497 1 igl497filing.htm
October 27, 2008
Prospectus
T. Rowe Price

Institutional International FundsEquity Portfolios

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A choice of global, international, and regional stock funds for investors seeking long-term capital growth by diversifying beyond U.S. borders.
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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.

statement of additional information

C00-043 10/27/08


1

About the Funds



Objective, Strategy, Risks, and Expenses
1


Other Information About the Funds
11




2

Information About Accounts in T. Rowe Price Funds



Pricing Shares and Receiving Sale Proceeds
14


Useful Information on Distributions and Taxes
18


Transaction Procedures and Special
Requirements
22




3

More About the Funds



Organization and Management
25


Understanding Performance Information
27


Investment Policies and Practices
28


Disclosure of Fund Portfolio Information
34


Financial Highlights
34




4

Investing With T. Rowe Price



Account Requirements and Transaction
Information
38


Opening a New Account
38


Purchasing Additional Shares
39


Exchanging and Redeeming Shares
39


Rights Reserved by the Funds
41


Information About Your Services
41

2


T. Rowe Price International, Inc. managed $61.7 billion in foreign stocks and bonds as of June 30, 2008, through its offices in Baltimore, London, Singapore, Hong Kong, and Buenos Aires.

Table of Contents

 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.

3


About the Funds 1

T. Rowe Price Institutional International Funds, Inc.

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T. Rowe Price Institutional Africa & Middle East Fund TRIAX
T. Rowe Price Institutional Emerging Markets Equity Fund IEMFX
T. Rowe Price Institutional Foreign Equity Fund PRFEX
T. Rowe Price Institutional Global Equity Fund TRGSX
T. Rowe Price Institutional Global Large-Cap Equity Fund RPIGX
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objective, strategy, risks, and expenses

A word about each fund`s structure. Each  fund has a $1,000,000 initial investment minimum and is designed for institutional investors. Institutional investors typically include banks, pension plans, and trust and investment companies.

What are each fund`s objectives and principal investment strategies?

Worldwide funds:

Emerging Markets Equity Fund

Objective::The fund seeks long-term growth of capital through investments primarily in the common stocks of companies located (or with primary operations) in emerging markets.

Strategy::The fund expects to make substantially all of its investments (normally at least 80% of net assets) in emerging markets in Latin America, Asia, Europe, Africa, and the Middle East. Stock selection reflects a growth style.

The fund considers the following countries to be emerging markets (others may be added):

  • Asia: China, India, Indonesia, Malaysia, Pakistan, Philippines, South Korea, Sri Lanka, Taiwan, Thailand, and Vietnam.
  • Latin America: Argentina, Belize, Brazil, Chile, Colombia, Mexico, Panama, Peru, and Venezuela.
  • Europe: Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, Slovenia, Turkey, and Ukraine.
  • Africa and the Middle East: Bahrain, Botswana, Egypt, Israel, Jordan, Kenya, Kuwait, Lebanon, Mauritius, Morocco, Nigeria, Oman, Qatar, South Africa, Tunisia, United Arab Emirates, and Zimbabwe.
  • Foreign Equity Fund

    Objective::The fund seeks long-term growth of capital through investments primarily in the common stocks of established, non-U.S. companies.

    Strategy::The fund expects to invest substantially all of its assets in stocks outside the U.S. and to diversify broadly among developed and emerging countries throughout the world. Stock selection reflects a growth style. We may purchase the stocks of companies of any size, but our focus will typically be on large and, to a lesser extent, medium-sized companies. Normally, at least 80% of the fund`s net assets will be invested in stocks.

    Global Equity Fund

    Objective::The fund seeks long-term growth of capital through investments primarily in the common stocks of established companies throughout the world, including the U.S.

    Strategy::We will diversify broadly by investing in a variety of industries in developed and, to a lesser extent, emerging markets. Normally, the fund will invest in at least five countries, one of which will be the U.S. Stock selection reflects a growth style. While we can purchase stocks without regard to a company`s market capitalization (shares outstanding multiplied by share price), investments will generally be in large and medium-sized companies. The percentage of assets invested in U.S. and foreign stocks will normally be at least 80% of net assets and will vary over time according to the manager`s outlook.

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    Global Large-Cap Equity Fund

    Objective::The fund seeks long-term growth of capital through investments primarily in the common stocks of large-cap companies throughout the world, including the U.S.

    Strategy::The fund expects to invest substantially all of its assets (normally at least 80% of net assets) in stocks of large-cap companies. The fund defines a large-cap company as one whose market capitalization (number of shares outstanding multiplied by share price) falls within or above the applicable range for companies included in the MSCI All Country World Large-Cap Index. The fund`s and MSCI`s definition of a large-cap company depends on whether the company is located in a developed market or an emerging market. As of June 30, 2008, the Index`s market capitalization range for large-cap companies in developed markets was $443.11 million to $471,497.90 million, and the market capitalization range for large-cap companies in emerging markets was $386.57 million to $91,392.08 million. The fund also relies on MSCI to classify a particular country as developed or emerging. The market capitalization of the companies in the fund`s portfolio and the MSCI Index changes over time; the fund will not automatically sell or cease to purchase stock of a company it already owns just because the company`s market capitalization falls below the range of the index. Under normal conditions, the fund will invest in at least five countries and at least 40% of its net assets will be in large-cap companies outside the U.S. (at least 30% of net assets will be in large-cap companies outside the U.S. if foreign market conditions are not favorable). Stock selection reflects a growth style.

    Regional fund:

    Africa & Middle East Fund

    Objective: The fund seeks long-term growth of capital by investing primarily in the common stocks of companies located (or with primary operations) in Africa and the Middle East.

    Strategy: The fund expects to make substantially all of its investments (normally at least 80% of net assets) in African and the Middle Eastern companies. The fund may invest in common stocks in the countries listed below, as well as others as their markets develop:

  • Primary Emphasis: Bahrain, Egypt, Jordan, Kenya, Lebanon, Morocco, Nigeria, Oman, Qatar, South Africa, and United Arab Emirates.
  • Others: Algeria, Botswana, Ghana, Kuwait, Mauritius, Namibia, Tunisia, and Zimbabwe.
  • The fund is registered as "nondiversified," meaning it may invest a greater portion of assets in a single company and own more of the company`s voting securities than is permissible for a "diversified" fund. Depending on conditions, the fund`s portfolio should be composed of investments in about 30 to 40 different companies although the exact number could vary substantially depending on market conditions. The fund may make substantial investments (at times more than 25% of total assets) in the telephone or banking companies of various Middle Eastern and African countries. Stock selection reflects a growth style.

    Investment Approaches

    All funds

    The funds take a growth approach to investing.

    Growth Investing

    T. Rowe Price International, Inc. (T. Rowe Price International) employs a global team of investment analysts dedicated to in-depth fundamental research in an effort to identify companies capable of achieving and sustaining above-average, long-term earnings growth. We seek to purchase stocks of such companies at reasonable prices in relation to present or anticipated earnings, cash flow, or book value, and valuation factors often influence our allocations among large-, mid-, or small-cap shares.

    While we invest with an awareness of the global economic backdrop and our outlook for industry sectors and individual countries, bottom-up stock selection is the focus of our decision-making. Country allocation is driven largely by stock selection, though we may limit investments in markets that appear to have poor overall prospects.

    In selecting stocks, we generally favor companies with one or more of the following characteristics:

  • leading or improving market position;
  • 5


  • attractive business niche;
  • attractive or improving franchise or industry position;
  • seasoned management;
  • stable or improving earnings and/or cash flow; and
  • sound or improving balance sheet.
  • While the funds invest primarily in common stocks, they may also purchase other securities and use futures and options, in keeping with each fund`s objectives.

    Each fund may sell securities for a variety of reasons, such as to secure gains, limit losses, or redeploy assets into more promising opportunities.

    Certain investment restrictions, such as a required minimum or maximum investment in a particular type of security, are measured at the time each fund purchases a security. The status, market value, maturity, credit quality, or other characteristics of each fund`s securities may change after they are purchased, and this may cause the amount of each fund`s assets invested in such securities to exceed the stated maximum restriction or fall below the stated minimum restriction. If any of these changes occur, it would not be considered a violation of the investment restriction. However, purchases by a fund during the time it is above or below the stated percentage restriction would be made in compliance with applicable restrictions.

    What are the main risks of investing in the funds?

    Funds that invest overseas generally carry more risk than funds that invest strictly in U.S. assets. Even investments in countries with highly developed economies are subject to significant risks. Some particular risks affecting these funds include the following:

  • Currency risk  This refers to a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency. The overall impact on a fund`s holdings can be significant, unpredictable, and long-lasting, depending on the currencies represented in the portfolio, how each one appreciates or depreciates in relation to the U.S. dollar and whether currency positions are hedged. Under normal conditions, the funds do not engage in extensive foreign currency hedging programs. Further, exchange rate movements are volatile, fund attempts at hedging could be unsuccessful, and it is not possible to effectively hedge the currency risks of many developing countries.
  • Geographic risk  Funds that are less diversified across geographic regions, countries, industries, or individual companies are generally riskier than more diversified funds. The economies and financial markets of certain regionssuch as Latin America and Asiacan be interdependent and may all decline at the same time.
  • Emerging market risk (Africa & Middle East and Emerging Markets Equity; other funds to a lesser degree) Investments in emerging markets, which include Africa, parts of Europe and much of Asia, the Middle East, and Central and South America, are subject to the risk of abrupt and severe price declines. The economic and political structures of developing nations, in most cases, do not compare favorably with the U.S. or other developed countries in terms of wealth and stability, and their financial markets are not as liquid. These economies are less well developed and can be overly reliant on particular industries and more vulnerable to the ebb and flow of international trade, trade barriers, and other protectionist or retaliatory measures. Certain countries have legacies and periodic episodes of hyperinflation and currency devaluations, particularly Russia and many Latin American nations, and more recently many Asian countries. Governments in many emerging market countries participate to a significant degree in their economies and securities markets. Investments in countries or regions that have recently begun moving away from central planning and state-owned industries toward free markets should be regarded as speculative. While some countries have made progress in economic growth, liberalization, fiscal discipline, and political and social stability, there is no assurance these trends will continue. Some countries have histories of instability and upheaval that could cause their governments to act in a detrimental or hostile manner toward private enterprise or foreign investment. Significant risks, such as war and terrorism, currently affect some emerging countries. Fund performance will likely be hurt by exposure to nations in the midst of hyperinflation, currency devaluation, trade disagreements, sudden political upheaval, or interventionist government policies. Significant buying or selling by a few major investors may also heighten the volatility of emerging markets. These factors make investing in such countries significantly riskier than in other countries, and any one of the factors could cause a fund`s share price to decline.
  • 6


    The volatility of emerging markets may be heightened by the actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect local stock prices and, therefore, fund share prices. These factors make investing in such countries significantly riskier than in other countries and any one of them could cause a fund`s share price to decline.

  • Other risks of foreign investing  Risks can result from varying stages of economic and political development, differing regulatory environments, trading days, and accounting standards, uncertain tax laws, and higher transaction costs of non-U.S. markets. Investments outside the United States could be subject to governmental actions such as capital or currency controls, nationalization of a company or industry, expropriation of assets, or imposition of high taxes.
  • Trading in the underlying securities of the funds may take place in various foreign markets on certain days when the funds are not open for business and do not calculate net asset values. For example, the Africa & Middle East Fund invests in securities that trade in various foreign markets that are open on Sundays. As a result, net asset values may be significantly affected on days when shareholders cannot make transactions.
  • Nondiversified status (Africa & Middle East)  There is additional risk with a fund that is nondiversified and thus can invest more of its assets in a smaller number of companies. For example, poor performance by a single large holding of the fund would adversely affect fund performance more than if the fund were invested in a larger number of companies.
  • Futures/options risk  To the extent each fund uses futures and options, it is exposed to additional volatility and potential losses.
  • As with all stock funds, each fund`s share price can fall because of weakness in one or more of its primary equity markets, a particular industry, or specific holdings. Stock markets can decline for many reasons, including adverse political or economic developments, changes in investor psychology, or heavy institutional selling. The prospects for an industry or company may deteriorate because of a variety of factors, including disappointing earnings or changes in the competitive environment. In addition, our assessment of companies held in a fund may prove incorrect, resulting in losses or poor performance, even in rising markets.

    As with any mutual fund, there can be no guarantee the funds will achieve their objectives.

    Each fund`s share price may decline. Loss of money is a risk of investing in the funds.

    The fund or funds you select should not represent your complete investment program or be used for short-term trading purposes.

    How has each fund performed in the past?

    The bar charts showing calendar year returns and the average annual total returns table indicate risk by illustrating how much returns can differ from one year to the next and how fund performance compares with that of a comparable market index. Past fund returns (before and after taxes) are not an indication of future performance.

    The funds can also experience short-term performance swings, as shown by the best and worst calendar quarter returns during the years depicted.

    In addition, the average annual total returns table shows hypothetical after-tax returns to suggest how taxes paid by a shareholder may influence returns. Actual after-tax returns depend on each investor`s situation and may differ from those shown. After-tax returns are not relevant if the shares are held in a tax-deferred account, such as a 401(k) account or IRA. During periods of fund losses, the post-liquidation after-tax return may exceed the funds` other returns because the loss generates a tax benefit that is factored into the result.

    Because the Africa & Middle East Fund and the Global Large-Cap Equity Fund commenced operations in 2008, there is no historical performance information shown here. Performance history will be presented after the fund has been in operation for one calendar year.

    7




    Table 1  Average Annual Total Returns  




    Periods ended December 31, 2007

















    1 year


    5 years


    Shorter of 10 years
    or since inception


    Inception Date




    Emerging Markets Equity Fund





    Returns before taxes
    43.40%
    38.13%
    37.17%
    10/31/02

    Returns after taxes on distributions
    40.81
    37.09
    36.17


    Returns after taxes on distributions and sale of fund shares
    31.12
    34.36
    33.53


    MSCI Emerging Markets Index
    39.78
    37.46
    36.92


    Lipper Emerging Markets Funds Average
    36.43
    35.60
    35.30


    Foreign Equity Fund





    Returns before taxes
    12.25
    18.66
    7.05
    9/7/89

    Returns after taxes on distributions
    12.23
    18.40
    6.36


    Returns after taxes on distributions and sale of fund shares
    8.42
    16.54
    5.90


    MSCI All Country World ex-US Indexa
    17.12
    24.52
    10.09


    MSCI EAFE Index
    11.63
    22.08
    9.04


    Lipper International Large-Cap Core Funds Average
    12.27
    19.39
    7.78


    Global Equity Fund





    Returns before taxes
    19.96

    24.70
    6/30/06

    Returns after taxes on distributions
    19.58

    24.04


    Returns after taxes on distributions and sale of fund shares
    13.06

    20.80


    MSCI All Country World Index
    12.18

    17.88


    Lipper Global Large-Cap Growth Funds Average
    13.47

    16.95


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    Returns are based on changes in principal value, reinvested dividends, and capital gain distributions, if any. Returns before taxes do not reflect effects of any income or capital gains taxes. Taxes are computed using the highest federal income tax rate. The after-tax returns reflect the rates applicable to ordinary and qualified dividends and capital gains effective in 2003. The returns do not reflect the impact of state and local taxes. Returns after taxes on distributions reflect the taxed return on the payment of dividends and capital gains. Returns after taxes on distributions and sale of fund shares assume the shares were sold at period-end and, therefore, are also adjusted for any capital gains or losses incurred by the shareholder. Market indexes do not include expenses, which are deducted from fund returns, or taxes.

    aThe new benchmark more closely matches the portfolio`s blend of holdings in developed and emerging markets, while the MSCI EAFE Index is focused exclusively on developed market companies.

    MSCI All Country World Index tracks the equity market performance of global developed and emerging markets.

    MSCI All Country World ex-US Index measures the equity market performance of developed and emerging countries, excluding the U.S.

    MSCI EAFE Index tracks the stocks of more than 1,000 companies in Europe, Australasia, and the Far East (EAFE).

    MSCI Emerging Markets Index is a market capitalization weighted index of over 850 stocks traded in 22 world markets.

    What fees and expenses will I pay?

    The shares that are offered in this prospectus are 100% no load. However, the funds charge a 2.00% redemption fee, payable to the funds, on shares purchased and held for 90 days or less. There are no other fees or charges to buy or sell fund shares, reinvest dividends, or exchange into other T. Rowe Price funds. There are no 12b1 fees.

    The Emerging Markets Equity Fund has a fee covering investment management and ordinary, recurring operating expenses. In contrast, most mutual funds have a fixed management fee plus a fee for operating expenses.

    The expenses shown for the Africa & Middle East Fund and the Global Large-Cap Equity Fund are estimated.

    Table 2  Fees and Expenses of the Funds  

    Fund


    Shareholder
    fees (fees
    paid directly
    from your
    investment)


    Annual fund operating expenses
    (expenses that are deducted from fund assets)























    Redemption
    fees a


    Management
    fee


    Other
    expenses


    Acquired
    fund fees
    and
    expenses


    Total annual
    fund operating
    expenses


    Fee waiver/
    expense
    reimbursement


    Net
    Expenses













    Africa & Middle East
    2.00%
    1.00%
    0.37%b

    1.37%
    0.12%c
    1.25%c

    Emerging Markets Equity
    2.00
    1.10

    0.01%d
    1.11



    Foreign Equity
    2.00
    0.70
    0.19

    0.89



    Global Equity
    2.00
    0.65
    9.24

    9.89
    9.14e
    0.75e

    Global Large-Cap Equity
    2.00
    0.65
    0.32b

    0.97
    0.22f
    0.75f

    aOn shares purchased and held for 90 days or less (details under Contingent Redemption Fee in Pricing Shares and Receiving Sales Proceeds).

    bOther expenses are estimated.

    cTo limit the fund`s expenses during its initial period of operations, T. Rowe Price International contractually obligated itself to waive its fees and bear any

    9


    expenses through February 28, 2011, which would cause the fund`s ratio of expenses to average net assets to exceed 1.25%. Fees waived or expenses paid or assumed under this agreement are subject to reimbursement to T. Rowe Price International by the fund whenever the fund`s expense ratio is below 1.25%; however, no reimbursement will be made more than three years after any waiver or payment, or if it would result in the expense ratio exceeding 1.25%. Any amounts reimbursed will have the effect of increasing fees otherwise paid by the fund.

    dThe fund indirectly bears its share of the expenses paid by acquired funds in which it invests; such indirect expenses are not paid from the fund`s assets but are reflected in the return realized by the fund on its investment in the acquired funds.

    eTo limit the fund`s expenses during its initial period of operations, T. Rowe Price International contractually obligated itself to waive its fees and bear any expenses through February 28, 2009, which would cause the fund`s ratio of expenses to average net assets to exceed 0.75%. Fees waived or expenses paid or assumed under this agreement are subject to reimbursement to T. Rowe Price International by the fund whenever the fund`s expense ratio is below 0.75%; however, no reimbursement will be made more than three years after any waiver or payment, or if it would result in the expense ratio exceeding 0.75%. Any amounts reimbursed will have the effect of increasing fees otherwise paid by the fund.

    fTo limit the fund`s expenses during its initial period of operations, T. Rowe Price International contractually obligated itself to waive its fees and bear any expenses through February 28, 2011, that would cause the fund`s ratio of expenses to average net assets to exceed 0.75%. Fees waived or expenses paid or assumed under this agreement are subject to reimbursement to T. Rowe Price International by the fund whenever the fund`s expense ratio is below 0.75%. However, no reimbursement will be made more than three years after the waiver or payment, or if it would result in the expense ratio exceeding 0.75%. Any amounts reimbursed will have the effect of increasing fees otherwise paid by the fund.

    Example.  The following table gives you an idea of how expense ratios may translate into dollars and helps you to compare the cost of investing in these funds with that of other mutual funds. Although your actual costs may be higher or lower, the table shows how much you would pay if operating expenses remain the same, the expense limitation currently in place is not renewed (if applicable) you invest $10,000, earn a 5% annual return, hold the investment for the following periods, and then redeem:


    Fund


    1 year


    3 years


    5 years


    10 years




    Africa & Middle East
    $127
    $399



    Emerging Markets Equity
    113
    353
    $612
    $1,352

    Foreign Equity
    91
    284
    493
    1,096

    Global Equity
    77
    1,773
    3,605
    7,455

    Global Large-Cap Equity
    77
    256



    other INFORMATION about the funds

    What are some of the potential rewards of investing overseas through the funds?

    Investing abroad increases the opportunities available to you. Some foreign countries may have greater poten.tial for economic growth than the U.S. Emerging market and regional funds allow investors to seek potentially .superior growth in the areas they view as most promising, but with commensurately higher risks..Investing a portion of your overall portfolio in foreign stock funds can enhance your diversification while providing the opportunity to increase long-term returns.

    How does the portfolio manager try to reduce risk?

    The principal tools we use to try to reduce risk are intensive research and limiting exposure to any one industry or company. Currency hedging techniques may be used from time to time.

    Portfolio managers keep close watch on individual investments as well as on political and economic trends in each country and region. Holdings are adjusted according to the manager`s analysis and outlook.

    The impact on each fund`s share price from a drop in the price of a particular stock is reduced substantially by .investing in a portfolio with dozens of different companies. Likewise, the impact of unfavorable developments .in a particular country is reduced when investments are spread among many countries..However, the economies and financial markets of countries in a certain region may be influenced heavily by one another.

    Is there other information we can review before making a decision?

    Investment Policies and Practices in Section 3 discusses various types of portfolio securities the funds may purchase as well as types of management practices the funds may use.

    The Statement of Additional Information contains more detailed information about each fund and its investments, operations, and expenses.

    10


    Related Performance Information

    Global Equity Fund

    The information set forth below shows historical total returns for the Global Equity Composite. The composite is not a mutual fund. Rather, it is a collection of all the portfolios managed by T. Rowe Price International that have investment objectives, policies, and strategies that are substantially similar to those of the Institutional Global Equity Fund.

    The performance information is historical and should not be considered predictive of the fund`s future results.

    Certain portfolios comprising the composite are not mutual funds and thus are not subject to the diversification requirements and other restrictions and investment limitations imposed on the Institutional Global Equity Fund by the Investment Company Act of 1940 or the Internal Revenue Code which, if applicable, may have adversely affected the performance result.

    As of December 31, 2007, there were seven portfolios in the composite.

    The following table shows return figures net of expenses of 2.00%, which is the highest expense ratio of any of the underlying portfolios.

    Table 3  Prior Performance of Similar Portfolios Managed by T. Rowe Price International




    Periods ended December 31, 2007














    1 year


    3 years


    5 years


    10 years

    Global Equity Composite*




    Average Annual
    17.59%
    20.03%
    20.39%
    9.00%
    Cumulative
    17.59
    72.94
    152.88
    136.76
    MSCI All Country World Index




    Average Annual
    12.18
    14.94
    18.80
    7.94
    Cumulative
    12.18
    51.84
    136.64
    114.61

    *These figures reflect the prior performance of similar portfolios and are net of 2.00% expenses. Asset-weighted returns are calculated monthly. Each portfolio`s contribution to the composite for the month is calculated by multiplying the monthly portfolio return by the ratio of the portfolio`s beginning asset value as expressed as a percentage of the composite`s beginning asset value. Contributions for all portfolios are summed to determine the composite`s asset-weighted performance for the month. Monthly returns are subsequently linked to determine quarterly asset-weighted returns. This differs from the required SEC method for calculating mutual fund performance.

    The following table shows return figures net of expenses of 0.75%, which is the expense ratio of the fund. Because the expense ratio of the fund is lower than the average expense ratio of the portfolios comprising the composite, the performance shown is higher than the actual returns of the composite.

    Table 4  Prior Performance of Similar Portfolios Managed by T. Rowe Price International




    Periods ended December 31, 2007














    1 year


    3 years


    5 years


    10 years

    Global Equity Composite*




    Average Annual
    19.05%
    21.52%
    21.88%
    10.36%
    Cumulative
    19.05
    79.44
    168.93
    168.06
    MSCI All Country World Index




    Average Annual
    12.18
    14.94
    18.80
    7.94
    Cumulative
    12.18
    51.84
    136.64
    114.61

    *These figures reflect the prior performance of similar portfolios and are net of 2.00% expenses. Asset-weighted returns are calculated monthly. Each portfolio`s contribution to the composite for the month is calculated by multiplying the monthly portfolio return by the ratio of the portfolio`s beginning asset value as expressed as a percentage of the composite`s beginning asset value. Contributions for all portfolios are summed to determine the composite`s asset-weighted performance for the month. Monthly returns are subsequently linked to determine quarterly asset-weighted returns. This differs from the required SEC method for calculating mutual fund performance.

    11


    Information About Accounts in T. Rowe Price Funds 2

    As a T. Rowe Price shareholder, you will want to know about the following policies and procedures that apply to all institutional accounts in the T. Rowe Price family of funds.

    Pricing Shares and Receiving Sale Proceeds

    How and When Shares Are Priced

    The share price (also called "net asset value" or NAV per share) for the fund is calculated at the close of the New York Stock Exchange, normally 4 p.m. ET, each day that the 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. Market values are used to price stocks and bonds. Market values represent the prices at which securities actually trade or evaluations based on the judgment of the fund`s pricing services. If a market value for a security is not available, the fund will make a good faith effort to assign a fair value to the security. This value may differ from the value the fund receives upon sale of the securities. Investments in mutual funds are valued at the closing NAV per share of the mutual fund on the day of valuation.

    Non-U.S. equity securities are valued on the basis of their most recent closing market prices at 4 p.m. ET except under the circumstances described below. Most foreign markets close before 4 p.m. ET. For securities primarily traded in the Far East, for example, the most recent closing prices may be as much as 15 hours old at 4 p.m. ET. If the fund determines that developments between the close of a foreign market and 4 p.m. ET will, in its judgment, materially affect the value of some or all of the fund`s securities, the fund will adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of 4 p.m. ET. In deciding whether to make these adjustments, the fund reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The fund may also fair value securities in other situations, for example, when a particular foreign market is closed but the fund is open. The fund uses outside pricing services to provide it with closing market prices and information used for adjusting those prices. The fund cannot predict how often it will use closing prices and how often it will adjust those prices. As a means of evaluating its fair value process, the fund routinely compares closing market prices, the next day`s opening prices in the same markets, and adjusted prices. Other mutual funds may adjust the prices of their securities by different amounts.

    The various ways you can buy, sell, and exchange shares are explained at the end of this prospectus and on the New Account Form.

    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 business day`s NAV. If we receive it after 4 p.m. ET, it will be priced at the next business day`s NAV.

    The funds generally cannot accept orders that request a particular day or price for a 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.

    When authorized by the fund, certain financial institutions or retirement plans purchasing fund shares on behalf of customers or plan participants through Financial Institution Services or Retirement Plan Services may place a purchase order unaccompanied by payment. Payment for these shares must be received by the time des

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    ignated by the fund (not to exceed the period established for settlement under applicable regulations). If payment is not received by this time, the order may be canceled. The financial institution or retirement plan is responsible for any costs or losses incurred by the fund or T. Rowe Price if payment is delayed or not received.

    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 your organization the widest range of options for receiving proceeds from a sale.

    If your request is received by 4 p.m. ET (on a business day) 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. ACH is an automated method of initiating payments from, and receiving payments in, your financial institution account. Proceeds sent by ACH transfer are usually credited the second business day after the sale. Proceeds sent by bank wire should be credited to your account the first business day after the sale.

    Exception:  Under certain circumstances and when deemed to be in a fund`s best interest, 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.

    Contingent Redemption Fee

    Short-term trading can disrupt a fund`s investment program and create additional costs for long-term shareholders. For these reasons, certain T. Rowe Price funds, listed in the following table, assess a fee on redemptions (including exchanges), which reduces the proceeds from such redemptions by the amounts indicated:


    T. Rowe Price Institutional Funds With Redemption Fees











    Fund


    Redemption fee


    Holding period




    Institutional Africa & Middle East
    2%
    90 days or less

    Institutional Emerging Markets Bond
    2%
    90 days or less

    Institutional Emerging Markets Equity
    2%
    90 days or less

    Institutional Floating Rate
    1%
    90 days or less

    Institutional Foreign Equity
    2%
    90 days or less

    Institutional Global Equity
    2%
    90 days or less

    Institutional Global Large-Cap Equity
    2%
    90 days or less

    Institutional High Yield
    1%
    90 days or less

    Institutional International Bond
    2%
    90 days or less

    Redemption fees are paid to a fund to deter short-term trading, offset costs, and protect the fund`s long-term shareholders. Subject to the exceptions described on the following pages, all persons holding shares of a T. Rowe Price fund that imposes a redemption fee are subject to the fee, whether the person is holding shares directly with a T. Rowe Price fund, through a retirement plan for which T. Rowe Price serves as recordkeeper, or indirectly through an intermediary, such as a broker, bank, investment adviser, recordkeeper for retirement plan participants, or any other third party.

    Computation of Holding Period

    When an investor sells shares of a fund that assesses a redemption fee, T. Rowe Price will use the "first in, first out" (FIFO) method to determine the holding period for the shares sold. Under this method, the date of redemption or exchange will be compared with the earliest purchase date of shares held in the account. A redemption fee will be charged on shares sold on or before the end of the required holding period. For example, if you redeem your shares on or before the 90th day from the date of purchase, you will be assessed the redemption fee. If you purchase shares through an intermediary, consult your intermediary to determine how the holding period will be applied.

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    Transactions Not Subject to Redemption Fees

    The T. Rowe Price funds will not assess a redemption fee with respect to certain transactions. As of the date of this prospectus, the following shares of T. Rowe Price funds will not be subject to redemption fees:

    1.Shares redeemed via an automated, systematic withdrawal plan;

    2.Shares redeemed through or used to establish a systematic, nondiscretionary rebalancing or asset allocation program, if approved in writing by T. Rowe Price;

    3.Shares purchased by the reinvestment of dividends or capital gain distributions;*

    4.Shares converted from one share class to another share class of the same fund;*

    5.Shares redeemed by a fund (e.g., for failure to meet account minimums or to cover various fees, such as fiduciary fees);

    6.Shares purchased by rollover and changes of account registration within the same fund;*

    7.Shares redeemed to return an excess contribution in an IRA account;

    8.Shares purchased by a fund-of-funds product, if approved in writing by T. Rowe Price;

    9.Shares transferred to T. Rowe Price or a third-party intermediary acting as a service provider when the age of the shares cannot be determined systematically;*

    10.Shares redeemed in retirement plans or other products that restrict trading to no more frequently than once per quarter, if approved in writing by T. Rowe Price.

    *Subsequent exchanges of these shares into funds that assess redemption fees will subject such shares to the fee.

    Redemption Fees on Shares Held in Retirement Plans

    If shares are held in a retirement plan, generally redemption fees will be assessed on shares redeemed by exchange only if they were originally purchased by exchange. However, redemption fees may apply to transactions other than exchanges depending on how shares of the plan are held at T. Rowe Price or how the fees are applied by your plan`s recordkeeper. To determine which of your transactions are subject to redemption fees, you should contact T. Rowe Price or your plan recordkeeper.

    Omnibus Accounts

    If your shares are held through an intermediary in an omnibus account, T. Rowe Price relies on the intermediary to assess the redemption fee on underlying shareholder accounts. T. Rowe Price seeks to identify intermediaries establishing omnibus accounts and to enter into agreements requiring the intermediary to assess the redemption fees. There are no assurances that T. Rowe Price will be successful in identifying all intermediaries or that the intermediaries will properly assess the fees. Intermediaries who are unable to implement redemption fees due to system limitations must either (1) implement short-term trading restrictions approved by T. Rowe Price until they have the system capabilities to assess the fees or (2) set forth an implementation plan acceptable to T. Rowe Price.

    Certain intermediaries may not apply the exemptions previously listed to the redemption fee policy; all redemptions by persons trading through such intermediaries may be subject to the fee. Certain intermediaries may exempt transactions not listed from redemption fees, if approved by T. Rowe Price. Persons redeeming shares through an intermediary should check with their respective intermediary to determine which transactions are subject to the fees.

    Useful Information on Distributions and Taxes

    To the extent possible, 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. Reinvesting distributions results in compounding, that is, receiving income dividends and capital gain distributions on a rising number of shares.

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    Distributions not reinvested are paid by check or transmitted to your bank account via ACH. If the U.S. 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. Interest will not accrue on amounts represented by uncashed distributions or redemption checks.

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    The following table provides details on dividend payments:

    Table 5  Dividend Payment Schedule  

    Fund


    Dividends




    Bond funds
    Shares normally begin to earn dividends on the business day after payment is received by T. Rowe Price.


    Declared daily and paid on the first business day of each month.

    Stock funds
    Must be a shareholder on the dividend record date.


    Declared annually, if any, generally in December.

    Bond fund shares will earn dividends through the date of redemption. 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 bond fund 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 bond fund shares, all dividends accrued on those shares will be reinvested, or paid in cash, on the next dividend payment date.

    If you purchase and sell your shares through an intermediary, consult your intermediary to determine when your shares begin and stop accruing dividends; the information described above may vary.

    Capital Gain Payments

  • A capital gain or loss is the difference between the purchase and sale price
    of a security.
  • If a fund has net capital gains for the year (after subtracting any capital losses), they are usually declared and paid in December to shareholders of record on a specified date that month. If a second distribution is necessary, it is paid the following year.
  • Tax Information
  • You will be sent information for your tax filing needs on a timely basis.

    If you invest in the fund through a tax-deferred account, such as an IRA, you will not be subject to tax on dividends and distributions from the fund or the sale of fund shares if those amounts remain in the tax-deferred account. You may receive a Form 1099-R or other IRS forms, as applicable, if any of the account is distributed to you.

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    If you invest in the fund through a taxable account, you will generally be subject to tax when:

  • You sell fund shares, including an exchange from one fund to another.
  • The fund makes a distribution to your account.
  • For individual shareholders, a portion of ordinary dividends representing "qualified dividend income" received by the fund may be subject to tax at the lower rate applicable to long-term capital gains, rather than ordinary income. You may report it as "qualified dividend income" in computing your taxes provided you have held the fund shares on which the dividend was paid for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Ordinary dividends that do not qualify for this lower rate are generally taxable at the investor`s marginal income tax rate. This includes the portion of ordinary dividends derived from interest, short-term capital gains, distributions from nonqualified foreign corporations, and dividends received by the fund from stocks that were on loan. Little, if any, of the ordinary dividends paid by the bond funds is expected to qualify for this lower rate.

    For corporate shareholders, a portion of ordinary dividends may be eligible for the 70% deduction for dividends received by corporations to the extent the fund`s income consists of dividends paid by U.S. corporations. Little, if any, of the ordinary dividends paid by the bond funds is expected to qualify for this deduction.

    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 a sale for tax purposes.

    In January, if applicable, you will be sent a 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 you with 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 will send you a confirmation promptly following each transaction you make and a year-end statement detailing all of your transactions in each fund account during the year.

    Taxes on Fund Distributions

    In January, if applicable, you will be sent a Form 1099-DIV, Form 1099-INT, or other IRS forms, as required, indicating the tax status of any income dividends, dividends exempt from federal income taxes, and capital gain distributions made to you. This information will be reported to the IRS. Taxable distributions are generally taxable to you in the year in which they are paid. Your bond fund dividends for each calendar year will include dividends accrued up to the first business day of the next calendar year. 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 and local 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 the shares in the fund. Short-term (one year or less) capital gain distributions are taxable at the same rate as ordinary income, and gains on securities held more than one year are taxed at the lower rates applicable to long-term capital gains. If you realized a loss on the sale or exchange of fund shares that you held six months or less, your short-term capital loss must be reclassified as a long-term capital loss to the extent of any long-term capital gain distributions received during the period you held the shares. For funds investing in foreign securities, distributions resulting from the sale of certain foreign currencies, currency contracts, and the foreign currency portion of gains on debt securities are taxed as ordinary income. Net foreign currency losses may cause monthly or quarterly dividends to be reclassified as a return of capital.

    If the fund qualifies and elects to pass through nonrefundable foreign income taxes paid to foreign governments during the year, your portion of such taxes will be reported to you as taxable income. However, you may be able to claim an offsetting credit or deduction on your tax return for those amounts. There can be no assurance that a fund will meet the requirements to pass through foreign income taxes paid.

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    Tax Consequences of Hedging

    Entering into certain options, futures, swaps, and forward foreign exchange contracts and transactions may result in the application of the mark-to-market and straddle provisions of the Internal Revenue Code. These provisions could result in the fund being required to distribute gains on such transactions even though it did not close the contracts during the year or receive cash to pay such distributions. The fund may not be able to reduce its distributions for losses on such transactions to the extent of unrealized gains in offsetting positions.

    Taxable distributions are subject to tax whether reinvested in additional shares or received in cash.

    Tax Effect of Buying Shares Before an Income Dividend or 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 may 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. Such distributions can occur even in a year when the fund has a negative return.

    Transaction Procedures and Special Requirements

    Following these procedures helps assure timely and accurate transactions.

    Purchase Conditions

    Nonpayment

    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.

    Large Sale (Redemption) Conditions

    Large redemptions 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. The fund has the right (without prior notice) to pay all or part of redemption proceeds with securities from the fund`s portfolio rather than in cash ("redemption in-kind").  If this occurs, the securities will be selected by the fund in its absolute discretion and the redeeming shareholder or account will be responsible for disposing of the securities and bearing any associated costs.

    We also request that you give us three business days` notice for any redemption of $2 million or more.

    Excessive and Short-Term Trading

    T. Rowe Price may bar excessive and short-term traders from purchasing shares.

    Excessive or short-term trading in fund shares may disrupt management of a fund and raise its costs. Short-term traders in funds investing in foreign securities may seek to take advantage of an anticipated difference between the price of the fund`s shares and price movements in overseas markets (see Pricing Shares and Receiving Sale Proceeds  How and When Shares Are Priced). While there is no assurance that T. Rowe Price can prevent all excessive and short-term trading, the Board of Directors/Trustees of each fund has adopted the policy set forth below to deter such activity. Persons trading directly with T. Rowe Price or indirectly through intermediaries in violation of this policy or persons believed to be short-term traders may be barred for a minimum of 90 calendar days or permanently from further purchases of T. Rowe Price funds. Purchase transactions placed by such persons are subject to rejection without notice.

  • All persons purchasing shares held directly with a T. Rowe Price fund, or through a retirement plan for which T. Rowe Price serves as recordkeeper, who make more than one purchase followed by one sale or one sale followed by one purchase involving the same fund within any 90-day calendar period will violate the policy.
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  • All persons purchasing fund shares held through an intermediary, including a broker, bank, investment adviser, recordkeeper, insurance company, or other third party, and who hold the shares for less than 90 calendar days will violate the policy.
  • Omnibus Accounts

    Intermediaries often establish omnibus accounts in the T. Rowe Price funds for their customers. In such situations, T. Rowe Price cannot always monitor trading activity by underlying shareholders. However, T. Rowe Price reviews trading activity at the omnibus account level and looks for activity that indicates potential excessive or shortterm trading. If it detects suspicious trading activity, T. Rowe Price contacts the intermediary to determine whether the excessive trading policy has been violated and may request and receive personal identifying information and transaction histories for some or all underlying shareholders (including plan participants) to make this determination. If T. Rowe Price believes that its excessive trading policy has been violated, it will instruct the intermediary to take action with respect to the underlying shareholder.

    Retirement Plans

    If shares are held in a retirement plan, generally the fund`s excessive trading policy only applies to shares purchased and redeemed by exchange. However, the policy may apply to transactions other than exchanges depending on how shares of the plan are held at T. Rowe Price or how the excessive trading policy is applied by your plan`s recordkeeper. To determine which of your transactions are subject to the fund`s excessive trading policy, you should contact T. Rowe Price or your plan recordkeeper.

    Exceptions to Policy

    The following types of transactions are generally exempt from this policy: 1) trades solely in money funds (exchanges between a money fund and a nonmoney fund are not exempt); 2) systematic purchases and redemptions (see Information About Your Services); and 3) checkwriting redemptions from bond and money funds.

    In addition, transactions in systematic nondiscretionary rebalancing programs, nondiscretionary asset allocation programs, or fund-of-funds products may be exempt from the excessive trading policy subject to prior written approval by designated persons at T. Rowe Price.

    T. Rowe Price may modify the 90-day policy set forth above (for example, in situations where a retirement plan or retirement plan recordkeeper has restrictions on trading that differ from a T. Rowe Price fund`s policy). These modifications would be authorized only if the fund believes that the modified policy would provide protection to the fund that is reasonably equivalent to the fund`s regular policy. If you are trading your fund shares through an intermediary, you should consult with the intermediary to determine the excessive trading policy that applies to your trades in the fund.

    There is no guarantee that T. Rowe Price will be able to detect or prevent excessive or short-term trading.

    Keeping Your Account Open

    To keep operating expenses lower, we ask you to maintain an account balance of at least $1 million. If your investment is below $1 million, we have the right to redeem your account at the then current NAV after giving you 60 days to increase your balance. This could result in a taxable gain.

    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 when prior bank account authorization is not on file.
  • 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.
  • 19


    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.

    20


    More About the Funds 3

    Organization and Management

    How are the funds organized?

    T. Rowe Price Institutional International Funds, Inc. (the "corporation") was incorporated in Maryland in 1989. Currently, the corporation consists of seven series, each representing a separate pool of assets with different objectives and investment policies. Each is an "open-end management investment company," or mutual fund. Mutual funds pool money received from shareholders and invest it to try to achieve specified objectives.

