect and as so amended is hereby ratified, approved and confirmed by the Customer and the Bank in all respects. 4. Governing Law. This Amendment Agreement shall be construed in accordance with and governed by the law of the State of New York without regard to its conflict of law principles. IN WITNESS WHEREOF, the parties have executed this Amendment Agreement as of the day and year first above written. THE CHASE MANHATTAN BANK, N.A. /s/Alan P. Naughton By: _________________________________ Alan P. Naughton Vice President EACH OF THE CUSTOMERS LISTED IN ATTACHMENT A HERETO, SEPARATELY AND INDIVIDUALLY /s/Carmen F. Deyesu By: _________________________________ Carmen F. Deyesu Treasurer Attachment A LIST OF CUSTOMERS Add the following Fund: T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Emerging Markets Stock Fund Delete the following Fund: CUNA Mutual Funds, Inc. on behalf of: CUNA Mutual Cornerstone Fund Attachment B Schedule A Page 1 of 2 LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO GLOBAL CUSTODY AGREEMENT WITH THE CHASE MANHATTAN BANK, N.A. DATED JANUARY 3, 1993 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT I. INVESTMENT COMPANIES/PORTFOLIOS The Mutual Fund Rider is REGISTERED UNDER THE INVESTMENT applicable to all Customers COMPANY ACT OF 1940 listed under Section I of this Schedule A. Equity Funds T. Rowe Price Balanced Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Capital Appreciation Fund T. Rowe Price Capital Opportunity Fund, Inc. T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. Institutional International Funds, Inc. on behalf of: Foreign Equity Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price European Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price New Asia Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price International Series, Inc., on behalf of: T. Rowe Price International Stock Portfolio T. Rowe Price Mid-Cap Growth Fund, Inc. T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price OTC Fund, Inc. on behalf of: T. Rowe Price OTC Fund T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Small-Cap Value Fund, Inc. T. Rowe Price Equity Series, Inc. on behalf of: T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price New America Growth Fund, Inc. T. Rowe Price Value Fund, Inc. Attachment B Schedule A Page 2 of 2 Income Funds T. Rowe Price Adjustable Rate U.S. Government Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price New Income Fund, Inc. T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Summit Funds, Inc. on behalf of: T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Global Government Income Fund T. Rowe Price International Bond Fund T. Rowe Price Short-Term Global Income Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Income Series, Inc. on behalf of: T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Personal Strategy Funds, Inc. on behalf of: T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is applicable to all Customers Under Section II of this Schedule A. T. Rowe Price Trust Company as Trustee for the Johnson Matthey Salaried Savings Plan Common Trust Funds T. Rowe Price Trust company, as Trustee for the International Common Trust Fund on behalf of the Underlying Trusts: Foreign Discovery Trust Foreign Discovery Trust-Augment Pacific Discovery Trust European Discovery Trust Japan Discovery Trust Latin American Discovery Trust New York City International Common Trust Fund III. OTHER No Riders are applicable to the Customer listed under RPFI International Section III of this Partners, L.P. Schedule A. AMENDMENT AGREEMENT AMENDMENT AGREEMENT, dated as of November 1, 1995 (the "Amendment Agreement") to the Global Custody Agreement, effective January 3, 1994, as amended (the "Custody Agreement") by and between each of the Entities listed in Attachment A hereto, separately and individually (each such entity referred to hereinafter as the "Customer") and THE CHASE MANHATTAN BANK, N.A. (the "Bank"). Terms defined in the Custody Agreement are used herein as therein defined. WITNESSETH: WHEREAS, the Customer wishes to appoint the Bank as its global custodian and the Bank wishes to accept such appointment pursuant to the terms of the Custody Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Amendment. Section I of Schedule A of the Custody Agreement ("Schedule A") shall be amended to add and delete certain Customers as specified in Attachment A hereto. The revised Schedule A incorporating these changes in the form attached hereto as Attachment B shall supersede the existing Schedule A in its entirety. 2. Agreement. The Customer agrees to be bound in all respects by all the terms and conditions of the Custody Agreement and shall be fully liable thereunder as a "Customer" as defined in the Custody Agreement. 3. Confirmation of Agreement. Except as amended hereby, the Custody Agreement is in full force and effect and as so amended is hereby ratified, approved and confirmed by the Customer and the Bank in all respects. 4. Governing Law. This Amendment Agreement shall be construed in accordance with and governed by the law of the State of New York without regard to its conflict of law principles. IN WITNESS WHEREOF, the parties have executed this Amendment Agreement as of the day and year first above written. THE CHASE MANHATTAN BANK, N.A. /s/Alan R. Naughton By: _________________________________ Alan R. Naughton Vice President EACH OF THE CUSTOMERS LISTED IN ATTACHMENT A HERETO, SEPARATELY AND INDIVIDUALLY /s/Carmen F. Deyesu By: _________________________________ Carmen F. Deyesu Treasurer Attachment A LIST OF CUSTOMERS Add the following Funds: T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Global Stock Fund T. Rowe Price Corporate Income Fund, Inc. T. Rowe Price Health & Life Sciences Fund, Inc. Attachment B Schedule A Page 1 of 2 LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO GLOBAL CUSTODY AGREEMENT WITH THE CHASE MANHATTAN BANK, N.A. DATED JANUARY 3, 1993 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT I. INVESTMENT COMPANIES/PORTFOLIOS The Mutual Fund Rider is REGISTERED UNDER THE INVESTMENT applicable to all Customers COMPANY ACT OF 1940 listed under Section I of this Schedule A. Equity Funds T. Rowe Price Balanced Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Capital Appreciation Fund T. Rowe Price Capital Opportunity Fund, Inc. T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. Institutional International Funds, Inc. on behalf of: Foreign Equity Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price European Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price New Asia Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund T. Rowe Price International Series, Inc., on behalf of: T. Rowe Price International Stock Portfolio T. Rowe Price Mid-Cap Growth Fund, Inc. T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price OTC Fund, Inc. on behalf of: T. Rowe Price OTC Fund T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Small-Cap Value Fund, Inc. T. Rowe Price Equity Series, Inc. on behalf of: T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price New America Growth Fund, Inc. T. Rowe Price Value Fund, Inc. T. Rowe Price Health & Life Sciences Fund, Inc. Attachment B Schedule A Page 1 of 2 Income Funds T. Rowe Price Adjustable Rate U.S. Government Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price New Income Fund, Inc. T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Summit Funds, Inc. on behalf of: T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Global Government Income Fund T. Rowe Price International Bond Fund T. Rowe Price Short-Term Global Income Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Income Series, Inc. on behalf of: T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Personal Strategy Funds, Inc. on behalf of: T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. Rowe Price Corporate Income Fund, Inc. APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is applicable to all Customers Under Section II of this Schedule A. T. Rowe Price Trust Company as Trustee for the Johnson Matthey Salaried Savings Plan Common Trust Funds T. Rowe Price Trust Company, as Trustee for the International Common Trust Fund on behalf of the Underlying Trusts: Foreign Discovery Trust Foreign Discovery Trust-Augment Pacific Discovery Trust European Discovery Trust Japan Discovery Trust Latin American Discovery Trust New York City International Common Trust Fund III. OTHER No Riders are applicable to the Customer listed under RPFI International Section III of this Partners, L.P. Schedule A. AMENDMENT AGREEMENT The Global Custody Agreement of January 3, 1994, as amended April 18, 1994, August 15, 1994, November 28, 1994, May 31, 1995, and November 1, 1995 (the "Custody Agreement"), by and between each of the Entities listed in Attachment A hereto, separately and individually (each such entity referred to hereinafter as the "Customer") and The Chase Manhattan Bank, N.A., which contracts have been assumed by operation of law by THE CHASE MANHATTAN BANK (the "Bank") is hereby further amended, as of July 31, 1996 (the "Amendment Agreement"). Terms defined in the Custody Agreement are used herein as therein defined. WITNESSETH: WHEREAS, the Customer wishes to appoint the Bank as its global custodian and the Bank wishes to accept such appointment pursuant to the terms of the Custody Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Amendment. Section I of Schedule A of the Custody Agreement ("Schedule A") shall be amended to add and delete certain Customers as specified in Attachment A hereto. The revised Schedule A incorporating these changes in the form attached hereto as Attachment B shall supersede the existing Schedule A in its entirety. 2. Agreement. The Customer agrees to be bound in all respects by all the terms and conditions of the Custody Agreement and shall be fully liable thereunder as a "Customer" as defined in the Custody Agreement. 3. Confirmation of Agreement. Except as amended hereby, the Custody Agreement is in full force and effect and as so amended is hereby ratified, approved and confirmed by the Customer and the Bank in all respects. 