    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 income and capital gain distributions.
  • Cast one vote per share on certain fund matters, including the election of fund directors/trustees, 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 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 or make available to 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 funds?

    General Oversight

    Each fund is governed by a Board of Directors/Trustees that meets regularly to review fund investments, performance, expenses, and other business affairs. The Board elects the funds` officers. At least 75% of Board members are independent of T. Rowe Price International.

    All decisions regarding the purchase and sale of fund investments are made by T. Rowe Price Internationalspecifically by the funds` portfolio managers .

    Investment Manager

    T. Rowe Price International is responsible for the selection and management of fund portfolio investments. The U.S. office of T. Rowe Price International is located at 100 East Pratt Street, Baltimore, Maryland 21202.

    Portfolio Management

    T. Rowe Price International has established an Investment Advisory Committee with respect to each fund. The committee chairman has day-to-day responsibility for managing the portfolio and works with the committee in developing and executing the fund`s investment program. The members of each advisory committee are listed below. The Statement of Additional Information provides additional information about the portfolio managers` compensation, other accounts managed by the portfolio managers, and the portfolio managers` ownership of securities in the fund.

    Africa & Middle East Fund  Christopher D. Alderson, Chairman, Ulle Adamson, Elena Nikolaeva, S. Leigh Robertson, and Joseph Rohm. Mr. Alderson has been chairman of the committee since its inception. He joined T. Rowe Price International in 1988 and his investment experience dates from 1983. Effective March 31, 2009, Joseph Rohm will replace Christopher D. Alderson as Chairman of the Investment Advisory Committee. Mr. Rohm has served as a member of the committee since the fund`s inception. He joined T. Rowe Price International in 2005 and his investment experience dates from 2000. Prior to joining the firm, he was an invest

    21


    ment analyst with Insight Investments (2002) and ABN AMRO (2000). Mr. Alderson will remain a member of the committee. Mr. Alderson has been chairman of the committee since its inception. He joined T. Rowe Price International in 1988 and his investment experience dates from 1983.

    Emerging Markets Equity Fund  Christopher D. Alderson and Gonzalo Pangaro, Co-chairmen, Jose Costa Buck, Frances Dydasco, Mark J.T. Edwards, S. Leigh Robertson, and Joseph Rohm. Mr. Alderson was appointed chairman of the committee in 2008, but has been involved in managing the fund since its inception. He joined T. Rowe Price International in 1988 and his investment experience dates from 1983. Mr. Pangaro joined T. Rowe Price International in 1998 and his investment experience dates from 1991. Effective March 31, 2009, Mr. Pangaro will be the sole Chairman of the Investment Advisory Committee. Mr. Alderson will remain as a member of the committee.

    Foreign Equity Fund  Robert W. Smith, Chairman, Christopher D. Alderson, Mark C.J. Bickford-Smith, Richard N. Clattenburg, Henry M. Ellenbogen, Robert N. Gensler, M. Campbell Gunn, Gonzalo Pangaro, Jeffrey Rottinghaus, and Dean Tenerelli. Mr. Smith was appointed chairman of the committee in 2007. He joined T. Rowe Price Associates in 1992 and his investment experience dates from 1987.

    Global Equity Fund  Robert N. Gensler, Chairman, Christopher D. Alderson, Jeffrey W. Arricale, R. Scott Berg, Frances Dydasco, Henry M. Ellenbogen, Niall P. Gallagher, M. Campbell Gunn, Kris H. Jenner, Charles M. Ober, Gonzalo Pangaro, Jeffrey Rottinghaus, and Robert W. Sharps. Mr. Gensler has been chairman of the committee since its inception. He joined T. Rowe Price Associates in 1993 and his investment experience dates from 1982. He joined T. Rowe Price International in 2005.

    Global Large-Cap Equity Fund  R. Scott Berg, Chairman, Christopher D. Alderson, Jeffrey W. Arricale, Frances Dydasco, Henry M. Ellenbogen, Niall P. Gallagher, M. Campbell Gunn, Robert N. Gensler, Kris H. Jenner, Charles M. Ober, Gonzalo Pangaro, Jeffrey Rottinghaus, and Robert Sharps. Mr. Berg has been chairman of the committee since its inception. He joined T. Rowe Price International in 2002 as a research analyst and his investment experience dates from that time.

    The Management Fee

    Each fund pays the fund manager an annual investment management fee based on a percentage of the average daily asset value of the fund. Each fund`s fee is as follows: Africa & Middle East, 1.00%; Emerging Markets Equity, 1.10%; Foreign Equity, 0.70%; Global Equity and Global Large-Cap Equity, 0.65%. Each fund calculates and accrues the fee daily. For the Emerging Markets Equity Fund, the management fee includes ordinary recurring operating expenses, but does not cover interest, taxes, brokerage, and nonrecurring or extraordinary items.

    A discussion about the factors and conclusions considered by the Board in approving each fund`s (except for Africa & Middle East and Global Large-Cap Equity Funds) investment management contract with T. Rowe Price International will appear in each fund`s semiannual report to shareholders for the period ending April 30, 2009.

    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 educational and informational materials, in T. Rowe Price advertisements, and in the media.

    Total Return

    This tells you how much an investment has changed in value over a given 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 may include cumulative or average annual total return figures, which may be compared with various indices, other performance measures, or other mutual funds.

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    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, an investment 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 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.

    Investment Policies and Practices

    This section takes a detailed look at some of the types of fund securities and the various kinds of investment practices that may be used in day-to-day portfolio management. Fund investments are subject to further restrictions and risks described in the Statement of Additional Information.

    Shareholder approval is required to substantively change fund objectives. Shareholder approval is also required to change certain investment restrictions noted in the following section as "fundamental policies." The managers also follow certain "operating policies" that can be changed without shareholder approval. Shareholders will receive at least 60 days` prior notice of a change in the fund`s policy requiring it to normally invest 80% of its assets in stocks or a particular region, as the case may be. Fund investment restrictions and policies apply at the time of purchase. A later change in circumstances will not require the sale of an investment if it was proper at the time it was made. (This exception does not apply to the funds` borrowing policy.)

    Fund holdings of certain kinds of investments cannot exceed maximum percentages of total assets, which are set forth in this prospectus. For instance, fund investments in certain derivatives are limited to 10% of total assets. While these restrictions provide a useful level of detail about fund investments, 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 derivatives could have significantly more of an impact on a fund`s share price than its weighting in the portfolio. The net effect of a particular investment depends on its volatility and the size of its overall return in relation to the performance of all other fund investments.

    Changes in fund holdings, fund performance, and the contribution of various investments are discussed in the shareholder reports sent to you.

    Fund managers have considerable discretion in choosing investment strategies and selecting securities they believe will help achieve fund objectives.

    Types of Portfolio Securities

    In seeking to meet their investment objectives, fund investments may be made in any type of security or instrument (including certain potentially high-risk
    derivatives described in this section) whose investment characteristics are consistent with their investment programs. The following pages describe various types of fund securities and investment management practices.

    Diversification  With the exception of the Africa & Middle East Fund, as a fundamental policy, each fund will not purchase a security if, as a result, with respect to 75% of its total assets, more than 5% of the fund`s total assets would be invested in securities of a single issuer or more than 10% of the outstanding voting securities of the issuer would be held by each fund.

    Nondiversified StatusAfrica & Middle East

    The fund is registered as a nondiversified mutual fund. This means that the fund may invest a greater portion of its assets in, and own a greater amount of the voting securities of, a single company than a diversified fund, which may subject the fund to greater risk with respect to its portfolio securities and greater volatility with respect to its share price.

    23


    The fund intends to qualify as a "regulated investment company" under the Internal Revenue Code. As a result, the fund must invest so that, at the end of each fiscal quarter, with respect to 50% of its total assets, no more than 5% of its total assets is invested in the securities of a single issuer and not more than 10% of the voting securities of any issuer are held by the fund. With respect to the remaining 50% of fund assets, no more than 25% may be invested in a single issuer.

    All funds

    Common and Preferred Stocks

    Stocks represent shares of ownership in a company. Generally, preferred stock has a specified dividend and ranks after bonds and before common stocks in its claim on income for dividend payments and on assets should the company be liquidated. After other claims are satisfied, common stockholders participate in company profits on a pro-rata basis; profits may be paid out in dividends or reinvested in the company to help it grow. Increases and decreases in earnings are usually reflected in a company`s stock price, so common stocks generally have the greatest appreciation and depreciation potential of all corporate securities. While most preferred stocks pay a dividend, preferred stock may be purchased 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

    Investments may be made in debt or preferred equity securities convertible into, or exchangeable for, equity securities. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than nonconvertible securities. They generally participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree. Some convertible securities combine higher or lower current income with options and other features. Warrants are options to buy, directly from the issuer, a stated number of shares of common stock at a specified price anytime during the life of the warrants (generally, two or more years). Warrants can be highly volatile, have no voting rights, and pay no dividends.

    Fixed-Income Securities

    From time to time, we may invest in corporate and government fixed-income securities as well as below investment-grade bonds, commonly referred to as "junk" bonds. These securities would be purchased in companies that meet fund investment criteria. The price of a bond fluctuates with changes in interest rates, generally rising when interest rates fall and falling when interest rates rise. Below investment-grade bonds, or "junk bonds," can be more volatile and have greater risk of default than investment-grade bonds.

    Operating policy  Fund investments in below investment-grade bonds are limited to 10% of total assets for the Africa & Middle East and Emerging Markets Equity Funds and 5% of total assets for the Global Equity and Global Large-Cap Equity Funds.

    Hybrid Instruments

    These instruments (a type of potentially high-risk derivative) can combine the characteristics of securities, futures, and options. For example, the principal amount, redemption, or conversion terms of a security could be related to the market price of some commodity, currency, or securities index. Such securities may bear interest or pay dividends at below market or even relatively nominal rates. Under certain conditions, the redemption value of a hybrid could be zero.

    Hybrids can have volatile prices and limited liquidity, and their use may not be successful.

    Operating policy  Fund investments in hybrid instruments are limited to 10% of total assets.

    Illiquid Securities

    These securities include private placements that are sold directly to a small number of investors, usually institutions. Unlike public offerings, such securities are not registered with the Securities and Exchange Commission (SEC). Although certain of these securities may be readily sold, for example, under Rule 144A, others may have resale restrictions and be illiquid. The sale of illiquid securities may involve substantial delays and additional costs, and the funds may only be able to sell such securities at prices substantially less than what the funds believe they are worth.

    24


    Operating policy  Fund investments in illiquid securities are limited to 15% of net assets.

    Types of Investment Management Practices

    Reserve Position

    A certain portion of fund assets will be held in reserves. Fund reserve positions can consist of: 1) shares of one or both of the T. Rowe Price internal money funds, the T. Rowe Price Government Reserve Investment Fund or the T. Rowe Price Reserve Investment Fund (which do not charge any management fees); 2) short-term, high-quality U.S. and foreign dollar-denominated money market securities, including repurchase agreements; and 3) U.S. dollar or non-U.S. dollar currencies. For temporary, defensive purposes, there is no limit on fund investments in reserves. Significant investments in reserves could compromise the ability to achieve fund objectives. The reserve position provides flexibility in meeting redemptions, paying expenses, and in the timing of new investments and can serve as a short-term defense during periods of unusual market volatility. Non-U.S. dollar reserves are subject to currency risk.

    Borrowing Money and Transferring Assets

    Fund borrowings may be made from banks and other T. Rowe Price funds for temporary emergency purposes to facilitate redemption requests, or for other purposes consistent with fund policies as set forth in this prospectus. Such borrowings may be collateralized with fund assets, subject to restrictions.

    Fundamental policy  Borrowings may not exceed 33 1/3% of total assets.

    Operating policy  Fund transfers of portfolio securities as collateral will not be made except as necessary in connection with permissible borrowings or investments, and then such transfers may not exceed 33 1/3% of total assets. Fund purchases of additional securities will not be made when borrowings exceed 5% of total assets.

    Foreign Currency Transactions

    The funds will normally conduct their foreign currency exchange transactions, if any, either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward contracts to purchase or sell foreign currencies. The funds will generally not enter into a forward contract with a term greater than one year.

    The funds will generally enter into forward foreign currency exchange contracts only under two circumstances. First, when a fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security. Second, when T. Rowe Price International believes that the currency of a particular foreign country may move substantially against another currency, it may enter into a forward contract to sell or buy the former foreign currency (or another currency that acts as a proxy for that currency). The contract may approximate the value of some or all of the funds` portfolio securities denominated in such foreign currency. Under unusual circumstances, a fund may commit a substantial portion or the entire value of its portfolio to the consummation of these contracts. T. Rowe Price International will consider the effect such a commitment to forward contracts would have on each fund`s investment program and the flexibility of each fund to purchase additional securities. Although forward contracts will be used primarily to protect the fund from adverse currency movements, they also involve the risk that anticipated currency movements will not be accurately predicted, and fund total return could be adversely affected as a result.

    There are some markets where it is not possible to engage in effective foreign currency hedging. This is generally true, for example, for the currencies of various emerging markets where the foreign exchange markets are not sufficiently developed to permit hedging activity to take place.

    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 (when the investor purchases the option), or the obligation (when the investor "writes" or sells the option), to buy or sell an asset at a predetermined price in the future. Futures and options contracts may be bought or sold for any number of reasons, including: to manage exposure to changes in securities prices and foreign currencies; as an efficient means of increasing or decreasing

    25


    fund overall exposure to certain markets; in an effort to enhance income; to protect the value of portfolio securities; and to serve as a cash management tool. Call or put options may be purchased or sold on securities, futures, 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 fund total return; and the potential loss from the use of futures can exceed a fund`s initial investment in such contracts.

    Operating policies  Futures: Initial margin deposits on futures and premiums on options used for non-hedging purposes will not exceed 5% of net asset value. Options on securities: The total market value of securities covering call or put options may not exceed 25% of total assets. No more than 5% of total assets will be committed to premiums when purchasing call or put options.

    Tax Consequences of Hedging

    Hedging may result in the application of the mark-to-market and straddle provisions of the Internal Revenue Code. These provisions could result in an increase (or decrease) in the amount of taxable dividends paid by the funds and could affect whether dividends paid are classified as capital gains or ordinary income.

    Lending of Portfolio Securities

    Fund securities may be lent to broker-dealers, other institutions, or other persons to earn additional income. Risks include the potential insolvency of the broker-dealer or other borrower that could result in delays in recovering securities and capital losses. Additionally, losses could result from the reinvestment of collateral received on loaned securities in investments that default or do not perform well.

    Fundamental policy  The value of loaned securities may not exceed 33 1/3% of total assets.

    Portfolio Turnover

    Turnover is an indication of frequency of trading. We will not generally trade in securities for short-term profits, but, when circumstances warrant, securities may be purchased and sold without regard to the length of time held. Each time the fund purchases or sells a security, it incurs a cost. This cost is reflected in the fund`s net asset value but not in its operating expenses. The higher the turnover rate, the higher the transaction costs and the greater the impact on the fund`s total return. Higher turnover can also increase the possibility of taxable capital gain distributions. The funds` portfolio turnover rates are shown in the Financial Highlights table.

    Country Classifications

    For purposes of determining whether a particular country is considered a developed market or an emerging market, the funds use the designation set forth by MSCI Barra. For purposes of determining whether a fund invests at least 80% of its net assets in a particular country or geographic region, the fund uses the country assigned to a security by MSCI Barra or, if one is not assigned by MSCI Barra, then the country assigned by Bloomberg. The fund generally follows this same process with respect to the remaining 20% of assets but may occasionally make an exception after assessing various factors relating to a company. MSCI Barra and Bloomberg are prominent providers of investment tools for institutions worldwide.

    Disclosure of Fund Portfolio Information

    Each fund`s portfolio holdings are disclosed on a regular basis in its semiannual and annual reports to shareholders and on Form N-Q, which is filed with the SEC within 60 days of the funds` first and third fiscal quarter-end. In addition, each fund discloses its calendar quarter-end portfolio holdings on troweprice.com 15 calendar days after each quarter. Under certain conditions, up to 5% of each fund`s holdings may be included in this portfolio list without being individually identified. Generally, securities would not be individually identified if they are being actively bought or sold and it is determined that the quarter-end disclosure of the holding could be harmful to the funds. A security will not be excluded for these purposes from a fund`s quarter-end holdings disclosure for more than one year. Each fund also discloses its largest 10 holdings on troweprice.com on the seventh business day after each month-end. These holdings are listed in alphabetical order along with the aggregate percentage of each fund`s total assets that they represent. The quarter-end

    26


    portfolio will remain on the Web site for one year. Each monthly top 10 list will remain on the Web site for six months. A description of each fund`s policy and procedures with respect to the disclosure of portfolio information is in the Statement of Additional Information.

    Financial Highlights

    Table 6, which provides information about each fund`s (other than the Africa & Middle East and Global Large-Cap Equity Funds) financial history, is based on a single share outstanding throughout the periods shown. Each fund`s section of the table is part of each fund`s financial statements, which are included in its annual report and are incorporated by reference into the Statement of Additional Information (available upon request). The total returns in the table represent the rate that an investor would have earned or lost on an investment in each fund (assuming reinvestment of all dividends and distributions and no payment of account or [if applicable] redemption fees). The financial statements in the annual reports were audited by the funds` independent registered public accounting firm, PricewaterhouseCoopers LLP.

    Table 6  Financial Highlights




    10/31/02*
    through
    10/31/03 


    Year ended October 31














    Emerging Markets Equity Fund





    2004


    2005**


    2006**


    2007**











    Net asset value,beginning of period
    $10.00
    $14.18
    $16.61
    $22.72
    $29.09

    Income From Investment Operations






    Net investment income
    0.09
    0.15
    0.28
    0.26
    0.39

    Net gains or losses on securities (both realized and unrealized)
    4.10
    2.58
    6.32
    6.96
    19.27

    Total from investment operations
    4.19
    2.73
    6.60
    7.22
    19.66

    Less Distributions






    Dividends (from net investment income)
    (0.01)
    (0.09)
    (0.07)
    (0.18)
    (0.27)

    Distributions (fromcapital gains)

    (0.21)
    (0.42)
    (0.67)
    (1.79)

    Returns of capital






    Total distributions
    (0.01)
    (0.30)
    (0.49)
    (0.85)
    (2.06)

    Net asset value,end of period
    $14.18
    $16.61
    $22.72
    $29.09
    $46.69

    Total return
    41.94%
    19.58%
    40.54%
    32.52%
    71.59%

    Ratios/Supplemental Data






    Net assets, end of period(in thousands)
    $15,650
    $34,182
    $119,150
    $178,138
    $312,675

    Ratio of expenses to average net assets
    1.10%
    1.10%
    1.10%
    1.10%
    1.10%

    Ratio of net income to average net assets
    1.34%
    1.28%
    1.38%
    0.95%
    1.14%

    Portfolio turnover rate
    70.4%
    69.1%
    57.4%
    57.0%
    49.9%

    *Inception date.

    **Per share amounts calculated using average shares outstanding method.

    27


    Table 6  Financial Highlights (continued)




    Year ended October 31

















    Foreign Equity Fund


    2003


    2004


    2005*


    2006*


    2007*











    Net asset value,beginning of period
    $10.65
    $12.82
    $14.19
    $16.59
    $19.46

    Income From Investment Operations






    Net investment income
    0.23
    0.26
    0.24
    0.26
    0.31

    Net gains or losses on securities (both realized and unrealized)
    2.11
    1.38
    2.42
    3.16
    4.97

    Total from investment operations
    2.34
    1.64
    2.66
    3.42
    5.28

    Less Distributions






    Dividends (from net investment income)
    (0.15)
    (0.25)
    (0.26)
    (0.49)
    (0.33)

    Distributions (fromcapital gains)
    (0.02)
    (0.02)

    (0.06)
    (0.02)

    Returns of capital






    Total distributions
    (0.17)
    (0.27)
    (0.26)
    (0.55)
    (0.35)

    Net asset value,end of period
    $12.82
    $14.19
    $16.59
    $19.46
    $24.39

    Total return
    22.33%
    12.96%
    18.95%
    21.07%
    27.50%

    Ratios/Supplemental Data






    Net assets, end of period (in millions)
    $1,061
    $743
    $255
    $212
    $164

    Ratio of expenses to average net assets
    0.76%
    0.76%
    0.78%
    0.84%
    0.89%

    Ratio of net income to average net assets
    1.64%
    1.35%
    1.56%
    1.41%
    1.44%

    Portfolio turnover rate
    27.8%
    28.8%
    56.2%
    66.1%
    73.7%

    *Per share amounts calculated using average shares outstanding method.

    28


    Table 6  Financial Highlights (continued)




    6/3/06*
    through
    10/31/06**


    Year Ended October 31





    Global Equity Fund





    2007**








    Net asset value,beginning of period
    $10.00
    $10.73

    Income From Investment Operations



    Net investment income
    0.01a
    0.07a

    Net gains or losses on securities (both realized and unrealized)
    0.72
    3.46

    Total from investment operations
    0.73
    3.53

    Less Distributions



    Dividends (from net investment income)

    (0.04)

    Distributions (fromcapital gains)

    (0.14)

    Returns of capital



    Total distributions

    (0.18)

    Redemption fees addedto paid in capital



    Net asset value,end of period
    $10.73
    $14.08

    Total return
    7.30%a
    33.31%a

    Ratios/Supplemental Data



    Net assets, end of period(in thousands)
    $2,146
    $5,977

    Ratio of expenses to average net assets
    0.75%ab
    0.75%a

    Ratio of net income to average net assets
    0.29%ab
    0.54%a

    Portfolio turnover rate
    127.6%b
    138.0%

    *Inception date.

    **Per share amounts calculated using average shares outstanding method.

    a Excludes expenses in excess of a 0.75% contractual expense limitation in effect through February 28, 2009.

    b Annualized.

    29


    Investing With T. Rowe Price 4

    Account Requirements and Transaction Information

    Tax Identification
    Number

    We must have your correct tax identification number on a signed New Account Form or W-9 Form. Otherwise, federal law requires the funds to withhold a percentage 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 at the fund`s NAV on the redemption date.

    Always verify your transactions by carefully reviewing the confirmation we send you. Please report any discrepancies to Financial Institution Services promptly.

    Opening a New Account

    $1,000,000 minimum initial investment

    Important Information About Opening an Account

    Pursuant to federal law, all financial institutions must obtain, verify, and record information that identifies each person or entity that opens an account.

    When you open an account for an entity, you will be required to provide the entity`s name, street address, and tax identification number as well as your name, residential street address, date of birth, and Social Security number as the person opening the account on behalf of the entity. Entities are also required to provide documents such as articles of incorporation, partnership agreements, trust documents, and other applicable records.

    We will use this information to verify the identity of the entity and person opening the account. We will not be able to open the account for the entity until we receive all of this information. If we are unable to verify the identity of the entity, we are authorized to take any action permitted by law. (See Rights Reserved by the Funds.)

    Note: Shares may only be purchased and held by institutional investors. Institutional investors typically include banks, pension plans, and trust and investment companies. T. Rowe Price will not authorize the transfer of ownership from an institutional to a noninstitutional account. Shares held by noninstitutional accounts are subject to involuntary redemption at any time.

    All initial and subsequent investments must be made by bank wire.

    By Wire

    Call Financial Institution Services at 1-800-638-8797 for an account number, assignment to a dedicated service representative, and wire transfer instructions.

    In order to obtain an account number, you must supply the name, Social Security or employer identification number, and business street address for the account.

    Complete a New Account Form and mail it, with proper documentation identifying your firm, to one of the appropriate T. Rowe Price addresses listed under By Mail.

    Note: Investment will be made, but services may not be established and IRS penalty withholding may occur until we receive a signed New Account Form.

    Purchasing Additional Shares

    No minimum for additional purchases

    By Wire

    Call Financial Institution Services or access troweprice.com for wire transfer instructions.

    30


    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. For exchange policies, please see Transaction Procedures and Special RequirementsExcessive and Short-Term Trading.

    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 TransfersBy Wire under Information About Your Services. Please note that large purchase and redemption requests initiated through automated services, including the National Securities Clearing Corporation (NSCC), may be rejected and, in such instances, the transaction must be placed by contacting a service representative.

    If you request to redeem a specific dollar amount, and the market value of your account is less than the amount of your request, we will redeem all shares from your account.

    Some of the T. Rowe Price funds may impose a redemption fee. Check the fund`s prospectus under Contingent Redemption Fee in Pricing Shares and Receiving Sale Proceeds. The fee is paid to the fund.

    For redemptions by electronic transfer, please see Information About Your Services.

    By Mail

    For each account involved, provide the account name and 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 may require a signature guarantee of all registered owners (see Transaction Procedures and Special Requirements  Signature Guarantees). Please use the appropriate address below:

    via U.S. Postal Service

    T. Rowe Price Financial Institution Services
    P.O. Box 17603
    Baltimore, MD 21297-1603

    via private carriers/overnight services

    T. Rowe Price Financial Institution Services
    Mail Code: OM-4232
    4515 Painters Mill Road
    Owings Mills, MD 21117

    31


    Rights Reserved by the Funds

    T. Rowe Price funds and their agents, in their sole discretion, 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 placed through an intermediary, no later than the business day after the order is received by the intermediary (including, but not limited to, orders deemed to result in excessive trading, market timing, or 5% ownership); (5) to cease offering fund shares at any time to all or certain groups of investors; (6) 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; (7) to otherwise modify the conditions of purchase and any services at any time; (8) to waive any wire, small account, maintenance, or fiduciary fees charged to a group of shareholders; (9) to act on instructions reasonably believed to be genuine; and (10) to involuntarily redeem your account at the net asset value calculated the day the account is redeemed, in cases of threatening conduct, suspected fraudulent or illegal activity, or if the fund or its agent is unable, through its procedures, to verify the identity of the person(s) or entity opening an account.

    In an effort to protect T. Rowe Price funds from the possible adverse effects of a substantial redemption in a large account, as a matter of general policy, no shareholder or group of shareholders controlled by the same person or group of persons will knowingly be permitted to purchase in excess of 5% of the outstanding shares of a fund, except upon approval of the fund`s management.

    information about your Services

    Financial Institution Services
    1-800-638-8797

    Many services are available to you as a 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, you avoid having to complete a separate form at a later time and obtain a signature guarantee. This section discusses some of the services currently offered.

    Note: Corporate and other institutional accounts require documents showing the existence of the entity to open an account. For more information, call Financial Institution Services.

    Retirement Plans

    We offer a wide range of plans for institutions and large and small businesses: SEP-IRAs, Keoghs (profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For information on these retirement plans, please call our Trust Company at 18004927670.

    Telephone Services

    Buy, sell, or exchange shares by calling one of our service representatives.

    Electronic Transfers

    Electronic transfers can be conducted via bank wire. There is a $5 fee for wire redemptions under $5,000, and your bank may charge for incoming or outgoing wire transfers regardless of size.

    32


    For information

    Financial Institutions Division

    1-800-638-8797 toll free
    410-581-7290 in Baltimore

    C100-040 10/27/08

    A fund Statement of Additional Information has been filed with the Securities and Exchange Commission and is incorporated by reference into this prospectus. Further information about fund 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 1-800-638-8797. These documents are also available at troweprice.com.

    Fund information and Statements of Additional Information are also available from the Public Reference Room of the Securities and Exchange Commission. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. Fund reports and other fund information are available on the EDGAR Database on the SEC`s Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the Public Reference Room, Washington D.C. 20549-0102.

    1940 Act File No. 811-5833

    33


    This is the Statement of Additional Information for all of the funds listed below. It is divided into two parts (Part I and Part II). Part I contains information that is particular to each fund, while Part II contains information that generally applies to all of the funds in the T. Rowe Price family of funds (the "Price Funds").

    The date of this Statement of Additional Information ("SAI") is October 27, 2008.

    T. ROWE PRICE BALANCED FUND, INC.

    T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
    T. Rowe Price Blue Chip Growth FundAdvisor Class
    T. Rowe Price Blue Chip Growth FundR Class

    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 Appreciation FundAdvisor Class

    T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
    T. Rowe Price Capital Opportunity FundAdvisor Class
    T. Rowe Price Capital Opportunity FundR Class

    T. ROWE PRICE CORPORATE INCOME FUND, INC.

    T. ROWE PRICE DEVELOPING TECHNOLOGIES FUND, INC.

    T. ROWE PRICE DIVERSIFIED MID-CAP GROWTH FUND, INC.

    T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.

    T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
    T. Rowe Price Dividend Growth FundAdvisor Class

    T. ROWE PRICE EQUITY INCOME FUND
    T. Rowe Price Equity Income FundAdvisor Class
    T. Rowe Price Equity Income FundR Class

    T. ROWE PRICE FINANCIAL SERVICES FUND, INC.

    T. ROWE PRICE GLOBAL REAL ESTATE FUND, INC.
    T. Rowe Price Global Real Estate FundAdvisor Class

    T. ROWE PRICE GLOBAL TECHNOLOGY FUND, INC.

    T. ROWE PRICE GNMA FUND

    T. ROWE PRICE GROWTH & INCOME FUND, INC.

    T. ROWE PRICE GROWTH STOCK FUND, INC.
    T. Rowe Price Growth Stock FundAdvisor Class
    T. Rowe Price Growth Stock FundR Class

    T. ROWE PRICE HEALTH SCIENCES FUND, INC.

    T. ROWE PRICE HIGH YIELD FUND, INC.
    T. Rowe Price High Yield FundAdvisor Class

    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 INFLATION PROTECTED BOND FUND, INC.

    T. ROWE PRICE INSTITUTIONAL EQUITY FUNDS, INC. ("Institutional Equity Funds")
    T. Rowe Price Institutional Concentrated Large-Cap Value Fund
    T. Rowe Price Institutional Large-Cap Core Growth Fund
    T. Rowe Price Institutional Large-Cap Growth Fund
    T. Rowe Price Institutional Large-Cap Value Fund
    T. Rowe Price Institutional Mid-Cap Equity Growth Fund
    T. Rowe Price Institutional Small-Cap Stock Fund
    T. Rowe Price Institutional U.S. Structured Research Fund

    T. ROWE PRICE INSTITUTIONAL INCOME FUNDS, INC.
    T. Rowe Price Institutional Core Plus Fund

    34


    T. Rowe Price Institutional Floating Rate Fund
    T. Rowe Price Institutional High Yield Fund

    T. ROWE PRICE INSTITUTIONAL INTERNATIONAL FUNDS, INC.

    T. Rowe Price Institutional Africa & Middle East Fund

    T. Rowe Price Institutional Emerging Markets Bond Fund
    T. Rowe Price Institutional Emerging Markets Equity Fund
    T. Rowe Price Institutional Foreign Equity Fund
    T. Rowe Price Institutional Global Equity Fund
    T. Rowe Price Institutional Global Large-Cap Equity Fund
    T. Rowe Price Institutional International Bond Fund

    T. ROWE PRICE INTERNATIONAL FUNDS, INC.

    T. Rowe Price Africa & Middle East Fund
    T. Rowe Price Emerging Europe & Mediterranean Fund
    T. Rowe Price Emerging Markets Bond Fund
    T. Rowe Price Emerging Markets Stock Fund
    T. Rowe Price European Stock Fund
    T. Rowe Price Global Large-Cap Stock Fund
    T. Rowe Price Global Large-Cap Stock FundAdvisor Class
    T. Rowe Price Global Stock Fund
    T. Rowe Price Global Stock FundAdvisor Class
    T. Rowe Price International Bond Fund®
    T. Rowe Price International Bond FundAdvisor Class
    T. Rowe Price International Discovery Fund
    T. Rowe Price International Growth & Income Fund
    T. Rowe Price International Growth & Income FundAdvisor Class
    T. Rowe Price International Growth & Income FundR Class
    T. Rowe Price International Stock Fund
    T. Rowe Price International Stock FundAdvisor Class
    T. Rowe Price International Stock FundR Class
    T. Rowe Price Japan Fund
    T. Rowe Price Latin America Fund
    T. Rowe Price New Asia Fund
    T. Rowe Price Overseas Stock Fund

    T. ROWE PRICE INTERNATIONAL INDEX FUND, INC.

    T. Rowe Price International Equity Index Fund

    T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.

    T. ROWE PRICE MID-CAP GROWTH FUND, INC.

    T. Rowe Price Mid-Cap Growth FundAdvisor Class
    T. Rowe Price Mid-Cap Growth FundR Class

    T. ROWE PRICE MID-CAP VALUE FUND, INC.

    T. Rowe Price Mid-Cap Value FundAdvisor Class
    T. Rowe Price Mid-Cap Value FundR Class

    T. ROWE PRICE NEW AMERICA GROWTH FUND

    T. Rowe Price New America Growth FundAdvisor Class

    T. ROWE PRICE NEW ERA FUND, INC.

    T. ROWE PRICE NEW HORIZONS FUND, INC.

    T. ROWE PRICE NEW INCOME FUND, INC.

    T. Rowe Price New Income FundAdvisor Class
    T. Rowe Price New Income FundR Class

    35


    T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. ("Personal Strategy Funds")

    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 Real Estate FundAdvisor Class

    T. ROWE PRICE RESERVE INVESTMENT FUNDS, INC. ("TRP Reserve Investment Funds")

    T. Rowe Price Government Reserve Investment Fund ("TRP Government Reserve Investment Fund")
    T. Rowe Price Reserve Investment Fund ("TRP Reserve Investment Fund")

    T. ROWE PRICE RETIREMENT FUNDS, INC. ("Retirement Funds")

    T. Rowe Price Retirement 2005 Fund
    T. Rowe Price Retirement 2005 FundAdvisor Class
    T. Rowe Price Retirement 2005 FundR Class
    T. Rowe Price Retirement 2010 Fund
    T. Rowe Price Retirement 2010 FundAdvisor Class
    T. Rowe Price Retirement 2010 FundR Class
    T. Rowe Price Retirement 2015 Fund
    T. Rowe Price Retirement 2015 FundAdvisor Class
    T. Rowe Price Retirement 2015 FundR Class
    T. Rowe Price Retirement 2020 Fund
    T. Rowe Price Retirement 2020 FundAdvisor Class
    T. Rowe Price Retirement 2020 FundR Class
    T. Rowe Price Retirement 2025 Fund
    T. Rowe Price Retirement 2025 FundAdvisor Class
    T. Rowe Price Retirement 2025 FundR Class
    T. Rowe Price Retirement 2030 Fund
    T. Rowe Price Retirement 2030 FundAdvisor Class
    T. Rowe Price Retirement 2030 FundR Class
    T. Rowe Price Retirement 2035 Fund
    T. Rowe Price Retirement 2035 FundAdvisor Class
    T. Rowe Price Retirement 2035 FundR Class
    T. Rowe Price Retirement 2040 Fund
    T. Rowe Price Retirement 2040 FundAdvisor Class
    T. Rowe Price Retirement 2040 FundR Class
    T. Rowe Price Retirement 2045 Fund
    T. Rowe Price Retirement 2045 FundAdvisor Class
    T. Rowe Price Retirement 2045 FundR Class
    T. Rowe Price Retirement 2050 Fund
    T. Rowe Price Retirement 2050 FundAdvisor Class
    T. Rowe Price Retirement 2050 FundR Class
    T. Rowe Price Retirement 2055 Fund
    T. Rowe Price Retirement 2055 FundAdvisor Class
    T. Rowe Price Retirement 2055 FundR Class
    T. Rowe Price Retirement Income Fund
    T. Rowe Price Retirement Income FundAdvisor Class
    T. Rowe Price Retirement Income FundR Class

    T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.

    T. Rowe Price Science & Technology FundAdvisor Class

    T. ROWE PRICE SHORTTERM BOND FUND, INC.

    T. Rowe Price Short-Term Bond FundAdvisor Class

    T. ROWE PRICE SHORTTERM INCOME FUND, INC.

    T. ROWE PRICE SMALL-CAP STOCK FUND, INC.

    T. Rowe Price Small-Cap Stock FundAdvisor Class

    36


    T. ROWE PRICE SMALL-CAP VALUE FUND, INC.

    T. Rowe Price Small-Cap Value FundAdvisor Class

    T. ROWE PRICE SPECTRUM FUND, INC. ("Spectrum Funds")

    Spectrum Growth Fund
    Spectrum Income Fund
    Spectrum International Fund

    T. ROWE PRICE STATE TAX-FREE INCOME TRUST

    Georgia Tax-Free Bond Fund
    Maryland Short-Term Tax-Free Bond Fund
    Maryland Tax-Free Bond Fund
    Maryland Tax-Free Money Fund
    New Jersey Tax-Free Bond Fund
    New York Tax-Free Bond Fund
    New York Tax-Free Money Fund
    Virginia Tax-Free Bond Fund

    T. ROWE PRICE SUMMIT FUNDS, INC. ("Summit Income Funds")

    T. Rowe Price Summit Cash Reserves Fund
    T. Rowe Price Summit GNMA Fund

    T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. ("Summit Municipal Funds")

    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 TAX-EFFICIENT FUNDS, INC. ("Tax-Efficient Funds")

    T. Rowe Price Tax-Efficient Balanced Fund

    T. Rowe Price Tax-Efficient Growth Fund

    T. Rowe Price Tax-Efficient Multi-Cap 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 Income FundAdvisor Class

    T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.

    T. ROWE PRICE U.S. BOND INDEX FUND, INC.

    T. ROWE PRICE U.S. TREASURY FUNDS, INC. ("U.S. Treasury Funds")

    U.S. Treasury Intermediate Fund

    U.S. Treasury Long-Term Fund

    U.S. Treasury Money Fund

    T. ROWE PRICE VALUE FUND, INC.

    T. Rowe Price Value FundAdvisor Class

    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 current fund prospectus, which may be obtained from T. Rowe Price Investment Services, Inc. ("Investment Services").

    Each fund`s financial statements for its most recent fiscal period and the Report of Independent Registered Public Accounting Firm are included in each fund`s annual or semiannual report and incorporated by reference into this Statement of Additional Information. The Global Large-Cap Stock Fund, Global Large-Cap Stock FundAdvisor Class, Global Real Estate Fund, Global Real Estate FundAdvisor Class, Institutional

    37


    Africa & Middle East Fund, Institutional Floating Rate Fund, and Institutional Global Large-Cap Equity Fund have not been in existence for a long enough time to have complete financial statements.

    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 and it will be sent to you at no charge. Please read this material carefully.

    38



    PART I TABLE OF CONTENTS
































    Page








    Page
















    Management of the Funds
    12

    Distributor for the Funds
    127
    Principal Holders of Securities
    76

    Portfolio Transactions
    130

    Investment Management Agreements
    105

    Independent Registered Public Accounting Firm
    156
    Other Shareholder Services
    122

    Part II
    157

    References to the following are as indicated:

    Internal Revenue Code of 1986, as amended ("Code")
    Investment Company Act of 1940 ("1940 Act")
    Moody`s Investors Service, Inc. ("Moody`s")
    Securities Act of 1933 ("1933 Act")
    Securities and Exchange Commission ("SEC")
    Securities Exchange Act of 1934 ("1934 Act")
    Standard & Poor`s Corporation ("S&P")
    T. Rowe Price Associates, Inc. ("T. Rowe Price")
    T. Rowe Price International, Inc. ("T. Rowe Price International")

    Advisor Class

    The Advisor Class is a share class of its respective T. Rowe Price fund and is not a separate mutual fund. The Advisor Class shares are designed to be sold only through brokers, dealers, banks, insurance companies, and other financial intermediaries that provide various distribution and administrative services.

    R Class

    The R Class is a share class of its respective T. Rowe Price fund and is not a separate mutual fund. The R Class shares are designed to be sold only through various third-party intermediaries that offer employer-sponsored defined contribution retirement plans, including brokers, dealers, banks, insurance companies, retirement plan recordkeepers, and others.

    TRP Government Reserve Investment, TRP Reserve Investment and Short-Term Income Funds

    These funds are not available for direct purchase by members of the public.

    Institutional Funds

    These funds have a $1,000,000 initial investment minimum and are designed for institutional investors. Institutional investors typically include banks, pension plans, and trust and investment companies.

    PART I

    Below is a table showing the prospectus and shareholder report dates for each fund. The table also lists each fund`s category, which should be used to identify groups of funds that are referenced throughout this SAI.

    Fund


    Fund Category


    Fiscal Year End


    Annual Report Date


    Semiannual Report Date


    Prospectus Date

    Africa & Middle East
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Balanced
    Blended
    Dec 31
    Dec 31
    June 30
    May 1
    Blue Chip Growth
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Blue Chip Growth FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Blue Chip Growth FundR Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Blue Chip Growth Portfolio
    Equity
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    Blue Chip Growth PortfolioII
    Equity
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    California Tax-Free Bond
    State Tax-Free Bond
    Feb 28
    Feb 28
    Aug 30
    July 1
    California Tax-Free Money
    State Tax-Free Money
    Feb 28
    Feb 28
    Aug 30
    July 1
    Capital Appreciation
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Capital Appreciation FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Capital Opportunity
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Capital Opportunity FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Capital Opportunity FundR Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Corporate Income
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    Developing Technologies
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Diversified Mid-Cap Growth
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Diversified Small-Cap Growth
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Dividend Growth
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Dividend Growth FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Emerging Europe & Mediterranean
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Emerging Markets Bond
    International Bond
    Dec 31
    Dec 31
    June 30
    May 1
    Emerging Markets Stock
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Equity Income
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Equity Income FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Equity Income FundR Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Equity Income Portfolio
    Equity
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    Equity Income PortfolioII
    Equity
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    Equity Index 500
    Index Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Equity Index 500 Portfolio
    Index Equity
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    European Stock
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Extended Equity Market Index
    Index Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Financial Services
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Georgia Tax-Free Bond
    State Tax-Free Bond
    Feb 28
    Feb 28
    Aug 30
    July 1
    Global Large-Cap Stock
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Global Large-Cap Stock FundAdvisor Class
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Global Real Estate
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Global Real Estate FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Global Stock
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Global Stock FundAdvisor Class
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Global Technology
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    GNMA
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    TRP Government Reserve Investment
    Taxable Money
    May 31
    May 31
    Nov 30
    Oct 1
    Growth & Income
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Growth Stock
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Growth Stock FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Growth Stock FundR Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Health Sciences
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Health Sciences Portfolio
    Equity
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    Health Sciences PortfolioII
    Equity
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    High Yield
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    High Yield FundAdvisor Class
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    Inflation Protected Bond
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    Institutional Africa & Middle East
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Institutional Concentrated Large-Cap Value
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Institutional Core Plus
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    Institutional Emerging Markets Bond
    International Bond
    Dec 31
    Dec 31
    June 30
    May 1
    Institutional Emerging Markets Equity
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Institutional Floating Rate
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    Institutional Foreign Equity
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Institutional Global Equity
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Institutional Global Large-Cap Equity
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Institutional High Yield
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    Institutional International Bond
    International Bond
    Dec 31
    Dec 31
    June 30
    May 1
    Institutional Large-Cap Core Growth
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Institutional Large-Cap Growth
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Institutional Large-Cap Value
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Institutional Mid-Cap Equity Growth
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Institutional Small-Cap Stock
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Institutional U.S. Structured Research
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    International Bond
    International Bond
    Dec 31
    Dec 31
    June 30
    May 1
    International Bond FundAdvisor Class
    International Bond
    Dec 31
    Dec 31
    June 30
    May 1
    International Discovery
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    International Equity Index
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    International Growth & Income
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    International Growth & Income FundAdvisor Class
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    International Growth & Income FundR Class
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    International Stock
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    International Stock FundAdvisor Class
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    International Stock FundR Class
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    International Stock Portfolio
    International Equity Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    Japan
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Latin America
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Limited-Term Bond Portfolio
    Bond
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    Limited-Term Bond PortfolioII
    Bond
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    Maryland Short-Term Tax-Free Bond
    State Tax-Free Bond
    Feb 28
    Feb 28
    Aug 30
    July 1
    Maryland Tax-Free Bond
    State Tax-Free Bond
    Feb 28
    Feb 28
    Aug 30
    July 1
    Maryland Tax-Free Money
    State Tax-Free Money
    Feb 28
    Feb 28
    Aug 30
    July 1
    Media & Telecommunications
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Mid-Cap Growth
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Mid-Cap Growth FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Mid-Cap Growth FundR Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Mid-Cap Growth Portfolio
    Equity
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    Mid-Cap Growth PortfolioII
    Equity
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    Mid-Cap Value
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Mid-Cap Value FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Mid-Cap Value FundR Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    New America Growth
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    New America Growth FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    New America Growth Portfolio
    Equity
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    New Asia
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    New Era
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    New Horizons
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    New Income
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    New Income FundAdvisor Class
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    New Income FundR Class
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    New Jersey Tax-Free Bond
    State Tax-Free Bond
    Feb 28
    Feb 28
    Aug 30
    July 1
    New York Tax-Free Bond
    State Tax-Free Bond
    Feb 28
    Feb 28
    Aug 30
    July 1
    New York Tax-Free Money
    State Tax-Free Money
    Feb 28
    Feb 28
    Aug 30
    July 1
    Overseas Stock
    International Equity
    Oct 31
    Oct 31
    Apr 30
    March 1
    Personal Strategy Balanced
    Blended
    May 31
    May 31
    Nov 30
    Oct 1
    Personal Strategy Balanced Portfolio
    Blended
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    Personal Strategy Growth
    Blended
    May 31
    May 31
    Nov 30
    Oct 1
    Personal Strategy Income
    Blended
    May 31
    May 31
    Nov 30
    Oct 1
    Prime Reserve
    Taxable Money
    May 31
    May 31
    Nov 30
    Oct 1
    Prime Reserve Portfolio
    Money
    Variable Annuity
    Dec 31
    Dec 31
    June 30
    May 1
    Real Estate
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Real Estate FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    TRP Reserve Investment
    Taxable Money
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2005
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2005 FundAdvisor Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2005 FundR Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2010
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2010 FundAdvisor Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2010 FundR Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2015
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2015 FundAdvisor Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2015 FundR Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2020
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2020 FundAdvisor Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2020 FundR Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2025
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2025 FundAdvisor Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2025 FundR Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2030
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2030 FundAdvisor Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2030 FundR Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2035
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2035 FundAdvisor Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2035 FundR Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2040
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2040 FundAdvisor Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2040 FundR Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2045
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2045 FundAdvisor Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2045 FundR Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2050
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2050 FundAdvisor Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2050 FundR Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2055
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2055 FundAdvisor Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement 2055 FundR Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement Income
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement Income FundAdvisor Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Retirement Income FundR Class
    Fund-of-Funds
    May 31
    May 31
    Nov 30
    Oct 1
    Science & Technology
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Science & Technology FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Short-Term Bond
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    Short-Term Bond FundAdvisor Class
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    Short-Term Income
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    Small-Cap Stock
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Small-Cap Stock FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Small-Cap Value
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Small-Cap Value FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Spectrum Growth
    Fund-of-Funds
    Dec 31
    Dec 31
    June 30
    May 1
    Spectrum Income
    Fund-of-Funds
    Dec 31
    Dec 31
    June 30
    May 1
    Spectrum International
    Fund-of-Funds
    Dec 31
    Dec 31
    June 30
    May 1
    Summit Cash Reserves
    Taxable Money
    Oct 31
    Oct 31
    Apr 30
    March 1
    Summit GNMA
    Taxable Bond
    Oct 31
    Oct 31
    Apr 30
    March 1
    Summit Municipal Income
    Tax-Free Bond
    Oct 31
    Oct 31
    Apr 30
    March 1
    Summit Municipal Intermediate
    Tax-Free Bond
    Oct 31
    Oct 31
    Apr 30
    March 1
    Summit Municipal Money Market
    Tax-Free Money
    Oct 31
    Oct 31
    Apr 30
    March 1
    Tax-Efficient Balanced
    Blended
    Feb 28
    Feb 28
    Aug 30
    July 1
    Tax-Efficient Growth
    Equity
    Feb 28
    Feb 28
    Aug 30
    July 1
    Tax-Efficient Multi-Cap Growth
    Equity
    Feb 28
    Feb 28
    Aug 30
    July 1
    Tax-Exempt Money
    Tax-Free Money
    Feb 28
    Feb 28
    Aug 30
    July 1
    Tax-Free High Yield
    Tax-Free Bond
    Feb 28
    Feb 28
    Aug 30
    July 1
    Tax-Free Income
    Tax-Free Bond
    Feb 28
    Feb 28
    Aug 30
    July 1
    Tax-Free Income FundAdvisor Class
    Tax Free Bond
    Feb 28
    Feb 28
    Aug 30
    July 1
    Tax-Free Short-Intermediate
    Tax-Free Bond
    Feb 28
    Feb 28
    Aug 30
    July 1
    Total Equity Market Index
    Index Equity
    Dec 31
    Dec 31
    June 30
    May 1
    U.S. Bond Index
    Index Bond
    Oct 31
    Oct 31
    Apr 30
    March 1
    U.S. Treasury Intermediate
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    U.S. Treasury Long-Term
    Taxable Bond
    May 31
    May 31
    Nov 30
    Oct 1
    U.S. Treasury Money
    Taxable Money
    May 31
    May 31
    Nov 30
    Oct 1
    Value
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Value FundAdvisor Class
    Equity
    Dec 31
    Dec 31
    June 30
    May 1
    Virginia Tax-Free Bond
    State Tax-Free Bond
    Feb 28
    Feb 28
    Aug 30
    July 1

    39


    40


    41


    42


    43


    44


    MANAGEMENT OF THE FUNDS

    The officers and directors* of the Price Funds are listed below. Unless otherwise noted, the address of each is 100 East Pratt Street, Baltimore, Maryland 21202.

    Each fund is governed by a Board of Directors/Trustees ("Board") that meets regularly to review a wide variety of matters affecting the funds, including performance, investment programs, compliance matters, advisory fees and expenses, service providers, and other business affairs. The Boards elect the funds` officers. The Boards also are responsible for performing various duties imposed on them by the 1940 Act, the laws of Maryland or Massachusetts, and other laws. At least 75% of Board members are independent of T. Rowe Price and T. Rowe Price International. The directors who are also employees or officers of T. Rowe Price are referred to as inside or interested directors. Except as indicated, each inside director or officer has been an employee of T. Rowe Price or T. Rowe Price International for five or more years. Each Board currently has three committees, described in the following paragraphs.

    The Committee of Independent Directors, which consists of all of the independent directors of the funds, is responsible for selecting candidates for election as independent directors to fill vacancies on each fund`s Board. Anthony W. Deering is chairman of the committee. The committee will consider written recommendations from shareholders for possible nominees. Shareholders should submit their recommendations to the secretary of the funds. The committee held four formal meetings in 2007.

    The Joint Audit Committee is composed of Jeremiah E. Casey, Karen N. Horn, and Theo C. Rodgers, all independent directors. The Joint Audit Committee holds two regular meetings during each fiscal year, at which time it meets with the independent registered public accounting firm of the Price Funds to review: (1) the services provided; (2) the findings of the most recent audits; (3) management`s response to the findings of the most recent audits; (4) the scope of the audits to be performed; (5) the accountants` fees; and (6) any accounting, tax, compliance, or other questions relating to particular areas of the Price Funds` operations or the operations of parties dealing with the Price Funds, as circumstances indicate. The Joint Audit Committee met three times in 2007.

    45


    The funds` Executive Committee, consisting of the funds` interested director(s), has been authorized by its respective Board to exercise all powers of the Boards to manage the funds in the intervals between meetings of the Boards, except the powers prohibited by statute from being delegated. All actions of the Executive Committee must be approved in advance by one independent director and reviewed after the fact by the full Board.

    * The term "director" is used to refer to directors or trustees, as applicable.

    Independent Directors(a)


    Name, Year of Birth, and Number
    of Portfolios in Fund Complex
    Overseen by Director


    Principal Occupation(s)
    During Past 5 Years


    Directorships
    of Public Companies

    Jeremiah E. Casey
    1940
    126 portfolios
    Director, National Life Insurance (2001 to 2005); Director, The Rouse Company, real estate developers (1990 to 2004)
    None
    Anthony W. Deering
    1945
    126 portfolios
    Chairman, Exeter Capital, LLC, a private investment firm (2004 to present); Director, Under Armour (8/08 to present); Director, Vornado Real Estate Investment Trust (3/04 to present); Director, Mercantile Bankshares (2002 to 2007); Member, Advisory Board, Deutsche Bank North America (2004 to present); Director, Chairman of the Board, and Chief Executive Officer, The Rouse Company, real estate developers (1997 to 2004)
    Vornado Real Estate Investment Trust and Deutsche Bank North America
    Donald W. Dick, Jr.
    1943
    126 portfolios
    Principal, EuroCapital Advisors, LLC, an acquisition and management advisory firm
    (10/95 to present); Chairman, The Haven Group, a custom manufacturer of modular homes (1/04 to present)
    None
    David K. Fagin
    1938
    126 portfolios
    Chairman and President, Nye Corporation (6/88 to present); Director, Golden Star Resources Ltd. (5/92 to present); Director, Pacific Rim Mining Corp. (2/02 to present); Director, B.C. Corporation (3/08 to present); Chairman, Canyon Resources Corp. (8/07 to 3/08); Director, Atna Resources Ltd. (3/08 to present)
    B.C. Corporation, Golden Star Resources Ltd., Pacific Rim Mining Corp. and Atna Resources Ltd.
    Karen N. Horn
    1943
    126 portfolios
    Director, Eli Lilly and Company (1987 to present); Director, Simon Property Group (2004 to present); Director, Federal National Mortgage Association (9/06 to present); Director, Norfolk Southern (2/08 to present); Director, Georgia Pacific (5/04 to 12/05); Managing Director and President, Global Private Client Services, Marsh Inc. (1999 to 2003)
    Federal National Mortgage Association, Norfolk Southern, Eli Lilly and Company, and Simon Property Group
    Theo C. Rodgers
    1941
    126 portfolios
    President, A&R Development Corporation
    (1977 to present)
    None
    John G. Schreiber
    1946
    126 portfolios
    Owner/President, Centaur Capital Partners, Inc., a real estate investment company (1991 to present); Partner, Blackstone Real Estate Advisors, L.P. (10/92 to present)
    None

    46


    (a)All information about the directors was current as of December 31, 2007, except for the number of portfolios, which is current as of the date of this Statement of Additional Information.

    Inside Directors(a)

    The following persons are considered interested persons of the funds because they also serve as officers of the funds and/or T. Rowe Price or T. Rowe Price International. No more than two inside directors serve as directors of any fund.


    Name, Year of Birth, and Number
    of Portfolios in Fund Complex
    Overseen by Director


    Principal Occupation(s)
    During Past 5 Years


    Directorships
    of Public Companies

    Edward C. Bernard
    1956
    126 portfolios
    Director and Vice President, T. Rowe Price; Vice Chairman of the Board, Director, and Vice President, T. Rowe Price Group, Inc.; Chairman of the Board, Director, and President, T. Rowe Price Investment Services, Inc.; Chairman of the Board and Director, T. Rowe Price Global Asset Management Limited, T. Rowe Price Global Investment Services Limited, T. Rowe Price Retirement Plan Services, Inc., T. Rowe Price Savings Bank, and T. Rowe Price Services, Inc.; Director, T. Rowe Price International, Inc.; Chief Executive Officer, Chairman of the Board, Director, and President, T. Rowe Price Trust CompanyChairman of the Board, all funds
    None
    John H. Laporte; CFA
    1945
    16 portfolios
    Director and Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; Vice President, T. Rowe Price Trust CompanyPresident, New Horizons Fund; Executive Vice President, Spectrum Funds; Vice President, Diversified Small-Cap Growth Fund, Health Sciences Fund, Personal Strategy Funds, and Retirement Funds
    None
    Mary J. Miller; CFA
    1955
    38 portfolios
    Director, T. Rowe Price Trust Company; Director and Vice President, T. Rowe Price; Vice President, T. Rowe Price Group, Inc.President, California Tax-Free Income Trust, Institutional Income Funds, State Tax-Free Income Trust, Summit Municipal Funds, Tax-Free Income Fund, and U.S. Treasury Funds; Executive Vice President, Spectrum Funds; Vice President, Corporate Income Fund, GNMA Fund, Inflation Protected Bond Fund, Personal Strategy Funds, Prime Reserve Fund, TRP Reserve Investment Funds, Retirement Funds, Summit Funds, Tax-Efficient Funds, Tax-Exempt Money Fund, Tax-Free High Yield Fund, and Tax-Free Short-Intermediate Fund
    None
    Brian C. Rogers; CFA, CIC
    1955
    72 portfolios
    Chief Investment Officer, Director, and Vice President, T. Rowe Price; Chairman of the Board, Chief Investment Officer, Director, and Vice President, T. Rowe Price Group, Inc.; Vice President, T. Rowe Price Trust CompanyPresident, Equity Income Fund and Institutional Equity Funds; Vice President, Personal Strategy Funds, Retirement Funds, Spectrum Funds, and Value Fund
    None

    47


    (a)All information about the directors was current as of December 31, 2007, except for the number of portfolios, which is current as of the date of this Statement of Additional Information.

    Retirement and Spectrum Funds (individually, a "Fund-of-Funds" and collectively, "Funds-of-Funds")

    The management of the business and affairs of the Funds-of-Funds is the responsibility of the Board. In exercising their responsibilities, the Board, among other things, will refer to the Special Servicing Agreement and policies and guidelines included in an Application for an Exemptive Order (and accompanying Notice and Order) issued by the SEC in connection with the Spectrum Funds (and which also applies to Retirement Funds). A majority of directors of the Funds-of-Funds are independent. However, the directors and officers of the Funds-of-Funds and certain directors and officers of T. Rowe Price and T. Rowe Price International also serve in similar positions with most of the various Price Funds in which the Retirement and Spectrum Funds invest (collectively, "underlying Price funds"). Thus, if the interests of the Funds-of-Funds and the underlying Price funds were ever to become divergent, it is possible that a conflict of interest could arise and affect how this latter group of persons fulfill their fiduciary duties to the Funds-of-Funds and the underlying Price funds. The directors of Funds-of-Funds believe they have structured the Funds-of-Funds to avoid these concerns. However, a situation could conceivably occur where proper action for the Funds-of-Funds could be adverse to the interests of an underlying Price fund, or the reverse could occur. If such a possibility arises, the directors and officers of the affected funds, T. Rowe Price, and T. Rowe Price International will carefully analyze the situation and take all steps they believe reasonable to minimize and, where possible, eliminate the potential conflict.

    Term of Office and Length of Time Served

    The directors serve until retirement, resignation, or election of a successor. The following table shows the year from which each director has served on each fund`s Board (or that of the corporation or trust of which the fund is a part).

    Fund/Corporation/Trust


    Number of
    portfolios


    Independent Directors


























    Casey


    Deering


    Dick


    Fagin


    Horn


    Rodgers


    Schreiber

    Balanced
    1
    2005
    2001
    1991
    1991
    2003
    2005
    2001
    Blue Chip Growth
    1
    2005
    2001
    1993
    1993
    2003
    2005
    2001
    California Tax-Free Income Trust
    2
    2006
    1986
    2001
    2001
    2003
    2005
    1992
    Capital Appreciation
    1
    2005
    2001
    1986
    1988
    2003
    2005
    2001
    Capital Opportunity
    1
    2005
    2001
    1994
    1994
    2003
    2005
    2001
    Corporate Income
    1
    2006
    1995
    2001
    2001
    2003
    2005
    1995
    Developing Technologies
    1
    2005
    2001
    2000
    2000
    2003
    2005
    2001
    Diversified Mid-Cap Growth
    1
    2005
    2003
    2003
    2003
    2003
    2005
    2003
    Diversified Small-Cap Growth
    1
    2005
    2001
    1997
    1997
    2003
    2005
    2001
    Dividend Growth
    1
    2005
    2001
    1992
    1992
    2003
    2005
    2001
    Equity Income
    1
    2005
    2001
    1994
    1988
    2003
    2005
    2001
    Equity Series
    7
    2005
    2001
    1994
    1994
    2003
    2005
    2001
    Financial Services
    1
    2005
    2001
    1996
    1996
    2003
    2005
    2001
    Fixed Income Series
    2
    2006
    1994
    2001
    2001
    2003
    2005
    1994
    Global Real Estate
    1
    2008
    2008
    2008
    2008
    2008
    2008
    2008
    Global Technology
    1
    2005
    2001
    2000
    2000
    2003
    2005
    2001
    GNMA
    1
    2006
    1985
    2001
    2001
    2003
    2005
    1992
    Growth & Income
    1
    2005
    2001
    1982
    1994
    2003
    2005
    2001
    Growth Stock
    1
    2005
    2001
    1980
    1994
    2003
    2005
    2001
    Health Sciences
    1
    2005
    2001
    1995
    1995
    2003
    2005
    2001
    High Yield
    1
    2006
    1984
    2001
    2001
    2003
    2005
    1992
    Index Trust
    3
    2005
    2001
    1994
    1994
    2003
    2005
    2001
    Inflation Protected Bond
    1
    2006
    2002
    2002
    2002
    2003
    2005
    2002
    Institutional Equity
    7
    2005
    2001
    1996
    1996
    2003
    2005
    2001
    Institutional Income
    3
    2006
    2002
    2002
    2002
    2003
    2005
    2002
    Institutional International
    7
    2006
    1991
    1989
    2001
    2003
    2006
    2001
    International
    15
    2006
    1991
    1988
    2001
    2003
    2006
    2001
    International Index
    1
    2006
    2000
    2000
    2001
    2003
    2006
    2001
    International Series
    1
    2006
    1994
    1994
    2001
    2003
    2006
    2001
    Media & Telecommunications
    1
    2005
    2001
    1997
    1997
    2003
    2005
    2001
    Mid-Cap Growth
    1
    2005
    2001
    1992
    1992
    2003
    2005
    2001
    Mid-Cap Value
    1
    2005
    2001
    1996
    1996
    2003
    2005
    2001
    New America Growth
    1
    2005
    2001
    1985
    1994
    2003
    2005
    2001
    New Era
    1
    2005
    2001
    1994
    1988
    2003
    2005
    2001
    New Horizons
    1
    2005
    2001
    1994
    1988
    2003
    2005
    2001
    New Income
    1
    2006
    1980
    2001
    2001
    2003
    2005
    1992
    Personal Strategy
    3
    2005
    2001
    1994
    1994
    2003
    2005
    2001
    Prime Reserve
    1
    2006
    1979
    2001
    2001
    2003
    2005
    1992
    Real Estate
    1
    2005
    2001
    1997
    1997
    2003
    2005
    2001
    TRP Reserve Investment
    2
    2006
    1997
    2001
    2001
    2003
    2005
    1997
    Retirement
    12
    2005
    2002
    2002
    2002
    2003
    2005
    2002
    Science & Technology
    1
    2005
    2001
    1994
    1994
    2003
    2005
    2001
    Short-Term Bond
    1
    2006
    1983
    2001
    2001
    2003
    2005
    1992
    Short-Term Income
    1
    2006
    2006
    2006
    2006
    2006
    2006
    2006
    Small-Cap Stock
    1
    2005
    2001
    1992
    1992
    2003
    2005
    2001
    Small-Cap Value
    1
    2005
    2001
    1994
    1994
    2003
    2005
    2001
    Spectrum
    3
    2005
    2001
    1999
    1999
    2003
    2005
    2001
    State Tax-Free Income Trust
    8
    2006
    1986
    2001
    2001
    2003
    2005
    1992
    Summit
    2
    2006
    1993
    2001
    2001
    2003
    2005
    1993
    Summit Municipal
    3
    2006
    1993
    2001
    2001
    2003
    2005
    1993
    Tax-Efficient
    3
    2005
    2001
    1997
    1997
    2003
    2005
    2001
    Tax-Exempt Money
    1
    2006
    1983
    2001
    2001
    2003
    2005
    1992
    Tax-Free High Yield
    1
    2006
    1984
    2001
    2001
    2003
    2005
    1992
    Tax-Free Income
    1
    2006
    1983
    2001
    2001
    2003
    2005
    1992
    Tax-Free Short-Intermediate
    1
    2006
    1983
    2001
    2001
    2003
    2005
    1992
    U.S. Bond Index
    1
    2006
    2000
    2001
    2001
    2003
    2005
    2000
    U.S. Treasury
    3
    2006
    1989
    2001
    2001
    2003
    2005
    1992
    Value
    1
    2005
    2001
    1994
    1994
    2003
    2005
    2001

    48


    49



    Fund/Corporation/Trust



    Number of Portfolios


    Inside Directors

















    Bernard


    Laporte


    Miller


    Rogers

    Balanced
    1
    2006


    2006
    Blue Chip Growth
    1
    2006


    2006
    California Tax-Free Income Trust
    2
    2006

    2004

    Capital Appreciation
    1
    2006


    2006
    Capital Opportunity
    1
    2006
    1994


    Corporate Income
    1
    2006

    2004

    Developing Technologies
    1
    2006


    2006
    Diversified Mid-Cap Growth
    1
    2006
    2006


    Diversified Small-Cap Growth
    1
    2006
    1997


    Dividend Growth
    1
    2006


    2006
    Equity Income
    1
    2006


    2006
    Equity Series
    7
    2006
    1994


    Financial Services
    1
    2006


    2006
    Fixed Income Series
    2
    2006

    2004

    Global Real Estate
    1
    2008


    2008
    Global Technology
    1
    2006


    2006
    GNMA
    1
    2006

    2004

    Growth & Income
    1
    2006


    2006
    Growth Stock
    1
    2006


    2006
    Health Sciences
    1
    2006
    1995


    High Yield
    1
    2006

    2004

    Index Trust
    3
    2006


    2006
    Inflation Protected Bond
    1
    2006

    2004

    Institutional Equity
    7
    2006


    2006
    Institutional Income
    3
    2006

    2004

    Institutional International
    7
    2006


    2006
    International
    15
    2006


    2006
    International Index
    1
    2006


    2006
    International Series
    1
    2006


    2006
    Media & Telecommunications
    1
    2006


    2006
    Mid-Cap Growth
    1
    2006


    2006
    Mid-Cap Value
    1
    2006


    2006
    New America Growth
    1
    2006
    1985


    New Era
    1
    2006


    2006
    New Horizons
    1
    2006
    1988


    New Income
    1
    2006

    2004

    Personal Strategy
    3
    2006


    2006
    Prime Reserve
    1
    2006

    2004

    Real Estate
    1
    2006


    2006
    TRP Reserve Investment
    2
    2006

    2004

    Retirement
    12
    2006


    2006
    Science & Technology
    1
    2006
    1988


    Short-Term Bond
    1
    2006

    2004

    Short-Term Income
    1
    2006

    2006

    Small-Cap Stock
    1
    2006
    1994


    Small-Cap Value
    1
    2006
    1994


    Spectrum
    3
    2006


    2006
    State Tax-Free Income Trust
    8
    2006

    2004

    Summit
    2
    2006

    2004

    Summit Municipal
    3
    2006

    2004

    Tax-Efficient
    3
    2006


    2006
    Tax-Exempt Money
    1
    2006

    2004

    Tax-Free High Yield
    1
    2006

    2004

    Tax-Free Income
    1
    2006

    2004

    Tax-Free Short-Intermediate
    1
    2006

    2004

    U.S. Bond Index
    1
    2006

    2004

    U.S. Treasury
    3
    2006

    2004

    Value
    1
    2006


    2006

    50


    Officers


    Fund


    Name


    Position Held
    With Fund

    All funds






    Roger L. Fiery III
    Gregory S. Golczewski
    David Oestreicher
    Julie L. Waples
    Gregory K. Hinkle
    Patricia B. Lippert
    John R. Gilner
    Vice President
    Vice President
    Vice President
    Vice President
    Treasurer
    Secretary
    Chief Compliance Officer


    Fund


    Name


    Position Held
    With Fund

    Balanced







    Edmund M. Notzon III
    Richard T. Whitney
    E. Frederick Bair
    Wendy R. Diffenbaugh
    Robert M. Larkins
    Raymond A. Mills
    Mark J. Vaselkiv
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Blue Chip Growth













    Larry J. Puglia
    P. Robert Bartolo
    Peter J. Bates
    G. Mark Bussard
    Richard de los Reyes
    Shawn T. Driscoll
    David J. Eiswert
    Henry M. Ellenbogen
    Thomas J. Huber
    Jason Nogueira
    Timothy E. Parker
    Robert W. Sharps
    Taymour R. Tamaddon
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    California Tax-Free Income Trust
    California Tax-Free Bond
    California Tax-Free Money











    Mary J. Miller
    Joseph K. Lynagh
    Konstantine B. Mallas
    Hugh D. McGuirk
    Steven G. Brooks
    G. Richard Dent
    Charles E. Emrich
    Alan D. Levenson
    James M. McDonald
    Linda A. Murphy
    Timothy G. Taylor
    M. Helena Condez
    Chen Shao
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Capital Appreciation















    David R. Giroux
    Francisco Alonso
    Jeffrey W. Arricale
    Mark S. Finn
    John D. Linehan
    Michael J. McGonigle
    Heather K. McPherson
    Sudhir Nanda
    Christian M. O`Neill
    Robert T. Quinn, Jr.
    Gabriel Solomon
    William J. Stromberg
    Susan G. Troll
    Eric L. Veiel
    Tamara P. Wiggs
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Capital Opportunity














    Anna M. Dopkin
    Kennard W. Allen
    Peter J. Bates
    David J. Eiswert
    Mark S. Finn
    Ann M. Holcomb
    Jennifer Martin
    Philip A. Nestico
    Jason Nogueira
    Timothy E. Parker
    Charles G. Pepin
    Robert T. Quinn, Jr.
    Gabriel Solomon
    Eric L. Veiel
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Corporate Income













    David A. Tiberii
    Mark J. Vaselkiv
    Steven E. Boothe
    Steven G. Brooks
    Alan D. Levenson
    Michael J. McGonigle
    Mary J. Miller
    Vernon A. Reid, Jr.
    Theodore E. Robson
    Edward A. Wiese
    Thea N. Williams
    Michael J. Grogan
    Robert L. McWilliam
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Developing Technologies












    Jeffrey Rottinghaus
    Kennard W. Allen
    Christopher W. Carlson
    David J. Eiswert
    Henry M. Ellenbogen
    Hugh M. Evans III
    Rhett K. Hunter
    Michael F. Sola
    Joshua K. Spencer
    Chirag Vasavada
    Thomas H. Watson
    Nalin Yogasundram
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Diversified Mid-Cap Growth






    Donald J. Peters
    Donald J. Easley
    Sudhir Nanda
    Philip A. Nestico
    John F. Wakeman
    Mark R. Weigman
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Diversified Small-Cap Growth









    Sudhir Nanda
    Wendy R. Diffenbaugh
    Donald J. Easley
    John H. Laporte
    Curt J. Organt
    Michael T. Roberts
    J. David Wagner
    Richard T. Whitney
    John Z. Wood
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Dividend Growth









    Thomas J. Huber
    Peter J. Bates
    David M. Lee
    Daniel Martino
    Jason Nogueira
    Timothy E. Parker
    Robert T. Quinn, Jr.
    William J. Stromberg
    Eric L. Veiel
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Equity Income










    Brian C. Rogers
    Jeffrey W. Arricale
    Andrew M. Brooks
    Mark S. Finn
    David R. Giroux
    Paul Greene II
    John D. Linehan
    Jason B. Polun
    Robert T. Quinn, Jr.
    Eric L. Veiel
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Financial Services














    Jeffrey W. Arricale
    Anna M. Dopkin
    Christopher T. Fortune
    Steven Krichbaum
    Ian C. McDonald
    Michael J. McGonigle
    Hwee Jan Ng
    Jason B. Polun
    Frederick A. Rizzo
    Federico Santilli
    Gabriel Solomon
    Mitchell J.K. Todd
    Eric L. Veiel
    Tamara P. Wiggs
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Global Real Estate







    David M. Lee
    Nina P. Jones
    Robert J. Marcotte
    Raymond A. Mills
    Eric C. Moffett
    Philip A. Nestico
    Marta Yago
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Global Technology













    Jeffrey Rottinghaus
    Kennard W. Allen
    Christopher W. Carlson
    David J. Eiswert
    Daniel Flax
    Rhett K. Hunter
    Hiroaki Owaki
    Michael F. Sola
    Joshua K. Spencer
    Chirag Vasavada
    Thomas H. Watson
    Alison Mei Ling Yip
    Nalin Yogasundram
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    GNMA






    Andrew McCormick
    Keir R. Joyce
    Alan D. Levenson
    Mary J. Miller
    John D. Wells
    Christopher P. Brown
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Growth & Income








    Thomas J. Huber
    Francisco Alonso
    Jeffrey W. Arricale
    G. Mark Bussard
    Shawn T. Driscoll
    David R. Giroux
    David M. Lee
    Joshua K. Spencer
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Growth Stock














    P. Robert Bartolo
    Kennard W. Allen
    Henry M. Ellenbogen
    Joseph B. Fath
    Robert N. Gensler
    Barry Henderson
    Kris H. Jenner
    Jason Nogueira
    D. James Prey III
    Larry J. Puglia
    Robert W. Sharps
    Robert W. Smith
    Taymour R. Tamaddon
    Eric L. Veiel
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Health Sciences










    Kris H. Jenner
    G. Mark Bussard
    Andrew R. Hyman
    Susan J. Klein
    John H. Laporte
    Jay S. Markowitz
    Jason Nogueira
    Charles G. Pepin
    John C.A. Sherman
    Taymour R. Tamaddon
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    High Yield











    Mark J. Vaselkiv
    David C. Beers
    Andrew M. Brooks
    Justin T. Gerbereux
    Paul A. Karpers
    Paul M. Massaro
    Michael J. McGonigle
    Brian A. Rubin
    Walter P. Stuart III
    Thomas E. Tewksbury
    Thea N. Williams
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Index Trust
    Equity Index 500
    Extended Equity Market Index
    Total Equity Market Index


    E. Frederick Bair
    Ken D. Uematsu
    Wendy R. Diffenbaugh
    Sudhir Nanda
    Paul W. Wojcik
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Inflation Protected Bond







    Daniel O. Shackelford
    Brian J. Brennan
    Alan D. Levenson
    Andrew McCormick
    Mary J. Miller
    Vernon A. Reid, Jr.
    Geoffrey M. Hardin
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President

    Institutional Equity Funds
    Institutional Concentrated Large-Cap Value
    Institutional Large-Cap Core Growth
    Institutional Large-Cap Growth
    Institutional Large-Cap Value
    Institutional Mid-Cap Equity Growth
    Institutional Small-Cap Stock
    Institutional U.S. Structured Research





    Brian C. Rogers
    Brian W.H. Berghuis
    Anna M. Dopkin
    David R. Giroux
    John D. Linehan
    Gregory A. McCrickard
    Larry J. Puglia
    Robert W. Sharps
    Ann M. Holcomb
    Joseph M. Milano
    J. David Wagner
    John F. Wakeman
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Institutional Income Funds
    Institutional Core Plus
    Institutional Floating Rate
    Institutional High Yield
















    Mary J. Miller
    Brian J. Brennan
    Paul A. Karpers
    Andrew M. Brooks
    Michael J. Conelius
    Steven C. Huber
    Ian D. Kelson
    Andrew McCormick
    Michael J. McGonigle
    Daniel O. Shackelford
    Walter P. Stuart III
    Thomas E. Tewksbury
    David A. Tiberii
    Mark J. Vaselkiv
    Thea N. Williams
    David C. Beers
    Justin T. Gerbereux
    Paul M. Massaro
    Brian A. Rubin
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Assistant Vice President
    Assistant Vice President
    Institutional International Funds
    Institutional Africa & Middle East
    Institutional Emerging Markets Bond
    Institutional Emerging Markets Equity
    Institutional Foreign Equity
    Institutional Global Equity
    Institutional Global Large-Cap Equity
    Institutional International Bond














    David J.L. Warren
    Christopher D. Alderson
    R. Scott Berg
    Michael J. Conelius
    Robert N. Gensler
    Ian D. Kelson
    Robert W. Smith
    Jeffrey W. Arricale
    Mark C.J. Bickford-Smith
    Richard N. Clattenburg
    Frances Dydasco
    Mark J.T. Edwards
    Henry M. Ellenbogen
    Niall P. Gallagher
    M. Campbell Gunn
    Kris H. Jenner
    Charles M. Ober
    Gonzalo Pangaro
    Jeffrey Rottinghaus
    Robert W. Sharps
    Dean Tenerelli
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    International Funds
    Africa & Middle East
    Emerging Europe & Mediterranean
    Emerging Markets Bond
    Emerging Markets Stock
    European Stock
    Global Large-Cap Stock
    Global Stock
    International Bond
    International Discovery
    International Growth & Income
    International Stock
    Japan
    Latin America
    New Asia
    Overseas Stock



































    David J.L. Warren
    Christopher D. Alderson
    R. Scott Berg
    Michael J. Conelius
    Frances Dydasco
    Robert N. Gensler
    M. Campbell Gunn
    Ian D. Kelson
    Raymond A. Mills
    Gonzalo Pangaro
    S. Leigh Robertson
    Robert W. Smith
    Dean Tenerelli
    Justin Thomson
    Ulle Adamson
    Jeffrey W. Arricale
    Mark C.J. Bickford-Smith
    Brian J. Brennan
    Jose Costa Buck
    Archibald A. Ciganer
    Richard N. Clattenburg
    Richard de los Reyes
    Mark J.T. Edwards
    Henry M. Ellenbogen
    May Foo
    Niall P. Gallagher
    Rahul Ghosh
    Benjamin Griffiths
    Kris H. Jenner
    Lillian Yan Li
    John D. Linehan
    Anh Lu
    Sebastien Mallet
    Susanta Mazumdar
    Inigo Mijangos
    Philip A. Nestico
    Hwee Jan Ng
    Elena Nikolaeva
    Sridhar Nishtala
    Charles M. Ober
    Hiroaki Owaki
    Austin Powell
    Frederick A. Rizzo
    Joseph Rohm
    Christopher J. Rothery
    Jeffrey Rottinghaus
    Federico Santilli
    Francisco Sersale
    Robert W. Sharps
    John C.A. Sherman
    Jonty Starbuck
    President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    International Funds (continued)
    Africa & Middle East
    Emerging Europe & Mediterranean
    Emerging Markets Bond
    Emerging Markets Stock
    European Stock
    Global Large-Cap Stock
    Global Stock
    International Bond
    International Discovery
    International Growth & Income
    International Stock
    Japan
    Latin America
    New Asia
    Overseas Stock
    Miki Takeyama
    Mitchell J.K. Todd
    Verena E. Wachnitz
    Hiroshi Watanabe
    Christopher S. Whitehouse
    Clive M. Williams
    Ernest C. Yeung
    Alison Mei Ling Yip
    Christopher Yip
    Ann B. Cranmer
    (See preceding table for remaining officers)
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    International Index Fund
    International Equity Index



    E. Frederick Bair
    Neil Smith
    Ken D. Uematsu
    Paul W. Wojcik
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Vice President
    Vice President
    Media & Telecommunications













    Henry M. Ellenbogen
    Ulle Adamson
    P. Robert Bartolo
    David J. Eiswert
    Joseph B. Fath
    May Foo
    Paul Greene II
    Daniel Martino
    Curt J. Organt
    D. James Prey III
    Robert W. Smith
    Christopher S. Whitehouse
    Ernest C. Yeung
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Mid-Cap Growth












    Brian W.H. Berghuis
    John F. Wakeman
    Kennard W. Allen
    P. Robert Bartolo
    Henry M. Ellenbogen
    Kris H. Jenner
    Robert J. Marcotte
    Daniel Martino
    Joseph M. Milano
    Jeffrey Rottinghaus
    Clark R. Shields
    Taymour R. Tamaddon
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Mid-Cap Value









    David J. Wallack
    Heather K. McPherson
    Peter J. Bates
    Christopher W. Carlson
    Henry M. Ellenbogen
    Mark S. Finn
    Gregory A. McCrickard
    Joseph M. Milano
    J. David Wagner
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    New America Growth












    Joseph M. Milano
    Francisco Alonso
    Jeffrey W. Arricale
    P. Robert Bartolo
    Brian W.H. Berghuis
    Shawn T. Driscoll
    Jason Nogueira
    Jeffrey Rottinghaus
    Robert W. Sharps
    Clark R. Shields
    Craig A. Thiese
    Eric L. Veiel
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    New Era












    Charles M. Ober
    Ryan Burgess
    Richard de los Reyes
    Shawn T. Driscoll
    Mark S. Finn
    David M. Lee
    Susanta Mazumdar
    Heather K. McPherson
    Christian M. O`Neill
    Timothy E. Parker
    Craig A. Thiese
    David J. Wallack
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    New Horizons



















    John H. Laporte
    Kennard W. Allen
    Francisco Alonso
    Brian W.H. Berghuis
    G. Mark Bussard
    Christopher W. Carlson
    Hugh M. Evans III
    Joseph B. Fath
    Kris H. Jenner
    Jay S. Markowitz
    Joshua B. Nelson
    Jason Nogueira
    Timothy E. Parker
    Jeffrey Rottinghaus
    Clark R. Shields
    Michael F. Sola
    Taymour R. Tamaddon
    Ashley R. Woodruff
    Francies W. Hawks
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    New Income









    Daniel O. Shackelford
    Brian J. Brennan
    Steven C. Huber
    Alan D. Levenson
    Andrew McCormick
    Vernon A. Reid, Jr.
    David A. Tiberii
    Dimitri V. Grechenko
    Michael J. Grogan
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Personal Strategy Funds
    Personal Strategy Balanced
    Personal Strategy Growth
    Personal Strategy Income












    Edmund M. Notzon III
    Jerome A. Clark
    Kenneth D. Fuller
    Ian D. Kelson
    John H. Laporte
    John D. Linehan
    Gregory A. McCrickard
    Mary J. Miller
    Raymond A. Mills
    Larry J. Puglia
    Brian C. Rogers
    Charles M. Shriver
    Robert W. Smith
    Mark J. Vaselkiv
    Richard T. Whitney
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Prime Reserve












    James M. McDonald
    Joseph K. Lynagh
    Steven E. Boothe
    Steven G. Brooks
    G. Richard Dent
    Alisa Fiumara
    Dylan Jones
    Alan D. Levenson
    Mary J. Miller
    Susan G. Troll
    Edward A. Wiese
    Terri L. Hett
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Real Estate








    David M. Lee
    Richard N. Clattenburg
    Anna M. Dopkin
    Joseph B. Fath
    Thomas J. Huber
    Philip A. Nestico
    Charles M. Ober
    Theodore E. Robson
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    TRP Reserve Investment Funds
    TRP Government Reserve Investment
    TRP Reserve Investment