4. Governing Law. This Amendment Agreement shall be construed in accordance with and governed by the law of the State of New York without regard to its conflict of law principles. IN WITNESS WHEREOF, the parties have executed this Amendment Agreement as of the day and year first above written. THE CHASE MANHATTAN BANK /s/Caroline Willson By:_________________________________ Caroline Willson Vice President EACH OF THE CUSTOMERS LISTED IN ATTACHMENT A HERETO, SEPARATELY AND INDIVIDUALLY /s/Carmen F. Deyesu By:________________________________ Carmen F. Deyesu Treasurer Attachment A LIST OF CUSTOMERS Add the following Funds: T. Rowe Price Equity Series, Inc. on behalf of: T. Rowe Price Mid-Cap Growth Portfolio T. Rowe Price Financial Services Fund, Inc. Institutional Equity Funds, Inc. on behalf of: Mid-Cap Equity Growth Fund T. Rowe Price Mid-Cap Value Fund, Inc. T. Rowe Price Trust Company, as Trustee for the International Common Trust Fund on behalf of: Emerging Markets Equity Trust Attachment B Schedule A Page 1 of 2 LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO GLOBAL CUSTODY AGREEMENT WITH THE CHASE MANHATTAN BANK, N.A. DATED JANUARY 3, 1994 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT I. INVESTMENT COMPANIES/PORTFOLIOS The Mutual Fund Rider is REGISTERED UNDER THE INVESTMENT applicable to all Customers COMPANY ACT OF 1940 listed under Section I of this Schedule A. Equity Funds T. Rowe Price Balanced Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Capital Appreciation Fund T. Rowe Price Capital Opportunity Fund, Inc. T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price Equity Series, Inc. on behalf of: T. Rowe Price Equity Income Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Financial Services Fund, Inc. T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. T. Rowe Price Health Sciences Fund, Inc. Institutional Equity Funds, Inc. on behalf of: Mid-Cap Equity Growth Fund Institutional International Funds, Inc. on behalf of: Foreign Equity Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Emerging Markets Stock Fund T. Rowe Price European Stock Fund T. Rowe Price Global Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price New Asia Fund T. Rowe Price International Series, Inc., on behalf of: T. Rowe Price International Stock Portfolio T. Rowe Price Mid-Cap Growth Fund, Inc. T. Rowe Price Mid-Cap Value Fund, Inc. T. Rowe Price New America Growth Fund T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price OTC Fund, Inc. on behalf of: T. Rowe Price OTC Fund T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Small-Cap Value Fund, Inc. T. Rowe Price Value Fund, Inc. Income Funds T. Rowe Price Corporate Income Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price Income Series, Inc. on behalf of: T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Global Government Bond Fund T. Rowe Price International Bond Fund T. Rowe Price Short-Term Global Income Fund T. Rowe Price New Income Fund, Inc. T. Rowe Price Personal Strategy Funds, Inc. on behalf of: T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Short-Term U.S. Government Fund, Inc. T. Rowe Price Summit Funds, Inc. on behalf of: T. Rowe Price Summit Limited-Term Bond Fund APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is applicable to all Customers Under Section II of this Schedule A. T. Rowe Price Trust Company as Trustee for the Johnson Matthey Salaried Savings Plan Common Trust Funds T. Rowe Price Trust Company, as Trustee for the International Common Trust Fund on behalf of the Underlying Trusts: Emerging Markets Equity Trust European Discovery Trust Foreign Discovery Trust Foreign Discovery Trust-Augment Japan Discovery Trust Latin America Discovery Trust Pacific Discovery Trust New York City International Common Trust Fund III. OTHER No Riders are applicable to the Customer listed under RPFI International Section III of this Partners, L.P. Schedule A. AMENDMENT, dated July 17, 1997 to the January 3, 1994 Custody Agreement ("Agreement"), as amended July 31, 1996 ("Amendment Agreement"), by and between each of the Entities listed in Attachment B of the Amendment Agreement, separately and individually (each such entity hereinafter referred to as the "Customer"), and The Chase Manhattan Bank, N.A. whose obligations have since been adopted by The Chase Manhattan Bank ("Bank"), having a place of business at One Chase Manhattan Plaza, New York, N.Y. 10081 It is hereby agreed as follows: Section 1. Except as modified hereby, the Agreement is confirmed in all respects. Capitalized terms used herein without definition shall have the meanings ascribed to them in the Agreement. Section 2. The Agreement is amended as follows by adding the following as new ' 15: (a) "CMBI" shall mean Chase Manhattan Bank International, an indirect wholly-owned subsidiary of Bank, located in Moscow, Russia, and any nominee companies appointed by it. (b) "International Financial Institution" shall mean any bank in the top 1,000 (together with their affiliated companies) as measured by "Tier 1" capital or any broker/dealer in the top 100 as measured by capital. (c) "Negligence" shall mean the failure to exercise "Reasonable Care". (d) "No-Action Letter" shall mean the response of the Securities and Exchange Commission's Office of Chief Counsel of Investment Management, dated April 18, 1995, in respect of the Templeton Russia Fund, Inc. (SEC Ref. No. 95-151-CC, File No. 811-8788) providing "no-action" relief under '17(f) of the Investment Company Act of 1940, as amended, and SEC Rule 17-f5 thereunder, in connection with custody of such Templeton Russia Fund, Inc.'s investments in Russian Securities. (e) "Reasonable Care" shall mean the use of reasonable custodial practices under the applicable circumstances as measured by the custodial practices then prevailing in Russia of International Financial Institutions acting as custodians for their institutional investor clients in Russia. (f) "Registrar Company" shall mean any entity providing share registration services to an issuer of Russian Securities. (g) "Registrar Contact" shall mean a contract between CMBI and a Registrar Company (and as the same may be amended from time to time) containing, inter alia, the contractual provisions described at paragraphs (a)-(e) on pps. 5-6 of the No-Action Letter. (h) "Russian Security" shall mean a Security issued by a Russian issuer. (i) "Share Extract" shall mean: (i) an extract of its share registration books issued by a Registrar Company indicating an investor's ownership of a security; and (ii) a form prepared by CMBI or its agent in those cases where a Registrar Company in unwilling to issue a Share Extract. Section 3. Section 6(a) of the Agreement is amended by adding the following at the end thereof: "With respect to Russia, payment for Russian Securities shall not be made prior to the issuance of the Share Extract relating to such Russian Security. Delivery of Russian Securities may be made in accordance with the customary or established securities trading or securities processing practices and procedures in Russia. Delivery of Russian Securities may also be made in any manner specifically required by Instructions acceptable to the Bank. Customer shall promptly supply such transaction and settlement information as may be requested by Bank or CMBI in connection with particular transactions." Section 4. Section 8 of the Agreement is amended by adding a new paragraph to the end thereof as follows: "It is understood and agreed that Bank need only use its reasonable efforts with respect to performing the functions described in this '8 with respect to Russian Securities." Section 5. Section 12(a)(i) of the Agreement is amended with respect to Russian custody by deleting the phrase "reasonable care" wherever it appears and substituting, in lieu thereof, the phrase "Reasonable Care." Section 6. Section 12(a)(i) of the Agreement is further amended with respect to Russian custody by inserting the following at the end of the first sentence thereof: "provided that, with respect to Russian Securities, Bank's responsibilities shall be limited to safekeeping of relevant Share Extracts." Section 7. Section 12(a)(i) of the Agreement is further amended with respect to Russian custody by inserting the following after the second sentence thereof: "In connection with the foregoing, neither Bank nor CMBI shall assume responsibility for, and neither shall be liable for, any action or inaction of any Registrar Company and no Registrar Company shall be, or shall be deemed to be, Bank, CMBI, a Subcustodian, a securities depository or the employee, agent or personnel of any of the foregoing. To the extent that CMBI employs agents to perform any of the functions to be performed by Bank or CMBI with respect to Russian Securities, neither Bank nor CMBI shall be responsible for any act, omission, default or for the solvency of any such agent unless the appointment of such agent was made with Negligence or in bad faith, or for any loss due to the negligent act of such agent except to the extent that such agent performs in a negligent manner which is the cause of the loss to the Customer and the Bank or CMBI failed to exercise reasonable care in monitoring such agent's performance where Customer has requested and Bank has agreed to accept such monitoring responsibility and except that where Bank or CMBI uses (i) an affiliated nominee or (ii) an agent to perform the share registration or share confirmation functions described in paragraphs (a)-(e) on pps. 5-6 of the No-Action Letter, and, to the extent applicable to CMBI, the share registration functions described on pps. 2-3 of the No-Action Letter, Bank and CMBI shall be liable to Customer as if CMBI were responsible for performing such services itself." Section 8. Section 12(a)(ii) is amended with respect to Russian custody by deleting the word "negligently" and substituting, in lieu thereof, the word "Negligently." Section 9. Section 12(a)(iii) is amended with respect to Russian custody by deleting the word "negligence" and substituting, in lieu thereof, the word "Negligence." Section 10. Add a new Section 16 to the Agreement as follows: (a) Bank will advise Customer (and will update such advice from time to time as changes occur) of those Registrar Companies with which CMBI has entered into a Registrar Contract. Bank shall cause CMBI both to monitor each Registrar Company and to promptly advise Customer when CMBI has actual knowledge of the occurrence of any one or more of the events described in paragraphs (i)-(v) on pps. 8-9 of the No-Action Letter with respect to a Registrar Company that serves in that capacity for any issuer the shares of which are held by Customer. (b) Where Customer is considering investing in the Russian Securities of an issuer as to which CMBI does not have a Registrar Company, Customer may request that Bank ask that CMBI both consider whether it would be willing to attempt to enter into such a Registrar Contract and to advise Customer of its willingness to do so. Where CMBI has agreed to make such an attempt, Bank will advise Customer of the occurrence of any one or more or the events described in paragraphs (i)-(iv) on pps. 8-9 of the No-Action Letter of which CMBI has actual knowledge. (c) Where Customer is considering investing in the Russian Securities of an issuer as to which CMBI has a Registrar Contract with the issuer's Registrar Company, Customer may advise Bank of its interest in investing in such issuer and, in such event, Bank will advise Customer of the occurrence of any one or more of the events described in paragraphs (i)-(v) on pps. 8-9 of the No-Action Letter of which CMBI has actual knowledge. Section 11. Add a new Section 17 to the Agreement as follows: "Customer shall pay for and hold Bank and CMBI harmless from any liability or loss resulting from the imposition or assessment of any taxes (including, but not limited to, state, stamp and other duties) or other governmental charges, and any related expenses with respect to income on Russian Securities." Section 12. Add a new Section 18 to the Agreement as follows: "Customer acknowledges and agrees that CMBI may not be able, in given cases and despite its reasonable efforts, to obtain a Share Extract from a Registrar Company and CMBI shall not be liable in any such even including with respect to any losses resulting from such failure." Section 13. Add a new Section 19 to the Agreement as follows: "Customer acknowledges that it has received, reviewed and understands that Chase market report for Russia, including, but not limited to, the risks described therein." Section 14. Add a new Section 20 to the Agreement as follows: "Subject to the cooperation of a Registrar Company, for at least the first two years following CMBI's first use of a Registrar Company, Bank shall cause CMBI to conduct share confirmations on at least a quarterly basis, although thereafter confirmations may be conducted on a less frequent basis if Customer's Board of Directors, in consultation with CMBI, determines it to be appropriate." Section 15. Add a new Section 21 to the Agreement as follows: "Bank shall cause CMBI to prepare for distribution to Customer's Board of Directors a quarterly report identifying: (i) any concerns it has regarding the Russian share registration system that should be brought to the attention of the Board of Directors; and (ii) the steps CMBI has taken during the reporting period to ensure that Customer's interests continue to be appropriately recorded." Section 16. Add a new Section 22 to the Agreement as follows: "Except as provided in new '16(b), the services to be provided by Bank hereunder will be provided only in relation to Russian Securities for which CMBI has entered into a Registrar Contract with the relevant Registrar Company." ********************* IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. for EACH CUSTOMER THE CHASE MANHATTAN BANK separately and individually /s/Henry H. Hopkins /s/Helen C. Bairsto Henry H. Hopkins Helen C. Bairsto Vice President Vice President AMENDMENT AGREEMENT The Global Custody Agreement of January 3, 1994, as amended April 18, 1994, August 15, 1994, November 28, 1994, May 31, 1995, November 1, 1995, and July 31, 1996 (the "Custody Agreement"), by and between each of the Entities listed in Attachment A hereto, separately and individually (each such entity referred to hereinafter as the "Customer") and The Chase Manhattan Bank, N.A., which contracts have been assumed by operation of law by THE CHASE MANHATTAN BANK (the "Bank") is hereby further amended, as of July 23, 1997 (the "Amendment Agreement"). Terms defined in the Custody Agreement are used herein as therein defined. WITNESSETH: WHEREAS, the Customer wishes to appoint the Bank as its global custodian and the Bank wishes to accept such appointment pursuant to the terms of the Custody Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Amendment. Section 1 of Schedule A of the Custody Agreement ("Schedule A") shall be amended to add certain Customers as specified in Attachment A hereto. The revised Schedule A incorporating these changes in the form attached hereto as Attachment B shall supersede the existing Schedule A in its entirety. 2. Agreement. The Customer agrees to be bound in all respects by all the terms and conditions of the Custody Agreement and shall be fully liable thereunder as a "Customer" as defined in the Custody Agreement. 3. Confirmation of Agreement. Except as amended hereby, the Custody Agreement is in full force and effect and as so amended is hereby ratified, approved and confirmed by the Customer and the Bank in all respects. 4. Governing Law: This Amendment Agreement shall be construed in accordance with and governed by the law of the State of New York without regard to its conflict of law principles. IN WITNESS WHEREOF, the parties have executed this Amendment Agreement as of the day and year first above written. THE CHASE MANHATTAN BANK By: /S/Caroline Willson Caroline Willson Vice President EACH OF THE CUSTOMERS LISTED IN ATTACHMENT A HERETO, SEPARATELY AND INDIVIDUALLY By: /s/Carmen F. Deyesu Carmen F. Deyesu Treasurer Attachment A LIST OF CUSTOMERS Add the following Funds: T. Rowe Price Diversified Small-Cap Growth Fund, Inc. T. Rowe Price Media & Telecommunications Fund, Inc. T. Rowe Price Tax-Efficient Balanced Fund, Inc. Change the name of the following Fund: T. Rowe Price OTC Fund, Inc., on behalf of: T. Rowe Price OTC Fund Effective May 1, 1997, the fund name changed to: T. Rowe Price Small-Cap Stock Fund, Inc. Delete the following Fund: T. Rowe Price International Funds, Inc., on behalf of: T. Rowe Price Short-Term Global Income Fund Attachment B Schedule A Page 1 of 3 LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO GLOBAL CUSTODY AGREEMENT WITH THE CHASE MANHATTAN BANK DATED JANUARY 3, 1994 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT I. INVESTMENT COMPANIES/PORTFOLIOS The Mutual Fund Rider is REGISTERED UNDER THE INVESTMENT applicable to all Customers COMPANY ACT OF 1940 listed under Section I of this Schedule A. Equity Funds T. Rowe Price Balanced Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Capital Appreciation Fund T. Rowe Price Capital Opportunity Fund, Inc. T. Rowe Price Diversified Small-Cap Growth Fund, Inc. T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price Equity Series, Inc. on behalf of: T. Rowe Price Equity Income Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Financial Services Fund, Inc. T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. T. Rowe Price Health Sciences Fund, Inc. Institutional Equity Funds, Inc. on behalf of: Mid-Cap Equity Growth Fund Institutional International Funds, Inc. on behalf of: Foreign Equity Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Emerging Markets Stock Fund T. Rowe Price European Stock Fund T. Rowe Price Global Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price New Asia Fund PAGE 69 Attachment B Schedule A Page 2 of 3 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT T. Rowe Price International Series, Inc. on behalf of: T. Rowe Price International Stock Portfolio T. Rowe Price Media & Telecommunications Fund, Inc. T. Rowe Price Mid-Cap Growth Fund, Inc. T. Rowe Price Mid-Cap Value Fund, Inc. T. Rowe Price New America Growth Fund T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Small-Cap Stock Fund, Inc. T. Rowe Price Small-Cap Value Fund, Inc. T. Rowe Price Value Fund, Inc. Income Funds T. Rowe Price Corporate Income Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price Income Series, Inc. on behalf of: T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Global Government Bond Fund T. Rowe Price International Bond Fund T. Rowe Price New Income Fund, Inc. T. Rowe Price Personal Strategy Funds, Inc. on behalf of: T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Short-Term U.S. Government Fund, Inc. T. Rowe Price Summit Funds, Inc. on behalf of: T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Tax-Efficient Balanced Fund, Inc. Attachment B Schedule A Page 3 of 3 APPLICABLE RIDERS TO APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is applicable to all Customers Under Section II of this Schedule A. T. Rowe Price Trust Company as Trustee for the Johnson Matthey Salaried Savings Plan Common Trust Funds T. Rowe Price Trust Company, as Trustee for the International Common Trust Fund on behalf of the Underlying Trusts: Emerging Markets Equity Trust European Discovery Trust Foreign Discovery Trust Foreign Discovery Trust - Augment Japan Discovery Trust Latin America Discovery Trust Pacific Discovery Trust New York City International Common Trust Fund III. OTHER RPFI International Partners, L.P. No Riders are applicable to the Customer listed under Section III of this Schedule A. AMENDMENT, dated July 23, 1997, to the Custody Agreement ("Agreement"), dated January 3, 1994, between The Chase Manhattan Bank (as successor to The Chase Manhattan Bank, N.A.), having an office at 270 Park Avenue, New York, NY 10017-2070 and certain T. Rowe Price funds. It is agreed as follows: 1. The third line of '8 of the Agreement is deleted and the following is inserted, in lieu thereof: Bank shall provide proxy voting services in accordance with the terms of the proxy voting services rider ("Proxy Rider") annexed hereto as Exhibit 1. Proxy voting services may be provided by Bank or, in whole or in part, by one or more third parties appointed by Bank (which may be Affiliates of Bank). 2. Except as modified hereby, the Agreement is confirmed in all respects. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. EACH OF THE CUSTOMERS, INDIVIDUALLY THE CHASE MANHATTAN AND SEPARATELY LISTED ON SECTION 1 OF BANK SCHEDULE A HERETO By:/s/Henry H. Hopkins By:/s/Helen C. Bairsto Henry H. Hopkins Helen C. Bairsto Vice President Vice President EACH OF THE CUSTOMERS, INDIVIDUALLY AND SEPARATELY LISTED ON SECTION 2 OF SCHEDULE A HERETO By:/s/Nancy M. Morris Nancy M. Morris Vice President Exhibit 1 GLOBAL PROXY SERVICE RIDER TO GLOBAL CUSTODY AGREEMENT BETWEEN THE CHASE MANHATTAN BANK AND CERTAIN T. ROWE PRICE FUNDS DATED 3RD JANUARY, 1994 1. Global Proxy Services ("Proxy Services") shall be provided for the countries listed in the procedures and guidelines ("Procedures") furnished to the Customer, as the same may be amended by Bank from time to time on prior notice to Customer. The Procedures are incorporated by reference herein and form a part of this Rider. 2. Proxy Services shall consist of those elements as set forth in the Procedures, and shall include (a) notifications ("Notifications") by Bank to Customer of the dates of pending shareholder meetings, resolutions to be voted upon and the return dates as may be received by Bank or provided to Bank by its Subcustodians or third parties, and (b) voting by Bank of proxies based on Customer directions. Original proxy materials or copies thereof shall not be provided. Notifications shall generally be in English and, where necessary, shall be summarized and translated from such non-English materials as have been made available to Bank or its Subcustodian. In this respect Bank=s only obligation is to provide information from sources it believes to be reliable and/or to provide materials summarized and/or translated in good faith. Bank reserves the right to provide Notifications, or parts thereof, in the language received. Upon reasonable advance request by Customer, backup information relative to Notifications, such as annual reports, explanatory material concerning resolutions, management recommendations or other material relevant to the exercise of proxy voting rights shall be provided as available, but without translation. 