    James M. McDonald
    Joseph K. Lynagh
    Steven E. Boothe
    Steven G. Brooks
    G. Richard Dent
    Alan D. Levenson
    Mary J. Miller
    Edward A. Wiese
    Terri L. Hett
    Dylan Jones
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Retirement Funds
    Retirement 2005
    Retirement 2010
    Retirement 2015
    Retirement 2020
    Retirement 2025
    Retirement 2030
    Retirement 2035
    Retirement 2040
    Retirement 2045
    Retirement 2050
    Retirement 2055
    Retirement Income
    Edmund M. Notzon III
    Jerome A. Clark
    Kenneth D. Fuller
    John H. Laporte
    Wyatt A. Lee
    Mary J. Miller
    Brian C. Rogers
    Robert W. Smith
    Mark J. Vaselkiv
    David J.L. Warren
    Richard T. Whitney
    Edward A. Wiese
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Science & Technology












    Michael F. Sola
    Kennard W. Allen
    Donald J. Easley
    David J. Eiswert
    Henry M. Ellenbogen
    Daniel Flax
    Hiroaki Owaki
    D. James Prey III
    Jeffrey Rottinghaus
    Joshua K. Spencer
    Chirag Vasavada
    Alison Mei Ling Yip
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Short-Term Bond














    Edward A. Wiese
    Brian J. Brennan
    Steven G. Brooks
    Charles B. Hill
    Andrew McCormick
    Cheryl A. Mickel
    Vernon A. Reid, Jr.
    Daniel O. Shackelford
    John D. Wells
    Bridget A. Ebner
    Michael J. Grogan
    Geoffrey M. Hardin
    Keir R. Joyce
    Robert L. McWilliam
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Assistant Vice President
    Assistant Vice President
    Assistant Vice President
    Short-Term Income















    Edward A. Wiese
    Brian J. Brennan
    Steven G. Brooks
    Jerome A. Clark
    Charles B. Hill
    James M. McDonald
    Robert L. McWilliam
    Edmund M. Notzon III
    Vernon A. Reid, Jr.
    Daniel O. Shackelford
    John D. Wells
    Bridget A. Ebner
    Michael J. Grogan
    Geoffrey M. Hardin
    Keir R. Joyce
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Assistant Vice President
    Assistant Vice President
    Small-Cap Stock













    Gregory A. McCrickard
    Francisco Alonso
    Preston G. Athey
    Ira W. Carnahan
    Hugh M. Evans III
    Christopher T. Fortune
    Robert J. Marcotte
    Jay S. Markowitz
    Joseph M. Milano
    Curt J. Organt
    Jeffrey Rottinghaus
    J. David Wagner
    Kwame C. Webb
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Small-Cap Value








    Preston G. Athey
    Hugh M. Evans III
    Christopher T. Fortune
    Susan J. Klein
    Gregory A. McCrickard
    Curt J. Organt
    J. David Wagner
    Kwame C. Webb
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Spectrum Funds
    Spectrum Growth
    Spectrum Income
    Spectrum International






    Edmund M. Notzon III
    John H. Laporte
    Mary J. Miller
    David J.L. Warren
    Mark C.J. Bickford-Smith
    Raymond A. Mills
    Brian C. Rogers
    Charles M. Shriver
    Robert W. Smith
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    State Tax-Free Income Trust
    Georgia Tax-Free Bond
    Maryland Short-Term Tax-Free Bond
    Maryland Tax-Free Bond
    Maryland Tax-Free Money
    New Jersey Tax-Free Bond
    New York Tax-Free Bond
    New York Tax-Free Money
    Virginia Tax-Free Bond








    Mary J. Miller
    Charles B. Hill
    Joseph K. Lynagh
    Konstantine B. Mallas
    Hugh D. McGuirk
    Jonathan M. Chirunga
    G. Richard Dent
    Charles E. Emrich
    Marcy M. Lash
    Alan D. Levenson
    James M. McDonald
    Linda A. Murphy
    Timothy G. Taylor
    M. Helena Condez
    Kathryn A. Floyd
    Chen Shao
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Assistant Vice President
    Summit Funds
    Summit Cash Reserves
    Summit GNMA













    Edward A. Wiese
    Andrew McCormick
    James M. McDonald
    Steven E. Boothe
    G. Richard Dent
    Alisa Fiumara
    Keir R. Joyce
    Alan D. Levenson
    Joseph K. Lynagh
    Mary J. Miller
    Susan G. Troll
    John D. Wells
    Christopher P. Brown
    Terri L. Hett
    Dylan Jones
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Assistant Vice President
    Summit Municipal Funds
    Summit Municipal Income
    Summit Municipal Intermediate
    Summit Municipal Money Market













    Mary J. Miller
    Charles B. Hill
    Joseph K. Lynagh
    Konstantine B. Mallas
    R. Lee Arnold, Jr.
    G. Richard Dent
    Marcy M. Lash
    Alan D. Levenson
    James M. McDonald
    Hugh D. McGuirk
    James M. Murphy
    Timothy G. Taylor
    Edward A. Wiese
    M. Helena Condez
    Kathryn A. Floyd
    Chen Shao
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Executive Vice President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Assistant Vice President
    Tax-Efficient Funds
    Tax-Efficient Balanced
    Tax-Efficient Growth
    Tax-Efficient Multi-Cap Growth




    Donald J. Peters
    Hugh D. McGuirk
    Donald J. Easley
    Charles E. Emrich
    Mary J. Miller
    William J. Stromberg
    Mark R. Weigman
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Tax-Exempt Money










    Joseph K. Lynagh
    Steven G. Brooks
    G. Richard Dent
    Marcy M. Lash
    Alan D. Levenson
    James M. McDonald
    Mary J. Miller
    Edward A. Wiese
    M. Helena Condez
    Chen Shao
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Tax-Free High Yield











    James M. Murphy
    R. Lee Arnold, Jr.
    G. Richard Dent
    Charles B. Hill
    Marcy M. Lash
    Konstantine B. Mallas
    Hugh D. McGuirk
    Mary J. Miller
    M. Helena Condez
    Chen Shao
    Timothy G. Taylor
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Assistant Vice President
    Tax-Free Income











    Mary J. Miller
    Konstantine B. Mallas
    R. Lee Arnold, Jr.
    G. Richard Dent
    Charles B. Hill
    Marcy M. Lash
    Hugh D. McGuirk
    James M. Murphy
    M. Helena Condez
    Chen Shao
    Timothy G. Taylor
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Assistant Vice President
    Tax-Free Short-Intermediate











    Charles B. Hill
    G. Richard Dent
    Charles E. Emrich
    Marcy M. Lash
    Konstantine B. Mallas
    Hugh D. McGuirk
    Mary J. Miller
    Timothy G. Taylor
    Edward A. Wiese
    M. Helena Condez
    Chen Shao
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    U.S. Bond Index


    Edmund M. Notzon III
    Robert M. Larkins
    (See preceding table for remaining officers)
    President
    Executive Vice President
    U.S. Treasury Funds
    U.S. Treasury Intermediate
    U.S. Treasury Long-Term
    U.S. Treasury Money










    Mary J. Miller
    Brian J. Brennan
    James M. McDonald
    Steven E. Boothe
    Steven G. Brooks
    G. Richard Dent
    Alan D. Levenson
    Joseph K. Lynagh
    Vernon A. Reid, Jr.
    Daniel O. Shackelford
    Geoffrey M. Hardin
    Terri L. Hett
    Dylan Jones
    (See preceding table for remaining officers)
    President
    Executive Vice President
    Executive Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Assistant Vice President
    Assistant Vice President
    Assistant Vice President
    Value










    John D. Linehan
    Jeffrey W. Arricale
    Peter J. Bates
    Ryan Burgess
    Ira W. Carnahan
    David R. Giroux
    Heather K. McPherson
    Brian C. Rogers
    Eric L. Veiel
    Tamara P. Wiggs
    (See preceding table for remaining officers)
    President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President
    Vice President

    51


    52


    53


    54


    55


    56


    57


    58


    59


    60


    61


    62


    63


    64


    65


    66


    Officers


    Name, Year of Birth, and Principal Occupation(s)
    During Past 5 Years


    Position(s) Held With Fund(s)


    Ulle Adamson, 1979
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; formerly student, Sussex University and Stockholm School of Economics (to 2003); CFA
    Vice President, International Funds and Media & Telecommunications Fund
    Christopher D. Alderson, 1962
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Executive Vice President, Institutional International Funds and International Funds
    Kennard W. Allen, 1977
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, Capital Opportunity Fund, Developing Technologies Fund, Global Technology Fund, Growth Stock Fund, Mid-Cap Growth Fund, New Horizons Fund, and Science & Technology Fund
    Francisco Alonso, 1978
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, Capital Appreciation Fund, Growth & Income Fund, New America Growth Fund, New Horizons Fund, and Small-Cap Stock Fund
    R. Lee Arnold, Jr., 1970
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price International, Inc.; CFA, CPA
    Executive Vice President, Tax-Free High Yield Fund; Vice President, Summit Municipal Funds and Tax-Free Income Fund
    Jeffrey W. Arricale, 1971
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CPA
    President, Financial Services Fund; Vice President, Capital Appreciation Fund, Equity Income Fund, Growth & Income Fund, Institutional International Funds, International Funds, New America Growth Fund, and Value Fund
    Preston G. Athey, 1949
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA, CIC
    President, Small-Cap Value Fund; Vice President, Small-Cap Stock Fund
    E. Frederick Bair, 1969
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA, CPA
    President, Index Trust and International Index Fund; Vice President, Balanced Fund
    P. Robert Bartolo, 1972
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA, CPA
    President, Growth Stock Fund; Vice President, Blue Chip Growth Fund, Media & Telecommunications Fund, Mid-Cap Growth Fund, and New America Growth Fund
    Peter J. Bates, 1974
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly intern, T. Rowe Price (to 2004) and Vice President of Finance, Rent-A-Center, Inc. (to 2003); CFA
    Vice President, Blue Chip Growth Fund, Capital Opportunity Fund, Dividend Growth Fund, Mid-Cap Value Fund, and Value Fund
    David C. Beers, 1970
    Vice President, T. Rowe Price; formerly High Yield Analyst, Chartwell Investment Partners and Business Analyst/Software Developer, Morgan Stanley Investment Management (to 2004); CFA
    Vice President, High Yield Fund; Assistant Vice President, Institutional Income Funds
    R. Scott Berg, 1972
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Executive Vice President, Institutional International Funds and International Funds
    Brian W.H. Berghuis, 1958
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA
    President, Mid-Cap Growth Fund; Executive Vice President, Institutional Equity Funds; Vice President, New America Growth Fund and New Horizons Fund
    Mark C.J. Bickford-Smith, 1962
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Vice President, Institutional International Funds, International Funds, and Spectrum Funds
    Steven E. Boothe, 1977
    Vice President, T. Rowe Price; CFA
    Vice President, Corporate Income Fund, Prime Reserve Fund, TRP Reserve Investment Funds, Summit Funds, and U.S. Treasury Funds
    Brian J. Brennan, 1964
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA
    Executive Vice President, Institutional Income Funds and U.S. Treasury Funds; Vice President, Inflation Protected Bond Fund, International Funds, New Income Fund, Short-Term Bond Fund, and Short-Term Income Fund
    Andrew M. Brooks, 1956
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, Equity Income Fund, High Yield Fund, and Institutional Income Funds
    Steven G. Brooks, 1954
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Vice President, California Tax-Free Income Trust, Corporate Income Fund, Prime Reserve Fund, TRP Reserve Investment Funds, Short-Term Bond Fund, Short-Term Income Fund, Tax-Exempt Money Fund, and U.S. Treasury Funds
    Christopher P. Brown, 1977
    Assistant Vice President, T. Rowe Price; formerly Fixed-Income Analyst Trader, Riggs Investment Advisors, Inc. (to 2005); Investment Analyst, Cambridge Associates, LLC (to 2004)
    Assistant Vice President, GNMA Fund and Summit Funds
    Jose Costa Buck, 1972
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Vice President, International Funds
    Ryan Burgess, 1974
    Employee, T. Rowe Price; formerly intern, T. Rowe Price (to 2006); Vice President and Senior Portfolio Manager, Evergreen Private Asset Management (to 2005); CFA
    Vice President, New Era Fund and Value Fund
    G. Mark Bussard, 1972
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly Co-founder and Chief Operating Officer, Rivanna Pharmaceuticals (to 2006); student, Darden Graduate School of Business and University of Virginia (to 2004)
    Vice President, Blue Chip Growth Fund, Growth & Income Fund, Health Sciences Fund, and New Horizons Fund
    Christopher W. Carlson, 1967
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, Developing Technologies Fund, Global Technology Fund, Mid-Cap Value Fund, and New Horizons Fund
    Ira W. Carnahan, 1963
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly Associate Editor, Forbes Magazine (to 2005); CFA
    Vice President, Small-Cap Stock Fund and Value Fund
    Jonathan M. Chirunga, 1966
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, State Tax-Free Income Trust
    Archibald A. Ciganer, 1966
    Vice President, T Rowe Price Global Investment Services Limited; Associate, Investment Banking, CTI Tokyo, (to 2003); Senior Associate, Corporate Finance Tokyo (to 2005); CFA
    Vice President, International Funds
    Jerome A. Clark, 1961
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price Investment Services, Inc., and T. Rowe Price Trust Company; CFA
    Executive Vice President, Retirement Funds; Vice President, Personal Strategy Funds and Short-Term Income Fund
    Richard N. Clattenburg, 1979
    Vice President, T. Rowe Price; formerly Financial Analyst, Goldman Sachs (to 2005); CFA
    Vice President, Institutional International Funds, International Funds, and Real Estate Fund
    M. Helena Condez, 1962
    Assistant Vice President, T. Rowe Price
    Assistant Vice President, California Tax-Free Income Trust, State Tax-Free Income Trust, Summit Municipal Funds, Tax-Exempt Money Fund, Tax-Free High Yield Fund, Tax-Free Income Fund, and Tax-Free Short-Intermediate Fund
    Michael J. Conelius, 1964
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price International, Inc., and T. Rowe Price Trust Company; CFA
    Executive Vice President, Institutional International Funds and International Funds; Vice President, Institutional Income Funds
    Ann B. Cranmer, 1947
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; Vice President and Secretary, T. Rowe Price Global Asset Management Limited and T. Rowe Price Global Investment Services Limited; FCIS
    Assistant Vice President, International Funds
    Richard de los Reyes, 1975
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly Analyst, Soros Fund Management (to 2006)
    Vice President, Blue Chip Growth Fund, International Funds, and New Era Fund
    G. Richard Dent, 1960
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, California Tax-Free Income Trust, Prime Reserve Fund, TRP Reserve Investment Funds, State Tax-Free Income Trust, Summit Funds, Summit Municipal Funds, Tax-Exempt Money Fund, Tax-Free High Yield Fund, Tax-Free Income Fund, Tax-Free Short-Intermediate Fund, and U.S. Treasury Funds
    Wendy R. Diffenbaugh, 1954
    Vice President, T. Rowe Price
    Vice President, Balanced Fund, Diversified Small-Cap Growth Fund, and Index Trust
    Anna M. Dopkin, 1967
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA
    President, Capital Opportunity Fund; Executive Vice President, Institutional Equity Funds; Vice President, Financial Services Fund and Real Estate Fund
    Shawn T. Driscoll, 1975
    Vice President, T. Rowe Price Group, Inc.; formerly Equity Research Analyst, MTB Investment Advisors (to 2006); student, New York University (to 2003)
    Vice President, Blue Chip Growth Fund, Growth & Income Fund, New America Growth Fund, and New Era Fund
    Frances Dydasco, 1966
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Executive Vice President, International Funds; Vice President, Institutional International Funds
    Donald J. Easley, 1971
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Executive Vice President, Diversified Mid-Cap Growth Fund; Vice President, Diversified Small-Cap Growth Fund, Science & Technology Fund, and Tax-Efficient Funds
    Bridget A. Ebner, 1970
    Vice President, T. Rowe Price
    Assistant Vice President, Short-Term Bond Fund and Short-Term Income Fund
    Mark J.T. Edwards, 1957
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Vice President, Institutional International Funds and International Funds
    David J. Eiswert, 1972
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly Analyst, Mellon Growth Advisors and Fidelity Management and Research (to 2003); CFA
    Vice President, Blue Chip Growth Fund, Capital Opportunity Fund, Developing Technologies Fund, Global Technology Fund, Media & Telecommunications Fund, and Science & Technology Fund
    Henry M. Ellenbogen, 1973
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    President, Media & Telecommunications Fund; Vice President, Blue Chip Growth Fund, Developing Technologies Fund, Growth Stock Fund, Institutional International Funds, International Funds, Mid-Cap Growth Fund, Mid-Cap Value Fund, and Science & Technology Fund
    Charles E. Emrich, 1961
    Vice President, T. Rowe Price; formerly First Vice President/Credit Analyst, Legg Mason Wood Walker, Inc. (to 2005)
    Vice President, California Tax-Free Income Trust, State Tax-Free Income Trust, Tax-Efficient Funds, and Tax-Free Short-Intermediate Fund
    Hugh M. Evans III, 1966
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Vice President, Developing Technologies Fund, New Horizons Fund, Small-Cap Stock Fund, and Small-Cap Value Fund
    Joseph B. Fath, 1971
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CPA
    Vice President, Growth Stock Fund, Media & Telecommunications Fund, New Horizons Fund, and Real Estate Fund
    Roger L. Fiery III, 1959
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price International, Inc., and T. Rowe Price Trust Company; CPA
    Vice President, all funds
    Mark S. Finn, 1963
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA, CPA
    Vice President, Capital Appreciation Fund, Capital Opportunity Fund, Equity Income Fund, Mid-Cap Value Fund, and New Era Fund
    Alisa Fiumara, 1974
    Vice President, T. Rowe Price; CFA
    Vice President, Prime Reserve Fund and Summit Funds
    Daniel Flax, 1974
    Vice President, T. Rowe Price; formerly student, Columbia Business School (to 2006); Equity Analyst/Trader, Madoff Securities International (London) (to 2004)
    Vice President, Global Technology Fund and Science & Technology Fund
    Kathryn A. Floyd, 1982
    Vice President, T. Rowe Price; formerly student, University of Virginia, McIntire School of Commerce (to 2004)
    Assistant Vice President, State Tax-Free Income Trust and Summit Municipal Funds
    May Foo, 1977
    Vice President, T. Rowe Price International, Inc.; CFA
    Vice President, International Funds and Media & Telecommunications Fund
    Christopher T. Fortune, 1973
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly intern, Hillman Capital Management (to 2005)
    Vice President, Financial Services Fund, Small-Cap Stock Fund, and Small-Cap Value Fund
    Kenneth D. Fuller, 1958
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company
    Vice President, Personal Strategy Funds and Retirement Funds
    Niall P. Gallagher, 1972
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; formerly European Analyst and Portfolio Manager, Merrill Lynch (London) (to 2006); CFA
    Vice President, Institutional International Funds and International Funds
    Robert N. Gensler, 1957
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price International, Inc.
    Executive Vice President, Institutional International Funds and International Funds; Vice President, Growth Stock Fund
    Justin T. Gerbereux, 1975
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly student, Mary Washington College and Darden School of Business Administration, University of Virginia (to 2003); CFA
    Vice President, High Yield Fund; Assistant Vice President, Institutional Income Funds
    Rahul Ghosh, 1976
    Vice President, T. Rowe Price International, Inc.; formerly Financial Analyst, Warburg Pincus (Singapore) (to 2004)
    Vice President, International Funds
    John R. Gilner, 1961
    Chief Compliance Officer and Vice President, T. Rowe Price; Vice President, T. Rowe Price Group, Inc. and T. Rowe Price Investment Services, Inc.
    Chief Compliance Officer, all funds
    David R. Giroux, 1975
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA
    President, Capital Appreciation Fund; Executive Vice President, Institutional Equity Funds; Vice President, Equity Income Fund, Growth & Income Fund, and Value Fund
    Gregory S. Golczewski, 1966
    Vice President, T. Rowe Price and T. Rowe Price Trust Company
    Vice President, all funds
    Dimitri V. Grechenko, 1963
    Assistant Vice President, T. Rowe Price; CFA
    Assistant Vice President, New Income Fund
    Paul Greene II, 1978
    Vice President, T. Rowe Price; formerly student, Graduate School of Business, Stanford University (to 2006); Finance & Operations Analyst, ArvinMeritor, Inc. (to 2004)
    Vice President, Equity Income Fund and Media & Telecommunications Fund
    Benjamin Griffiths, 1977
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; formerly Investment Manager, Baillie Gifford (to 2006); CFA
    Vice President, International Funds
    Michael J. Grogan, 1971
    Vice President, T. Rowe Price; CFA
    Assistant Vice President, Corporate Income Fund, New Income Fund, Short-Term Bond Fund, and Short-Term Income Fund
    M. Campbell Gunn, 1956
    Vice President, T. Rowe Price Global Investment Services Limited, T. Rowe Price Group, Inc., and T. Rowe Price International, Inc.
    Executive Vice President, International Funds; Vice President, Institutional International Funds
    Geoffrey M. Hardin, 1971
    Vice President, T. Rowe Price; formerly, Investment Analyst, Morgan Stanley`s Alternative Investment Partners Group (to 2007); Associate Portfolio Manager, Smith Breeden Associates (to 2005)
    Assistant Vice President, Inflation Protected Bond Fund, Short-Term Bond Fund, Short-Term Income Fund, and U.S. Treasury Funds
    Francies W. Hawks, 1944
    Assistant Vice President, T. Rowe Price
    Assistant Vice President, New Horizons Fund
    Barry Henderson, 1966
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly Research Analyst, Soros Fund Management (to 2006)
    Vice President, Growth Stock Fund
    Terri L. Hett, 1959
    Assistant Vice President, T. Rowe Price
    Assistant Vice President, Prime Reserve Fund, TRP Reserve Investment Funds, Summit Funds, and U.S. Treasury Funds
    Charles B. Hill, 1961
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    President, Tax-Free Short-Intermediate Fund; Executive Vice President, State Tax-Free Income Trust and Summit Municipal Funds; Vice President, Short-Term Bond Fund, Short-Term Income Fund, Tax-Free High Yield Fund, and Tax-Free Income Fund
    Gregory K. Hinkle, 1958
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price Investment Services, Inc., and T. Rowe Price Trust Company; formerly, partner, PricewaterhouseCoopers, LLP (to 2007); CPA
    Treasurer, all funds
    Ann M. Holcomb, 1972
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA
    Vice President, Capital Opportunity Fund and Institutional Equity Funds
    Steven C. Huber, 1958
    Vice President, T. Rowe Price Group, Inc.; formerly chief investment officer, Maryland State Retirement Agency pension fund; CFA, FSA
    Vice President, Institutional Income Funds and New Income Fund
    Thomas J. Huber, 1966
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA
    President, Dividend Growth Fund and Growth & Income Fund; Vice President, Blue Chip Growth Fund and Real Estate Fund
    Rhett K. Hunter, 1977
    Employee, T. Rowe Price; formerly student, MIT Sloan School of Management (to 2007), Bowdoin College, (to 2005)
    Vice President, Developing Technologies Fund and Global Technology Fund
    Andrew R. Hyman, 1968
    Vice President, T. Rowe Price International; formerly Principal, L. Capital Partners (to 2007); Health Care Analyst, Columbus Circle Investors (to 2005); M.D.
    Vice President, Health Sciences Fund
    Kris H. Jenner, 1962
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; M.D., D. Phil.
    President, Health Sciences Fund; Vice President, Growth Stock Fund, Institutional International Funds, International Funds, Mid-Cap Growth Fund, and New Horizons Fund
    Dylan Jones, 1971
    Assistant Vice President, T. Rowe Price; CFA
    Vice President, Prime Reserve Fund; Assistant Vice President, TRP Reserve Investment Funds, Summit Funds, and U.S. Treasury Funds
    Nina P. Jones, 1980
    Employee, T. Rowe Price; formerly intern, T. Rowe Price (summer 2007); Senior Associate KPMG LLP; student, Columbia Business School; CPA
    Vice President, Global Real Estate Fund
    Keir R. Joyce, 1972
    Vice President, T. Rowe Price; CFA
    Vice President, GNMA Fund and Summit Funds; Assistant Vice President, Short-Term Bond Fund and Short-Term Income Fund
    Paul A. Karpers, 1967
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Executive Vice President, Institutional Income Funds; Vice President, High Yield Fund
    Ian D. Kelson, 1956
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price International, Inc.
    Executive Vice President, Institutional International Funds and International Funds; Vice President, Institutional Income Funds and Personal Strategy Funds
    Susan J. Klein, 1950
    Vice President, T. Rowe Price
    Vice President, Health Sciences Fund and Small-Cap Value Fund
    Steven Krichbaum, 1977
    Employee, T. Rowe Price; formerly intern, T. Rowe Price (summer 2006); student, University of Michigan (to 2007) Economist/Statistical Analyst, Colorado Department of Labor and Employment (to 2004)
    Vice President, Financial Services Fund
    Robert M. Larkins, 1973
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; formerly student, The Wharton Business School, University of Pennsylvania (to 2003); CFA
    Executive Vice President, U.S. Bond Index Fund; Vice President, Balanced Fund
    Marcy M. Lash, 1963
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, State Tax-Free Income Trust, Summit Municipal Funds, Tax-Exempt Money Fund, Tax-Free High Yield Fund, Tax-Free Income Fund, and Tax-Free Short-Intermediate Fund
    David M. Lee, 1962
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    President, Global Real Estate Fund and Real Estate Fund; Vice President, Dividend Growth Fund, Growth & Income Fund, and New Era Fund
    Wyatt A. Lee, 1971
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA
    Vice President, Retirement Funds
    Alan D. Levenson, 1958
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; Ph.D.
    Vice President, California Tax-Free Income Trust, Corporate Income Fund, GNMA Fund, Inflation Protected Bond Fund, New Income Fund, Prime Reserve Fund, TRP Reserve Investment Funds, State Tax-Free Income Trust, Summit Funds, Summit Municipal Funds, Tax-Exempt Money Fund, and U.S. Treasury Funds
    Lillian Yan Li, 1979
    Employee, T. Rowe Price; Analyst, Deutsche Bank (Hong Kong) (to 2007); CFA
    Vice President, International Funds
    John D. Linehan, 1965
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA
    President, Value Fund; Executive Vice President, Institutional Equity Funds; Vice President, Capital Appreciation Fund, Equity Income Fund, International Funds, and Personal Strategy Funds
    Patricia B. Lippert, 1953
    Assistant Vice President, T. Rowe Price and T. Rowe Price Investment Services, Inc.
    Secretary, all funds
    Anh Lu, 1968
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Vice President, International Funds
    Joseph K. Lynagh, 1958
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    President, Tax-Exempt Money Fund; Executive Vice President, California Tax-Free Income Trust, Prime Reserve Fund, TRP Reserve Investment Funds, State Tax-Free Income Trust, and Summit Municipal Funds; Vice President, Summit Funds and U.S. Treasury Funds
    Konstantine B. Mallas, 1963
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Executive Vice President, California Tax-Free Income Trust, State Tax-Free Income Trust, Summit Municipal Funds, and Tax-Free Income Fund; Vice President, Tax-Free High Yield Fund and Tax-Free Short-Intermediate Fund
    Sebastien Mallet, 1974
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Vice President, International Funds
    Robert J. Marcotte, 1962
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, Global Real Estate Fund, Mid-Cap Growth Fund, and Small-Cap Stock Fund
    Jay S. Markowitz, 1962
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; M.D.
    Vice President, Health Sciences Fund, New Horizons Fund, and Small-Cap Stock Fund
    Jennifer Martin, 1972
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, Capital Opportunity Fund
    Daniel Martino, 1974
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly Research Analyst and Co-portfolio Manager, Taurus Asset Management and ONEX (to 2006); CFA
    Vice President, Dividend Growth Fund, Media & Telecommunications Fund, and Mid-Cap Growth Fund
    Paul M. Massaro, 1975
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly student, The Wharton Business School, University of Pennsylvania (to 2003); CFA
    Vice President, High Yield Fund; Assistant Vice President, Institutional Income Funds
    Susanta Mazumdar, 1968
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; formerly Director of Equity Research, UBS India Securities (to 2003)
    Vice President, International Funds and New Era Fund
    Andrew McCormick, 1960
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; formerly Chief Investment Officer, IMPAC Mortgage Holdings (to 2006); Senior Portfolio Manager, Avenue Capital Group, and Senior Vice President, Portfolio Transactions, Federal National Mortgage Association (to 2005)
    President, GNMA Fund; Executive Vice President, Summit Funds; Vice President, Inflation Protected Bond Fund, Institutional Income Funds, New Income Fund, and Short-Term Bond Fund
    Gregory A. McCrickard, 1958
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA
    President, Small-Cap Stock Fund; Executive Vice President, Institutional Equity Funds; Vice President, Mid-Cap Value Fund, Personal Strategy Funds, and Small-Cap Value Fund
    Ian C. McDonald, 1971
    Employee, T. Rowe Price; formerly insurance correspondent and staff reporter, The Wall Street Journal
    Vice President, Financial Services Fund
    James M. McDonald, 1949
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company
    President, Prime Reserve Fund and TRP Reserve Investment Funds; Executive Vice President, Summit Funds and U.S. Treasury Funds; Vice President, California Tax-Free Income Trust, Short-Term Income Fund, State Tax-Free Income Trust, Summit Municipal Funds, and Tax-Exempt Money Fund
    Michael J. McGonigle, 1966
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, Capital Appreciation Fund, Corporate Income Fund, Financial Services Fund, High Yield Fund, and Institutional Income Funds
    Hugh D. McGuirk, 1960
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Executive Vice President, California Tax-Free Income Trust, State Tax-Free Income Trust, and Tax-Efficient Funds; Vice President, Summit Municipal Funds, Tax-Free High Yield Fund, Tax-Free Income Fund, and Tax-Free Short-Intermediate Fund
    Heather K. McPherson, 1967
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CPA
    Executive Vice President, Mid-Cap Value Fund; Vice President, Capital Appreciation Fund, New Era Fund, and Value Fund
    Robert L. McWilliam, 1970
    Vice President, T. Rowe Price; formerly Portfolio Manager, Sailfish Capital Partners (to 2006); Vice President, Merrill Lynch (to 2006)
    Vice President, Short-Term Income Fund; Assistant Vice President, Corporate Income Fund and Short-Term Bond Fund
    Cheryl A. Mickel, 1967
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Vice President, Short-Term Bond Fund
    Inigo Mijangos, 1975
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; formerly Analyst, Kepler Equities (to 2005); Financial Analyst, Credit Agricole Indosuez Cheuvreux (Spain) (to 2004)
    Vice President, International Funds
    Joseph M. Milano, 1972
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    President, New America Growth Fund; Vice President, Institutional Equity Funds, Mid-Cap Growth Fund, Mid-Cap Value Fund, and Small-Cap Stock Fund
    Raymond A. Mills, 1960
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price International, Inc., and T. Rowe Price Trust Company; Ph.D., CFA
    Executive Vice President, International Funds; Vice President, Balanced Fund, Global Real Estate Fund, Personal Strategy Funds, and Spectrum Funds
    Eric C. Moffett, 1974
    Employee, T. Rowe Price; formerly Analyst, Fayez Sarofim & Company
    Vice President, Global Real Estate Fund
    James M. Murphy, 1967
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    President, Tax-Free High Yield Fund; Vice President, Summit Municipal Funds and Tax-Free Income Fund
    Linda A. Murphy, 1959
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, California Tax-Free Income Trust and State Tax-Free Income Trust
    Sudhir Nanda, 1959
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; Ph.D., CFA
    President, Diversified Small-Cap Growth Fund; Vice President, Capital Appreciation Fund, Diversified Mid-Cap Growth Fund, and Index Trust
    Joshua B. Nelson, 1977
    Employee, T. Rowe Price; formerly Assistant Vice President, Citigroup Global Markets, Inc.
    Vice President, New Horizons Fund
    Philip A. Nestico, 1976
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, Capital Opportunity Fund, Diversified Mid-Cap Growth Fund, Global Real Estate Fund, International Funds, and Real Estate Fund
    Hwee Jan Ng, 1966
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; formerly Vice President of Equity Research, Merrill Lynch Investment Managers in Singapore (to 2005); CFA
    Vice President, Financial Services Fund and International Funds
    Elena Nikolaeva, 1980
    Employee, T. Rowe Price; formerly Equity Analyst, JP Morgan (London) (to 2007); Analyst, PricewaterhouseCoopers, LLP (London) (to 2006)
    Vice President, International Funds
    Sridhar Nishtala, 1975
    Vice President, T. Rowe Price International, Inc.; formerly Analyst, JM Morgan Stanley Private Limited (Mumbai) (to 2004)
    Vice President, International Funds
    Jason Nogueira, 1974
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly Healthcare Equity Analyst, Putnam Investments (to 2004); student, Harvard Business School (to 2003); CFA
    Vice President, Blue Chip Growth Fund, Capital Opportunity Fund, Dividend Growth Fund, Growth Stock Fund, Health Sciences Fund, New America Growth Fund, and New Horizons Fund
    Edmund M. Notzon III, 1945
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price Investment Services, Inc., and T. Rowe Price Trust Company; Ph.D., CFA
    President, Balanced Fund, Personal Strategy Funds, Retirement Funds, Spectrum Funds, and U.S. Bond Index Fund; Vice President, Short-Term Income Fund
    Charles M. Ober, 1950
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    President, New Era Fund; Vice President, Institutional International Funds, International Funds, and Real Estate Fund
    David Oestreicher, 1967
    Director and Vice President, T. Rowe Price Investment Services, Inc., T. Rowe Price Trust Company, and T. Rowe Price Services, Inc.; Vice President, T. Rowe Price, T. Rowe Price Global Asset Management Limited, T. Rowe Price Global Investment Services Limited, T. Rowe Price Group, Inc., T. Rowe Price International, Inc., and T. Rowe Price Retirement Plan Services, Inc.
    Vice President, all funds
    Christian M. O`Neill, 1969
    Vice President, T. Rowe Price; formerly Equity Research Analyst, Morgan Stanley and Trader and Operations Scheduler, Exxon Mobil Corporation (to 2006)
    Vice President, Capital Appreciation Fund and New Era Fund
    Curt J. Organt, 1968
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Vice President, Diversified Small-Cap Growth Fund, Media & Telecommunications Fund, Small-Cap Stock Fund, and Small-Cap Value Fund
    Hiroaki Owaki, 1962
    Vice President, T. Rowe Price Global Investment Services Limited and T. Rowe Price Group, Inc.; formerly Senior Investment Analyst, ABN Amro Asset Management (to 2004); CFA
    Vice President, Global Technology Fund, International Funds, and Science & Technology Fund
    Gonzalo Pangaro, 1968
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; CFA
    Executive Vice President, International Funds; Vice President, Institutional International Funds
    Timothy E. Parker, 1974
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Vice President, Blue Chip Growth Fund, Capital Opportunity Fund, Dividend Growth Fund, New Era Fund, and New Horizons Fund
    Charles G. Pepin, 1966
    Director, T. Rowe Price Trust Company; Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, Capital Opportunity Fund and Health Sciences Fund
    Donald J. Peters, 1959
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    President, Diversified Mid-Cap Growth Fund and Tax-Efficient Funds
    Jason B. Polun, 1974
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly Vice President, Wellington Management LLP (to 2006); student, The Wharton Business School, University of Pennsylvania (to 2004); CFA
    Vice President, Equity Income Fund and Financial Services Fund
    Austin Powell, 1969
    Vice President, T. Rowe Price Global Investment Services Limited and T. Rowe Price Group, Inc.; formerly Fund Manager, INVESCO Asset Management (Japan) Tokyo (to 2004); CFA
    Vice President, International Funds
    D. James Prey III, 1959
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, Growth Stock Fund, Media & Telecommunications Fund, and Science & Technology Fund
    Larry J. Puglia, 1960
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA, CPA
    President, Blue Chip Growth Fund; Executive Vice President, Institutional Equity Funds; Vice President, Growth Stock Fund and Personal Strategy Funds
    Robert T. Quinn, Jr., 1972
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly Director of Investment Banking, UBS Investment Bank (to 2004)
    Vice President, Capital Appreciation Fund, Capital Opportunity Fund, Dividend Growth Fund, and Equity Income Fund
    Vernon A. Reid, Jr., 1954
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Vice President, Corporate Income Fund, Inflation Protected Bond Fund, New Income Fund, Short-Term Bond Fund, Short-Term Income Fund, and U.S. Treasury Funds
    Frederick A. Rizzo, 1969
    Vice President, T. Rowe Price International, Inc.; formerly Analyst, F&C Asset Management (London) (to 2006); Senior Equity Analyst, Citigroup (London) (to 2004)
    Vice President, Financial Services Fund and International Funds
    Michael T. Roberts, 1980
    Vice President, T. Rowe Price; formerly student, Brown University, and Research Analyst, Chicago Board of Options Exchange (to 2005); Research Analyst, Roberts & Dybdahl Inc. (to 2004); Math Instructor, Peace Corps., and Calculus Teaching Assistant, University of Chicago (to 2003)
    Vice President, Diversified Small-Cap Growth Fund
    S. Leigh Robertson, 1976
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; CFA
    Executive Vice President, International Funds
    Theodore E. Robson, 1965
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA
    Vice President, Corporate Income Fund and Real Estate Fund
    Joseph Rohm, 1966
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; formerly Equity Analyst, Insight Investment (to 2005)
    Vice President, International Funds
    Christopher J. Rothery, 1963
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Vice President, International Funds
    Jeffrey Rottinghaus, 1970
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CPA
    President, Developing Technologies Fund and Global Technology Fund; Vice President, Institutional International Funds, International Funds, Mid-Cap Growth Fund, New America Growth Fund, New Horizons Fund, Science & Technology Fund, and Small-Cap Stock Fund
    Brian A. Rubin, 1974
    Vice President, T. Rowe Price and T. Rowe Price Trust Company; CPA
    Vice President, High Yield Fund; Assistant Vice President, Institutional Income Funds
    Federico Santilli, 1974
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; CFA
    Vice President, Financial Services Fund and International Funds
    Francisco Sersale, 1980
    Employee, T. Rowe Price; formerly Investment Analyst, Explorador Capital Management, LLC (to 2005); Paralegal, Morris, James, Hitchens & Williams (to 2002)
    Vice President, International Funds
    Daniel O. Shackelford, 1958
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA
    President, Inflation Protected Bond Fund and New Income Fund; Vice President, Institutional Income Funds, Short-Term Bond Fund, Short-Term Income Fund, and U.S. Treasury Funds
    Chen Shao, 1980
    Employee, T. Rowe Price; formerly Junior Accountant, News America Corporation, and Reconciliation Associate, Cablevision Corporation (to 2005); Assistant Store Manager, Walgreen Company (to 2004)
    Assistant Vice President, California Tax-Free Income Trust, State Tax-Free Income Trust, Summit Municipal Funds, Tax-Exempt Money Fund, Tax-Free High Yield Fund, Tax-Free Income Fund, and Tax-Free Short-Intermediate Fund
    Robert W. Sharps, 1971
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA, CPA
    Executive Vice President, Institutional Equity Funds; Vice President, Blue Chip Growth Fund, Growth Stock Fund, Institutional International Funds, International Funds, and New America Growth Fund
    John C.A. Sherman, 1969
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Vice President, Health Sciences Fund and International Funds
    Clark R. Shields, 1976
    Vice President, T. Rowe Price; formerly student, Harvard Business School (to 2006); Associate, MDT Advisers (to 2004)
    Vice President, Mid-Cap Growth Fund, New America Growth Fund, and New Horizons Fund
    Charles M. Shriver, 1967
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Vice President, Personal Strategy Funds and Spectrum Funds
    Neil Smith, 1972
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Executive Vice President, International Index Fund
    Robert W. Smith, 1961
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company
    Executive Vice President, Institutional International Funds and International Funds; Vice President, Growth Stock Fund, Media & Telecommunications Fund, Personal Strategy Funds, Retirement Funds, and Spectrum Funds
    Michael F. Sola, 1969
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    President, Science & Technology Fund; Vice President, Developing Technologies Fund, Global Technology Fund, and New Horizons Fund
    Gabriel Solomon, 1977
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly student, The Wharton Business School, University of Pennsylvania (to 2004); Equity Analyst Intern, Wellington Management Company, LLP (to 2003)
    Vice President, Capital Appreciation Fund, Capital Opportunity Fund, and Financial Services Fund
    Joshua K. Spencer, 1973
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly Research Analyst and Sector Fund Portfolio Manager, Fidelity Investments (to 2004); CFA
    Vice President, Developing Technologies Fund, Global Technology Fund, Growth & Income Fund, and Science & Technology Fund
    Jonty Starbuck, 1975
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Vice President, International Funds
    William J. Stromberg, 1960
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA
    Vice President, Capital Appreciation Fund, Dividend Growth Fund, and Tax-Efficient Funds
    Walter P. Stuart III, 1960
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Vice President, High Yield Fund and Institutional Income Funds
    Miki Takeyama, 1970
    Vice President, T. Rowe Price Global Investment Services Limited and T. Rowe Price Group, Inc.
    Vice President, International Funds
    Taymour R. Tamaddon, 1976
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly intern, T. Rowe Price (to 2004); CFA
    Vice President, Blue Chip Growth Fund, Growth Stock Fund, Health Sciences Fund, Mid-Cap Growth Fund, and New Horizons Fund
    Timothy G. Taylor, 1975
    Vice President, T. Rowe Price; CFA
    Vice President, California Tax-Free Income Trust, State Tax-Free Income Trust, Summit Municipal Funds, and Tax-Free Short-Intermediate Fund; Assistant Vice President, Tax-Free High Yield Fund and Tax-Free Income Fund
    Dean Tenerelli, 1964
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Executive Vice President, International Funds; Vice President, Institutional International Funds
    Thomas E. Tewksbury, 1961
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company
    Vice President, High Yield Fund and Institutional Income Funds
    Craig A. Thiese, 1975
    Vice President, T. Rowe Price; formerly Equity Trader, Rydex Investments (to 2006); Equity Trader, Eagle Asset Management (to 2003)
    Vice President, New America Growth Fund and New Era Fund
    Justin Thomson, 1968
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Executive Vice President, International Funds
    David A. Tiberii, 1965
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    President, Corporate Income Fund; Vice President, Institutional Income Funds and New Income Fund
    Mitchell J.K. Todd, 1974
    Vice President, T. Rowe Price International, Inc.; formerly Senior Research Analyst, F&C Asset Management (to 2003)
    Vice President, Financial Services Fund and International Funds
    Susan G. Troll, 1966
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CPA
    Vice President, Capital Appreciation Fund, Prime Reserve Fund, and Summit Funds
    Ken D. Uematsu, 1969
    Assistant Vice President, T. Rowe Price; CFA
    Executive Vice President, Index Trust; Vice President, International Index Fund
    Chirag Vasavada, 1972
    Vice President, T. Rowe Price; formerly Senior Manager in the Corporate Strategy and Development Group, Microsoft Corporation (to 2005)
    Vice President, Developing Technologies Fund, Global Technology Fund, and Science & Technology Fund
    Mark J. Vaselkiv, 1958
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company
    President, High Yield Fund; Executive Vice President, Corporate Income Fund; Vice President, Balanced Fund, Institutional Income Funds, Personal Strategy Funds, and Retirement Funds
    Eric L. Veiel, 1972
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; formerly Senior Equity Analyst, Wachovia Securities (to 2005); CFA
    Vice President, Capital Appreciation Fund, Capital Opportunity Fund, Dividend Growth Fund, Equity Income Fund, Financial Services Fund, Growth Stock Fund, New America Growth Fund, and Value Fund
    Verena E. Wachnitz, 1978
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; CFA
    Vice President, International Funds
    J. David Wagner, 1974
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Vice President, Diversified Small-Cap Growth Fund, Institutional Equity Funds, Mid-Cap Value Fund, Small-Cap Stock Fund, and Small-Cap Value Fund
    John F. Wakeman, 1962
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
    Executive Vice President, Mid-Cap Growth Fund; Vice President, Diversified Mid-Cap Growth Fund and Institutional Equity Funds
    David J. Wallack, 1960
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company
    President, Mid-Cap Value Fund; Vice President, New Era Fund
    Julie L. Waples, 1970
    Vice President, T. Rowe Price
    Vice President, all funds
    David J.L. Warren, 1957
    Director, T. Rowe Price, T. Rowe Price Global Asset Management Limited, and T. Rowe Price Global Investment Services Limited; Vice President, T. Rowe Price Group, Inc.; Chief Executive Officer, Director, and President, T. Rowe Price International, Inc.
    President, Institutional International Funds and International Funds; Executive Vice President, Spectrum Funds; Vice President, Retirement Funds
    Hiroshi Watanabe, 1975
    Vice President, T. Rowe Price Global Investment Services Limited; formerly Deputy Director, Space Industry Office with the Ministry of Economy (Tokyo) (to 2003)
    Vice President, International Funds
    Thomas H. Watson, 1977
    Employee, T. Rowe Price; formerly Strategy Analyst, Forrester Research (2002 to 2005)
    Vice President, Developing Technologies Fund and Global Technology Fund
    Kwame C. Webb, 1982
    Vice President, T. Rowe Price; formerly student, The College of William & Mary (to 2004)
    Vice President, Small-Cap Stock Fund and Small-Cap Value Fund
    Mark R. Weigman, 1962
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; CFA, CIC
    Vice President, Diversified Mid-Cap Growth Fund and Tax-Efficient Funds
    John D. Wells, 1960
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Savings Bank
    Vice President, GNMA Fund, Short-Term Bond Fund, Short-Term Income Fund, and Summit Funds
    Christopher S. Whitehouse, 1972
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; formerly Telecoms Analyst and Fund Manager, Deutsche Asset Management (to 2005)
    Vice President, International Funds and Media & Telecommunications Fund
    Richard T. Whitney, 1958
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price International, Inc., and T. Rowe Price Trust Company; CFA
    Executive Vice President, Balanced Fund; Vice President, Diversified Small-Cap Growth Fund, Personal Strategy Funds, and Retirement Funds
    Edward A. Wiese, 1959
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company; Chief Investment Officer, Director, and Vice President, T. Rowe Price Savings Bank; CFA
    President, Short-Term Bond Fund, Short-Term Income Fund, and Summit Funds; Vice President, Corporate Income Fund, Prime Reserve Fund, TRP Reserve Investment Funds, Retirement Funds, Summit Municipal Funds, Tax-Exempt Money Fund, and Tax-Free Short-Intermediate Fund
    Tamara P. Wiggs, 1979
    Vice President, T. Rowe Price; formerly Vice President, Institutional Equity Trading, Merrill Lynch (to 2003)
    Vice President, Capital Appreciation Fund, Financial Services Fund, and Value Fund
    Clive M. Williams, 1966
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.
    Vice President, International Funds
    Thea N. Williams, 1961
    Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price Trust Company
    Vice President, Corporate Income Fund, High Yield Fund, and Institutional Income Funds
    Paul W. Wojcik, 1970
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Vice President, Index Trust and International Index Funds
    John Z. Wood, 1972
    Vice President, T. Rowe Price and T. Rowe Price Group, Inc.; CFA
    Vice President, Diversified Small-Cap Growth Fund
    Ashley R. Woodruff, 1979
    Vice President, T. Rowe Price; formerly Senior Vice President and Senior Restaurants Analyst, Friedman, Billings, Ramsey & Co. (to 2006); Analyst, Bear Stearns & Co., (to 2003); CFA
    Vice President, New Horizons Fund
    Marta Yago, 1977
    Employee, T. Rowe Price; formerly Associate, Citigroup Investment Banking
    Vice President, Global Real Estate Fund
    Ernest C. Yeung, 1979
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; CFA
    Vice President, International Funds and Media & Telecommunications Fund
    Alison Mei Ling Yip, 1966
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; formerly Analyst, Credit Suisse First Boston (to 2006)
    Vice President, Global Technology Fund, International Funds, and Science & Technology Fund
    Christopher Yip, 1975
    Vice President, T. Rowe Price Group, Inc. and T. Rowe Price International, Inc.; formerly Senior Analyst, Mercer Management Consulting (to 2004); CFA
    Vice President, International Funds
    Nalin Yogasundram, 1975
    Employee, T. Rowe Price; formerly Equity Analyst Intern, American Century Investments (to 2006); Project Lead, Ceterus Networks (to 2005); Project Lead, Mahi Networks, (to 2004)
    Vice President, Developing Technologies Fund and Global Technology Fund