3. While Bank shall attempt to provide accurate and complete Notifications, whether or not translated, Bank shall not be liable for any losses or other consequences that may result from reliance by Customer upon Notifications where Bank prepared the same in good faith. 4. Notwithstanding the fact that Bank may act in a fiduciary capacity with respect to Customer under other agreements or otherwise under the Agreement, in performing Proxy Services Bank shall be acting solely as the agent of Customer, and shall not exercise any discretion with regard to such Proxy Services. 5. Proxy voting may be precluded or restricted in a variety of circumstances, including, without limitation, where the relevant Securities are: (I) on loan; (ii) at registrar for registration or reregistration; (iii) the subject of a conversion or other corporate action; (iv) not held in a name subject to the control of Bank or its Subcustodian or are otherwise held in a manner which precludes voting; (v) not capable of being voted on account of local market regulations or practices or restrictions by the issuer; or (vi) held in a margin or collateral account. 6. Customer acknowledges that in certain countries Bank may be unable to vote individual proxies but shall only be able to vote proxies on a net basis (e.g., a net yes or no vote given the voting instructions received from all customers). 7. Customer shall not make any use of the information provided hereunder, except in connection with the funds or plans covered hereby, and shall in no event sell, license, give or otherwise make the information provided hereunder available, to any third party, and shall not directly or indirectly compete with Bank or diminish the market for Proxy Services by provision of such information, in whole or in part, for compensation or otherwise, to any third party. 8. The names of Authorized Persons for Proxy Services shall be furnished to Bank in accordance with '10 of the Agreement. Proxy Services fees shall be as separately agreed. SCHEDULE A SECTION 1 T. Rowe Price Balanced Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Capital Appreciation Fund T. Rowe Price Capital Opportunity Fund, Inc. T. Rowe Price Corporate Income Fund, Inc. T. Rowe Price Diversified Small-Cap Growth Fund, Inc. T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price Equity Series, Inc. on behalf of: T. Rowe Price Mid-Cap Growth Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Financial Services Fund, Inc. T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. T. Rowe Price Health Sciences Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price Income Series, Inc. on behalf of: T. Rowe Price Limited Term Bond Portfolio Institutional Equity Funds, Inc. on behalf of: Mid-Cap Equity Growth Fund T. Rowe Price Media & Telecommunications Fund, Inc. T. Rowe Price Mid-Cap Growth Fund, Inc. T. Rowe Price Mid-Cap Value Fund, Inc. T. Rowe Price New America Growth Fund, Inc. T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price New Income Fund, Inc. T. Rowe Price Personal Strategy Funds, Inc. on behalf of: T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Short-Term U.S. Government Fund, Inc. T. Rowe Price Small-Cap Stock Fund, Inc. T. Rowe Price Small-Cap Value Fund, Inc. T. Rowe Price Summit Funds, Inc. on behalf of: T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Tax-Efficient Balanced Fund, Inc. T. Rowe Price Value Fund, Inc. SECTION 2 NYC International Common Trust Fund AMENDMENT, dated October 29, 1997, to the Custody Agreement ("Agreement"), dated January 3, 1994, between The Chase Manhattan Bank (as successor to The Chase Manhattan Bank, N.A.), having an office at 270 Park Avenue, New York, NY 10017-2070 and certain T. Rowe Price funds. It is agreed as follows: 1. The third line of '8 of the Agreement is deleted and the following is inserted, in lieu thereof: Bank shall provide proxy voting services in accordance with the terms of the proxy voting services rider ("Proxy Rider") annexed hereto as Exhibit 1. Proxy voting services may be provided by Bank or, in whole or in part, by one or more third parties appointed by Bank (which may be Affiliates of Bank). 2. Except as modified hereby, the Agreement is confirmed in all respects. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. EACH OF THE CUSTOMERS, INDIVIDUALLY THE CHASE MANHATTAN AND SEPARATELY LISTED ON SECTION 1 OF BANK SCHEDULE A HERETO By:/s/Henry H. Hopkins By:/s/Helen C. Bairsto Henry H. Hopkins Helen C. Bairsto Vice President Vice President EACH OF THE CUSTOMERS, INDIVIDUALLY AND SEPARATELY LISTED ON SECTION 2 OF SCHEDULE A HERETO By:/s/Nancy M. Morris Nancy M. Morris Vice President GLOBAL PROXY SERVICE RIDER TO GLOBAL CUSTODY AGREEMENT BETWEEN THE CHASE MANHATTAN BANK AND CERTAIN T. ROWE PRICE FUNDS DATED 3RD JANUARY, 1994 1. Global Proxy Services ("Proxy Services") shall be provided for the countries listed in the procedures and guidelines ("Procedures") furnished to the Customer, as the same may be amended by Bank from time to time on prior notice to Customer. The Procedures are incorporated by reference herein and form a part of this Rider. 2. Proxy Services shall consist of those elements as set forth in the Procedures, and shall include (a) notifications ("Notifications") by Bank to Customer of the dates of pending shareholder meetings, resolutions to be voted upon and the return dates as may be received by Bank or provided to Bank by its Subcustodians or third parties, and (b) voting by Bank of proxies based on Customer directions. Original proxy materials or copies thereof shall not be provided. Notifications shall generally be in English and, where necessary, shall be summarized and translated from such non-English materials as have been made available to Bank or its Subcustodian. In this respect Bank=s only obligation is to provide information from sources it believes to be reliable and/or to provide materials summarized and/or translated in good faith. Bank reserves the right to provide Notifications, or parts thereof, in the language received. Upon reasonable advance request by Customer, backup information relative to Notifications, such as annual reports, explanatory material concerning resolutions, management recommendations or other material relevant to the exercise of proxy voting rights shall be provided as available, but without translation. 3. While Bank shall attempt to provide accurate and complete Notifications, whether or not translated, Bank shall not be liable for any losses or other consequences that may result from reliance by Customer upon Notifications where Bank prepared the same in good faith. 4. Notwithstanding the fact that Bank may act in a fiduciary capacity with respect to Customer under other agreements or otherwise under the Agreement, in performing Proxy Services Bank shall be acting solely as the agent of Customer, and shall not exercise any discretion with regard to such Proxy Services. 5. Proxy voting may be precluded or restricted in a variety of circumstances, including, without limitation, where the relevant Securities are: (I) on loan; (ii) at registrar for registration or reregistration; (iii) the subject of a conversion or other corporate action; (iv) not held in a name subject to the control of Bank or its Subcustodian or are otherwise held in a manner which precludes voting; (v) not capable of being voted on account of local market regulations or practices or restrictions by the issuer; or (vi) held in a margin or collateral account. 6. Customer acknowledges that in certain countries Bank may be unable to vote individual proxies but shall only be able to vote proxies on a net basis (e.g., a net yes or no vote given the voting instructions received from all customers). 7. Customer shall not make any use of the information provided hereunder, except in connection with the funds or plans covered hereby, and shall in no event sell, license, give or otherwise make the information provided hereunder available, to any third party, and shall not directly or indirectly compete with Bank or diminish the market for Proxy Services by provision of such information, in whole or in part, for compensation or otherwise, to any third party. 8. The names of Authorized Persons for Proxy Services shall be furnished to Bank in accordance with '10 of the Agreement. Proxy Services fees shall be as separately agreed. SCHEDULE A SECTION 1 T. Rowe Price Balanced Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Capital Appreciation Fund T. Rowe Price Capital Opportunity Fund, Inc. T. Rowe Price Corporate Income Fund, Inc. T. Rowe Price Diversified Small-Cap Growth Fund, Inc. T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price Equity Series, Inc. on behalf of: T. Rowe Price Mid-Cap Growth Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Financial Services Fund, Inc. T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. T. Rowe Price Health Sciences Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price Income Series, Inc. on behalf of: T. Rowe Price Limited Term Bond Portfolio Institutional Equity Funds, Inc. on behalf of: Mid-Cap Equity Growth Fund T. Rowe Price Media & Telecommunications Fund, Inc. T. Rowe Price Mid-Cap Growth Fund, Inc. T. Rowe Price Mid-Cap Value Fund, Inc. T. Rowe Price New America Growth Fund, Inc. T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price New Income Fund, Inc. T. Rowe Price Personal Strategy Funds, Inc. on behalf of: T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. Rowe Price Real Estate Fund, Inc. T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Short-Term U.S. Government Fund, Inc. T. Rowe Price Small-Cap Stock Fund, Inc. T. Rowe Price Small-Cap Value Fund, Inc. T. Rowe Price Summit Funds, Inc. on behalf of: T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Tax-Efficient Balanced Fund, Inc. T. Rowe Price Value Fund, Inc. SECTION 2 NYC International Common Trust Fund AMENDMENT AGREEMENT The Global Custody Agreement of January 3, 1994, as amended April 18, 1994, August 15, 1994, November 28, 1994, May 31, 1995, November 1, 1995, July 31, 1996, and July 23, 1997 (the "Custody Agreement"), by and between each of the Entities listed in Attachment A hereto, separately and individually (each such entity referred to hereinafter as the "Customer") and The Chase Manhattan Bank, N.A., which contracts have been assumed by operation of law by THE CHASE MANHATTAN BANK (the "Bank") is hereby further amended, as of October 29, 1997 (the "Amendment Agreement"). Terms defined in the Custody Agreement are used herein as therein defined. WITNESSETH: WHEREAS, the Customer wishes to appoint the Bank as its global custodian and the Bank wishes to accept such appointment pursuant to the terms of the Custody Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Amendment. Section 1 of Schedule A of the Custody Agreement ("Schedule A") shall be amended to add certain Customers as specified in Attachment A hereto. The revised Schedule A incorporating these changes in the form attached hereto as Attachment B shall supersede the existing Schedule A in its entirety. 2. Agreement. The Customer agrees to be bound in all respects by all the terms and conditions of the Custody Agreement and shall be fully liable thereunder as a "Customer" as defined in the Custody Agreement. 3. Confirmation of Agreement. Except as amended hereby, the Custody Agreement is in full force and effect and as so amended is hereby ratified, approved and confirmed by the Customer and the Bank in all respects. 4. Governing Law: This Amendment Agreement shall be construed in accordance with and governed by the law of the State of New York without regard to its conflict of law principles. IN WITNESS WHEREOF, the parties have executed this Amendment Agreement as of the day and year first above written. THE CHASE MANHATTAN BANK By: /s/Helen C. Bairsto Helen C. Bairsto Vice President EACH OF THE CUSTOMERS LISTED IN ATTACHMENT A HERETO, SEPARATELY AND INDIVIDUALLY By: /s/Carmen F. Deyesu Carmen F. Deyesu Treasurer Attachment A LIST OF CUSTOMERS Add the following Fund: T. Rowe Price Real Estate Fund, Inc. Attachment B Schedule A Page 1 of 3 LIST OF CUSTOMERS, EACH INDIVIDUALLY PARTIES TO GLOBAL CUSTODY AGREEMENT WITH THE CHASE MANHATTAN BANK DATED JANUARY 3, 1994 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT I. INVESTMENT COMPANIES/PORTFOLIOS The Mutual Fund Rider is REGISTERED UNDER THE INVESTMENT applicable to all Customers COMPANY ACT OF 1940 listed under Section I of this Schedule A. Equity Funds T. Rowe Price Balanced Fund, Inc. T. Rowe Price Blue Chip Growth Fund, Inc. T. Rowe Price Capital Appreciation Fund T. Rowe Price Capital Opportunity Fund, Inc. T. Rowe Price Diversified Small-Cap Growth Fund, Inc. T. Rowe Price Dividend Growth Fund, Inc. T. Rowe Price Equity Income Fund T. Rowe Price Equity Series, Inc. on behalf of: T. Rowe Price Equity Income Portfolio T. Rowe Price Mid-Cap Growth Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Financial Services Fund, Inc. T. Rowe Price Growth & Income Fund, Inc. T. Rowe Price Growth Stock Fund, Inc. T. Rowe Price Health Sciences Fund, Inc. Institutional Equity Funds, Inc. on behalf of: Mid-Cap Equity Growth Fund Institutional International Funds, Inc. on behalf of: Foreign Equity Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Emerging Markets Stock Fund T. Rowe Price European Stock Fund T. Rowe Price Global Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price New Asia Fund Attachment B Schedule A Page 2 of 3 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT T. Rowe Price International Series, Inc. on behalf of: T. Rowe Price International Stock Portfolio T. Rowe Price Media & Telecommunications Fund, Inc. T. Rowe Price Mid-Cap Growth Fund, Inc. T. Rowe Price Mid-Cap Value Fund, Inc. T. Rowe Price New America Growth Fund T. Rowe Price New Era Fund, Inc. T. Rowe Price New Horizons Fund, Inc. T. Rowe Price Real Estate Fund, Inc. T. Rowe Price Science & Technology Fund, Inc. T. Rowe Price Small-Cap Stock Fund, Inc. T. Rowe Price Small-Cap Value Fund, Inc. T. Rowe Price Value Fund, Inc. Income Funds T. Rowe Price Corporate Income Fund, Inc. T. Rowe Price High Yield Fund, Inc. T. Rowe Price Income Series, Inc. on behalf of: T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Global Government Bond Fund T. Rowe Price International Bond Fund T. Rowe Price New Income Fund, Inc. T. Rowe Price Personal Strategy Funds, Inc. on behalf of: T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund T. Rowe Price Short-Term Bond Fund, Inc. T. Rowe Price Short-Term U.S. Government Fund, Inc. T. Rowe Price Summit Funds, Inc. on behalf of: T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Tax-Efficient Balanced Fund, Inc. Attachment B Schedule A Page 3 of 3 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is applicable to all Customers Under Section II of this Schedule A. T. Rowe Price Trust Company as Trustee for the Johnson Matthey Salaried Employee Savings Plan Common Trust Funds T. Rowe Price Trust Company, as Trustee for the International Common Trust Fund on behalf of the Underlying Trusts: Emerging Markets Equity Trust European Discovery Trust Foreign Discovery Trust Foreign Discovery Trust - Augment Japan Discovery Trust Latin America Discovery Trust Pacific Discovery Trust New York City International Common Trust Fund III. OTHER RPFI International Partners, L.P. No Riders are applicable to the Customer listed under Section III of this Schedule A. AMENDMENT AGREEMENT TO RUSSIAN RIDER TO THE GLOBAL CUSTODY AGREEMENT AMENDMENT to Attachment B of Global Custody Agreement dated January 3, 1994, as amended July 23, 1997, is hereby further amended as of September 3, 1997. NOW, THEREFORE, the parties hereto agree as follows: 1. Amendment. Amend Attachment B to consist of the following funds when pertaining to the Russian Rider dated July 17, 1997: Institutional International Funds, Inc., on behalf of: Foreign Equity Fund T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price European Stock Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Global Stock Fund T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price New Asia Fund T. Rowe Price International Series, Inc. on behalf of: T. Rowe Price International Stock Portfolio IN WITNESS WHEREOF, the parties have executed this Amendment Agreement as of the day and year first above written. THE CHASE MANHATTAN BANK EACH OF THE PARTIES LISTED ABOVE By: /s/Helen C. Bairsto By:/s/Henry H. Hopkins Helen C. Bairsto Henry H. Hopkins Vice President Vice President AMENDMENT AGREEMENT The Global Custody Agreement of January 3, 1994, as amended April 18, 1994, August 15, 1994, November 28, 1994, May 31, 1995, November 1, 1995, July 31, 1996, July 23, 1997, September 3, 1997, and October 29, 1997 (the "Custody Agreement"), by and between each of the Entities listed in Schedule A, as amended thereto, severally and not jointly (each such entity referred to hereinafter as the "Customer") and The Chase Manhattan Bank, N.A., which contracts have been assumed by operation of law by THE CHASE MANHATTAN BANK (the "Bank") is hereby further amended, as of December 15, 1998 (the "Amendment Agreement"). Terms defined in the Custody Agreement are used herein as therein defined. WITNESSETH: WHEREAS, the Customer wishes to appoint the Bank as its global custodian and the Bank wishes to accept such appointment pursuant to the terms of the Custody Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Amendment. Sections 1 and 3 of Schedule A of the Custody Agreement ---------- ("Schedule A") shall be amended to add or change certain Customers as specified in Attachment A hereto. The revised Schedule A incorporating these changes in the form attached shall supersede the existing Schedule A in its entirety. 2. Agreement. The Customer agrees to be bound in all respects by all the ---------- terms and conditions of the Custody Agreement and shall be fully liable thereunder as a "Customer" as defined in the Custody Agreement. 3. Confirmation of Agreement. Except as amended hereby, the Custody -------------------------- Agreement is in full force and effect and as so amended is hereby ratified, approved and confirmed by the Customer and the Bank in all respects. 4. Governing Law. This Amendment Agreement shall be construed in accordance -------------- with and governed by the law of the State of New York without regard to its conflict of law principles. IN WITNESS WHEREOF, the parties have executed this Amendment Agreement as of the day and year first above written. THE CHASE MANHATTAN BANK /s/Joseph M. Rondinelli By: _____________________________________ Joseph M. Rondinelli Vice President EACH OF THE CUSTOMERS LISTED IN ATTACHMENT A HERETO, SEVERALLY AND NOT JOINTLY /s/Henry H. Hopkins By: _____________________________________ Henry H. Hopkins Vice President Attachment A LIST OF CUSTOMERS Change the name of the following Fund: - -------------------------------------- T. Rowe Price Global Government Bond Fund Effective May 1, 1998, the fund name changed to: T. Rowe Price Global Bond Fund Add the following Fund: - ----------------------- T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price International Growth & Income Fund Add the following Funds to the Russian Rider: - --------------------------------------------- T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price International Growth & Income Fund RPFI International Partners, L.P. Schedule A Page 1 of 3 LIST OF CUSTOMERS, SEVERALLY AND NOT JOINTLY PARTIES TO GLOBAL CUSTODY AGREEMENT WITH THE CHASE MANHATTAN BANK DATED JANUARY 3, 1994 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT I. INVESTMENT COMPANIES/PORTFOLIOS The Mutual Fund Rider is REGISTERED UNDER THE INVESTMENT applicable to all Customers COMPANY ACT OF 1940 listed under Section I of this Schedule A. Equity Funds ------------ T. Rowe Price Balanced Fund, Inc. Global Proxy Service Rider T. Rowe Price Blue Chip Growth Fund, Inc. Global Proxy Service Rider T. Rowe Price Capital Appreciation Fund Global Proxy Service Rider T. Rowe Price Capital Opportunity Fund, Inc. Global Proxy Service Rider T. Rowe Price Diversified Small-Cap Growth Fund, Inc. Global Proxy Service Rider T. Rowe Price Dividend Growth Fund, Inc. Global Proxy Service Rider T. Rowe Price Equity Income Fund Global Proxy Service Rider T. Rowe Price Equity Series, Inc. on behalf of: T. Rowe Price Equity Income Portfolio T. Rowe Price Mid-Cap Growth Portfolio Global Proxy Service Rider T. Rowe Price New America Growth Portfolio Global Proxy Service Rider T. Rowe Price Personal Strategy Balanced Portfolio Global Proxy Service Rider T. Rowe Price Financial Services Fund, Inc. Global Proxy Service Rider T. Rowe Price Growth & Income Fund, Inc. Global Proxy Service Rider T. Rowe Price Growth Stock Fund, Inc. Global Proxy Service Rider T. Rowe Price Health Sciences Fund, Inc. Global Proxy Service Rider Institutional Equity Funds, Inc. on behalf of: Mid-Cap Equity Growth Fund Global Proxy Service Rider Institutional International Funds, Inc. on behalf of: Foreign Equity Fund Russian Rider T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Emerging