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    Directors` Compensation

    The following table shows remuneration paid by the funds to the independent directors. The independent directors are paid $190,000 for their service on the Boards. A director serving on the Joint Audit Committee receives an additional $7,500 for his/her service and the chairman of the Joint Audit Committee receives an additional $15,000 for his/her service. The Lead Independent Director receives an additional $100,000 for serving in this capacity. Any director of the fund who is an officer or employee of T. Rowe Price or T. Rowe Price International (inside directors) does not receive any remuneration from the funds. The funds do not pay pension or retirement benefits to any of their directors or officers.

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    The following table shows the total compensation from the funds paid to the directors for the calendar year 2007:

    Directors


    Total Compensation

    Casey
    $192,500
    Deering (Lead)
    290,000
    Dick
    200,000
    Fagin
    190,000
    Horn
    200,000
    Rodgers
    197,500
    Schreiber
    190,000

    The following table shows the amounts paid to the directors by each fund based on accrued compensation for the calendar year 2007:

    Fund


    Aggregate Compensation From Fund























    Casey


    Deering


    Dick


    Fagin


    Horn


    Rodgers


    Schreiber

    Africa & Middle East(a)
    $231
    $339
    $222
    $223
    $240
    $231
    $223
    Balanced
    2,105
    3,173
    2,190
    2,078
    2,187
    2,160
    2,078
    Blue Chip Growth
    5,743
    8,650
    5,963
    5,667
    5,967
    5,891
    5,667
    California Tax-Free Bond
    804
    1,211
    835
    793
    835
    824
    793
    California Tax-Free Money
    715
    1,077
    743
    705
    743
    733
    705
    Capital Appreciation
    5,483
    8,264
    5,704
    5,414
    5,697
    5,627
    5,414
    Capital Opportunity
    770
    1,160
    800
    760
    800
    789
    760
    Corporate Income
    758
    1,142
    787
    748
    787
    778
    748
    Developing Technologies
    683
    1,029
    709
    674
    709
    701
    674
    Diversified Mid-Cap Growth
    707
    1,066
    735
    698
    735
    726
    698
    Diversified Small-Cap Growth
    701
    1,056
    729
    692
    729
    719
    692
    Dividend Growth
    1,074
    1,619
    1,117
    1,061
    1,116
    1,102
    1,061
    Emerging Europe & Mediterranean
    1,428
    2,153
    1,486
    1,410
    1,485
    1,466
    1,410
    Emerging Markets Bond
    956
    1,441
    995
    944
    994
    982
    944
    Emerging Markets Stock
    2,194
    3,302
    2,272
    2,164
    2,280
    2,249
    2,164
    Equity Income
    5,934
    8,938
    6,164
    5,856
    6,164
    6,087
    5,856
    Equity Index 500
    4,791
    7,217
    4,976
    4,728
    4,977
    4,915
    4,728
    European Stock
    1,169
    1,762
    1,216
    1,154
    1,215
    1,200
    1,154
    Extended Equity Market Index
    844
    1,272
    877
    833
    878
    866
    833
    Financial Services
    866
    1,305
    899
    855
    899
    889
    855
    Georgia Tax-Free Bond
    719
    1,083
    747
    709
    747
    737
    709
    Global Large-Cap Stock(b)
    6,000
    6,000
    6,000
    6,000
    6,000
    6,000
    6,000
    Global Real Estate(c)
    1,000
    1,000
    1,000
    1,000
    1,000
    1,000
    1,000
    Global Stock
    938
    1,413
    974
    926
    975
    962
    926
    Global Technology
    733
    1,105
    762
    724
    762
    752
    724
    GNMA
    1,254
    1,889
    1,303
    1,238
    1,302
    1,287
    1,238
    TRP Government Reserve Investment
    1,172
    1,765
    1,218
    1,156
    1,217
    1,202
    1,156
    Growth & Income
    1,394
    2,102
    1,452
    1,377
    1,448
    1,431
    1,377
    Growth Stock
    5,934
    8,938
    6,164
    5,856
    6,164
    6,087
    5,856
    Health Sciences
    1,550
    2,335
    1,610
    1,530
    1,610
    1,590
    1,530
    High Yield
    3,073
    4,635
    3,202
    3,037
    3,193
    3,156
    3,037
    Inflation Protected Bond
    707
    1,065
    735
    698
    735
    726
    698
    Institutional Africa & Middle East(d)
    3,500
    3,500
    3,500
    3,500
    3,500
    3,500
    3,500
    Institutional Concentrated Large-Cap Value
    663
    998
    689
    654
    689
    680
    654
    Institutional Core Plus
    685
    1,032
    711
    676
    711
    703
    676
    Institutional Emerging Markets Bond
    671
    1,011
    697
    663
    697
    688
    663
    Institutional Emerging Markets Equity
    769
    1,158
    799
    759
    799
    788
    759
    Institutional Floating Rate(e)
    4,583
    4,583
    4,583
    4,583
    4,583
    4,583
    4,583
    Institutional Foreign Equity
    742
    1,118
    771
    732
    771
    761
    732
    Institutional Global Large-Cap Equity(b)
    6000
    6000
    6000
    6000
    6000
    6000
    6000
    Institutional Global Equity
    661
    996
    687
    652
    688
    678
    652
    Institutional High Yield
    870
    1,311
    904
    859
    903
    893
    859
    Institutional International Bond(f)
    403
    602
    407
    394
    419
    410
    394
    Institutional Large-Cap Core Growth
    678
    1,021
    705
    669
    704
    696
    669
    Institutional Large-Cap Growth
    1,151
    1,732
    1,192
    1,135
    1,196
    1,180
    1,135
    Institutional Large-Cap Value
    773
    1,164
    803
    763
    802
    793
    763
    Institutional Mid-Cap Equity Growth
    866
    1,304
    900
    855
    899
    888
    855
    Institutional Small-Cap Stock
    858
    1,294
    892
    848
    892
    881
    848
    Institutional U.S. Structured Research(g)
    115
    169
    111
    111
    117
    115
    111
    International Bond
    1,769
    2,664
    1,838
    1,745
    1,837
    1,814
    1,745
    International Discovery
    1,919
    2,891
    1,994
    1,894
    1,994
    1,969
    1,894
    International Equity Index
    873
    1,314
    906
    861
    906
    865
    861
    International
    Growth & Income
    1,875
    2,825
    1,949
    1,852
    1,948
    1,924
    1,852
    International Stock
    3,878
    5,847
    4,039
    3,831
    4,029
    3,981
    3,831
    Japan
    882
    1,330
    918
    871
    917
    906
    871
    Latin America
    1,999
    3,008
    2,071
    1,971
    2,077
    2,046
    1,971
    Maryland Short-Term Tax-Free Bond
    728
    1,097
    757
    718
    756
    747
    718
    Maryland Tax-Free Bond
    1,332
    2,008
    1,386
    1,316
    1,384
    1,368
    1,316
    Maryland Tax-Free Money
    760
    1,145
    789
    750
    788
    780
    750
    Media & Telecommunications
    1,514
    2,280
    1,572
    1,494
    1,572
    1,553
    1,494
    Mid-Cap Growth
    5,933
    8,938
    6,165
    5,856
    6,164
    6,087
    5,856
    Mid-Cap Value
    4,408
    6,648
    4,593
    4,355
    4,581
    4,527
    4,355
    New America Growth
    1,046
    1,576
    1,087
    1,033
    1,087
    1,074
    1,033
    New Asia
    2,220
    3,336
    2,289
    2,185
    2,306
    2,272
    2,185
    New Era
    3,137
    4,723
    3,253
    3,094
    3,260
    3,217
    3,094
    New Horizons
    4,084
    6,157
    4,251
    4,034
    4,244
    4,193
    4,034
    New Income
    3,334
    5,017
    3,453
    3,287
    3,461
    3,417
    3,287
    New Jersey Tax-Free Bond
    757
    1,141
    787
    748
    787
    777
    748
    New York Tax-Free Bond
    788
    1,187
    819
    777
    818
    808
    777
    New York Tax-Free Money
    720
    1,084
    748
    710
    748
    738
    710
    Overseas Stock
    982
    1,475
    1,012
    967
    1,020
    1,005
    967
    Personal Strategy Balanced
    1,339
    2,018
    1,393
    1,323
    1,391
    1,374
    1,323
    Personal Strategy Growth
    1,209
    1,822
    1,256
    1,194
    1,256
    1,241
    1,194
    Personal Strategy Income
    970
    1,462
    1,008
    958
    1,008
    996
    958
    Prime Reserve
    3,274
    4,935
    3,406
    3,233
    3,403
    3,361
    3,233
    Real Estate
    1,847
    2,787
    1,927
    1,826
    1,921
    1,898
    1,826
    TRP Reserve Investment
    5,682
    8,563
    5,910
    5,610
    5,904
    5,832
    5,610
    Retirement 2005
    1,011
    1,523
    1,051
    998
    1,051
    1,038
    998
    Retirement 2010
    2,333
    3,512
    2,419
    2,301
    2,423
    2,392
    2,301
    Retirement 2015
    1,877
    2,825
    1,946
    1,851
    1,950
    1,924
    1,851
    Retirement 2020
    3,095
    4,658
    3,207
    3,052
    3,215
    3,172
    3,052
    Retirement 2025
    1,753
    2,639
    1,817
    1,729
    1,821
    1,797
    1,729
    Retirement 2030
    2,289
    3,445
    2,372
    2,257
    2,378
    2,346
    2,257
    Retirement 2035
    1,194
    1,798
    1,238
    1,178
    1,241
    1,225
    1,178
    Retirement 2040
    1,494
    2,248
    1,548
    1,473
    1,552
    1,531
    1,473
    Retirement 2045
    830
    1,250
    862
    819
    863
    852
    819
    Retirement 2050(h)
    669
    1,008
    696
    660
    695
    687
    660
    Retirement 2055(h)
    666
    1,004
    692
    658
    692
    684
    658
    Retirement Income
    1,163
    1,751
    1,207
    1,147
    1,208
    1,193
    1,147
    Science & Technology
    2,162
    3,259
    2,249
    2,135
    2,248
    2,219
    2,135
    Short-Term Bond
    1,332
    2,008
    1,386
    1,316
    1,384
    1,368
    1,316
    Short-Term Income
    1,092
    1,644
    1,134
    1,077
    1,135
    1,120
    1,077
    Small-Cap Stock
    4,265
    6,432
    4,446
    4,214
    4,431
    4,381
    4,214
    Small-Cap Value
    3,598
    5,426
    3,750
    3,555
    3,739
    3,696
    3,555
    Spectrum Growth
    2,400
    3,617
    2,497
    2,370
    2,493
    2,463
    2,370
    Spectrum Income
    2,819
    4,247
    2,930
    2,783
    2,929
    2,893
    2,783
    Spectrum International
    835
    1,257
    867
    824
    867
    856
    824
    Summit Cash Reserves
    3,049
    4,595
    3,171
    3,010
    3,169
    3,129
    3,010
    Summit GNMA
    694
    1,046
    722
    685
    722
    713
    685
    Summit Municipal Income
    868
    1,308
    902
    857
    902
    891
    857
    Summit Municipal Intermediate
    922
    1,389
    958
    910
    958
    945
    910
    Summit Municipal Money Market
    798
    1,203
    830
    788
    830
    819
    788
    Tax-Efficient Balanced
    678
    1,021
    704
    669
    705
    695
    669
    Tax-Efficient Growth
    690
    1,039
    717
    681
    716
    708
    681
    Tax-Efficient Multi-Cap Growth
    678
    1,021
    705
    669
    704
    696
    669
    Tax-Exempt Money
    1,098
    1,654
    1,141
    1,084
    1,141
    1,127
    1,084
    Tax-Free High Yield
    1,386
    2,090
    1,443
    1,369
    1,440
    1,423
    1,369
    Tax-Free Income
    1,514
    2,282
    1,576
    1,495
    1,574
    1,554
    1,495
    Tax-Free Short-Intermediate
    891
    1,343
    926
    880
    926
    914
    880
    Total Equity Market Index
    894
    1,347
    929
    883
    929
    918
    883
    U.S. Bond Index
    761
    1,146
    790
    751
    791
    781
    751
    U.S. Treasury Intermediate
    769
    1,158
    798
    759
    798
    788
    759
    U.S. Treasury Long-Term
    831
    1,252
    864
    820
    864
    853
    820
    U.S. Treasury Money
    1,132
    1,706
    1,176
    1,117
    1,176
    1,162
    1,117
    Value
    4,150
    6,253
    4,314
    4,097
    4,312
    4,258
    4,097
    Virginia Tax-Free Bond
    913
    1,376
    949
    902
    949
    937
    902

    86


    87


    88


    89


    (a)For the period September 4, 2007, through December 31, 2007.

    (b)Estimated for the period October 27, 2008, through October 31, 2009.

    (c)Estimated for the period October 27, 2008, through December 31, 2008.

    (d)Estimated for the period April 30, 2008, through December 31, 2008.

    (e)Estimated for the period January 31, 2008, through December 31, 2008.

    (f)For the period May 31, 2007, through December 31, 2007.

    (g)For the period October 31, 2007, through December 31, 2007.

    (h)For the period December 29, 2006, through December 31, 2007.

    Directors` Holdings in the Price Funds

    The following tables set forth the Price Fund holdings of the independent and inside directors, as of December 31, 2007, unless otherwise indicated.


    Aggregate Holdings,
    All Funds


    Independent Directors























    Casey


    Deering


    Dick


    Fagin


    Horn


    Rodgers


    Schreiber





    over $100,000


    over $100,000


    over $100,000


    over $100,000


    over $100,000


    over $100,000


    over $100,000

    Africa & Middle East
    None
    over $100,000
    None
    None
    None
    None
    None
    Balanced
    None
    None
    None
    None
    None
    None
    None
    Blue Chip Growth
    over $100,000
    None
    $10,001-$50,000
    over $100,000
    $50,001-$100,000
    None
    over $100,000
    Blue Chip Growth FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Blue Chip Growth Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Blue Chip Growth Portfolio
    None
    None
    None
    None
    None
    None
    None
    Blue Chip Growth PortfolioII
    None
    None
    None
    None
    None
    None
    None
    California Tax-Free Bond
    None
    None
    None
    None
    None
    None
    None
    California Tax-Free Money
    None
    None
    None
    None
    None
    None
    None
    Capital Appreciation
    None
    None
    over $100,000
    None
    None
    over $100,000
    None
    Capital Appreciation FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Capital Opportunity
    over $100,000
    None
    None
    None
    None
    None
    None
    Capital Opportunity FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Capital Opportunity FundR Class
    None
    None
    None
    None
    None
    None
    None
    Corporate Income
    over $100,000
    None
    $50,001-$100,000
    None
    None
    None
    None
    Developing Technologies
    None
    None
    None
    None
    None
    over $100,000
    None
    Diversified Mid-Cap Growth
    None
    None
    None
    $50,001-$100,000
    None
    over $100,000
    None
    Diversified Small-Cap Growth
    None
    None
    None
    None
    None
    None
    None
    Dividend Growth
    None
    None
    None
    $50,001-$100,000
    $50,001-$100,000
    None
    None
    Dividend Growth FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Emerging Europe & Mediterranean
    None
    None
    None
    None
    None
    None
    None
    Emerging Markets Bond
    None
    None
    None
    None
    None
    over $100,000
    None
    Emerging Markets Stock
    $50,001-$100,000
    over $100,000
    None
    None
    None
    over $100,000
    None
    Equity Income
    over $100,000
    over $100,000
    over $100,000
    over $100,000
    None
    None
    None
    Equity Income FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Equity Income Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Equity Income Portfolio
    None
    None
    None
    None
    None
    None
    None
    Equity Income PortfolioII
    None
    None
    None
    None
    None
    None
    None
    Equity Index 500
    None
    None
    None
    None
    None
    None
    None
    Equity Index 500 Portfolio
    None
    None
    None
    None
    None
    None
    None
    European Stock
    None
    $10,001-$50,000
    None
    $50,001-$100,000
    None
    None
    None
    Extended Equity Market Index
    None
    None
    None
    None
    None
    over $100,000
    None
    Financial Services
    None
    None
    $10,001-$50,000
    None
    None
    None
    None
    Georgia Tax-Free Bond
    None
    None
    None
    None
    None
    None
    None
    Global Stock
    None
    over $100,000
    over $100,000
    $10,001-$50,000
    None
    None
    None
    Global Stock FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Global Technology
    None
    None
    None
    None
    None
    None
    None
    GNMA
    None
    None
    None
    None
    None
    None
    over $100,000
    TRP Government Reserve Investment
    None
    None
    None
    None
    None
    None
    None
    Growth & Income
    None
    None
    $1-$10,000
    None
    None
    None
    over $100,000
    Growth Stock
    None
    over $100,000
    over $100,000
    over $100,000
    None
    None
    None
    Growth Stock FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Growth Stock Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Health Sciences
    None
    None
    $10,001-$50,000
    $50,001-$100,000
    None
    None
    None
    Health Sciences Portfolio
    None
    None
    None
    None
    None
    None
    None
    Health Sciences PortfolioII
    None
    None
    None
    None
    None
    None
    None
    High Yield
    $50,001-$100,000
    None
    $50,001-$100,000
    None
    $1-$10,000
    None
    over $100,000
    High Yield FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Inflation Protected Bond
    None
    None
    None
    None
    None
    None
    None
    Institutional Concentrated Large-Cap Value
    None
    None
    None
    None
    None
    None
    None
    Institutional Core Plus
    None
    None
    None
    None
    None
    None
    None
    Institutional Emerging Markets Bond
    None
    None
    None
    None
    None
    None
    None
    Institutional Emerging Markets Equity
    None
    None
    None
    None
    None
    None
    None
    Institutional Foreign Equity
    None
    None
    None
    None
    None
    None
    None
    Institutional Global Equity
    None
    None
    None
    None
    None
    None
    None
    Institutional High Yield
    None
    None
    None
    None
    None
    None
    None
    Institutional International Bond
    None
    None
    None
    None
    None
    None
    None
    Institutional Large-Cap Core Growth
    None
    None
    None
    None
    None
    None
    None
    Institutional Large-Cap Growth
    None
    None
    None
    None
    None
    None
    None
    Institutional Large-Cap Value
    None
    None
    None
    None
    None
    None
    None
    Institutional Mid-Cap Equity Growth
    None
    None
    None
    None
    None
    None
    None
    Institutional Small-Cap Stock
    None
    None
    None
    None
    None
    None
    None
    Institutional U.S. Structured Research
    None
    None
    None
    None
    None
    None
    None
    International Bond
    None
    None
    $50,001-$100,000
    None
    None
    None
    None
    International Bond FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    International Discovery
    $10,001-$50,000
    $50,001-$100,000
    None
    None
    None
    None
    None
    International Equity Index
    None
    None
    None
    None
    None
    None
    None
    International Growth & Income
    None
    None
    None
    $50,001-$100,000
    None
    None
    None
    International Growth & Income FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    International Growth & Income FundR Class
    None
    None
    None
    None
    None
    None
    None
    International Stock
    None
    over $100,000
    None
    over $100,000
    None
    None
    None
    International Stock FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    International Stock Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    International Stock Portfolio
    None
    None
    None
    None
    None
    None
    None
    Japan
    None
    None
    None
    None
    None
    None
    None
    Latin America
    None
    None
    None
    None
    None
    over $100,000
    None
    Limited-Term Bond Portfolio
    None
    None
    None
    None
    None
    None
    None
    Limited-Term Bond PortfolioII
    None
    None
    None
    None
    None
    None
    None
    Maryland Short-Term
    Tax-Free Bond
    None
    None
    None
    None
    None
    None
    None
    Maryland Tax-Free Bond
    None
    None
    None
    None
    None
    None
    None
    Maryland Tax-Free Money
    None
    None
    None
    None
    None
    None
    None
    Media & Telecommunications
    $10,001-$50,000
    over $100,000
    None
    $50,001-$100,000
    None
    None
    None
    Mid-Cap Growth
    None
    None
    $10,001-$50,000
    over $100,000
    None
    None
    None
    Mid-Cap Growth FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Mid-Cap Growth Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Mid-Cap Growth Portfolio
    None
    None
    None
    None
    None
    None
    None
    Mid-Cap Growth
    PortfolioII
    None
    None
    None
    None
    None
    None
    None
    Mid-Cap Value
    None
    None
    None
    over $100,000
    None
    None
    None
    Mid-Cap Value FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Mid-Cap Value Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    New America Growth
    None
    None
    None
    None
    None
    over $100,000
    None
    New America Growth FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    New America Growth Portfolio
    None
    None
    None
    None
    None
    None
    None
    New Asia
    None
    None
    None
    $50,001-$100,000
    None
    None
    None
    New Era
    None
    None
    None
    over $100,000
    None
    None
    None
    New Horizons
    over $100,000
    None
    $10,001-$50,000
    $1-$10,000
    None
    None
    None
    New Income
    over $100,000
    None
    over $100,000
    over $100,000
    None
    None
    over $100,000
    New Income FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    New Income Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    New Jersey Tax-Free Bond
    None
    None
    None
    None
    None
    None
    None
    New York Tax-Free Bond
    None
    None
    None
    None
    None
    None
    None
    New York Tax-Free Money
    None
    None
    None
    None
    None
    None
    None
    Overseas Stock
    None
    None
    None
    None
    None
    None
    None
    Personal Strategy Balanced
    None
    None
    None
    None
    None
    None
    None
    Personal Strategy Balanced Portfolio
    None
    None
    None
    None
    None
    None
    None
    Personal Strategy Growth
    None
    None
    None
    None
    None
    None
    None
    Personal Strategy Income
    None
    None
    None
    None
    None
    None
    None
    Prime Reserve
    None
    None
    $1-$10,000
    None
    None
    $10,001-$50,000
    $10,001-$50,000
    Prime Reserve Portfolio
    None
    None
    None
    None
    None
    None
    None
    Real Estate
    $50,001-$100,000
    None
    None
    $50,001-$100,000
    None
    None
    None
    Real Estate FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    TRP Reserve Investment
    None
    None
    None
    None
    None
    None
    None
    Retirement 2005
    None
    None
    None
    None
    None
    None
    None
    Retirement 2005 FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2005 Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2010
    None
    None
    None
    None
    None
    None
    None
    Retirement 2010 FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2010 Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2015
    None
    None
    None
    None
    None
    None
    None
    Retirement 2015 FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2015 Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2020
    None
    None
    None
    None
    $50,001-$100,000
    None
    None
    Retirement 2020 FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2020 Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2025
    None
    None
    None
    None
    None
    None
    None
    Retirement 2025 FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2025 Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2030
    None
    None
    None
    None
    None
    None
    None
    Retirement 2030 FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2030 Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2035
    None
    None
    None
    None
    None
    None
    None
    Retirement 2035 FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2035 Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2040
    None
    None
    None
    None
    None
    None
    None
    Retirement 2040 FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2040 Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2045
    None
    None
    None
    None
    None
    None
    None
    Retirement 2045 FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2045 Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2050
    None
    None
    None
    None
    None
    None
    None
    Retirement 2050 FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2050 Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2055
    None
    None
    None
    None
    None
    None
    None
    Retirement 2055 FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Retirement 2055 Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Retirement Income
    None
    None
    None
    None
    None
    None
    None
    Retirement Income FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Retirement Income Fund
    R Class
    None
    None
    None
    None
    None
    None
    None
    Science & Technology
    None
    None
    None
    None
    None
    over $100,000
    None
    Science & Technology FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Short-Term Bond
    None
    None
    $50,001-$100,000
    over $100,000
    None
    None
    over $100,000
    Short-Term Bond FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Short-Term Income
    None
    None
    None
    None
    None
    None
    None
    Small-Cap Stock
    None
    None
    $10,001-$50,000
    over $100,000
    None
    None
    None
    Small-Cap Stock FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Small-Cap Value
    None
    None
    $10,001-$50,000
    None
    None
    None
    None
    Small-Cap Value FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Spectrum Growth
    None
    None
    None
    $10,001-$50,000
    None
    over $100,000
    None
    Spectrum Income
    None
    None
    over $100,000
    None
    None
    None
    None
    Spectrum International
    None
    None
    None
    None
    None
    None
    None
    Summit Cash Reserves
    None
    None
    over $100,000
    over $100,000
    $50,001-$100,000
    None
    $1-$10,000
    Summit GNMA
    None
    None
    over $100,000
    None
    None
    None
    None
    Summit Municipal Income
    None
    None
    None
    None
    None
    None
    over $100,000
    Summit Municipal Intermediate
    None
    None
    None
    over $100,000
    None
    None
    over $100,000
    Summit Municipal Money Market
    None
    None
    None
    $10,001-$50,000
    None
    None
    $50,001-$100,000
    Tax-Efficient Balanced
    None
    None
    None
    None
    None
    None
    None
    Tax-Efficient Growth
    None
    None
    None
    None
    None
    None
    None
    Tax-Efficient Multi-Cap Growth
    None
    None
    None
    None
    None
    None
    None
    Tax-Exempt Money
    None
    None
    None
    None
    None
    None
    $1-$10,000
    Tax-Free High Yield
    None
    None
    None
    $50,001-$100,000
    None
    None
    over $100,000
    Tax-Free Income
    None
    None
    None
    None
    None
    None
    over $100,000
    Tax-Free Income FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Tax-Free Short-Intermediate
    None
    None
    None
    over $100,000
    None
    None
    over $100,000
    Total Equity Market Index
    None
    None
    None
    None
    None
    None
    None
    U.S. Bond Index
    None
    None
    None
    None
    None
    None
    None
    U.S. Treasury Intermediate
    None
    None
    $50,001-$100,000
    None
    None
    None
    over $100,000
    U.S. Treasury Long-Term
    None
    None
    None
    None
    None
    None
    over $100,000
    U.S. Treasury Money
    None
    None
    None
    None
    None
    None
    $1-$10,000
    Value
    None
    None
    None
    over $100,000
    None
    None
    over $100,000
    Value FundAdvisor Class
    None
    None
    None
    None
    None
    None
    None
    Virginia Tax-Free Bond
    None
    None
    None
    None
    None
    None
    None

    90


    91


    92


    93


    94


    95


    96



    Aggregate Holdings,
    All Funds


    Inside Directors














    Bernard


    Laporte


    Miller


    Rogers





    over $100,000


    over $100,000


    over $100,000


    over $100,000

    Africa & Middle East
    None
    None
    None
    None
    Balanced
    None
    None
    None
    None
    Blue Chip Growth
    None
    None
    None
    None
    Blue Chip Growth FundAdvisor Class
    None
    None
    None
    None
    Blue Chip Growth FundR Class
    None
    None
    None
    None
    Blue Chip Growth Portfolio
    None
    None
    None
    None
    Blue Chip Growth PortfolioII
    None
    None
    None
    None
    California Tax-Free Bond
    None
    None
    None
    None
    California Tax-Free Money
    None
    None
    None
    None
    Capital Appreciation
    None
    over $100,000
    None
    None
    Capital Appreciation FundAdvisor Class
    None
    None
    None
    None
    Capital Opportunity
    None
    over $100,000
    None
    None
    Capital Opportunity FundAdvisor Class
    None
    None
    None
    None
    Capital Opportunity FundR Class
    None
    None
    None
    None
    Corporate Income
    None
    None
    None
    None
    Developing Technologies
    $50,001-$100,000
    over $100,000
    over $100,000
    over $100,000
    Diversified Mid-Cap Growth
    None
    None
    None
    None
    Diversified Small-Cap Growth
    None
    None
    None
    None
    Dividend Growth
    None
    None
    None
    None
    Dividend Growth FundAdvisor Class
    None
    None
    None
    None
    Emerging Europe & Mediterranean
    None
    None
    None
    None
    Emerging Markets Bond
    None
    None
    over $100,000
    None
    Emerging Markets Stock
    over $100,000
    None
    None
    None
    Equity Income
    over $100,000
    None
    over $100,000
    over $100,000
    Equity Income FundAdvisor Class
    None
    None
    None
    None
    Equity Income FundR Class
    None
    None
    None
    None
    Equity Income Portfolio
    None
    None
    None
    None
    Equity Income PortfolioII
    None
    None
    None
    None
    Equity Index 500
    None
    None
    None
    None
    Equity Index 500 Portfolio
    None
    None
    None
    None
    European Stock
    None
    $50,001-$100,000
    over $100,000
    None
    Extended Equity Market Index
    None
    None
    None
    None
    Financial Services
    None
    None
    None
    None
    Georgia Tax-Free Bond
    None
    None
    None
    None
    Global Stock
    over $100,000
    over $100,000
    None
    over $100,000
    Global Stock FundAdvisor Class
    None
    None
    None
    None
    Global Technology
    None
    None
    None
    None
    GNMA
    None
    None
    None
    None
    TRP Government Reserve Investment
    None
    None
    None
    None
    Growth & Income
    None
    None
    None
    None
    Growth Stock
    over $100,000
    over $100,000
    $50,001-$100,000
    over $100,000
    Growth Stock FundAdvisor Class
    None
    None
    None
    None
    Growth Stock FundR Class
    None
    None
    None
    None
    Health Sciences
    None
    None
    None
    None
    Health Sciences Portfolio
    None
    None
    None
    None
    Health Sciences PortfolioII
    None
    None
    None
    None
    High Yield
    $10,001-$50,000
    None
    over $100,000
    None
    High Yield FundAdvisor Class
    None
    None
    None
    None
    Inflation Protected Bond
    None
    None
    over $100,000
    None
    Institutional Concentrated Large-Cap Value
    None
    None
    None
    None
    Institutional Core Plus
    None
    None
    None
    None
    Institutional Emerging Markets Bond
    None
    None
    None
    None
    Institutional Emerging Markets Equity
    None
    None
    None
    None
    Institutional Foreign Equity
    None
    None
    None
    None
    Institutional Global Equity
    None
    None
    None
    None
    Institutional High Yield
    None
    None
    None
    None
    Institutional International Bond
    None
    None
    None
    None
    Institutional Large-Cap Core Growth
    None
    None
    None
    None
    Institutional Large-Cap Growth
    None
    None
    None
    None
    Institutional Large-Cap Value
    None
    None
    None
    None
    Institutional Mid-Cap Equity Growth
    None
    None
    None
    None
    Institutional Small-Cap Stock
    None
    None
    None
    None
    Institutional U.S. Structured Research
    None
    None
    None
    None
    International Bond
    None
    None
    over $100,000
    None
    International Bond FundAdvisor Class
    None
    None
    None
    None
    International Discovery
    $10,001-$50,000
    over $100,000
    None
    None
    International Equity Index
    None
    None
    None
    None
    International Growth & Income
    None
    None
    None
    None
    International Growth & Income FundAdvisor Class
    None
    None
    None
    None
    International Growth & Income FundR Class
    None
    None
    None
    None
    International Stock
    over $100,000
    over $100,000
    over $100,000
    None
    International Stock FundAdvisor Class
    None
    None
    None
    None
    International Stock FundR Class
    None
    None
    None
    None
    International Stock Portfolio
    None
    None
    None
    None
    Japan
    None
    None
    over $100,000
    over $100,000
    Latin America
    None
    None
    None
    None
    Limited-Term Bond Portfolio
    None
    None
    None
    None
    Limited-Term Bond PortfolioII
    None
    None
    None
    None
    Maryland Short-Term Tax-Free Bond
    None
    None
    None
    None
    Maryland Tax-Free Bond
    None
    over $100,000
    over $100,000
    None
    Maryland Tax-Free Money
    None
    None
    over $100,000
    None
    Media & Telecommunications
    None
    over $100,000
    None
    $50,001-$100,000
    Mid-Cap Growth
    over $100,000
    over $100,000
    None
    None
    Mid-Cap Growth FundAdvisor Class
    None
    None
    None
    None
    Mid-Cap Growth FundR Class
    None
    None
    None
    None
    Mid-Cap Growth Portfolio
    None
    None
    None
    None
    Mid-Cap Growth PortfolioII
    None
    None
    None
    None
    Mid-Cap Value
    None
    None
    None
    None
    Mid-Cap Value FundAdvisor Class
    None
    None
    None
    None
    Mid-Cap Value FundR Class
    None
    None
    None
    None
    New America Growth
    None
    over $100,000
    None
    over $100,000
    New America Growth FundAdvisor Class
    None
    None
    None
    None
    New America Growth Portfolio
    None
    None
    None
    None
    New Asia
    over $100,000
    over $100,000
    over $100,000
    None
    New Era
    None
    None
    over $100,000
    None
    New Horizons
    over $100,000
    over $100,000
    None
    None
    New Income
    None
    $50,001-$100,000
    None
    $50,001-$100,000
    New Income FundAdvisor Class
    None
    None
    None
    None
    New Income FundR Class
    None
    None
    None
    None
    New Jersey Tax-Free Bond
    None
    None
    None
    None
    New York Tax-Free Bond
    None
    None
    None
    None
    New York Tax-Free Money
    None
    None
    None
    None
    Overseas Stock
    None
    None
    None
    None
    Personal Strategy Balanced
    None
    None
    None
    None
    Personal Strategy Balanced Portfolio
    None
    None
    None
    None
    Personal Strategy Growth
    None
    None
    None
    None
    Personal Strategy Income
    None
    None
    None
    None
    Prime Reserve
    over $100,000
    over $100,000
    None
    $50,001-$100,000
    Prime Reserve Portfolio
    None
    None
    None
    None
    Real Estate
    None
    None
    None
    None
    Real Estate FundAdvisor Class
    None
    None
    None
    None
    TRP Reserve Investment
    None
    None
    None
    None
    Retirement 2005
    None
    None
    None
    None
    Retirement 2005 FundAdvisor Class
    None
    None
    None
    None
    Retirement 2005 FundR Class
    None
    None
    None
    None
    Retirement 2010
    None
    None
    None
    None
    Retirement 2010 FundAdvisor Class
    None
    None
    None
    None
    Retirement 2010 FundR Class
    None
    None
    None
    None
    Retirement 2015
    None
    None
    None
    None
    Retirement 2015 FundAdvisor Class
    None
    None
    None
    None
    Retirement 2015 FundR Class
    None
    None
    None
    None
    Retirement 2020
    None
    None
    None
    None
    Retirement 2020 FundAdvisor Class
    None
    None
    None
    None
    Retirement 2020 FundR Class
    None
    None
    None
    None
    Retirement 2025
    None
    None
    None
    None
    Retirement 2025 FundAdvisor Class
    None
    None
    None
    None
    Retirement 2025 FundR Class
    None
    None
    None
    None
    Retirement 2030
    None
    None
    None
    None
    Retirement 2030 FundAdvisor Class
    None
    None
    None
    None
    Retirement 2030 FundR Class
    None
    None
    None
    None
    Retirement 2035
    None
    None
    None
    None
    Retirement 2035 FundAdvisor Class
    None
    None
    None
    None
    Retirement 2035 FundR Class
    None
    None
    None
    None
    Retirement 2040
    None
    None
    None
    None
    Retirement 2040 FundAdvisor Class
    None
    None
    None
    None
    Retirement 2040 FundR Class
    None
    None
    None
    None
    Retirement 2045
    None
    None
    None
    None
    Retirement 2045 FundAdvisor Class
    None
    None
    None
    None
    Retirement 2045 FundR Class
    None
    None
    None
    None
    Retirement 2050
    None
    None
    None
    None
    Retirement 2050 FundAdvisor Class
    None
    None
    None
    None
    Retirement 2050 FundR Class
    None
    None
    None
    None
    Retirement 2055
    over $100,000
    None
    None
    None
    Retirement 2055 FundAdvisor Class
    None
    None
    None
    None
    Retirement 2055 FundR Class
    None
    None
    None
    None
    Retirement Income
    None
    None
    None
    None
    Retirement Income FundAdvisor Class
    None
    None
    None
    None
    Retirement Income FundR Class
    None
    None
    None
    None
    Science & Technology
    $50,001-$100,000
    over $100,000
    $10,001-$50,000
    None
    Science & Technology FundAdvisor Class
    None
    None
    None
    None
    Short-Term Bond
    None
    None
    over $100,000
    over $100,000
    Short-Term Bond FundAdvisor Class
    None
    None
    None
    None
    Short-Term Income
    None
    None
    None
    None
    Small-Cap Stock
    $10,001-$50,000
    None
    $10,001-$50,000
    None
    Small-Cap Stock FundAdvisor Class
    None
    None
    None
    None
    Small-Cap Value
    over $100,000
    None
    None
    over $100,000
    Small-Cap Value FundAdvisor Class
    None
    None
    None
    None
    Spectrum Growth
    None
    None
    over $100,000
    None
    Spectrum Income
    $10,001-$50,000
    None
    $50,001-$100,000
    over $100,000
    Spectrum International
    $10,001-$50,000
    None
    None
    None
    Summit Cash Reserves
    over $100,000
    over $100,000
    over $100,000
    over $100,000
    Summit GNMA
    None
    None
    None
    None
    Summit Municipal Income
    None
    None
    None
    None
    Summit Municipal Intermediate
    None
    None
    None
    None
    Summit Municipal Money Market
    None
    None
    None
    None
    Tax-Efficient Balanced
    None
    None
    over $100,000
    None
    Tax-Efficient Growth
    None
    None
    None
    None
    Tax-Efficient Multi-Cap Growth
    None
    None
    None
    None
    Tax-Exempt Money
    None
    None
    $10,001-$50,000
    None
    Tax-Free High Yield
    None
    None
    None
    None
    Tax-Free Income
    None
    None
    over $100,000
    None
    Tax-Free Income FundAdvisor Class
    None
    None
    None
    None
    Tax-Free Short-Intermediate
    None
    None
    None
    None
    Total Equity Market Index
    None
    None
    None
    None
    U.S. Bond Index
    None
    None
    None
    None
    U.S. Treasury Intermediate
    None
    None
    None
    None
    U.S. Treasury Long-Term
    None
    None
    $50,001-$100,000
    None
    U.S. Treasury Money
    None
    None
    None
    None
    Value
    None
    over $100,000
    $50,001-$100,000
    over $100,000
    Value FundAdvisor Class
    None
    None
    None
    None
    Virginia Tax-Free Bond
    None
    None
    None
    None

    97


    98


    99


    100


    101


    Portfolio Managers` Holdings in the Price Funds

    The following tables set forth the Price Fund holdings of each fund`s portfolio manager(s). The portfolio manager for each fund normally serves as chairman of the fund`s Investment Advisory Committee, and has day-to-day responsibility for managing the fund and executing the fund`s investment program.

    Fund





    Range of Fund Holdings
    as of Fund`s Fiscal Year a


    All Funds
    Range as of
    12/31/07





    Portfolio Manager







    Africa & Middle East
    Christopher D. Alderson (b)
    over $1,000,000
    over $1,000,000
    Balanced
    Edmund M. Notzon III
    none
    over $1,000,000
    Blue Chip Growth
    Larry J. Puglia
    $500,001$1,000,000
    over $1,000,000
    Capital Appreciation
    David R. Giroux
    $100,001$500,000
    $100,001$500,000
    Capital Opportunity
    Anna Dopkin
    $500,001$1,000,000
    over $1,000,000
    Corporate Income
    David A. Tiberii
    $10,001$50,000
    $500,001$1,000,000
    Developing Technologies
    Jeffrey Rottinghaus
    $10,001$50,000
    over $1,000,000
    Diversified Mid-Cap Growth
    Donald J. Peters
    $500,001$1,000,000
    over $1,000,000
    Diversified Small-Cap Growth
    Sudhir Nanda
    $10,001$50,000
    $100,001$500,000
    Dividend Growth
    Thomas J. Huber
    $100,001$500,000
    over $1,000,000
    Emerging Europe & Mediterranean
    S. Leigh Robertson
    none
    none
    Emerging Markets Bond
    Michael J. Conelius
    $100,001$500,000
    over $1,000,000
    Emerging Markets Stock
    Christopher D. Alderson
    Gonzalo Pangaro
    $100,001$500,000
    (c)
    over $1,000,000
    over $1,000,000
    Equity Income
    Brian C. Rogers
    over $1,000,000
    over $1,000,000
    Equity Index 500
    E. Frederick Bair
    $50,001$100,000
    $100,001$500,000
    European Stock 
    Dean Tenerelli
    none
    none
    Extended Equity Market Index
    E. Frederick Bair
    $10,001$50,000
    $100,001$500,000
    Financial Services
    Jeffrey W. Arricale
    $50,001$100,000
    $100,001$500,000
    Global Large-Cap Stock
    R. Scott Berg
    (d)
    over $1,000,000
    Global Real Estate
    David M. Lee
    (d)
    over $1,000,000
    Global Stock
    Robert N. Gensler
    over $1,000,000
    over $1,000,000
    Global Technology
    David J. Eiswert
    (e)
    $500,000-$1,000,000
    GNMA
    Andrew McCormick
    $10,001$50,000
    (f)
    Growth & Income
    Thomas J. Huber
    $100,001$500,000
    over $1,000,000
    Growth Stock
    P. Robert Bartolo
    $100,001$500,000
    over $1,000,000
    Health Sciences
    Kris H. Jenner
    $100,001$500,000
    $500,001$1,000,000
    High Yield
    Mark J. Vaselkiv
    $100,001$500,000
    over $1,000,000
    Inflation Protected Bond
    Daniel O. Shackelford
    $10,001$50,000
    over $1,000,000
    International Bond
    Ian D. Kelson
    $100,001$500,000
    $100,001$500,000
    International Discovery
    Justin Thomson
    $100,001$500,000
    $100,001$500,000
    International Equity Index
    E. Frederick Bair
    Neil Smith
    $10,001$50,000
    none
    $100,001$500,000
    none
    International Growth & Income
    Raymond A. Mills, Ph.D.
    $100,001$500,000
    $500,001$1,000,000
    International Stock 
    Robert W. Smith
    $100,001$500,000
    over $1,000,000
    Japan
    M. Campbell Gunn
    none
    none
    Latin America
    Gonzalo Pangaro (g)
    $100,001$500,000
    over $1,000,000
    Maryland Short-Term Tax-Free Bond
    Charles B. Hill
    $1$10,000
    over $1,000,000
    Maryland Tax-Free Bond
    Hugh D. McGuirk
    $100,001$500,000
    over $1,000,000
    Maryland Tax-Free Money
    Joseph K. Lynagh
    $10,001$50,000
    over $1,000,000
    Media & Telecommunications
    Henry M. Ellenbogen
    $100,001$500,000
    over $1,000,000
    Mid-Cap Growth
    Brian W.H. Berghuis
    over $1,000,000
    over $1,000,000
    Mid-Cap Value
    David J. Wallack
    $500,001$1,000,000
    over $1,000,000
    New America Growth
    Joseph M. Milano
    over $1,000,000
    over $1,000,000
    New Asia
    Frances Dydasco
    none
    $10,001$50,000
    New Era
    Charles M. Ober
    $100,001$500,000
    over $1,000,000
    New Horizons
    John H. Laporte
    over $1,000,000
    over $1,000,000
    New Income
    Daniel O. Shackelford
    $10,001$50,000
    over $1,000,000
    Overseas Stock
    Raymond A. Mills, Ph.D.
    $100,001$500,000
    $500,001$1,000,000
    Personal Strategy Balanced
    Edmund M. Notzon III
    $100,001$500,000
    over $1,000,000
    Personal Strategy Growth
    Edmund M. Notzon III
    $100,001$500,000
    over $1,000,000
    Personal Strategy Income
    Edmund M. Notzon III
    $100,001$500,000
    over $1,000,000
    Prime Reserve
    James M. McDonald (h)
    $100,001$500,000
    over $1,000,000
    Real Estate
    David M. Lee
    $100,001$500,000
    over $1,000,000
    Science & Technology
    Michael F. Sola (i)
    $100,001$500,000
    over $1,000,000
    Short-Term Bond
    Edward A. Wiese
    $100,001$500,000
    over $1,000,000
    Small-Cap Stock
    Gregory A. McCrickard
    $100,001$500,000
    over $1,000,000
    Small-Cap Value
    Preston G. Athey
    over $1,000,000
    over $1,000,000
    Spectrum Growth
    Edmund M. Notzon III
    $500,001$1,000,000
    over $1,000,000
    Spectrum Income
    Edmund M. Notzon III
    $500,001$1,000,000
    over $1,000,000
    Spectrum International
    David J.L. Warren (j)
    none
    $500,001$1,000,000
    Summit Cash Reserves
    James M. McDonald (h)
    $10,001$50,000
    over $1,000,000
    Summit GNMA
    Andrew McCormick
    (k)
    (f)
    Summit Municipal Income
    Konstantine B. Mallas
    $10,001$50,000
    over $1,000,000
    Summit Municipal Intermediate
    Charles B. Hill
    $10,001$50,000
    over $1,000,000
    Summit Municipal Money Market
    Joseph K. Lynagh
    none
    over $1,000,000
    Tax-Efficient Balanced
    Hugh D. McGuirk
    Donald J. Peters
    $100,000$500,000
    over $1,000,000
    over $1,000,000
    over $1,000,000
    Tax-Efficient Growth
    Donald J. Peters
    over $1,000,000
    over $1,000,000
    Tax-Efficient Multi-Cap Growth
    Donald J. Peters
    over $1,000,000
    over $1,000,000
    Tax-Exempt Money
    Joseph K. Lynagh
    none
    over $1,000,000
    Tax-Free High Yield
    James M. Murphy
    $10,001$50,000
    over $1,000,000
    Tax-Free Income
    Konstantine B. Mallas
    Mary J. Miller
    none
    $500,001$1,000,000
    over $1,000,000
    over $1,000,000
    Tax-Free Short-Intermediate
    Charles B. Hill
    none
    over $1,000,000
    Total Equity Market Index
    E. Frederick Bair
    Ken D. Uematsu
    $10,001$50,000
    $0$10,000
    $100,001$500,000
    $100,001$500,000
    U.S. Bond Index
    Robert M. Larkins
    $1$10,000
    $100,001$500,000
    U.S. Treasury Intermediate
    Brian J. Brennan
    $10,001$50,000
    $500,001$1,000,000
    U.S. Treasury Long-Term
    Brian J. Brennan
    $10,001$50,000
    $500,001$1,000,000
    U.S. Treasury Money
    James M. McDonald (h)
    none
    over $1,000,000
    Value
    John D. Linehan
    $100,001$500,000
    over $1,000,000

    102


    (a)See table beginning on page 6 for the fiscal year of the funds. The range of fund holdings as of the fund`s fiscal year is updated concurrently with each fund`s prospectus date as shown in the table beginning on page 6.

    103


    (b)On March 31, 2009, Joseph Rohm will replace Christopher D. Alderson as portfolio manager of the fund.

    (c)On September 11, 2008, Gonzalo Pangaro became co-portfolio manager of the fund. The range of fund holdings as of the fund`s fiscal year will be updated concurrently with its prospectus date as shown in the table beginning on page 6.

    (d)The fund incepted on October 27, 2008, therefore the range of fund holdings is not yet available. The range of fund holdings will be updated concurrently with its prospectus date as shown in the table beginning on page 6.

    (e)On October 1, 2008, David J. Eiswert became the portfolio manager of the fund. The range of fund holdings as of the fund`s fiscal year will be updated concurrently with its prospectus date as shown in the table beginning on page 6.

    (f)Andrew McCormick joined T. Rowe Price in 2008. Therefore, the range of fund holdings in all T. Rowe Price funds are not available as of 12/31/07.

    (g)On December 31, 2008, Jose Costa Buck will replace Gonzalo Pangaro as portfolio manager of the fund.

    (h)On January 30, 2009, Joseph K. Lynagh will replace James M. McDonald as portfolio manager of the fund.

    (i)Effective January 1, 2009, Kennard W. Allen will replace Michael F. Sola as portfolio manager of the fund.

    (j)On March 31, 2009, Christopher D. Alderson will replace David J.L. Warren as portfolio manager of the fund.

    (k)On April 1, 2008, Andrew McCormick became the portfolio manager of the fund. The range of fund holdings as of the fund`s fiscal year will be updated concurrently with its prospectus date as shown in the table beginning on page 6.

    The following funds may be purchased only by institutional investors.

    Fund





    Range of Fund Holdings
    as of Fund`s Fiscal Year a


    All Funds
    Range as of
    12/31/07





    Portfolio Manager







    Institutional Africa & Middle East
    Christopher D. Alderson (b)
    (c)
    over $1,000,000
    Institutional Concentrated Large-Cap Value
    David R. Giroux
    John D. Linehan
    none
    none
    $100,001$500,000
    over $1,000,000
    Institutional Core Plus 
    Brian J. Brennan
    none
    $500,001$1,000,000
    Institutional Emerging Markets Bond 
    Michael J. Conelius
    none
    over $1,000,000
    Institutional Emerging Markets Equity 
    Christopher D. AldersonGonzalo Pangaro
    none(d)
    over $1,000,000over $1,000,000
    Institutional Floating Rate
    Mark J. Vaselkiv
    none
    over $1,000,000
    Institutional Foreign Equity
    Robert W. Smith
    none
    over $1,000,000
    Institutional Global Equity
    Robert N. Gensler
    none
    over $1,000,000
    Institutional Global Large-Cap Equity
    R. Scott Berg
    (c)
    over $1,000,000
    Institutional High Yield 
    Paul A. Karpers
    none
    $500,001$1,000,000
    Institutional International Bond
    Ian D. Kelson
    none
    $100,001$500,000
    Institutional Large-Cap Core Growth
    Larry J. Puglia
    none
    over $1,000,000
    Institutional Large-Cap Growth
    Robert W. Sharps
    $100,001$500,000
    over $1,000,000
    Institutional Large-Cap Value
    David Giroux
    John D. Linehan
    Brian C. Rogers
    none
    none
    none
    $100,001$500,000
    over $1,000,000
    over $1,000,000
    Institutional Mid-Cap Equity Growth
    Brian W.H. Berghuis
    none
    over $1,000,000
    Institutional Small-Cap Stock
    Gregory A. McCrickard
    none
    over $1,000,000
    Institutional U.S. Structured Research
    Anna Dopkin
    none
    over $1,000,000

    (a)See table beginning on page 6 for the fiscal year of the funds. The range of fund holdings as of the fund`s fiscal year is updated concurrently with each fund`s prospectus date as shown in the table beginning on page 6.

    (b)On March 31, 2009, Joseph Rohm will replace Christopher D. Alderson as portfolio manager of the fund.

    (c)The fund incepted after its fiscal year end, therefore, the range of fund holdings as of the fund`s fiscal year will be updated concurrently with its prospectus date as shown in the table beginning on page 6.

    (d)On September 11, 2008, Gonzalo Pangaro became co-portfolio manager of the fund. The range of fund holdings as of the fund`s fiscal year will be updated concurrently with its prospectus date as shown in the table beginning on page 6.

    104


    The following funds are designed as investment options for insurance companies issuing variable annuity or variable life insurance contracts. Variable life insurance contracts may not be suitable investments for these portfolio managers.

    Fund





    Range of Fund Holdings
    as of Fund`s Fiscal Yeara


    All Funds
    Range as of
    12/31/07





    Portfolio Manager







    Blue Chip Growth Portfolio
    Larry J. Puglia
    none
    over $1,000,000
    Equity Income Portfolio
    Brian C. Rogers
    none
    over $1,000,000
    Equity Index 500 Portfolio
    E. Frederick Bair
    none
    $100,001$500,000
    Health Sciences Portfolio
    Kris H. Jenner
    none
    $500,001$1,000,000
    International Stock Portfolio
    Robert W. Smith
    none
    over $1,000,000
    Limited-Term Bond Portfolio
    Edward A. Wiese
    none
    over $1,000,000
    Mid-Cap Growth Portfolio
    Brian W.H. Berghuis
    none
    over $1,000,000
    New America Growth Portfolio
    Joseph M. Milano
    none
    over $1,000,000
    Personal Strategy Balanced Portfolio
    Edmund M. Notzon III
    none
    over $1,000,000
    Prime Reserve Portfolio
    James M. McDonald (b)
    none
    over $1,000,000

    (a)See table beginning on page 6 for the fiscal year of the funds. The range of fund holdings as of the fund`s fiscal year is updated concurrently with each fund`s prospectus date as shown in the table beginning on page 6.

    (b)On January 30, 2009, Joseph K. Lynagh will replace James M. McDonald as portfolio manager of the fund.

    The following funds are designed for persons residing in the indicated state. The portfolio managers reside in Maryland.

    Fund





    Range of Fund Holdings
    as of Fund`s Fiscal Year a


    All Funds
    Range as of
    12/31/07





    Portfolio Manager







    California Tax-Free Bond
    Konstantine B. Mallas
    none
    over $1,000,000
    California Tax-Free Money
    Joseph K. Lynagh
    none
    over $1,000,000
    Georgia Tax-Free Bond
    Hugh D. McGuirk
    none
    over $1,000,000
    New Jersey Tax-Free Bond
    Konstantine B. Mallas
    none
    over $1,000,000
    New York Tax-Free Bond
    Konstantine B. Mallas
    none
    over $1,000,000
    New York Tax-Free Money 
    Joseph K. Lynagh
    none
    over $1,000,000
    Virginia Tax-Free Bond
    Hugh D. McGuirk
    none
    over $1,000,000

    (a)See table beginning on page 6 for the fiscal year of the funds. The range of fund holdings as of the fund`s fiscal year is updated concurrently with each fund`s prospectus date as shown in the table beginning on page 6.

    The following funds are designed such that a single individual would normally select one fund based on that person`s expected retirement date.

    Fund





    Range of Fund Holdings
    as of Fund`s Fiscal Year a


    All Funds
    Range as of
    12/31/07





    Portfolio Manager







    Retirement 2005
    Jerome A. Clark
    Edmund M. Notzon III
    none
    none
    $500,001$1,000,000
    over $1,000,000
    Retirement 2010 
    Jerome A. Clark
    Edmund M. Notzon III
    none
    none
    $500,001$1,000,000
    over $1,000,000
    Retirement 2015
    Jerome A. Clark
    Edmund M. Notzon III
    none
    none
    $500,001$1,000,000
    over $1,000,000
    Retirement 2020 
    Jerome A. Clark
    Edmund M. Notzon III
    none
    none
    $500,001$1,000,000
    over $1,000,000
    Retirement 2025
    Jerome A. Clark
    Edmund M. Notzon III
    none
    none
    $500,001$1,000,000
    over $1,000,000
    Retirement 2030
    Jerome A. Clark
    Edmund M. Notzon III
    none
    none
    $500,001$1,000,000
    over $1,000,000
    Retirement 2035
    Jerome A. Clark
    Edmund M. Notzon III
    none
    none
    $500,001$1,000,000
    over $1,000,000
    Retirement 2040
    Jerome A. Clark
    Edmund M. Notzon III
    $500,001$1,000,000
    none
    $500,001$1,000,000
    over $1,000,000
    Retirement 2045
    Jerome A. Clark
    Edmund M. Notzon III
    none
    $100,001-$500,000
    $500,001$1,000,000
    over $1,000,000
    Retirement 2050

    Jerome A. Clark
    Edmund M. Notzon III
    none
    none
    $500,001$1,000,000
    over $1,000,000
    Retirement 2055

    Jerome A. Clark
    Edmund M. Notzon III
    none
    none
    $500,001$1,000,000
    over $1,000,000
    Retirement Income
    Jerome A. Clark
    Edmund M. Notzon III
    none
    none
    $500,001$1,000,000
    over $1,000,000

    105


    (a)See table beginning on page 6 for the fiscal year of the funds. The range of fund holdings as of the fund`s fiscal year is updated concurrently with each fund`s prospectus date as shown in the table beginning on page 6.

    The following funds are not available for direct purchase by members of the public.

    Fund





    Range of Fund Holdings
    as of Fund`s Fiscal Year a


    All Funds
    Range as of
    12/31/07





    Portfolio Manager







    TRP Government Reserve Investment
    James M. McDonald (b)
    none
    over $1,000,000
    TRP Reserve Investment
    James M. McDonald (b)
    none
    over $1,000,000
    Short-Term Income
    Edward A. Wiese
    none
    over $1,000,000

    (a)See table beginning on page 6 for the fiscal year of the funds. The range of fund holdings as of the fund`s fiscal year is updated concurrently with each fund`s prospectus date as shown in the table beginning on page 6.

    (b)On January 30, 2009, Joseph K. Lynagh will replace James M. McDonald as portfolio manager of the fund.

    Portfolio Manager Compensation

    Portfolio manager compensation consists primarily of a base salary, a cash bonus, and an equity incentive that usually comes in the form of a stock option grant. Occasionally, portfolio managers will also have the opportunity to participate in venture capital partnerships. Compensation is variable and is determined based on the following factors.

    Investment performance over 1-, 3-, 5-, and 10-year periods is the most important input. T. Rowe Price and T. Rowe Price International, as appropriate, evaluate performance in absolute, relative, and risk-adjusted terms. Relative performance and risk-adjusted performance are determined with reference to the broad-based index (e.g., S&P 500) and the Lipper index (e.g., Large-Cap Growth) set forth in the total returns table in the fund`s prospectus, although other benchmarks may be used as well. Investment results are also measured against comparably managed funds of competitive investment management firms. The selection of comparable funds is approved by the applicable investment steering committee (as described under the "Disclosure of Fund Portfolio Information" section) and those funds are the same ones presented to the directors of the Price Funds in their regular review of fund performance. Performance is primarily measured on a pretax basis though tax efficiency is considered and is especially important for the Tax-Efficient Funds. Compensation is

    106


    viewed with a long-term time horizon. The more consistent a manager`s performance over time, the higher the compensation opportunity. The increase or decrease in a fund`s assets due to the purchase or sale of fund shares is not considered a material factor. In reviewing relative performance for fixed-income funds, a fund`s expense ratio is usually taken into account.

    Contribution to our overall investment process is an important consideration as well. Sharing ideas with other portfolio managers, working effectively with and mentoring our younger analysts, and being good corporate citizens are important components of our long-term success and are highly valued.

    All employees of T. Rowe Price, including portfolio managers, participate in a 401(k) plan sponsored by T. Rowe Price Group. In addition, all employees are eligible to purchase T. Rowe Price common stock through an employee stock purchase plan that features a limited corporate matching contribution. Eligibility for and participation in these plans is on the same basis as for all employees. Finally, all vice presidents of T. Rowe Price Group, including all portfolio managers, receive supplemental medical/hospital reimbursement benefits.

    This compensation structure is used for all portfolios managed by the portfolio manager.

    Assets Under Management

    The following table sets forth the number and total assets of the mutual funds and accounts managed by the Price Funds` portfolio managers as of the fiscal year of the funds they manage, unless otherwise indicated. All of the assets of the funds that have multiple portfolio managers are shown as being allocated to all managers of those funds. There are no accounts for which the advisory fee is based on the performance of the account.





    Registered Investment
    Companies


    Other Pooled Investment
    Vehicles


    Other Accounts











    Portfolio Manager


    Number


    Total Assets


    Number


    Total Assets


    Number


    Total Assets

    Christopher D. Alderson
    7
    $5,994,639,350
    4
    $4,608,465,674
    8
    $4,125,737,648
    Preston G. Athey
    7
    7,632,714,515
    2
    4,612,450
    9
    655,149,011
    Jeffrey W. Arricale
    1
    368,447,824




    E. Frederick Bair
    9
    12,332,946,028
    1
    3,210,337,269
    1
    538,003,705
    P. Robert Bartolo
    12
    32,099,484,414
    1
    232,342,182
    7
    435,682,172
    R. Scott Berg(a)






    Brian W.H. Berghuis
    8
    22,138,787,186


    6
    905,933,250
    Mark C.J. Bickford-Smith
    3
    1,461,994,503
    1
    144,151,894
    4
    2,071,536,293
    Brian J. Brennan
    4
    861,814,703
    5
    3,059,510,517
    5
    657,544,743
    Jerome A. Clark
    48
    37,549,026,945
    5
    77,680,887


    Michael J. Conelius
    4
    1,358,408,472
    3
    263,393,346
    1
    560,066,402
    Anna M. Dopkin
    6
    2,458,100,862
    3
    3,304,776,932
    36
    11,858,072,324
    Frances Dydasco
    2
    10,719,001,818
    2
    318,228,327


    Mark J.T. Edwards
    1
    4,817,604,395
    1
    312,811,515


    Henry M. Ellenbogen
    1
    2,088,892,732




    David J. Eiswert (a)






    Robert N. Gensler
    11
    2,588,510,540
    6
    4,165,743,116
    11
    5,635,148,114
    David R. Giroux
    5
    15,784,918,345
    1
    101,114,241


    M. Campbell Gunn
    3
    3,832,186,637
    1
    63,631,783
    3
    1,162,955,561
    Charles B. Hill
    3
    1,320,334,630
    2
    374,489,606
    12
    1,133,496,688
    Thomas J. Huber
    2
    2,352,713,063
    1
    251,256,797


    Kris H. Jenner
    5
    2,978,801,311
    2
    78,681,064
    1
    30,874,052
    Paul A. Karpers
    1
    533,128,001




    Ian D. Kelson
    13
    3,676,147,786
    23
    501,910,149
    3
    52,828,254
    John H. Laporte
    2
    7,453,520,197
    2
    316,226,185
    8
    892,144,853
    Robert M. Larkins
    1
    253,906,934
    2
    559,206,090
    7
    1,117,711,356
    David M. Lee
    3
    2,467,002,108


    1
    20,479,178
    John D. Linehan
    6
    9,616,367,331
    1
    259,252,054
    13
    956,838,134
    Anh Lu
    1
    3,281,732,266




    Joseph K. Lynagh
    5
    1,926,630,051


    10
    385,150,142
    Konstantine B. Mallas
    5
    3,010,310,238


    4
    85,893,936
    Andrew McCormick
    5
    1,661,465,863
    1
    145,796,744
    3
    886,109,381
    Gregory A. McCrickard
    4
    7,374,344,493
    2
    178,589,674
    4
    536,366,146
    James M. McDonald
    6
    26,300,935,242
    1
    549,355,087


    Hugh D. McGuirk
    4
    2,135,325,872


    13
    342,252,105
    Joseph M. Milano
    2
    947,716,806




    Mary J. Miller
    1
    1,798,668,759


    2
    181,984,635
    Raymond A. Mills, Ph.D.
    4
    4,629,259,958


    2
    76,647,055
    James M. Murphy
    1
    1,355,086,005




    Sudhir Nanda
    3
    694,016,332




    Edmund M. Notzon III
    19
    15,572,630,962
    14
    2,128,922,720
    12
    1,390,881,170
    Charles M. Ober
    2
    7,965,642,320
    1
    181,864,187
    5
    414,380,702
    Gonzalo Pangaro
    2
    8,802,590,757




    Donald J. Peters
    14
    2,524,307,678


    24
    1,694,102,333
    Larry J. Puglia
    10
    20,381,106,658
    1
    12,489,423
    12
    1,488,190,828
    S. Leigh Robertson
    1
    1,730,852,718




    Brian C. Rogers
    12
    33,507,593,209
    3
    659,187,632
    16
    1,943,552,538
    Jeffrey Rottinghaus
    2
    157,000,380
    2
    7,886,309


    Daniel O. Shackelford
    5
    8,925,857,187
    1
    269,169,016
    4
    876,246,210
    Robert W. Sharps
    9
    6,248,379,627
    4
    2,583,548,847
    33
    6,722,917,766
    Neil Smith
    1
    678,867,039




    Robert W. Smith
    3
    7,805,860,977
    2
    164,935,215
    1
    156,675,674
    Michael F. Sola
    3
    3,634,678,878




    Dean Tenerelli
    1
    1,217,481,612
    3
    468,437,315


    Justin Thomson
    1
    3,281,732,266




    David A. Tiberii
    2
    275,842,356
    2
    147,294,366
    6
    1,845,400,603
    Ken D. Uematsu
    1
    524,938,388




    Mark J. Vaselkiv
    8
    6,664,834,741
    7
    1,811,794,761
    16
    2,167,789,804
    David J. Wallack
    3
    7,726,736,555


    2
    373,106,510
    David J.L. Warren
    1
    417,572,283


    1
    103,681,159
    Edward A. Wiese
    7
    3,734,629,481
    1
    106,440,650
    10
    2,595,047,711

    107


    108


    (a)This individual assumed portfolio management responsibility on October 1, 2008, therefore, information on other managed accounts will be provided concurrently with the upcoming prospectus date of the managed mutual fund.

    Conflicts of Interest

    Portfolio managers at T. Rowe Price and T. Rowe Price International typically manage multiple accounts. These accounts may include, among others, mutual funds, separate accounts (assets managed on behalf of institutions such as pension funds, colleges and universities, foundations), Luxembourg SICAVs and commingled trust accounts. Portfolio managers make investment decisions for each portfolio based on the investment objectives, policies, practices, and other relevant investment considerations that the managers believe are applicable to that portfolio. Consequently, portfolio managers may purchase (or sell) securities for one portfolio and not another portfolio. T. Rowe Price and T. Rowe Price International have adopted brokerage and trade allocation policies and procedures which they believe are reasonably designed to address any potential conflicts associated with managing multiple accounts for multiple clients. Also, as disclosed under the "Portfolio Manager Compensation" section, our portfolio managers` compensation is determined in the same manner with respect to all portfolios managed by the portfolio manager. Please see the "Portfolio Transactions" section of this Statement of Additional Information for more information on our brokerage and trade allocation policies.

    T. Rowe Price funds may, from time to time, own shares of Morningstar, Inc. Morningstar is a provider of investment research to individual and institutional investors, and publishes ratings on mutual funds, including the Price Funds. T. Rowe Price manages the Morningstar retirement plan and T. Rowe Price and its affiliates pay Morningstar for a variety of products and services. In addition, Morningstar may provide investment consulting and investment management services to clients of T. Rowe Price or its affiliates.

    PRINCIPAL HOLDERS OF SECURITIES

    As of the dates indicated, the directors and officers of the funds, as a group, owned less than 1% of the outstanding shares of any fund, except for the funds shown in the following table.


    Fund


    %*

    Developing Technologies
    5.0
    Global Stock
    1.0
    Maryland Short-Term Tax-Free Bond
    1.4
    Maryland Tax-Free Money
    2.5
    Summit Municipal Income
    1.1
    Tax-Efficient Balanced
    6.0
    Tax-Efficient Growth
    4.2
    Tax-Efficient Multi-Cap Growth
    3.4
    Tax-Exempt Money
    1.4

    (*)Based on July 31, 2008 data for the inside directors and officers and December 31, 2007, data for the independent directors.

    As of September 30, 2008, the following shareholders of record owned more than 5% of the outstanding shares of the indicated funds and/or classes.

    109



    Fund


    Shareholder


    %

    Africa & Middle East Fund
    Charles Schwab & Company, Inc.
    Reinvest Account
    Attn.: Mutual Fund Department
    101 Montgomery Street
    San Francisco, California 94104

    MLPF&S for the Sole Benefit of Its Customers
    4800 Deerlake Drive
    Jacksonville, Florida 32246

    National Financial Services for the Exclusive Benefit of
    Our Customers
    200 Liberty Street
    One Financial Center, 4th Floor
    New York, New York 10005
    8.25





    9.31



    15.16
    Balanced
    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    P.O. Box 17215
    Baltimore, Maryland 21297
    44.29(c)
    Blue Chip Growth
    Pirateline & Company
    T. Rowe Price Associates
    Attn.: Fund Accounting Department
    100 East Pratt Street
    Baltimore, Maryland 21202

    T. Rowe Price Retirement Plan Services, Inc.
    Blue Chip Growth Fund
    Attn.: Asset Reconciliations
    P.O. Box 17215
    Baltimore, Maryland 21297
    5.94





    22.54
    Blue Chip Growth FundAdvisor Class
    Charles Schwab & Company, Inc.

    John Hancock Life Insurance Company USA
    RPS SEG Funds and Accounting
    601 Congress Street
    Boston, Massachusetts 02210

    National Financial Services for the Exclusive Benefit of
    Our Customers

    Union Central Life Insurance Company
    1876 Waycross Road #3
    Cincinnati, Ohio 45240
    5.11

    24.99




    16.89


    6.62
    Blue Chip Growth FundR Class
    American United Life
    Separate Account II
    Attn.: Dan Schluge
    P.O. Box 1995
    Indianapolis, Indiana 46206

    Massachusetts Mutual Life Insurance Company
    1295 State Street
    Fund Operations
    Springfield, Massachusetts 01111

    Nationwide Trust Company FSB
    c/o IPO Portfolio Accounting
    P.O. Box 182029
    Columbus, Ohio 43218
    15.89





    10.55




    13.06
    California Tax-Free Money
    Georgette O`Connor Day TR
    Georgette O`Connor Day Trust
    Los Angeles, California
    7.94
    Capital Appreciation
    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers

    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    8.93

    10.44


    6.06
    Capital Appreciation FundAdvisor Class
    Ameritas Life Insurance Corporation
    Separate Account G
    5900 O Street
    Lincoln, Nebraska 68510

    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers
    6.12




    32.97(a)

    25.90(a)
    Capital Opportunity
    McWood & Company
    P.O. Box 29522
    Raleigh, North Carolina 27626

    Swebak & Company
    c/o Amcore Investment Group
    P.O. Box 4599
    Rockford, Illinois 61110

    TRP Finance, Inc.
    40.82(a)



    13.37




    7.62
    Capital Opportunity FundAdvisor Class
    National Financial Services for the Exclusive Benefit of
    Our Customers
    T. Rowe Price Associates
    Attn.: Financial Reporting Department
    89.74(a)



    6.46
    Capital Opportunity FundR Class
    BX2 Logistics Inc. 401(k)
    FBO Tony Beeston
    6185 Mount Olympus Drive
    Castro Valley, California 94552

    GPC as Agent for Reliance Trust Company
    FBO Lamoureux Pagano Associates Inc. Plan
    P.O. Box 79377
    Atlanta, Georgia 30357

    T. Rowe Price Associates
    Attn.: Financial Reporting Department
    5.27




    16.93




    71.26(e)
    Corporate Income
    Yachtcrew & Company
    T. Rowe Price Associates
    Attn.: Fund Accounting Department
    51.43(d)
    Developing Technologies
    TRP Finance, Inc.

    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Plan

    Trustees of T. Rowe Price
    U.S. Retirement Program
    Attn.: Financial Reporting Department
    P.O. Box 89000
    Baltimore, Maryland 21289
    7.34

    5.01


    7.27
    Dividend Growth
    T. Rowe Price Trust Company
    Dividend Growth Fund (DGF)
    Attn.: Asset Reconciliation
    9.38
    Dividend Growth FundAdvisor Class
    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers
    74.12(a)

    24.34
    Emerging Europe & Mediterranean
    National Financial Services for the Exclusive Benefit of
    Our Customers
    18.06
    Emerging Markets Bond
    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers

    Yachtcrew & Company
    9.39

    7.29


    21.85
    Emerging Markets Stock
    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers
    6.01

    15.05
    Equity Income
    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    18.71
    Equity Income FundAdvisor Class
    Citigroup Global Markets Inc.
    333 West 34th Street, 3rd Floor
    New York, New York 10001

    John Hancock Life Insurance Company USA

    National Financial Services for the Exclusive Benefit of
    Our Customers
    9.23



    11.90

    46.52(a)
    Equity Income FundR Class
    American United Life
    Separate Account II

    Nationwide Trust Company FSB

    Wachovia Bank
    FBO Various Retirement Plans
    1525 West WT Harris Boulevard
    Charlotte, North Carolina 28288
    17.37


    11.70

    7.66
    Equity Index 500
    Retirement Portfolio 2010
    T. Rowe Price Associates
    Attn.: Fund Accounting Department

    Retirement Portfolio 2015
    T. Rowe Price Associates
    Attn.: Fund Accounting Department

    Retirement Portfolio 2020
    T. Rowe Price Associates
    Attn.: Fund Accounting Department

    Retirement Portfolio 2025
    T. Rowe Price Associates
    Attn.: Fund Accounting Department

    Retirement Portfolio 2030
    T. Rowe Price Associates
    Attn.: Fund Accounting Department

    T. Rowe Price Trust Company
    Attn.: RPS Control Department
    10090 Red Run Boulevard
    Owings Mills, Maryland 21117
    13.12



    8.54



    14.49



    5.41



    7.07



    6.74
    European Stock
    Bobstay & Company
    T. Rowe Price Associates
    Attn.: Fund Accounting Department

    Charles Schwab & Company, Inc.
    14.46



    5.32
    Extended Equity Market Index
    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    21.76
    Georgia Tax-Free Bond
    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers
    11.28

    8.24
    Global Stock
    Charles Schwab & Company, Inc.

    JP Morgan as Directed Trustee for Ernest & Young Defined
    Benefit Retirement Plan Trust
    Attn.: Phyllis Mancini
    4 New York Plaza
    New York, New York 10004

    National Financial Services for the Exclusive Benefit of
    Our Customers

    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Plan
    7.00

    7.37





    8.31


    5.30
    Global Stock FundAdvisor Class
    JP Morgan
    ADP Enterprise 401(k) Product
    3 Metrotech Center, 6th Floor
    Brooklyn, New York 11245

    National Financial Services for the Exclusive Benefit of
    Our Customers

    Wachovia Bank
    34.04(a)




    51.25(a)


    5.63
    Global Technology
    National Financial Services for the Exclusive Benefit of
    Our Customers
    6.18
    GNMA
    Yachtcrew & Company
    48.32(d)
    TRP Government Reserve Investment
    Barnaclesail
    c/o T. Rowe Price Associates
    Attn.: Mid-Cap Growth Fund

    T. Rowe Price Retirement Plan Services, Inc.
    Attn.: RPS Cash Group
    70.83(e)



    11.73
    Growth & Income
    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    8.05
    Growth Stock
    National Financial Services for the Exclusive Benefit of
    Our Customers

    Retirement Portfolio 2020

    Retirement Portfolio 2030

    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    6.51


    6.51

    6.59

    9.82
    Growth Stock FundAdvisor Class
    National Financial Services for the Exclusive Benefit of
    Our Customers

    PRIAC
    FBO Various Retirement Plans
    801 Pennsylvania Avenue
    Kansas City, Missouri 64105

    U.S. Bank
    FBO Private Asset Department
    OA Platform
    P.O. Box 1787
    Milwaukee, Wisconsin 53201
    33.19(a)


    6.40




    8.34
    Growth Stock FundR Class
    American United Life
    Separate Account II

    Nationwide Trust Company FSB
    5.20


    8.36
    Health Sciences
    Charles Schwab & Company, Inc.

    John Hancock Life Insurance Company USA

    National Financial Services for the Exclusive Benefit of
    Our Customers
    6.64

    8.35

    7.76
    High Yield
    Retirement Portfolio 2010

    Retirement Portfolio 2020

    Yachtcrew & Company
    5.40

    8.31

    21.17
    High Yield FundAdvisor Class
    National Financial Services for the Exclusive Benefit of
    Our Customers
    95.50(a)
    Inflation Protected Bond
    Prudential Investment Management Services
    FBO Mutual Funds Clients
    Attn.: Pruchoice Unit

    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Account
    Inflation Protected Bond
    5.32



    8.39
    Institutional Concentrated Large-Cap Value
    TRP Finance, Inc.
    100.00(f)
    Institutional Core Plus
    Dewey & Leboeuf LLP Pension Plan
    Attn.: Linda Howard
    125 West 55 Street
    New York, New York 10019

    Jeanette Stump
    Robert J. Hennessy TR
    Special Metals Corporation Retiree Benefit Trust
    Pittsburgh, Pennsylvania

    Saxon and Company
    P.O. Box 7780-1888
    Philadelphia, Pennsylvania 19182

    SEI Private Trust Company
    c/o Mellon
    One Freedom Valley Drive
    Oaks, Pennsylvania 19456
    The Church Foundation
    240 South 4th Street
    Philadelphia, Pennsylvania 19106

    TRP Finance, Inc.
    18.68




    12.97




    11.39



    5.60




    27.44(a)



    17.08
    Institutional Emerging Markets Bond
    Ampere & Company
    c/o T. Rowe Price Associates
    Attn.: Institutional Core Plus Fund

    DBTCO
    P.O. Box 747
    Dubuque, Iowa 52004

    Sanbarco
    Attn.: Trust OPS - Mutual Funds
    P.O. Box 2340
    Santa Barbara, California 93120

    TRP Finance, Inc.
    5.51



    39.47



    5.11




    48.51(f)
    Institutional Emerging Markets Equity
    Ladybug & Company
    c/o T. Rowe Price Associates
    Attn.: Personal Strategy Balanced Fund

    Lakeside & Company
    c/o T. Rowe Price Associates
    Attn.: Personal Strategy Growth Fund

    MLPF&S for the Sole Benefit of Its Customers

    Patterson & Company Omnibus
    1525 West Wt. Harris Boulevard
    Charlotte, North Carolina 28288

    SEI Private Trust Company
    Attn.: Mutual Funds
    5.60



    5.90



    31.23(a)

    16.16



    9.64
    Institutional Floating Rate
    Nutmeg & Company
    c/o T. Rowe Price Associates
    Attn.: Value Fund

    Seamile & Company
    c/o T. Rowe Price Associates
    Attn.: Capital Appreciation Fund

    Taskforce & Company
    c/o T. Rowe Price Associates
    Attn.: Equity Income Fund

    Tuna & Company
    c/o T. Rowe Price Associates
    Attn.: New Income Fund
    12.64



    46.36(e)



    21.49



    17.00
    Institutional Foreign Equity
    Dewey & Leboeuf LLP Pension Plan

    Mac & Company

    National Financial Services for the Exclusive Benefit of
    Our Customers

    Saxon and Company

    State Street Bank & Trust Company Cust.
    Houston Metro Transit Authority FundMTA Union
    805 Pennsylvania Avenue
    Tower 2, 5th Floor
    Kansas City, Missouri 64105

    State Street Bank & Trust Company Cust.
    Houston Metro Transit Authority FundMTA Non-Union

    The Church Foundation
    6.97

    8.38

    6.54


    14.97

    27.78(a)





    18.34


    8.20
    Institutional Global Equity
    Currie & Company
    c/o Fiduciary Trust Company International
    P.O. Box 3199
    Church Street Station
    New York, New York 10008

    Keybank NA
    FBO JCF - T. Rowe Price Cust.
    P.O. Box 94871
    Cleveland, Ohio 44101

    SEI Private Trust Company
    c/o Suntrust Bank

    State Street Bank & Trust Company
    Trustee for Riverside Health System Retirement Income Plan
    125 Sunnynoll Court, Suite 200
    Winston Salem, North Carolina 27106

    The Bank of New York Mellon as Trustee for
    Computer Science Trust Pension
    1 Wall Street
    New York, New York 10286

    U.S. Bank
    FBO NREL/MRI
    Mutual Fund Trading
    5.33





    7.26




    7.67


    19.08




    41.17(a)




    6.06
    Institutional High Yield
    Bread & Company
    c/o T. Rowe Price Associates
    Attn.: Balanced Fund

    Brown Brothers Harriman & Company
    as Custodian for 660187
    525 Washington Boulevard
    Jersey City, New Jersey 07310

    Fidelity Investments
    Institutional Operations Company
    FIIOC as Agent for Ford SSIP
    100 Magellan Way
    Covington, Kentucky 41015

    Ladybug & Company

    Ladybird & Company
    c/o T. Rowe Price Associates
    Attn.: Personal Strategy Income Fund

    State Street Bank & Trust Company
    Citigroup 401(k) Plan
    105 Rosemont Avenue
    Westwood, Massachusetts 02090

    Tuna & Company
    14.17



    7.95




    14.19





    7.14

    6.15



    7.92




    18.01
    Institutional International Bond
    Ladybird & Company

    Ladybug & Company

    Lakeside & Company

    Peacemaker & Company
    c/o T. Rowe Price Associates
    Attn.: Personal Strategy Balanced Portfolio
    34.91(e)

    40.38(e)

    13.37

    5.08
    Institutional Large-Cap Core Growth
    Charles Schwab & Company, Inc.

    Fidelity Investments
    Institutional Operations Company
    FBO Omnicom Group Inc.