Markets Stock Fund Russian Rider T. Rowe Price European Stock Fund Russian Rider T. Rowe Price Global Stock Fund Russian Rider T. Rowe Price International Discovery Fund Russian Rider T. Rowe Price International Growth & Income Fund Russian Rider T. Rowe Price International Stock Fund Russian Rider T. Rowe Price Japan Fund Russian Rider T. Rowe Price Latin America Fund Russian Rider T. Rowe Price New Asia Fund Russian Rider Schedule A Page 2 of 3 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT T. Rowe Price International Series, Inc. on behalf of: T. Rowe Price International Stock Portfolio Russian Rider T. Rowe Price Media & Telecommunications Fund, Inc. Global Proxy Service Rider T. Rowe Price Mid-Cap Growth Fund, Inc. Global Proxy Service Rider T. Rowe Price Mid-Cap Value Fund, Inc. Global Proxy Service Rider T. Rowe Price New America Growth Fund Global Proxy Service Rider T. Rowe Price New Era Fund, Inc. Global Proxy Service Rider T. Rowe Price New Horizons Fund, Inc. Global Proxy Service Rider T. Rowe Price Real Estate Fund, Inc. Global Proxy Service Rider T. Rowe Price Science & Technology Fund, Inc. Global Proxy Service Rider T. Rowe Price Small-Cap Stock Fund, Inc. Global Proxy Service Rider T. Rowe Price Small-Cap Value Fund, Inc. Global Proxy Service Rider T. Rowe Price Value Fund, Inc. Global Proxy Service Rider Income Funds ------------ T. Rowe Price Corporate Income Fund, Inc. Global Proxy Service Rider T. Rowe Price High Yield Fund, Inc. Global Proxy Service Rider T. Rowe Price Income Series, Inc. on behalf of: T. Rowe Price Limited-Term Bond Portfolio Global Proxy Service Rider T. Rowe Price International Funds, Inc. on behalf of: T. Rowe Price Emerging Markets Bond Fund Russian Rider T. Rowe Price Global Bond Fund Russian Rider T. Rowe Price International Bond Fund Russian Rider T. Rowe Price New Income Fund, Inc. Global Proxy Service Rider T. Rowe Price Personal Strategy Funds, Inc. on behalf of: T. Rowe Price Personal Strategy Balanced Fund Global Proxy Service Rider T. Rowe Price Personal Strategy Growth Fund Global Proxy Service Rider T. Rowe Price Personal Strategy Income Fund Global Proxy Service Rider T. Rowe Price Short-Term Bond Fund, Inc. Global Proxy Service Rider T. Rowe Price Short-Term U.S. Government Fund, Inc. Global Proxy Service Rider T. Rowe Price Summit Funds, Inc. on behalf of: T. Rowe Price Summit Limited-Term Bond Fund Global Proxy Service Rider T. Rowe Price Tax-Efficient Balanced Fund, Inc. Global Proxy Service Rider Schedule A Page 3 of 3 APPLICABLE RIDERS TO CUSTOMER GLOBAL CUSTODY AGREEMENT II. ACCOUNTS SUBJECT TO ERISA The ERISA Rider is applicable to all Customers Under Section II of this Schedule A. T. Rowe Price Trust Company, as Trustee for the Johnson Matthey Salaried Employee Savings Plan Common Trust Funds ------------------ T. Rowe Price Trust Company, as Trustee for the International Common Trust Fund on behalf of the Underlying Trusts: Emerging Markets Equity Trust European Discovery Trust Foreign Discovery Trust Foreign Discovery Trust - Augment Japan Discovery Trust Latin America Discovery Trust Pacific Discovery Trust New York City International Common Trust Fund Global Proxy Service Rider III. OTHER RPFI International Partners, L.P. Russian Rider EX-99.B9A-TRANSFER 6 TRANSFER AGENT AGREEMENT The Transfer Agency and Service Agreement between T. Rowe Price Services, Inc. and T. Rowe Price Funds, dated January 1, 1999, as amended. TRANSFER AGENCY AND SERVICE AGREEMENT between T. ROWE PRICE SERVICES, INC. and THE T. ROWE PRICE FUNDS 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 6 4. Confirmations 7 5. Returned Checks and ACH Debits 7 6. Redemption of Shares under Ten Day Hold 7 7. Dividends, Distributions and Other Corporate Actions 9 8. Unclaimed Payments and Certificates 10 9. Books and Records 10 10. Authorized Issued and Outstanding Shares 12 11. Tax Information 13 12. Information to be Furnished to the Fund 13 13. Correspondence 13 14. Lost or Stolen Securities 14 15. Telephone Services 14 16. Collection of Shareholder Fees 14 17. Form N-SAR 14 18. Cooperation With Accountants 15 19. Blue Sky 15 20. Banking Services for the PLUS Classes 15 21. Other Services 17 Article C Fees and Out-of-Pocket Expenses 17 1. Fees and Out-of-Pocket Expenses - All Funds 17 2. Fees and Out-of-Pocket Expenses - PLUS Classes of Shares 19 Article DRepresentations and Warranties of the Price Services 19 Article E Representations and Warranties of the Fund 20 Article F Standard of Care/Indemnification 20 Article G Dual Interests 23 Article H Documentation 23 Article I References to Price Services 24 Article JCompliance with Governmental Rules and Regulations 25 Article K Ownership of Software and Related Material 25 Article L Quality Service Standards 25 Article M As of Transactions 25 Article N Term and Termination of Agreement 28 Article O Notice 29 Article P Assignment 29 Article Q Amendment/Interpretive Provisions 29 Article R Further Assurances 29 Article S Maryland Law to Apply 29 Article T Merger of Agreement 30 Article U Counterparts 30 Article V The Parties 30 Article WDirectors, Trustees, Shareholders and Massachusetts Business Trust 30 Article X Captions 31 TRANSFER AGENCY AND SERVICE AGREEMENT AGREEMENT made as of the first day of January, 1999, 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 V); 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, Price Services has the capability of providing special banking services, including debit card and unlimited check writing services ("BANKING SERVICES") for the T. Rowe Price Prime Reserve Fund - PLUS Class of Shares and T. Rowe Price Tax-Exempt Money Fund - PLUS Class of Shares ("PLUS CLASSES"); 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: . 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); . 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; . Ensure that any documentation received from Shareholder is in "good order" and all appropriate documentation is received to establish an account. . 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; . Maintain a record of all unpaid purchases and report such information to the Fund daily; . Process periodic payment orders, as authorized by investors, in accordance with the payment procedures mutually agreed upon by both parties; . 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"); . 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 . 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: . 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; . Notify the Fund on the next business day of the total number of Shares presented and covered by all such requests; .For those Funds that impose redemption fees, calculate the fee owed on the redemption in accordance with the guidelines established between the Fund and Price Services; . 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; . 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; . 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; . Make such withholdings as may be required under applicable Federal tax laws; . In the event redemption proceeds for the payment of fees are to be wired through the Federal Reserve Wire System or via ACH, Price Services shall cause such proceeds to be wired in Federal funds or via ACH to the bank account designated by Shareholder; and . 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 statements as well as 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 A HOLD ---------- -- ------ ----- - ---- . UNCOLLECTED FUNDS. Shares purchased by personal, corporate, or governmental check, or by ACH will be considered uncollected until the tenth calendar date (the seventh business date for PLUS Classes) (following the trade date of the trade ("UNCOLLECTED FUNDS"); . 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 (the seventh business day for the PLUS Classes) following trade date. . REDEMPTION OF UNCOLLECTED FUNDS . 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. . 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 (the seventh business day for the PLUS Classes), 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 (the seventh business day for the PLUS Classes) after trade date, the redemption proceeds will be released, regardless of whether confirmation has been received. . CHECKWRITING REDEMPTIONS. . 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. .All checkwriting redemptions under $10,000 reported as Uncollected or insufficient funds will be rejected and the check returned to the Shareholder. The Funds and Services may agree to contact shareholders presenting checks under $10,000 reported as insufficient to obtain alternative instructions for payment. . 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 ---------- ------------- --- ----- --------- ------- . 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. . 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, tax forms, statements or confirms have been returned; (b) for which accounts have aged outstanding checks; or (c) accounts with share balances 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. Price Services shall also comply with applicable securities regulation with respect to searching for lost shareholders. 9. BOOKS AND RECORDS ----- --- ------- Maintain records showing for each Shareholder's account, Retirement Plan or Retirement Account, as the case may be, the following: . Names, address and tax identification number; . Number of Shares held; . Certain historical information regarding the account of each Shareholder, including dividends and distributions distributed in cash or invested in Shares; . Pertinent information regarding the establishment and maintenance of Retirement Plans and Retirement Accounts necessary to properly administer each account; . 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; . Any stop or restraining order placed against a Shareholder's account; . Information with respect to withholdings on domestic and foreign accounts; . 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; . Any correspondence relating to the current maintenance of a Shareholder's account; . Certificate numbers and denominations for any Shareholder holding certificates; . 