    Fidelity Investments
    Institutional Operations Company
    FBO Williams Investment

    Immaculate Heart Missions, Inc.
    Casa Generalizia
    Via S. Giovanni Eudes 95
    Rome, Italy 00163

    Middlesex Health System Inc.
    Pension Plan
    Attn.: Susan Martin
    28 Crescent Street
    Middletown, Conneticuit 06457

    SEI Private Trust Company

    The Jewish Foundation of Cincinnati
    8044 Montgomery Road, Suite 700
    Cincinnati, Ohio 45236
    18.51

    32.93(a)



    8.00



    7.03




    8.10





    9.05

    6.15
    Institutional Large-Cap Growth
    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers

    SEI Private Trust Company
    c/o Suntrust Bank

    State Street Bank & Trust Company
    Washington Savannah River Company LLC
    13.83

    7.58


    18.19


    8.91
    Institutional Large-Cap Value
    Charles Schwab & Company, Inc.

    Dewey & Leboeuf LLP Pension Plan

    National Financial Services for the Exclusive Benefit of
    Our Customers

    The Church Foundation

    WFBW FBO New York Metro Transit Authority
    New York Metro Transit Authority
    8515 East Orchard Road #2T2
    Greenwood Village, Colorado 80111
    19.37

    5.95

    28.27(a)


    6.31

    20.10
    Institutional Mid-Cap Equity Growth
    Charles Schwab & Company, Inc.

    Kentucky Public Employees Deferred
    Compensation Authority
    c/o IPO Portfolio Accounting
    P.O. Box 182029
    Columbus, Ohio 43218

    National Financial Services for the Exclusive Benefit of
    Our Customers

    Wells Fargo Bank NA FBO
    University of Co. Hospital
    P.O. Box 1533
    Minneapolis, Minnesota 55480

    SEI Private Trust Company
    c/o M&T Bank
    12.43

    16.20





    7.61


    5.12




    7.18
    Institutional Small-Cap Stock
    Fidelity Investments
    Institutional Operations Company
    FIIOC as Agent for
    Raytheon Savings & Investment Plan & SOP 10001

    National Financial Services for the Exclusive Benefit of
    Our Customers

    Pinnacol Assurance
    7501 East Lowry Boulevard
    Denver, Colorado 80230

    Trust & Custody Services Bank LTD
    Tower Z Harumi Triton Square 8-12
    Harumi 1-Chome Chuo-Ku
    Tokyo, Japan 104-6228
    31.24(a)




    15.78


    5.45



    12.47
    Institutional U.S. Structured Research
    Keybank NA
    FBO St. Luke`s Foundation - T. Rowe Price

    Northern Trust Company
    FBO Alsac
    P.O. Box 92956
    Chicago, Illinois 60675

    The UCLA Foundation
    10920 Wilshire Boulevard, Suite 900
    Los Angeles, California 90024

    U.S. Bank
    FBO Adams County

    U.S. Bank
    FBO Metro Wastewater Reclamation
    District Retirement Plan
    8.09


    22.86




    23.68



    17.68


    9.13
    International Bond
    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers

    Yachtcrew & Company
    14.57

    13.66


    24.08
    International Bond FundAdvisor Class
    Citigroup Global Markets Inc.
    22.43
    International Discovery
    Fidelity Investments
    Institutional Operations Company
    FIIOC as Agent for Ford SSIP

    National Financial Services for the Exclusive Benefit of
    Our Customers

    T. Rowe Price Retirement Plan Services, Inc.
    Attn.: Asset Reconciliation

    Vanguard Fiduciary Trust Company
    T. Rowe Price Retail Class Funds
    Attn.: Outside Funds
    P.O. Box 2600
    Valley Forge, Pennsylvania 19482
    9.23



    5.89


    5.60


    9.25
    International Equity Index
    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Plan
    New Business Group Conv. Asset
    32.56(b)
    International Growth & Income
    Pirateline & Company

    Retirement Portfolio 2010

    Retirement Portfolio 2015

    Retirement Portfolio 2020

    Retirement Portfolio 2025

    Retirement Portfolio 2030

    Retirement Portfolio 2040
    T. Rowe Price Associates
    Attn.: Fund Accounting Department
    10.22

    5.95

    5.32

    12.11

    5.97

    10.09

    5.61
    International Growth & Income FundAdvisor Class
    National Financial Services for the Exclusive Benefit of
    Our Customers

    U.S. Bank
    FBO Private Asset Department
    OA Platform
    8.56


    56.03(a)
    International Growth & Income FundR Class
    American United Life
    American Unit Investment Trust

    American United Life
    Separate Account II

    Delaware Charter Guarantee & Trust
    FBO Various Qualified Plans
    711 High Street
    Des Moines, Iowa 50309

    Nationwide Trust Company FSB

    Saxon and Company
    5.27


    27.49(a)


    10.86




    9.74

    5.03
    International Stock
    Pirateline & Company

    Retirement Portfolio 2020

    Retirement Portfolio 2030

    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    5.35

    6.10

    5.00

    9.09
    International Stock FundAdvisor Class
    National Financial Services for the Exclusive Benefit of
    Our Customers

    U.S. Bank
    FBO Private Asset Department
    OA Platform
    7.95


    31.40(a)
    International Stock FundR Class
    American United Life
    American Unit Trust

    American United Life
    Separate Account II

    Nationwide Trust Company FSB
    9.40


    40.36(a)


    7.58
    Japan
    Bobstay & Company

    Charles Schwab & Company, Inc.

    Knotfloat & Company
    P.O. Box 5496
    Boston, Massachusetts 02206

    MLPF&S for the Sole Benefit of Its Customers
    12.79

    8.14

    9.10



    6.67
    Latin America
    Charles Schwab & Company, Inc.
    7.21
    Maryland Short-Term Tax-Free Bond
    Charles Schwab & Company, Inc.
    6.83
    Maryland Tax-Free Money
    T. Rowe Price Associates
    Attn.: Financial Reporting Department
    15.27
    Media & Telecommunications
    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers

    T. Rowe Price Trust Company
    Media & Telecommunications Fund
    6.44

    5.33


    7.64
    Mid-Cap Growth
    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers

    T. Rowe Price Trust Company
    Attn.: Asset Reconciliations
    6.05

    6.01


    18.97
    Mid-Cap Growth FundAdvisor Class
    MLPF&S for the Sole Benefit of its Customers
    4800 Deerlake Drive, E 3rd Floor
    Jacksonville, FL 32246

    National Financial Services for the Exclusive Benefit of
    Our Customers

    U.S. Bank
    FBO Private Asset Department
    OA Platform

    Vanguard Fiduciary Trust Company
    T. Rowe Price Advisor Class Funds
    Attn.: Outside Funds
    P.O. Box 2900
    Valley Forge, Pennsylvania 19482
    7.51



    15.04


    7.97



    6.32
    Mid-Cap Growth FundR Class
    American United Life Separate Account II

    ING Life Insurance & Annuity Company
    1 Orange Way B3N
    Windsor, Connecticut 06095

    Nationwide Trust Company FSB
    6.33

    19.90



    16.71
    Mid-Cap Value
    National Financial Services for the Exclusive Benefit of
    Our Customers

    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Account
    New Business Group
    7.60


    7.90
    Mid-Cap Value FundAdvisor Class
    John Hancock Life Insurance Company USA

    National Financial Services for the Exclusive Benefit of
    Our Customers

    Union Central Life Insurance Company

    U.S. Bank
    FBO Private Asset Department
    OA Platform

    Whitelaw & Company
    National City Bank Trustee
    Trust Mutual Funds
    P.O. Box 94984
    Cleveland, Ohio 44101
    5.87

    25.62(a)


    5.64

    6.78



    5.08
    Mid-Cap Value FundR Class
    ING Life Insurance & Annuity Company

    J.P. Morgan Chase TR
    FBO ADP Mid Market Product
    Attn.: Lisa Glenn
    3 Metrotech Center 6th Floor
    Brooklyn, New York 11245

    Nationwide Trust Company FSB

    State Street Bank & TR
    FBO ADP Daily Valuation B
    7.95

    8.14





    13.59

    28.60(a)
    New America Growth
    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department

    Wilmington Trust Company
    FBO Continental Airlines Inc. DCP Plan
    c/o Mutual Funds
    P.O. Box 8971
    Wilmington, Delaware 19899
    18.78


    7.33
    New America Growth FundAdvisor Class
    National Financial Services for the Exclusive Benefit of Our
    Customers
    99.59(a)
    New Asia
    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers
    6.27

    5.56
    New Era
    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of Our
    Customers
    8.81

    7.74
    New Horizons
    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    23.14
    New Income
    Retirement Portfolio 2010

    Retirement Portfolio 2015

    Retirement Portfolio 2020

    Retirement Portfolio 2030

    Yachtcrew & Company
    15.44

    9.57

    15.29

    5.21

    15.67
    New Income FundAdvisor Class
    National Financial Services for the Exclusive Benefit of Our
    Customers
    8.44
    New Income FundR Class
    Emjay Corp. Cust.
    FBO Plans of RPSA Customers
    c/o Great West

    Marshall & Ilsley Trust Company
    FBO Bank 98 Dly RCRDKPG
    STE 400
    Attn.: Mutual Funds
    11270 West Park Place
    NFS LLC FEBO
    Milwaukee, Wisconsin 53224

    Nationwide Trust Company FSB

    PIMS/Prudential Retirement as Nominee for the Tellabs Retirement Plan
    1415 West Diehl Road
    MS 447
    Naperville, Illinois 60563

    Wachovia Bank
    6.46



    24.64







    23.85

    5.63





    29.48(a)
    New Jersey Tax-Free Bond
    PFPC Inc. as Agent for PFPC Trust
    FBO JJB Hilliard WL Lyons Inc.
    760 Moore Road
    King of Prussia, Pennsylvania 19406
    13.73
    New York Tax-Free Money
    H. Mark Glasberg
    Paula D. Glasberg Jt. Ten.
    New York, New York

    Robert S. Kaplan
    Jamie Schuval Jt. Ten.
    New York, New York
    6.27



    5.35
    Overseas Stock
    Retirement Portfolio 2010

    Retirement Portfolio 2015

    Retirement Portfolio 2020

    Retirement Portfolio 2025

    Retirement Portfolio 2030

    Retirement Portfolio 2035
    T. Rowe Price Associates
    Attn.: Fund Accounting Department

    Retirement Portfolio 2040
    9.67

    8.49

    19.55

    9.63

    16.53

    6.12



    9.19
    Personal Strategy Balanced
    T. Rowe Price Trust Company
    Balanced
    Attn.: Asset Reconciliation
    34.06(c)
    Personal Strategy Growth
    T. Rowe Price Trust Company
    Attn.: Growth Asset
    28.02(c)
    Personal Strategy Income
    T. Rowe Price Trust Company
    Income
    Attn.: Asset Reconciliation
    24.21
    Prime Reserve
    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    10.31
    Real Estate
    Wachovia Bank
    Omnibus
    23.69
    Real Estate FundAdvisor Class
    Fiduciary Trust Company of New Hampshire
    as Fiduciary for Various Retirement Accounts
    One Security Benefit Place
    Topeka, Kansas 66636

    National Financial Services for the Exclusive Benefit of
    Our Customers
    8.14




    56.31(a)
    TRP Reserve Investment
    Covewater & Company
    c/o T. Rowe Price Associates
    Attn.: Mid-Cap Value Fund

    Eye & Company
    c/o T. Rowe Price Associates
    Attn.: Growth Stock Fund

    JPMorgan Chas Bank as Agent
    For Institutional Funds
    1 Chase Manhattan Plaza
    New York, New York 10005

    Seamile & Company

    T. Rowe Price Managed GIC
    Stable Value Fund
    T. Rowe Price Associates, Inc.

    Taskforce & Company
    6.71



    8.81



    6.22




    7.53

    8.24



    8.49
    Retirement 2005 FundAdvisor Class
    Counsel Trust DBA MATC
    Ironworkers Local 16 Annuity Fund
    1251 Waterfront Place
    Pittsburgh, Pennsylvania 15222

    Mercer Trust Company Inc. Savings Plan for Employees of Fairchild Corporation

    New York Life Trust Company
    Client Account
    169 Lackawanna Avenue
    Parsippany, New Jersey 07054

    National Financial Services for the Exclusive Benefit of
    Our Customers

    Orchard Trust Company TTEE
    Employee Benefits Clients
    8515 East Orchard Road
    Greenwood Village, Colorado 80111

    Wachovia Bank
    13.15




    7.84


    10.18




    25.96(a)


    11.86




    8.27
    Retirement 2005 FundR Class
    T. Rowe Price Associates
    Attn.: Financial Reporting Department

    State Street Bank Trust Company
    Various Retirement Plans
    4 Manhattanville Road
    Purchase, New York 10577
    29.54(e)


    68.19(a)
    Retirement 2010
    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Account
    Retirement 2010
    48.14(b)
    Retirement 2010 FundAdvisor Class
    Charles Schwab & Company, Inc.

    Massachusetts Mutual Life Insurance Company

    National Financial Services for the Exclusive Benefit of
    Our Customers
    7.23

    9.05

    12.61
    Retirement 2010 FundR Class
    Massachusetts Mutual Life Insurance Company

    Saxon and Company

    State Street Bank & Trust Company
    American Red Cross Savings Plan

    Wachovia Bank
    FBO Various Retirement Plans
    5.01

    8.48

    16.28


    5.20
    Retirement 2015
    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Account Retirement
    55.37(b)
    Retirement 2015 FundAdvisor Class
    Citistreet Retirement Services
    Mutual Fund Select Portfolio
    Reliance Trust Company
    Attn.: Plan Valuation Services
    400 Atrium Drive
    Somerset, New Jersey 08873

    Counsel Trust DBA MATC
    Ironworkers Local 16 Annuity Fund

    Mercer Trust Company
    FBO Constellation Brands Inc.

    Mercer Trust Company TTEE
    Texas Industries Inc. Retirement Plan

    National Financial Services for the Exclusive Benefit of
    Our Customers

    New York Life Trust Company
    Client Account

    Taynik & Company
    c/o Investors Bank & Trust
    P.O. Box 9130
    Boston, Massachusetts 02117
    20.13






    5.16


    9.26


    9.47


    8.32


    13.36


    7.83
    Retirement 2015 FundR Class
    Reliance Trust Company
    The Copeland Retirement Trust
    CO DTD 4/21/95
    Attn.: Plan Valuation Services
    400 Atrium Drive
    Somerset, New Jersey 08873

    State Street Bank Trust Company
    Various Retirement Plans

    Suntrust Bank
    FBO Flintco 401K

    Wachovia Bank
    FBO Various Retirement Plans
    23.11






    29.51(a)


    7.56


    17.78
    Retirement 2020
    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Account
    Retirement 2020
    54.22(b)
    Retirement 2020 FundAdvisor Class
    Charles Schwab & Company, Inc.

    Massachusetts Mutual Life Insurance Company

    National Financial Services for the Exclusive Benefit of
    Our Customers
    6.45

    9.97

    15.26
    Retirement 2020 FundR Class
    Massachusetts Mutual Life Insurance Company

    Saxon and Company

    State Street Bank & Trust Company
    FBO ADP Daily Valuation B

    Taynik & Company
    5.83

    9.36

    7.23


    5.88
    Retirement 2025
    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Account Retirement
    60.13(b)
    Retirement 2025 FundAdvisor Class
    Citistreet Retirement Services
    Mutual Fund Select Portfolio
    Reliance Trust Company

    Counsel Trust DBA MATC
    Ironworkers Local 16 Annuity Fund

    Mercer Trust Company TTEE
    FBO Constellation Brands Inc.

    Mercer Trust Company TTEE
    Texas Industries Inc. Retirement Plan

    National Financial Services for the Exclusive Benefit of
    Our Customers

    New York Life Trust Company
    Client Account

    Taynik & Company
    13.40



    5.30


    10.10


    6.76


    11.33


    22.27


    5.54
    Retirement 2025 FundR Class
    Huntington National Bank

    Mercer Trust Company
    FBO Huizenga Manufacturing Group
    Retirement Savings Plan & Trust
    1 Investors Way
    Northwood, Massachusetts 02062

    Reliance Trust Company

    State Street Bank Trust Company
    Various Retirement Plans

    Suntrust Bank
    FBO Community Bankshares Inc. Cash or DS

    Wachovia Bank
    FBO Various Retirement Plans
    5.45

    5.91





    23.24

    12.88


    14.37


    24.30
    Retirement 2030
    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Account
    Retirement 2030
    56.25(b)
    Retirement 2030 FundAdvisor Class
    Charles Schwab & Company, Inc.

    Massachusetts Mutual Life Insurance Company

    National Financial Services for the Exclusive Benefit of
    Our Customers

    Union Central Life Insurance Company

    Wachovia Bank
    FBO Various Retirement Plans
    5.79

    12.95

    11.31


    5.53

    5.08
    Retirement 2030 FundR Class
    J.P. Morgan Chase TR
    FBO ADP Mid Market Product

    Massachusetts Mutual Life Insurance Company

    Saxon and Company

    State Street Bank & Trust Company
    FBO ADP Daily Valuation B

    State Street Bank & Trust Company
    American Red Cross Savings Plan

    Taynik & Company

    Wachovia Bank
    FBO Various Retirement Plans
    5.22


    6.57

    8.95

    9.37


    5.11


    6.63

    5.68
    Retirement 2035
    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Account Retirement
    60.02(b)
    Retirement 2035 FundAdvisor Class
    Citistreet Retirement Services
    Mutual Fund Select Portfolio
    Reliance Trust Company

    Mercer Trust Company
    Constellation Brands Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers

    New York Life Trust Company
    Client Account
    8.83



    12.06


    13.03


    30.05(a)
    Retirement 2035 FundR Class
    Reliance Trust Company

    State Street Bank Trust Company
    Various Retirement Plans

    Wachovia Bank
    FBO Various Retirement Plans
    28.94(a)

    17.22


    28.23(a)
    Retirement 2040
    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Account
    Retirement 2040
    58.24(b)
    Retirement 2040 FundAdvisor Class
    Massachusetts Mutual Life Insurance Co.

    National Financial Services for the Exclusive Benefit of
    Our Customers

    Wachovia Bank
    FBO Various Retirement Plans
    15.43

    13.63


    5.23
    Retirement 2040 FundR Class
    J.P. Morgan Chase TR
    FBO ADP Mid Market Product

    Massachusetts Mutual Life Insurance Co.

    Saxon and Company

    State Street Bank & TR
    FBO ADP Daily Valuation B

    Taynik & Company

    Wachovia Bank
    FBO Various Retirement Plans
    5.68


    5.68

    7.97

    12.59


    6.86

    6.95
    Retirement 2045
    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Account Retirement
    63.76(b)
    Retirement 2045 FundAdvisor Class
    Citistreet Retirement Services
    Mutual Fund Select Portfolio
    Reliance Trust Company

    Mercer Trust Company TTEE
    FBO Constellation Brands Inc.

    Mercer Trust Company TTEE
    Texas Industries Inc. Retirement Plan

    National Financial Services for the Exclusive Benefit of
    Our Customers

    New York Life Trust Company
    Client Account
    9.30



    9.57


    5.12


    10.88


    36.21(a)
    Retirement 2045 FundR Class
    Reliance Trust Company

    State Street Bank Trust Company
    Various Retirement Plans

    Wachovia Bank
    FBO Various Retirement Plans
    19.00

    18.97


    43.02(a)
    Retirement 2050
    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Account Retirement
    58.05(b)
    Retirement 2050 FundAdvisor Class
    DWS Trust Company
    FBO IBEW Local Union 252
    Contribution/401(k) Plan
    Attn.: Share Recon. Department 062962
    P.O. Box 1757
    Salem, New Hampshire 03079

    Mercer Trust Company TTEE
    FBO Constellation Brands Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers

    New York Life Trust Company
    Client Account

    Saxon and Company

    Wachovia Bank
    FBO Various Retirement Plans
    8.73






    5.65


    11.19


    8.48


    6.76

    5.55
    Retirement 2050 FundR Class
    Emjay Corp. Cust.

    Hartford Life Insurance Company
    Separate Account
    Attn.: UIT Operations
    P.O. Box 2999
    Hartford, Connecticut 06140

    Saxon and Company

    State Street Bank & TR
    FBO ADP Daily Valuation B

    Suntrust Bank TR
    FBO P & L 401K
    5.81

    11.49





    14.85

    11.51


    6.66
    Retirement 2055
    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Account Retirement
    52.62(b)
    Retirement 2055 FundAdvisor Class
    Mercer Trust Company TTEE
    FBO Chaparral Steel Retirement Plan

    Orchard Trust Company TTEE
    Employee Benefits Clients

    Taynik & Company
    6.66


    68.60(a)


    5.10
    Retirement 2055 FundR Class
    T. Rowe Price Associates
    Attn.: Financial Reporting Department

    Suntrust Bank
    FBO CMA Group Salary Def. Retirement Plan

    Wachovia Bank
    FBO Various Retirement Plans
    71.50(e)



    8.08

    10.55
    Retirement Income
    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Account
    Retirement Income
    33.69(b)
    Retirement Income FundAdvisor Class
    Massachusetts Mutual Life Insurance Company

    National Financial Services for the Exclusive Benefit of
    Our Customers

    Reliance Trust Company
    The Copeland Retirement Trust

    State Street Bank & Trust Company
    7.80

    26.78(a)


    8.52


    5.62
    Retirement Income FundR Class
    Citistreet Retirement Services
    Trusteed by State Street Bank & Trust
    1 Heritage Drive
    Quincy, Massachusetts 02171

    Mac & Company

    Massachusetts Mutual Life Insurance Company

    State Street Bank & TR
    FBO ADP Daily Valuation B

    Taynik & Company

    Wachovia Bank
    FBO Various Retirement Plans
    10.66




    6.64

    6.59

    9.89


    5.21

    12.67
    Science & Technology
    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    19.11
    Science & Technology FundAdvisor Class
    John Hancock Life Insurance Company USA
    89.97(a)
    Short-Term Bond
    Yachtcrew & Company
    27.33(d)
    Short-Term Bond FundAdvisor Class
    National Financial Services for the Exclusive Benefit of
    Our Customers

    Penfirn Company
    P.O. Box 3327
    Omaha, Nebraska 68103

    RSGroup Trust Company
    c/o Retirement System Consultants
    3 Enterprise Drive, Suite 105
    Shelton, Connecticut 06484
    Raymond James & Associates, Inc.
    FBO Maxwell & Henry Valuation
    Services Inc. 401K Emp. PSP.
    FBO W. Michael Maxwell
    12600 World Plaza Lane,
    Fort Myers, Florida 33907

    Trust Company of America
    P.O. Box 6503
    Englewood, Colorado 80155
    21.88


    5.77



    16.60




    8.53






    30.21(a)
    Short-Term Income
    Short-Term Income Fund
    T. Rowe Price Associates
    Attn.: Fund Accounting Department

    T. Rowe Price Services, Inc.
    FBO Alaska College Savings Trust
    Portfolio College
    Attn.: Kim Vanscoy, Fixed Income
    86.09(e)



    9.23
    Small-Cap Stock
    Norwest Bank Company NA TR
    FBO State of Minnesota Deferred Compensation Plan
    Minnesota State Deferred Compensation Plan Trust
    c/o Great West Life Recordkeeper

    T. Rowe Price Trust Company
    T. Rowe Price OTC Fund
    Attn.: RPS Control Department
    6.58




    16.09
    Small-Cap Stock FundAdvisor Class
    ICMA Retirement Trust
    777 North Capitol Street NE, Suite 600
    Washington, D.C. 20002

    Minnesota Life
    401 Robert Street North
    Saint Paul, Minnesota 55101

    Northern Trust Company TR Home Depot
    Future Builder 401(k) Plan
    P.O. Box 92994
    Chicago, Illinois 60675

    Vanguard Fiduciary Trust Company
    7.20



    13.68



    20.46




    26.17 (a)
    Small-Cap Value
    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    26.79(c)
    Small-Cap Value FundAdvisor Class
    ICMA Retirement Trust

    John Hancock Life Insurance Company USA

    National Financial Services for the Exclusive Benefit of
    Our Customers

    U.S. Bank
    FBO Private Asset Department
    OA Platform
    33.47(a)

    27.87(a)

    8.14


    7.74
    Spectrum Growth
    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    14.03
    Spectrum Income
    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    23.04
    Spectrum International
    T. Rowe Price Retirement Plan Services, Inc.
    Omniplan Account
    New Business Group
    7.32
    Summit Cash Reserves
    T. Rowe Price Trust Company
    Attn.: Asset Reconciliations

    T. Rowe Price Group, Inc.
    Attn.: Financial Reporting Department
    10.52


    5.06
    Summit Municipal Income
    National Financial Services for the Exclusive Benefit of
    Our Customers

    Saxon and Company
    27.77(a)


    14.33
    Summit Municipal Intermediate
    National Financial Services for the Exclusive Benefit of
    Our Customers

    Prudential Investment Management Services
    FBO Mutual Funds Clients
    Attn.: Pruchoice Unit
    6.83


    21.24
    Summit Municipal Money Market
    T. Rowe Price Associates
    Attn.: Financial Reporting Department

    M. David Testa
    Hobe Sound, Florida
    9.54


    7.16
    Tax-Efficient Balanced
    National Financial Services for the Exclusive Benefit of
    Our Customers
    9.32
    Tax-Exempt Money
    Pershing Division of DLJ Secs. Corp. for Exclusive Benefit
    of TRP Money Fund Customer Accounts
    1 Pershing Plaza
    Jersey City, New Jersey 07399

    T. Rowe Price Associates
    Attn.: Financial Reporting Department
    5.99




    10.02
    Tax-Free High Yield
    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers
    5.49

    6.61
    Tax-Free Income FundAdvisor Class
    National Financial Services for the Exclusive Benefit of
    Our Customers
    93.64(a)
    Tax-Free Short-Intermediate
    Charles Schwab & Company, Inc.

    Prudential Investment Management Services
    FBO Mutual Funds Clients
    Attn.: Pruchoice Unit

    T. Rowe Price Associates
    Attn.: Financial Reporting Department
    8.14

    5.85



    9.10
    U.S. Bond Index
    Alaska College Savings Trust
    ACT Portfolio
    c/o T. Rowe Price Associates

    National Financial Services for the Exclusive Benefit of
    Our Customers

    T. Rowe Price Retirement Plan Services, Inc.
    Omnibus Plan
    New Business Group Conv. Asset
    9.49



    14.89


    18.82
    U.S. Treasury Intermediate
    MLPF&S for the Sole Benefit of Its Customers

    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    11.72

    8.81
    U.S. Treasury Long-Term
    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department

    Yachtcrew & Company
    11.71


    32.85(d)
    U.S. Treasury Money
    T. Rowe Price Trust Company
    Attn.: TRPS Institutional Control Department
    9.85
    Value
    Pirateline & Company

    Retirement Portfolio 2020

    Retirement Portfolio 2025

    Retirement Portfolio 2030

    Retirement Portfolio 2035

    Retirement Portfolio 2040

    T. Rowe Price Trust Company
    Attn.: Installation Team for TRPS Institutional Control Department
    6.75

    14.88

    8.59

    16.01

    6.12

    9.30

    6.65
    Value FundAdvisor Class
    Citigroup Global Markets, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers
    5.73

    79.91(a)
    Virginia Tax-Free Bond
    Charles Schwab & Company, Inc.

    National Financial Services for the Exclusive Benefit of
    Our Customers
    6.87

    5.26

    110


    111


    112


    113


    114


    115


    116


    117


    118


    119


    120


    121


    122


    123


    124


    125


    126


    127


    128


    129


    130


    131


    132


    133


    134


    135


    136


    137


    138


    (a)At the level of ownership indicated, the shareholder would be able to determine the outcome of most issues that are submitted to shareholders for vote.

    (b)T. Rowe Price Retirement Plan Services, Inc., is a wholly owned subsidiary of T. Rowe Price Associates, Inc., which is a wholly owned subsidiary of T. Rowe Price Group, Inc., each a Maryland corporation. T. Rowe Price Retirement Plan Services is not the beneficial owner of these shares. Such shares are held of record by T. Rowe Price Retirement Plan Services and are normally voted by various retirement plans and retirement plan participants.

    (c)T. Rowe Price Trust Company is a wholly owned subsidiary of T. Rowe Price Associates, Inc., which is a wholly owned subsidiary of T. Rowe Price Group, Inc., each a Maryland corporation. T. Rowe Price Trust Company is not the beneficial owner of these shares. Such shares are held of record by T. Rowe Price Trust Company and are normally voted by various retirement plans and retirement plan participants.

    (d)Yachtcrew & Company owns the indicated percentage of the outstanding shares of the fund through the Spectrum Funds. Shares of the fund held by the Spectrum Funds are "echo-voted" by Spectrum Funds in the same proportion as the shares of the fund are voted by its non-Spectrum Fund shareholders.

    (e)T. Rowe Price Associates is a wholly owned subsidiary of T. Rowe Price Group, Inc., each a Maryland corporation. Securities owned by T. Rowe Price Associates are the result of its contributions to the fund at the fund`s inception in order to provide the fund with sufficient capital to invest in accordance with its investment program. At the level of ownership indicated, T. Rowe Price Associates would be able to determine the outcome of most issues that were submitted to shareholders for vote.

    (f)T. Rowe Price Finance, a Delaware corporation, is a wholly owned subsidiary of T. Rowe Price Associates, Inc., which is a wholly owned subsidiary of T. Rowe Price Group, Inc. T. Rowe Price Associates Inc., and T. Rowe Group, Inc., are Maryland corporations. Securities owned by T. Rowe Price Finance are the result of its contributions to the fund at the fund`s inception in order to provide the fund with sufficient capital to invest in accordance with its investment program. At the level of ownership indicated, T. Rowe Price Finance would be able to determine the outcome of most issues that were submitted to shareholders for vote.

    INVESTMENT MANAGEMENT AGREEMENTS

    T. Rowe Price International, Inc. is the investment manager for all international and foreign Price Funds and has executed an Investment Management Agreement with each such fund. T. Rowe Price Associates, Inc. is the investment manager for all other Price Funds and has executed an Investment Management Agreement with each such fund. T. Rowe Price Associates and T. Rowe Price International are hereinafter referred to as "Investment Managers." T. Rowe Price Associates is a wholly owned subsidiary of T. Rowe Price Group, Inc. T. Rowe Price International is a wholly owned subsidiary of T. Rowe Price Finance, Inc., which is a wholly owned subsidiary of T. Rowe Price Associates.

    Services

    Under the Investment Management Agreements (except with respect to the Japan Fund and the Japanese investments of the International Discovery Fund), the Investment Managers provide the funds with discretionary investment services. Specifically, the Investment Managers are responsible for supervising and directing the investments of the funds in accordance with the funds` investment objectives, programs, and restrictions as provided in the funds` prospectuses and this SAI. The Investment Managers are also responsible for effecting all security transactions on behalf of the funds, including the negotiation of commissions and the allocation of principal business and portfolio brokerage. For the Japan Fund and the Japanese investments of the International Discovery Fund, T. Rowe Price International has entered into a subadvisory agreement with T. Rowe Price Global Investment Services Limited ("Global Investment Services") under which, subject to

    139


    the supervision of T. Rowe Price International, Global Investment Services provides the same services described above that T. Rowe Price International provides for the other funds.

    In addition to the services described above, the Investment Managers provide the funds with certain corporate administrative services, including: maintaining the funds` corporate existence and corporate records; registering and qualifying fund shares under federal laws; monitoring the financial, accounting, and administrative functions of the funds; maintaining liaison with the agents employed by the funds such as the funds` custodian and transfer agent; assisting the funds in the coordination of such agent`s activities; and permitting employees of the Investment Managers to serve as officers, directors, and committee members of the funds without cost to the funds.

    The Investment Management Agreements also provide that the Investment Managers, their directors, officers, employees, and certain other persons performing specific functions for the funds will be liable to the funds only for losses resulting from willful misfeasance, bad faith, gross negligence, or reckless disregard of duty. The subadvisory agreements with respect to the Japan and International Discovery Funds have a similar provision limiting the liability of Global Investment Services for errors, mistakes, and losses other than those caused by its willful misfeasance, bad faith, or gross negligence.

    Under the Investment Management Agreements, the Investment Managers are permitted to utilize the services or facilities of others to provide them or the funds with statistical and other factual information, advice regarding economic factors and trends, advice as to occasional transactions in specific securities, and such other information, advice, or assistance as the Investment Managers may deem necessary, appropriate, or convenient for the discharge of their obligations under the Investment Management Agreements or otherwise helpful to the funds. The subadvisory agreement with respect to the Japan and International Discovery Funds has a similar provision permitting Global Investment Services to utilize, at its own cost, the services or facilities of others.

    All funds except Index, Institutional, TRP Reserve Investment, Retirement, Spectrum, Summit Income, and Summit Municipal Funds

    Management Fees

    The funds pay the Investment Managers 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 the Investment Managers 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 Funds` 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:

    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%
    Next $40 billion

    0.370%
    Next $1 billion
    0.320%
    Next $10 billion
    0.290%
    Next $60 billion





    0.285%
    Thereafter

    For the purpose of calculating the Group Fee, the Price Funds include all the mutual funds distributed by Investment Services (excluding the Retirement Funds, Spectrum Funds, TRP Reserve Investment Funds, and any 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 each fund`s prospectus as of the close of business on the previous business day on which the fund was open for business.

    140


    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. The product of this calculation is multiplied 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 are listed in the following tables:

    Fund


    Fee %

    Africa & Middle East
    0.75
    Balanced
    0.15
    Blue Chip Growth
    0.30(a)
    California Tax-Free Bond
    0.10
    California Tax-Free Money
    0.10
    Capital Appreciation
    0.30
    Capital Opportunity
    0.20
    Corporate Income
    0.15
    Developing Technologies
    0.60
    Diversified Mid-Cap Growth
    0.35
    Diversified Small-Cap Growth
    0.35
    Dividend Growth
    0.20
    Emerging Europe & Mediterranean
    0.75
    Emerging Markets Bond
    0.45
    Emerging Markets Stock
    0.75
    Equity Income
    0.25(b)
    European Stock
    0.50
    Financial Services
    0.35
    GNMA
    0.15
    Georgia Tax-Free Bond
    0.10
    Global Large-Cap Stock
    0.35
    Global Real Estate
    0.40
    Global Stock
    0.35
    Global Technology
    0.45
    Growth & Income
    0.25
    Growth Stock
    0.25(b)
    Health Sciences
    0.35
    High Yield
    0.30
    Inflation Protected Bond
    0.05
    International Bond
    0.35
    International Discovery
    0.75
    International Growth & Income
    0.35
    International Stock
    0.35
    Japan
    0.50
    Latin America
    0.75
    Maryland Short-Term Tax-Free Bond
    0.10
    Maryland Tax-Free Bond
    0.10
    Maryland Tax-Free Money
    0.10
    Media & Telecommunications
    0.35
    Mid-Cap Growth
    0.35(c)
    Mid-Cap Value
    0.35
    New America Growth
    0.35
    New Asia
    0.50
    New Era
    0.25
    New Horizons
    0.35
    New Income
    0.15
    New Jersey Tax-Free Bond
    0.10
    New York Tax-Free Bond
    0.10
    New York Tax-Free Money
    0.10
    Overseas Stock
    0.35
    Personal Strategy Balanced
    0.25
    Personal Strategy Growth
    0.30
    Personal Strategy Income
    0.15
    Prime Reserve
    0.05
    Real Estate
    0.30
    Science & Technology
    0.35
    Short-Term Bond
    0.10
    Small-Cap Stock
    0.45
    Small-Cap Value
    0.35
    Tax-Efficient Balanced
    0.20
    Tax-Efficient Growth
    0.30
    Tax-Efficient Multi-Cap Growth
    0.35
    Tax-Exempt Money
    0.10
    Tax-Free High Yield
    0.30
    Tax-Free Income
    0.15
    Tax-Free Short-Intermediate
    0.10
    U.S. Treasury Intermediate
    0.00
    U.S. Treasury Long-Term
    0.00
    U.S. Treasury Money
    0.00
    Value
    0.35
    Virginia Tax-Free Bond
    0.10

    141


    (a)On assets up to $15 billion and 0.255% on assets above $15 billion.

    (b)On assets up to $15 billion and 0.21% on assets above $15 billion.

    (c)On assets up to $15 billion and 0.30% on assets above $15 billion.

    Index, Institutional, Summit Income, and Summit Municipal Funds

    The following funds pay the Investment Managers an annual investment management fee in monthly installments of the amount listed below based on the average daily net asset value of the fund.

    Fund


    Fee %

    Equity Index 500
    0.15
    Institutional Africa & Middle East
    1.00
    Institutional Concentrated Large-Cap Value
    0.55
    Institutional Foreign Equity
    0.70
    Institutional Global Equity
    0.65
    Institutional Global Large-Cap Equity
    0.65
    Institutional Large-Cap Core Growth
    0.55
    Institutional Large-Cap Growth
    0.55
    Institutional Large-Cap Value
    0.55
    Institutional Mid-Cap Equity Growth
    0.60
    Institutional Small-Cap Stock
    0.65
    Institutional U.S. Structured Research
    0.50

    142


    The following funds ("Single Fee Funds") pay the Investment Managers a single annual investment management fee in monthly installments of the amount listed below based on the average daily net asset value of the fund.