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, On-Line 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. BANKING SERVICES FOR THE PLUS CLASSES ------- -------- --- --- ---- ------- . DETERMINE SHAREHOLDER ELIGIBILITY FOR BANKING SERVICES. Pursuant to mutually agreed upon procedures, Price Services shall determine shareholder eligibility for Banking Services offered by the PLUS Classes. Such procedures include, but are not limited to, for existing shareholders, review of account history (identification of any previously returned investment checks or ACH transactions, redemptions of uncollected funds, etc.) and for new investors, review of credit bureau and suspicious activity fraud reports. .CARD ISSUANCE. Once a shareholder is approved for Banking Services, Price Services shall transmit new card orders to the debit card processing bank which will produce and mail new cards and PIN numbers to PLUS Classes' shareholders. For existing shareholders, Price Services shall also cause the bank to reissue cards prior to expiration date. . TRANSMISSION OF DATA TO AND FROM BANK. On a daily basis, Price Services shall receive information from the debit card processing bank. In this regard, Price Services shall, after card transaction information is received from the debit card processing bank, process all debit card transaction detail against each shareholder's PLUS Class collected account balance. On each business day, Price Services shall cause information regarding the available limit of each PLUS Class shareholder account to be transmitted to the debit card processing bank by a time designated by the bank. . REDEMPTION ORDERS RECEIVED FOR PLUS CLASS ACCOUNTS. Representatives shall follow mutually agreed upon procedures to ensure that the shareholder's PLUS Class collected account balance is reviewed and decremented with authorized debit card transactions before processing any mutual fund redemption or exchange transactions. . DISPUTED DEBIT CARD TRANSACTIONS/FRAUD. Price Services shall receive information from PLUS Class shareholders regarding disputed debit card transactions and forward this information to the bank who will investigate the reported disputed transaction. Price Services will follow procedures developed between it and the bank for resolving such disputes and for provisionally crediting the shareholder's account. Price Services shall also assist in the monitoring of shareholder activity for fraud. 21. OTHER SERVICES ----- -------- Provide such other services as may be mutually agreed upon between Price Services and the Fund. C. FEES AND OUT-OF-POCKET EXPENSES ------------------------------- 1. FEES AND OUT-OF-POCKET EXPENSES - ALL FUNDS. -------------------------------------------- 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: . 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. . 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. . COMMUNICATIONS . 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. . PRINT & MAIL HOUSE. The cost of internal and third party printing and mail house services, including printing of statements and reports. . VOICE AND DATA. The cost of equipment (including associated maintenance), supplies and services used for communicating with and servicing Shareholders of the Fund and Retirement Plan participants, or their agents, and other Fund offices or other agents of either the Fund or Price Services. These charges shall include: . telephone toll charges (both incoming and outgoing, local, long distance and mailgrams); and . data and telephone expenses to communicate with shareholders and transfer shareholders between T. Rowe Price facilities. . Production support, service enhancements and custom reporting for the shareholder mainframe recordkeeping system. . 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. . 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. 2. FEES AND OUT-OF-POCKET EXPENSES - PLUS CLASSES OF SHARES -------------------------------------------------------- Notwithstanding anything to the contrary in Section 21, the fees and out-of-pocket expenses set forth in Section C(1) above with respect to the PLUS Classes shall be charged as follows: . All out-of-pocket expenses described in Section C(1) above shall be charged to the Class in the same manner as if the Class was its own Price Fund. In addition, each PLUS Class shall pay the following out-of-pocket expenses charged by the debit card processing bank: . Plastic stock and labels for the debit cards; . User tapes and automated voice response unit used to assist shareholders whose cards have been lost or stolen; . Ad hoc reports prepared by the bank; and . Checkbooks. D. 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. E. 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. F. 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 M 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: . Price Services had in place "appropriate procedures;" .the employee(s) responsible for the error or omission had been reasonably trained and were being appropriately monitored; and . 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. G. 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. H. DOCUMENTATION ------------- .As requested by Price Services, the Fund shall promptly furnish to Price Services the following: .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; . 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; .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; . All account application forms and other documents relating to Shareholders' accounts; . 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 . 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. . As requested by Price Services, the Fund will also furnish from time to time the following documents: . Each resolution of the Board of Directors/Trustees of the Fund authorizing the original issue of its Shares; . 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; .A certified copy of each amendment to the Articles of Incorporation or Declaration of Trust, and the By-Laws of the Fund; . Certified copies of each vote of the Board of Directors/Trustees authorizing officers to give instructions to the Transfer Agent; . 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 . 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. I. 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. J. 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. K. 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. L. 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. M. AS OF TRANSACTIONS ------------------ For purposes of this Article M, 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. . 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"). . 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: . Procedures and controls adopted by Price Services to prevent As Of Processing; . Whether such procedures and controls were being followed at the time of the Significant Transaction; . The absolute and relative volume of all transactions processed by Price Services on the day of the Significant Transaction; . 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; . The prior response of Price Services to recommendations made by the Funds regarding improvement to Price Services' 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: . Price Services had in place "appropriate procedures". . the employee(s) responsible for the error or omission had been reasonably trained and were being appropriately monitored; and . 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. N. TERM AND TERMINATION OF AGREEMENT --------------------------------- . 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. . 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. . 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. O. 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. P. 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. Q. 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. R. FURTHER ASSURANCES ------------------ Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. S. MARYLAND LAW TO APPLY --------------------- This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of Maryland. T. 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. U. 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. V. 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. W. 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. X. 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/Wayne D. O'Melia /s/Carmen F. Deyesu BY: __________________________ BY: ___________________________ -------------------------- --------------------------- DATED: 3/24/99 DATED: 3/26/99 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 500 Fund T. Rowe Price 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 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 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-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 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, 1999, between T. Rowe Price Services, Inc., and each of the Parties listed on Appendix A thereto is hereby amended, as of April 21, 1999, by adding thereto T. Rowe Price Tax-Efficient Funds, Inc., on behalf of T. Rowe Price Tax-Efficient Balanced Fund and T. Rowe Price Tax-Efficient Growth 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 FUNDS, INC. T. Rowe Price Tax-Efficient Balanced Fund T. Rowe Price Tax-Efficient Growth Fund 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 7 FUND ACCOUNTING AGREEMENT The Agreement between T. Rowe Price Associates, Inc. and T. Rowe Price Funds for Fund Accounting Services, dated January 1, 1999, 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 CRepresentations and Warranties of Price Associates 3 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 KCompliance with Governmental Rules and Regulations 8 Article L Terms and Termination of Agreement 8 Article M Notice 8 Article N Assignment 9 Article O Amendment/Interpretive Provisions 9 Article P Further Assurances 9 Article Q Maryland Law to Apply 9 Article R Merger of Agreement 10 Article S Counterparts 10 Article T The Parties 10 Article UDirectors, Trustee and Shareholders and Massachusetts Business Trust 10 Article V Captions 11 AGREEMENT made as of the first day of January, 1999, 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: 1. Maintain for each Fund a daily trial balance, a general ledger, subsidiary records and capital stock accounts; 2. Maintain for each Fund an investment ledger, including amortized bond and foreign dollar denominated costs where applicable; 3. Maintain for each Fund all records relating to the Fund's income and expenses; 4. Provide for the daily valuation of each Fund's portfolio securities and the computation of each Fund's daily net asset value per share ("NAV"). 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; 5. Provide daily cash flow and transaction status information to each Fund's adviser; 6. Authorize the payment of Fund expenses, either through instruction of custodial bank or utilization of custodian's automated transfer system; 7. 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, reports to the Securities and Exchange Commission, the Internal Revenue Service and other Federal and state regulatory agencies; 8. 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; 9. 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 10. 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 WARRANTIES 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 this 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: ------------------------------------------------------------- DATED: 3/25/99 DATED: 3/26/99 ------- ------- 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 500 Fund T. Rowe Price 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 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 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-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 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 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, 1999, between T. Rowe Price Associates, Inc. and each of the Parties listed on Appendix A thereto is hereby amended, as of April 21, 1999, by adding thereto T. Rowe Price Tax-Efficient Funds, Inc., on behalf of T. Rowe Price Tax-Efficient Balanced Fund and T. Rowe Price Tax-Efficient Growth 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 FUNDS, INC. T. Rowe Price Tax-Efficient Balanced Fund T. Rowe Price Tax-Efficient Growth Fund 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 8 RPS AGREEMENT The Agreement between T. Rowe Price Retirement Plan Services, Inc. and the Taxable Funds, dated January 1, 1999. AGREEMENT BETWEEN T. ROWE PRICE RETIREMENT PLAN SERVICES, INC. AND T. ROWE PRICE FUNDS 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 Distributions3 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 10 Article F Standard of Care/Indemnification 10 Article G Dual Interests 13 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 20 Article Q Maryland Law to Apply 20 Article R Merger of Agreement 20 Article S Counterparts 20 Article T The Parties 20 Article UDirectors, Trustees and Shareholders and Massachusetts Business Trust 21 Article V Captions 21 AGREEMENT, made as of the first day of January, 1999, 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 orders 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 therefore; 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 Funds 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 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 relating to transactions in the Funds, 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 Fee 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. 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 a 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: 3/25/99 DATED: 3/26/99 ------- ------- 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 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 Growth & Income 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 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 VALUE FUND, INC. EX-99.B10-OPINION 9 September 22, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: T. Rowe Price New Income Fund, Inc. (the Registrant) File Nos.: 002-48848/811-2396 Commissioners: We are counsel to the above-referenced registrant which proposes to file, pursuant to paragraph (b) of Rule 485 (the "Rule"), Post-Effective Amendment No. 50 (the "Amendment") to its registration statement under the Securities Act of 1933, as amended. Pursuant to paragraph (b)(4) of the Rule, we represent that the Amendment does not contain disclosures which would render it ineligible to become effective pursuant to paragraph (b) of the Rule. Very truly yours, /s/Swidler Berlin Shereff Friedman, LLP Swidler Berlin Shereff Friedman, LLP EX-99.B11-CONSENT 10 CONSENT CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post-Effective Amendment No. 50 to the Registration Statement on Form N-1A (the "Registration Statement") of our report dated June 17, 1998, relating to the financial statements and financial highlights appearing in the May 31, 1999 Annual Report to Shareholders of the T. Rowe Price New Income Fund, Inc., which is incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectus and under the heading "Independent Accountants" in the Statement of Additional Information. /s/PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Baltimore, Maryland September 22, 1999 EX-27 11 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 0000080249 T. ROWE PRICE NEW INCOME FUND, INC. 12-MOS MAY-31-1999 MAY-31-1999 1,992,769 1,936,528 177,715 282 0 2,114,525 23,519 0 149,233 172,752 0 2,012,070 228,542 228,218 2,697 2,697 (16,753) (16,753) (56,241) 1,941,773 498 141,636 0 14,857 127,277 (20,023) (85,943) 21,311 0 (127,389) (33,390) 0 42,662 (55,845) 13,507 (133,817) 2,809 2,809 36,660 36,660 9,740 0 14,888 2,065,586 9.09 0.54 (0.45) (0.54) (0.14) 0 8.5 0.72 [AVG-DEBT-OUTSTANDING] 0 [AVG-DEBT-PER-SHARE] 0
EX-99.B11-POA 12 T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST (on behalf of California Tax-Free Bond Fund California Tax-Free Money Fund) T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE FIXED INCOME SERIES, INC. (on behalf of T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio) T. ROWE PRICE GNMA FUND T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. RESERVE INVESTMENT FUNDS, INC. (on behalf of Government Reserve Investment Fund Reserve Investment Fund) T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE STATE TAX-FREE INCOME TRUST (on behalf of Florida Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund Maryland Tax-Free Bond Fund New Jersey Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Short-Term Tax-Free Bond Fund Virginia Tax-Free Bond Fund) T. ROWE PRICE SUMMIT FUNDS, INC. (on behalf of T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit GNMA Fund T. Rowe Price Summit Limited-Term Bond Fund) T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. (on behalf of T. Rowe Price Summit Municipal Income Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Money Market Fund) T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. and T. ROWE PRICE U.S. TREASURY FUNDS, INC. (on behalf of U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund) POWER OF ATTORNEY RESOLVED, that the Corporations/Trusts (collectively the "Corporations/Trusts" and individually the "Corporation/Trust") and each of its directors/trustees do hereby constitute and authorize, William T. Reynolds, Joel H. Goldberg, and Henry H. Hopkins, and each of them individually, their true and lawful attorneys and agents to take any and all action and execute any and all instruments which said attorneys and agents may deem necessary or advisable to enable the Corporation/Trust to comply with the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and any rules, regulations, orders or other requirements of the United States Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of 1933, as amended, of shares of the Corporation/Trust, to be offered by the Corporation/Trust, and the registration of the Corporation/Trust under the Investment Company Act of 1940, as amended, including specifically, but without limitation of the foregoing, power and authority to sign the name of the Corporation/Trust on its behalf, and to sign the names of each of such directors/trustees and officers on his behalf as such director/trustee or officer to any amendment or supplement (including Post-Effective Amendments) to the Registration Statement on Form N-1A of the Corporation/Trust filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the Registration Statement on Form N-1A of the Corporation/Trust under the Investment Company Act of 1940, as amended, and to any instruments or documents filed or to be filed as a part of or in connection with such Registration Statement. IN WITNESS WHEREOF, the above named Corporations/Trusts have caused these presents to be signed and the same attested by its Secretary, each thereunto duly authorized by its Board of Directors/Trustees, and each of the undersigned has hereunto set his hand and seal as of the day set opposite his name. ALL CORPORATIONS/TRUSTS /s/Carmen F. Deyesu ____________________________ Treasurer (Principal Financial Officer) April 21, 1999 Carmen F. Deyesu /s/Calvin W. Burnett ____________________________ Director/Trustee April 21, 1999 Calvin W. Burnett /s/Anthony W. Deering ____________________________ Director/Trustee April 21, 1999 Anthony W. Deering /s/F. Pierce Linaweaver ____________________________ Director/Trustee April 21, 1999 F. Pierce Linaweaver /s/John G. Schreiber ____________________________ Director/Trustee April 21, 1999 John G. Schreiber (Signatures Continued) JAMES S. RIEPE, Director T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC. JAMES S. RIEPE, Vice President and Director/Trustee T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE FIXED INCOME SERIES, INC. T. ROWE PRICE GNMA FUND T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. RESERVE INVESTMENT FUNDS, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE STATE TAX-FREE INCOME TRUST T. ROWE PRICE SUMMIT FUNDS, INC. T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. /s/James S. Riepe ____________________________ April 21, 1999 James S. Riepe (Signatures Continued) M. DAVID TESTA, Director/Trustee T. ROWE PRICE CALFORNIA TAX-FREE INCOME TRUST T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE FIXED INCOME SERIES, INC. T. ROWE PRICE GNMA FUND T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. RESERVE INVESTMENT FUNDS, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE STATE TAX-FREE INCOME TRUST T. ROWE PRICE SUMMIT FUNDS, INC. T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. /s/M. David Testa ____________________________ April 21, 1999 M. David Testa (Signatures Continued) WILLIAM T. REYNOLDS, Chairman of the Board (Principal Executive Officer) T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE FIXED INCOME SERIES, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE PRIME RESERVE FUND, INC. RESERVE INVESTMENT FUNDS, INC. T. ROWE PRICE SHORT-TERM BOND FUND, INC. T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC. T. ROWE PRICE STATE TAX-FREE INCOME TRUST T. ROWE PRICE SUMMIT FUNDS, INC. T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. WILLIAM T. REYNOLDS, Director/Trustee T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC. T. ROWE PRICE GNMA FUND WILLIAM T. REYNOLDS, President and Director T. ROWE PRICE NEW INCOME FUND, INC. T. ROWE PRICE U.S. TREASURY FUNDS, INC. /s/William T. Reynolds ____________________________ April 21, 1999 William T. Reynolds (Signatures Continued) T. ROWE PRICE GNMA FUND /s/Connice A. Bavely ____________________________ President April 21, 1999 Connice A. Bavely T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC. /s/Charles B. Hill ____________________________ President April 21, 1999 Charles B. Hill ATTEST: /s/Patricia S. Lippert ____________________________ Patricia S. Lippert, Secretary -----END PRIVACY-ENHANCED MESSAGE-----