    Fund


    Fee %

    Extended Equity Market Index
    0.40
    Institutional Core Plus
    0.45
    Institutional Emerging Markets Bond
    0.70
    Institutional Emerging Markets Equity
    1.10
    Institutional Floating Rate
    0.55
    Institutional High Yield
    0.50
    Institutional International Bond
    0.55
    International Equity Index
    0.50
    Short-Term Income
    0.50
    Summit Cash Reserves
    0.45
    Summit GNMA
    0.60
    Summit Municipal Money Market
    0.45
    Summit Municipal Intermediate
    0.50
    Summit Municipal Income
    0.50
    Total Equity Market Index
    0.40
    U.S. Bond Index
    0.30

    The Investment Management Agreement between each Single Fee Fund and the Investment Managers provides that the Investment Managers will pay all expenses of each fund`s operations, except interest, taxes, brokerage commissions, and other charges incident to the purchase, sale, or lending of the fund`s portfolio securities, and such non-recurring or extraordinary expenses that may arise, including the costs of actions, suits, or proceedings to which the fund is a party and the expenses the fund may incur as a result of its obligation to provide indemnification to its officers, directors, and agents. However, the Boards for the funds reserve the right to impose additional fees against shareholder accounts to defray expenses which would otherwise be paid by the Investment Managers under the Investment Management Agreement. The Boards do not anticipate levying such charges; such a fee, if charged, may be retained by the funds or paid to the Investment Managers.

    The Fee is paid monthly to the Investment Managers on the first business day of the next succeeding calendar month and is the sum of the Daily Fee accruals for each month. The Daily Fee accrual for any particular day is calculated by multiplying the fraction of one (1) over the number of calendar days in the year by the appropriate Fee. The product of this calculation is multiplied by the net assets of the fund for that day, as determined in accordance with each fund`s prospectus as of the close of business on the previous business day on which the fund was open for business.

    TRP Government Reserve Investment, TRP Reserve Investment, Retirement, and Spectrum Funds

    None of these funds pays T. Rowe Price an investment management fee.

    143


    Japan Fund

    Under a subadvisory agreement between T. Rowe Price International and Global Investment Services approved by the directors of the Japan Fund, Global Investment Services, subject to the supervision of T. Rowe Price International, manages all the investments of the Japan Fund. For its services, Global Investment Services receives 50% of the investment management fee received by T. Rowe Price International from the Japan Fund.

    International Discovery Fund

    Under a subadvisory agreement between T. Rowe Price International and Global Investment Services approved by the directors of the International Discovery Fund, Global Investment Services, subject to the supervision of T. Rowe Price International, manages the yen-denominated investments of the International Discovery Fund. For its services, Global Investment Services receives 50% of the investment management fee received by T. Rowe Price International from the International Discovery Fund attributable to the yen-denominated investments of the International Discovery Fund.

    Management Fee Compensation

    The following table sets forth the total management fees, if any, paid to the Investment Managers by each fund, during the fiscal years indicated:

    Fund


    Fiscal Year Ended











    2/29/08


    2/28/07


    2/28/06

    California Tax-Free Bond
    $1,266,000
    $1,215,000
    $1,145,000
    California Tax-Free Money
    489,000
    457,000
    436,000
    Georgia Tax-Free Bond
    526,000
    471,000
    421,000
    Maryland Short-Term Tax-Free Bond
    589,000
    639,000
    763,000
    Maryland Tax-Free Bond
    5,888,000
    5,681,000
    5,478,000
    Maryland Tax-Free Money
    905,000
    744,000
    547,000
    New Jersey Tax-Free Bond
    871,000
    786,000
    709,000
    New York Tax-Free Bond
    1,134,000
    1,063,000
    1,014,000
    New York Tax-Free Money
    540,000
    495,000
    486,000
    Tax-Efficient Balanced
    196,000
    200,000
    214,000
    Tax-Efficient Growth
    390,000
    387,000
    435,000
    Tax-Efficient Multi-Cap Growth
    265,000
    234,000
    217,000
    Tax-Exempt Money
    4,070,000
    3,817,000
    4,261,000
    Tax-Free High Yield
    9,250,000
    9,183,000
    8,186,000
    Tax-Free Income(a)
    8,413,000
    8,228,000
    8,083,000
    Tax-Free Short-Intermediate
    2,059,000
    2,010,000
    2,202,000
    Virginia Tax-Free Bond
    2,260,000
    2,056,000
    1,899,000

    (a)The fund has two classes of shares. The management fee is allocated to each class based on relative net assets.


    Fund


    Fiscal Year Ended











    5/31/08


    5/31/07


    5/31/06

    Corporate Income
    $1,004,000
    $945,000
    $1,008,000
    GNMA
    6,066,000
    5,703,000
    6,014,000
    TRP Government Reserve Investment
    (a)
    (a)
    (a)
    High Yield(b)
    31,095,000
    29,564,000
    25,189,000
    Inflation Protected Bond
    488,000
    371,000
    381,000
    Institutional Core Plus
    351,000
    183,000
    132,000
    Institutional Floating Rate
    763,000
    (c)
    (c)
    Institutional High Yield
    2,377,000
    1,865,000
    1,941,000
    New Income(d)
    32,498,000
    20,717,000
    16,131,000
    Personal Strategy Balanced
    8,280,000
    7,611,000
    6,785,000
    Personal Strategy Growth
    7,393,000
    6,431,000
    5,546,000
    Personal Strategy Income
    3,396,000
    2,698,000
    2,218,000
    Prime Reserve
    21,268,000
    19,238,000
    17,663,000
    TRP Reserve Investment
    (a)
    (a)
    (a)
    Retirement 2005
    (a)
    (a)
    (a)
    Retirement 2010
    (a)
    (a)
    (a)
    Retirement 2015
    (a)
    (a)
    (a)
    Retirement 2020
    (a)
    (a)
    (a)
    Retirement 2025
    (a)
    (a)
    (a)
    Retirement 2030
    (a)
    (a)
    (a)
    Retirement 2035
    (a)
    (a)
    (a)
    Retirement 2040
    (a)
    (a)
    (a)
    Retirement 2045
    (a)
    (a)
    (a)
    Retirement 2050
    (a)
    (a)
    (c)
    Retirement 2055
    (a)
    (a)
    (c)
    Retirement Income
    (a)
    (a)
    (a)
    Short-Term Bond(b)
    6,261,000
    5,934,000
    5,290,000
    Short-Term Income
    6,158,000
    2,349,000
    (c)
    U.S. Treasury Intermediate
    861,000
    727,000
    927,000
    U.S. Treasury Long-Term
    1,350,000
    905,000
    816,000
    U.S. Treasury Money
    3,588,000
    2,897,000
    2,730,000

    144


    (a)The fund does not pay an investment management fee.

    (b)The fund has two classes of shares. The management fee is allocated to each class based on relative net assets.

    (c)Prior to commencement of operations.

    (d)The fund has three classes of shares. The management fee is allocated to each class based on relative net assets.


    Fund


    Fiscal Year Ended











    10/31/07


    10/31/06


    10/31/05

    Africa & Middle East
    $55,000
    (a)
    (a)
    Emerging Europe & Mediterranean
    17,207,000
    $13,763,000
    $4,431,000
    Emerging Markets Stock
    33,350,000
    20,603,000
    9,850,000
    European Stock
    8,716,000
    6,952,000
    6,666,000
    Global Large-Cap Stock(b)
    (a)
    (a)
    (a)
    Global Stock(b)
    3,726,000
    1,778,000
    617,000
    Institutional Africa & Middle East
    (a)
    (a)
    (a)
    Institutional Emerging Markets Equity(c)
    2,506,000
    1,818,000
    857,000
    Institutional Foreign Equity
    1,256,000
    1,633,000
    3,507,000
    Institutional Global Equity
    18,000
    (a)
    (a)
    Institutional Global Large-Cap Equity
    (a)
    (a)
    (a)
    International Discovery
    27,857,000
    19,009,000
    11,725,000
    International Equity Index(c)
    2,169,000
    967,000
    455,000
    International Growth & Income(d)
    16,832,000
    10,907,000
    5,281,000
    International Stock(d)
    45,077,000
    39,845,000
    33,990,000
    Japan
    3,936,000
    4,587,000
    1,711,000
    Latin America
    29,000,000
    16,235,000
    4,911,000
    New Asia
    25,366,000
    13,131,000
    9,017,000
    Overseas Stock
    3,992,000
    (a)
    (a)
    Summit Cash Reserves(c)
    22,987,000
    20,157,000
    15,826,000
    Summit GNMA(c)
    448,000
    453,000
    487,000
    Summit Municipal Income(c)
    2,219,000
    1,165,000
    605,000
    Summit Municipal Intermediate(c)
    2,765,000
    1,212,000
    966,000
    Summit Municipal Money Market(c)
    1,348,000
    1,520,000
    2,621,000
    U.S. Bond Index(c)
    641,000
    510,000
    455,000

    145


    (a)Prior to commencement of operations.

    (b)The fund has two classes of shares. The management fee is allocated to each class based on relative net assets.

    (c)The fee includes investment management fees and administrative expenses.

    (d)The fund has three classes of shares. The management fee is allocated to each class based on relative net assets.


    Fund


    Fiscal Year Ended











    12/31/07


    12/31/06


    12/31/05

    Balanced
    $14,293,000
    $12,298,000
    $11,137,000
    Blue Chip Growth(a)
    68,145,000
    54,951,000
    52,428,000
    Capital Appreciation(b)
    63,628,000
    50,070,000
    38,637,000
    Capital Opportunity(a)
    1,206,000
    983,000
    596,000
    Developing Technologies
    451,000
    417,000
    376,000
    Diversified Mid-Cap Growth
    691,000
    545,000
    327,000
    Diversified Small-Cap Growth
    584,000
    608,000
    537,000
    Dividend Growth
    4,521,000
    4,071,000
    3,900,000
    Emerging Markets Bond
    4,873,000
    4,221,000
    2,772,000
    Equity Income(a)
    132,535,000
    117,294,000
    108,721,000
    Equity Index 500
    13,738,000
    9,845,000
    7,880,000
    Extended Equity Market Index(d)
    1,611,000
    1,226,000
    856,000
    Financial Services
    2,853,000
    2,693,000
    2,554,000
    Global Real Estate(b)
    (c)
    (c)
    (c)
    Global Technology
    1,235,000
    992,000
    793,000
    Growth & Income
    8,655,000
    9,117,000
    9,955,000
    Growth Stock(a)
    128,122,000
    85,341,000
    59,274,000
    Health Sciences
    12,874,000
    10,661,000
    8,634,000
    Institutional Concentrated Large-Cap Value
    36,000
    0
    (c)
    Institutional Emerging Markets Bond(d)
    183,000
    6,000
    (c)
    Institutional International Bond(d)
    223,000
    (c)
    (c)
    Institutional Large-Cap Core Growth
    229,000
    206,000
    178,000
    Institutional Large-Cap Growth
    6,378,000
    2,086,000
    581,000
    Institutional Large-Cap Value
    1,372,000
    1,091,000
    592,000
    Institutional Mid-Cap Equity Growth
    2,728,000
    2,708,000
    2,518,000
    Institutional Small-Cap Stock
    2,716,000
    2,971,000
    2,822,000
    Institutional U.S. Structured Research
    52,000
    (c)
    (c)
    International Bond(b)
    16,095,000
    12,552,000
    11,938,000
    Media & Telecommunications
    12,475,000
    7,935,000
    5,959,000
    Mid-Cap Growth(a)
    110,090,000
    104,459,000
    91,962,000
    Mid-Cap Value(a)
    52,862,000
    43,317,000
    37,633,000
    New America Growth
    5,482,000
    5,413,000
    5,812,000
    New Era
    30,900,000
    24,158,000
    16,831,000
    New Horizons
    48,350,000
    45,283,000
    39,472,000
    Real Estate(b)
    15,234,000
    9,483,000
    4,773,000
    Science & Technology(b)
    21,145,000
    22,379,000
    26,486,000
    Small-Cap Stock(b)
    57,945,000
    58,392,000
    52,878,000
    Small-Cap Value(b)
    41,099,000
    38,934,000
    34,086,000
    Spectrum Growth
    (e)
    (e)
    (e)
    Spectrum Income
    (e)
    (e)
    (e)
    Spectrum International
    (e)
    (e)
    (e)
    Total Equity Market Index(d)
    2,045,000
    1,672,000
    1,448,000
    Value(b)
    50,381,000
    32,436,000
    19,701,000

    146


    (a)The fund has three classes of shares. The management fee is allocated to each class based on relative net assets.

    (b)The fund has two classes of shares. The management fee is allocated to each class based on relative net assets.

    (c)Prior to commencement of operations.

    (d)The fee includes investment management fees and administrative expenses.

    (e)The fund does not pay an investment management fee.

    Expense Limitations and Reimbursements

    The following chart sets forth contractual expense ratio limitations and the periods for which they are effective. For each fund, the Investment Managers have agreed to bear any fund expenses (other than interest, taxes, brokerage, and other expenditures that are capitalized in accordance with generally accepted accounting principles and extraordinary expenses) which would cause the funds` ratio of expenses to average net assets to exceed the indicated percentage limitation. The expenses borne by the Investment Managers are subject to reimbursement by the funds through the indicated reimbursement date, provided no reimbursement will be made if it would result in the funds` expense ratios exceeding their applicable limitations.

    Fund


    Limitation Period


    Expense
    Ratio
    Limitation %


    Reimbursement
    Date

    Africa & Middle East
    September 4, 2007 February 28, 2010
    1.75
    (a)
    California Tax-Free Money(b)
    July 1, 2007 June 30, 2009
    0.55
    (a)
    Capital Opportunity(c)
    October 1, 2005 April 30, 2008
    0.95
    April 30, 2010(d)
    Capital Opportunity FundAdvisor Class(e)
    May 1, 2008 April 30, 2010
    1.10
    April 30, 2012(d)
    Capital Opportunity FundR Class(f)
    May 1, 2008 April 30, 2010
    1.35
    April 30, 2012(d)
    Developing Technologies(g)
    May 1, 2007 April 30, 2009
    1.50
    April 30, 2011(d)
    Diversified Mid-Cap Growth(h)
    May 1, 2006 April 30, 2008
    1.25
    (a)
    Diversified Small-Cap Growth(i)
    May 1, 2008 April 30, 2010
    1.25
    April 30, 2012(d)
    Dividend Growth FundAdvisor Class(j)
    May 1, 2008 April 30, 2010
    1.05
    April 30, 2012(d)
    Emerging Europe & Mediterranean
    March 1, 2005 February 28, 2007
    1.75
    February 28, 2009(d)
    Equity Index 500(k)
    May 1, 2008 April 30, 2010
    0.35
    April 30, 2012(d)
    Global Large-Cap Stock
    October 27, 2008 February 28, 2011
    1.00
    (a)
    Global Large-Cap Stock FundAdvisor Class
    October 27, 2008 February 28, 2011
    1.10
    (a)
    Global Real Estate
    October 27, 2008 April 30, 2011
    1.05
    (a)
    Global Real Estate FundAdvisor Class
    October 27, 2008 April 30, 2011
    1.15
    (a)
    Global Stock
    October 1, 2005 February 29, 2008
    1.00
    February 28, 2010(d)
    Global Stock FundAdvisor Class(l)
    March 1, 2008 February 28, 2010
    1.15
    February 29, 2012(d)
    Global Technology
    May 1, 2005 April 30, 2007
    1.50
    April 30, 2009(d)
    Inflation Protected Bond(m)
    October 1, 2008 September 30, 2010
    0.50
    September 30, 2012(d)
    Institutional Africa & Middle East
    April 30, 2008 February 28, 2011
    1.25
    (a)
    Institutional Concentrated Large-Cap Value
    September 30, 2006 April 30, 2009
    0.65
    (a)
    Institutional Global Equity
    June 30, 2006 February 28, 2009
    0.75
    (a)
    Institutional Global Large-Cap Equity
    October 27, 2008 February 28, 2011
    0.75
    (a)
    Institutional Large-Cap Core Growth(n)
    May 1, 2007 April 30, 2009
    0.65
    April 30, 2011(d)
    Institutional Large-Cap Growth(o)
    May 1, 2007 April 30, 2009
    0.58
    April 30, 2011(d)
    Institutional Large-Cap Value(p)
    May 1, 2008 April 30, 2010
    0.65
    April 30, 2012(d)
    Institutional U.S. Structured Research
    October 31, 2007 April 30, 2010
    0.55
    (a)
    International Growth & Income FundAdvisor Class
    March 1, 2006 February 29, 2008
    1.15
    February 28, 2010(d)
    International Growth & Income Fund
    R Class(q)
    March 1, 2008 February 28, 2010
    1.40
    February 29, 2012(d)
    International Stock FundAdvisor Class
    March 1, 2008 February 28, 2010
    1.15
    (a)
    International Stock FundR Class
    March 1, 2008 February 28, 2010
    1.40
    (a)
    Maryland Tax-Free Money
    July 1, 2005 June 30, 2007
    0.55
    June 30, 2009(d)
    New America Growth FundAdvisor Class(r)
    May 1, 2008 April 30, 2010
    1.10
    (a)
    New Income FundAdvisor Class(s)
    October 1, 2008 September 30, 2010
    0.90
    (a)
    New Income FundR Class(t)
    October 1, 2008 September 30, 2010
    1.15
    (a)
    New York Tax-Free Money
    July 1, 2007 June 30, 2009
    0.55
    (a)
    Overseas Stock
    December 29, 2006 February 28, 2009
    1.15
    (a)
    Personal Strategy Balanced
    October 1, 2006 September 30, 2008
    0.90
    September 30, 2010(d)
    Personal Strategy Growth
    October 1, 2006 September 30, 2008
    1.00
    September 30, 2010(d)
    Personal Strategy Income
    October 1, 2006 September 30, 2008
    0.80
    September 30, 2010(d)
    Real Estate FundAdvisor Class
    January 1, 2005 April 30, 2007
    1.20
    April 30, 2009(d)
    Short-Term Bond(u)
    October 1, 2007 September 30, 2009
    0.55
    (a)
    Short-Term Bond FundAdvisor Class
    October 1, 2007 September 30, 2009
    0.85
    (a)
    Tax-Efficient Multi-Cap Growth(v)
    July 1, 2008 June 30, 2010
    1.25
    June 30, 2012(d)

    147


    (a)No reimbursement will be made more than three years after any waiver or payment.

    (b)The California Tax-Free Money Fund previously operated under a 0.55% expense limitation that expired June 30, 2007.

    (c)The Capital Opportunity Fund previously operated under a 0.95% expense limitation that expired April 30, 2008.

    (d)No reimbursement will be made after the reimbursement date or three years after any waiver or payment, whichever is sooner.

    148


    (e)The Capital Opportunity FundAdvisor Class previously operated under a l.10% expense limitation that expired April 30, 2008.

    (f)The Capital Opportunity FundR Class previously operated under a 1.35% expense limitation that expired April 30, 2008.

    (g)The Developing Technologies Fund previously operated under a 1.50% expense limitation that expired April 30, 2007. The reimbursement period for this limitation extends through April 30, 2009.

    (h)The Diversified Mid-Cap Growth Fund previously operated under a 1.25% expense limitation that expired April 30, 2008.

    (i)The Diversified Small-Cap Growth Fund previously operated under a 1.25% expense limitation that expired April 30, 2008. The reimbursement period for this limitation extends through April 30, 2010.

    (j)The Dividend Growth FundAdvisor Class previously operated under a 1.05% expense limitation that expired April 30, 2008. The reimbursement period for this limitation extends through April 30, 2010.

    (k)The Equity Index 500 Fund previously operated under a 0.35% expense limitation that expired April 30, 2008. The reimbursement period for this limitation extends through April 30, 2010.

    (l)The Global Stock FundAdvisor Class previously operated under a 1.15% expense limitation that expired February 29, 2008. The reimbursement period for this limitation extends through February 28, 2010.

    (m)The Inflation Protected Bond Fund previously operated under a 0.50% expense limitation that expired September 30, 2008. The reimbursement period for this limitation extends through September 30, 2010.

    (n)The Institutional Large-Cap Core Growth Fund previously operated under a 0.65% expense limitation that expired April 30, 2007. The reimbursement period for this limitation extends through April 30, 2009.

    (o)The Institutional Large-Cap Growth Fund previously operated under a 0.58% expense limitation that expired April 30, 2007. The reimbursement period for this limitation extends through April 30, 2009.

    (p)The Institutional Large-Cap Value Fund previously operated under a 0.65% expense limitation that expired April 30, 2008. The reimbursement period for this limitation extends through April 30, 2010.

    (q)The International Growth & Income FundR Class previously operated under a 1.40% expense limitation that expired February 29, 2008. The reimbursement period for this limitation extends through February 28, 2010.

    (r)The New America Growth FundAdvisor Class previously operated under a l.10% expense limitation that expired April 30, 2008.

    (s)The New Income Fund & Advisor Class previously operated under a 0.90% expense limitation that expired September 30, 2008.

    (t)The New Income FundR Class previously operated under a 1.15% expense limitation that expired September 30, 2008.

    (u)The Short-Term Bond Fund previously operated under a 0.55% expense limitation that expired September 30, 2007.

    (v)The Tax-Efficient Multi-Cap Growth Fund previously operated under a 1.25% expense limitation that expired June 30, 2008. The reimbursement period for this limitation extends through June 30, 2010.

    The Investment Management Agreements between the funds and the Investment Managers provide that each fund will bear all expenses of its operations not specifically assumed by the Investment Managers.

    For the purpose of determining whether a fund is entitled to expense limitation, the expenses of a fund are calculated on a monthly basis. If a fund is entitled to expense limitation, that month`s advisory fee will be reduced or postponed, with any adjustment made after the end of the year.

    Except for the California and New York Funds, each of the above-referenced funds` Investment Management Agreement also provides that one or more additional expense limitation periods (of the same or different time periods) may be implemented after the expiration of the current expense limitation, and that with respect to any such additional limitation period, the funds may reimburse the Investment Managers, provided the reimbursement does not result in the funds` aggregate expenses exceeding the additional expense limitation. No reimbursement may be made by the California and New York Funds unless approved by shareholders.

    Africa & Middle East Fund At October 31, 2007, management fees in the amount of $10,000 were waived. Including these amounts, management fees waived in the amount of $10,000 remain subject to repayment.

    California Tax-Free Money Fund At February 29, 2008, management fees in the amount of $73,000 were waived. Including these amounts, management fees waived in the amount of $202,000 remain subject to repayment.

    Capital Opportunity Fund, Capital Opportunity FundAdvisor and R Classes At December 31, 2007, expenses in the amount of $10,000 were reimbursed by the manager. Including these amounts, expenses previously reimbursed by the manager in the amount of $22,000 remain subject to repayment.

    149


    Developing Technologies Fund At December 31, 2007, management fees in the amount of $92,000 were waived. Including these amounts, management fees waived in the amount of $231,000 remain subject to repayment.

    Diversified Mid-Cap Growth Fund At December 31, 2007, management fees in the amount of $120,000 were repaid. Management fees waived in the amount of $20,000 remain subject to repayment.

    Diversified Small-Cap Growth Fund At December 31, 2007, management fees in the amount of $9,000 were repaid. Management fees waived in the amount of $1,000 remain subject to repayment.

    Dividend Growth FundAdvisor Class At December 31, 2007, expenses in the amount of $3,000 were reimbursed by the manager. Including these amounts, expenses previously reimbursed by the manager in the amount of $6,000 remain subject to repayment.

    Equity Index 500 Fund At December 31, 2007, management fees in the amount of $558,000 were repaid. Including these amounts, management fees waived in the amount of $2,292,000 remain subject to repayment.

    Global Stock Fund At October 31, 2007, expenses in the amount of $15,000 were repaid to the manager. Including these amounts, expenses previously reimbursed by the manager in the amount of $3,000 remain subject to repayment.

    Global Technology Fund At December 31, 2007, there were no amounts subject to repayment by the fund. The fund operated below its expense limitation.

    Inflation Protected Bond Fund At May 31, 2008, management fees in the amount of $333,000 were waived and expenses in the amount of $2,000 were reimbursed by the manager. Including these amounts, management fees waived and expenses previously reimbursed by the manager in the amount of $895,000 remain subject to repayment.

    Institutional Concentrated Large-Cap Value Fund At December 31, 2007, management fees in the amount of $36,000 were waived and expenses in the amount of $171,000 were reimbursed by the manager. Including these amounts, management fees waived and expenses previously reimbursed by the manager in the amount of $235,000 remain subject to repayment.

    Institutional Global Equity Fund At October 31, 2007, management fees in the amount of $18,000 were waived and expenses in the amount of $230,000 were reimbursed by the manager. Including these amounts, management fees waived and expenses previously reimbursed by the manager in the amount of $306,000 remain subject to repayment.

    Institutional Large-Cap Core Growth Fund At December 31, 2007, management fees in the amount of $158,000 were waived and expenses in the amount of $20,000 were reimbursed by the manager. Including these amounts, management fees waived and expenses previously reimbursed in the amount of $405,000 remain subject to repayment.

    Institutional Large-Cap Growth Fund At December 31, 2007, management fees in the amount of $26,000 were repaid. Including these amounts, management fees waived and expenses previously reimbursed by the manager in the amount of $180,000 remain subject to repayment.

    Institutional Large-Cap Value Fund At December 31, 2007, management fees in the amount of $14,000 were repaid. Including these amounts, management fees waived in the amount of $97,000 remain subject to repayment.

    International Growth & Income Fund, International Growth & Income FundAdvisor and R Classes At October 31, 2007, management fees in the amount of $9,000 were repaid to the manager. There were no amounts subject to repayment. Each class operated below its expense limitation.

    International Stock FundAdvisor and R Classes At October 31, 2007, management fees in the amount of $3,000 were repaid to the manager. Including these amounts, management fees and expenses previously reimbursed by the manager in the amount of $1,000 remain subject to repayment. Each class operated below its expense limitation.

    150


    Maryland Tax-Free Money Fund At February 29, 2008, management fees in the amount of $30,000 were repaid. There were no amounts subject to repayment.

    New America Growth Fund At December 31, 2007, expenses in the amount of $5,000 were reimbursed by the manager. Including these amounts, expenses previously reimbursed by the manager in the amount of $8,000 remain subject to repayment.

    New Income FundAdvisor and R Classes At May 31, 2008, management fees in the amount of $177,000 were waived and expenses in the amount of $1,000 were repaid to the manager. Including these amounts, expenses previously reimbursed by the manager in the amount of $13,000 remain subject to repayment.

    New York Tax-Free Money Fund At February 29, 2008, management fees in the amount of $53,000 were waived. Including these amounts, management fees waived in the amount of $138,000 remain subject to repayment.

    Overseas Stock Fund For the year ended October 31, 2007, the fund operated below its expense limitation.

    Personal Strategy Balanced Fund For the year ended May 31, 2008, the fund operated below its expense limitation. There were no amounts subject to repayment.

    Personal Strategy Growth Fund For the year ended May 31, 2008, the fund operated below its expense limitation. There were no amounts subject to repayment.

    Personal Strategy Income Fund For the year ended May 31, 2008, the fund operated below its expense limitation. There were no amounts subject to repayment.

    Real Estate Fund and Real Estate FundAdvisor Class At December 31, 2007, there were no amounts subject to repayment. The Advisor Class operated below its expense limitation.

    Short-Term Bond Fund and Short-Term Bond FundAdvisor Class At May 31, 2008, management fees in the amount of $172,000 were waived and expenses in the amount of $485,000 were reimbursed by the manager. Including these amounts, management fees waived and expenses previously reimbursed by the manager in the amount of $2,921,000 remain subject to repayment.

    Tax-Efficient Multi-Cap Growth Fund At February 29, 2008, management fees in the amount of $20,000 were waived. Including these amounts, management fees waived in the amount of $83,000 remain subject to repayment.

    Management Related Services

    In addition to the management fee, the funds (other than the Single-Fee Funds) pay for the following: shareholder service expenses; custodial, accounting, legal, and audit fees; costs of preparing and printing prospectuses and reports sent to shareholders; registration fees and expenses; proxy and annual meeting expenses (if any); and directors` fees and expenses.

    T. Rowe Price Services, Inc. ("Services"), a wholly owned subsidiary of T. Rowe Price, acts as the funds` transfer and dividend disbursing agent and provides shareholder and administrative services. T. Rowe Price Retirement Plan Services, Inc. ("RPS"), also a wholly owned subsidiary, provides recordkeeping, sub-transfer agency, and administrative services for certain types of retirement plans investing in the funds. The fees paid by the funds to Services are based on the costs to Services of providing these services plus a return on capital employed in support of the services.

    The fees paid to RPS are based on a per plan participant fee. The fees paid to Services and RPS are set forth in each fund`s shareholder report under "Related Party Transactions." The address for Services and RPS is 100 East Pratt Street, Baltimore, Maryland 21202.

    151


    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 during the fiscal years indicated to T. Rowe Price for accounting services.

    Fund


    Fiscal Year Ended











    2/29/08


    2/28/07


    2/28/06

    California Tax-Free Bond
    $96,000
    $69,000
    $64,000
    California Tax-Free Money
    96,000
    69,000
    64,000
    Georgia Tax-Free Bond
    96,000
    69,000
    64,000
    Maryland Short-Term Tax-Free Bond
    96,000
    69,000
    64,000
    Maryland Tax-Free Bond
    125,000
    91,000
    84,000
    Maryland Tax-Free Money
    96,000
    69,000
    64,000
    New Jersey Tax-Free Bond
    96,000
    69,000
    64,000
    New York Tax-Free Bond
    96,000
    69,000
    64,000
    New York Tax-Free Money
    96,000
    69,000
    64,000
    Tax-Efficient Balanced
    96,000
    69,000
    64,000
    Tax-Efficient Growth
    96,000
    69,000
    64,000
    Tax-Efficient Multi-Cap Growth
    96,000
    69,000
    64,000
    Tax-Exempt Money
    125,000
    91,000
    84,000
    Tax-Free High Yield
    155,000
    112,000
    104,000
    Tax-Free Income
    139,000
    100,000
    94,000
    Tax-Free Income FundAdvisor Class
    31,000
    22,000
    18,000
    Tax-Free Short-Intermediate
    96,000
    69,000
    64,000
    Virginia Tax-Free Bond
    96,000
    69,000
    64,000


    Fund


    Fiscal Year Ended











    5/31/08


    5/31/07


    5/31/06

    Corporate Income
    $159,089
    $124,000
    $104,000
    GNMA
    159,083
    124,000
    104,000
    TRP Government Reserve Investment
    98,333
    77,000
    64,000
    High Yield
    160,548
    126,000
    105,000
    High Yield FundAdvisor Class
    44,327
    33,000
    28,000
    Inflation Protected Bond
    128,000
    100,000
    84,000
    Institutional Core Plus
    173,250
    112,000
    84,000
    Institutional Floating Rate
    67,667
    (a)
    (a)
    Institutional High Yield
    190,167
    148,000
    124,000
    New Income
    224,631
    171,000
    145,000
    New Income FundAdvisor Class
    (b)
    (b)
    (b)
    New Income FundR Class
    (b)
    (b)
    (b)
    Personal Strategy Balanced
    191,284
    148,000
    125,000
    Personal Strategy Growth
    190,993
    148,000
    125,000
    Personal Strategy Income
    190,783
    148,000
    124,000
    Prime Reserve
    128,000
    100,000
    84,000
    TRP Reserve Investment
    128,000
    100,000
    84,000
    Retirement 2005
    (c)
    (c)
    (c)
    Retirement 2005 FundAdvisor Class
    (c)
    (a)
    (a)
    Retirement 2005 FundR Class
    (c)
    (a)
    (a)
    Retirement 2010
    (c)
    (c)
    (c)
    Retirement 2010 FundAdvisor Class
    (c)
    (c)
    (c)
    Retirement 2010 FundR Class
    (c)
    (c)
    (c)
    Retirement 2015
    (c)
    (c)
    (c)
    Retirement 2015 FundAdvisor Class
    (c)
    (a)
    (a)
    Retirement 2015 FundR Class
    (c)
    (a)
    (a)
    Retirement 2020
    (c)
    (c)
    (c)
    Retirement 2020 FundAdvisor Class
    (c)
    (c)
    (c)
    Retirement 2020 FundR Class
    (c)
    (c)
    (c)
    Retirement 2025
    (c)
    (c)
    (c)
    Retirement 2025 FundAdvisor Class
    (c)
    (a)
    (a)
    Retirement 2025 FundR Class
    (c)
    (a)
    (a)
    Retirement 2030
    (c)
    (c)
    (c)
    Retirement 2030 FundAdvisor Class
    (c)
    (c)
    (c)
    Retirement 2030 FundR Class
    (c)
    (c)
    (c)
    Retirement 2035
    (c)
    (c)
    (c)
    Retirement 2035 FundAdvisor Class
    (c)
    (a)
    (a)
    Retirement 2035 FundR Class
    (c)
    (a)
    (a)
    Retirement 2040
    (c)
    (c)
    (c)
    Retirement 2040 FundAdvisor Class
    (c)
    (c)
    (c)
    Retirement 2040 FundR Class
    (c)
    (c)
    (c)
    Retirement 2045
    (c)
    (c)
    (c)
    Retirement 2045 FundAdvisor Class
    (c)
    (a)
    (a)
    Retirement 2045 FundR Class
    (c)
    (a)
    (a)
    Retirement 2050
    (c)
    (c)
    (a)
    Retirement 2050 FundAdvisor Class
    (c)
    (c)
    (a)
    Retirement 2050 FundR Class
    (c)
    (c)
    (a)
    Retirement 2055
    (c)
    (c)
    (a)
    Retirement 2055 FundAdvisor Class
    (c)
    (a)
    (a)
    Retirement 2055 FundR Class
    (c)
    (a)
    (a)
    Retirement Income
    (c)
    (c)
    (c)
    Short-Term Bond
    173,570
    135,000
    112,000
    Short-Term Bond FundAdvisor Class
    (b)
    (b)
    (b)
    Short-Term Income
    159,239
    89,000
    (a)
    U.S. Treasury Intermediate
    98,333
    77,000
    64,000
    U.S. Treasury Long-Term
    98,333
    77,000
    64,000
    U.S. Treasury Money
    98,333
    77,000
    64,000

    152


    (a)Prior to commencement of operations.

    (b)Less than $1,000.

    (c)Paid by underlying Price funds pursuant to the Special Servicing Agreement.

    153



    Fund


    Fiscal Year Ended











    10/31/07


    10/31/06


    10/31/05

    Africa & Middle East
    $30,000
    (a)
    (a)
    Emerging Europe & Mediterranean
    117,000
    $86,000
    $85,000
    Emerging Markets Stock
    121,000
    88,000
    86,000
    European Stock
    118,000
    89,000
    87,000
    Global Large-Cap Stock
    (a)
    (a)
    (a)
    Global Large-Cap Stock FundAdvisor Class
    (a)
    (a)
    (a)
    Global Stock
    130,000
    89,000
    84,000
    Global Stock FundAdvisor Class
    (b)
    (b)
    (a)
    Institutional Africa & Middle East
    (a)
    (a)
    (a)
    Institutional Emerging Markets Equity
    117,000
    84,000
    84,000
    Institutional Foreign Equity
    120,000
    108,000
    105,000
    Institutional Global Equity
    117,000
    28,000
    (a)
    Institutional Global Large-Cap Equity
    (a)
    (a)
    (a)
    International Discovery
    120,000
    92,000
    88,000
    International Equity Index
    145,000
    104,000
    104,000
    International Growth & Income
    122,000
    84,000
    90,000
    International Growth & Income FundAdvisor Class
    23,000
    20,000
    14,000
    International Growth & Income Fund
    R Class
    3,000
    1,000
    (b)
    International Stock
    180,000
    130,000
    136,000
    International Stock FundAdvisor Class
    1,700
    1,000
    (b)
    International Stock FundR Class
    (b)
    (b)
    (b)
    Japan
    91,000
    67,000
    65,000
    Latin America
    91,000
    67,000
    64,000
    New Asia
    119,000
    86,000
    87,000
    Overseas Stock
    127,000
    (a)
    (a)
    Summit Cash Reserves
    117,000
    84,000
    84,000
    Summit GNMA
    117,000
    84,000
    84,000
    Summit Municipal Income
    90,000
    64,000
    64,000
    Summit Municipal Intermediate
    90,000
    64,000
    64,000
    Summit Municipal Money Market
    117,000
    84,000
    84,000
    U.S. Bond Index
    117,000
    84,000
    81,000

    (a)Prior to commencement of operations.

    (b)Less than $1,000.


    Fund


    Fiscal Year Ended











    12/31/07


    12/31/06


    12/31/05

    Balanced
    $153,000
    $106,000
    $107,000
    Blue Chip Growth
    112,000
    75,000
    71,000
    Blue Chip Growth FundAdvisor Class
    11,000
    7,000
    11,000
    Blue Chip Growth FundR Class
    1,000
    (a)
    (a)
    Capital Appreciation
    137,000
    93,000
    93,000
    Capital Appreciation FundAdvisor Class
    2,000
    (a)
    (a)
    Capital Opportunity
    151,000
    102,000
    102,000
    Capital Opportunity FundAdvisor Class
    (a)
    (a)
    (a)
    Capital Opportunity FundR Class
    (a)
    (a)
    (a)
    Developing Technologies
    95,000
    64,000
    64,000
    Diversified Mid-Cap Growth
    95,000
    64,000
    64,000
    Diversified Small-Cap Growth
    95,000
    64,000
    64,000
    Dividend Growth
    109,000
    73,000
    64,000
    Dividend Growth FundAdvisor Class
    (a)
    (a)
    (b)
    Emerging Markets Bond
    181,000
    125,000
    126,000
    Equity Income
    111,000
    74,000
    72,000
    Equity Income FundAdvisor Class
    13,000
    8,000
    10,000
    Equity Income FundR Class
    1,000
    (a)
    (a)
    Equity Index 500
    153,000
    105,000
    105,000
    Extended Equity Market Index
    153,000
    105,000
    104,000
    Financial Services
    95,000
    64,000
    64,000
    Global Real Estate
    (b)
    (b)
    (b)
    Global Real Estate FundAdvisor Class
    (b)
    (b)
    (b)
    Global Technology
    123,000
    84,000
    84,000
    Growth & Income
    95,000
    64,000
    64,000
    Growth Stock
    126,000
    88,000
    92,000
    Growth Stock FundAdvisor Class
    21,000
    11,000
    8,000
    Growth Stock FundR Class
    5,000
    3,000
    2,000
    Health Sciences
    152,000
    104,000
    104,000
    Institutional Concentrated Large-Cap Value
    95,000
    16,000
    (b)
    Institutional Emerging Markets Bond
    181,000
    10,000
    (b)
    Institutional International Bond
    106,000
    (b)
    (b)
    Institutional Large-Cap Core Growth
    95,000
    64,000
    64,000
    Institutional Large-Cap Growth
    95,000
    64,000
    64,000
    Institutional Large-Cap Value
    95,000
    64,000
    64,000
    Institutional Mid-Cap Equity Growth
    95,000
    64,000
    64,000
    Institutional Small-Cap Stock
    95,000
    64,000
    64,000
    Institutional U.S. Structured Research
    20,000
    (b)
    (b)
    International Bond
    176,000
    126,000
    126,000
    International Bond FundAdvisor Class
    19,000
    7,000
    7,000
    Media & Telecommunications
    95,000
    64,000
    64,000
    Mid-Cap Growth
    119,000
    82,000
    78,000
    Mid-Cap Growth FundAdvisor Class
    4,000
    3,000
    3,000
    Mid-Cap Growth FundR Class
    1,000
    (a)
    (a)
    Mid-Cap Value
    112,000
    72,000
    73,000
    Mid-Cap Value FundAdvisor Class
    10,000
    6,000
    5,000
    Mid-Cap Value FundR Class
    7,000
    4,000
    4,000
    New America Growth
    109,000
    73,000
    64,000
    New America Growth FundAdvisor Class
    (a)
    (a)
    (b)
    New Era
    96,000
    64,000
    64,000
    New Horizons
    123,000
    84,000
    84,000
    Real Estate
    107,000
    71,000
    73,000
    Real Estate FundAdvisor Class
    2,000
    2,000
    (a)
    Science & Technology
    118,000
    80,000
    81,000
    Science & Technology FundAdvisor Class
    19,000
    13,000
    12,000
    Small-Cap Stock
    101,000
    67,000
    68,000
    Small-Cap Stock FundAdvisor Class
    9,000
    6,000
    5,000
    Small-Cap Value
    121,000
    82,000
    81,000
    Small-Cap Value FundAdvisor Class
    17,000
    11,000
    12,000
    Spectrum Growth
    (c)
    (c)
    (c)
    Spectrum Income
    (c)
    (c)
    (c)
    Spectrum International
    (c)
    (c)
    (c)
    Total Equity Market Index
    152,000
    104,000
    104,000
    Value
    91,000
    62,000
    69,000
    Value FundAdvisor Class
    19,000
    11,000
    4,000

    154


    155


    (a)Less than $1,000.

    (b)Prior to commencement of operations.

    (c)Paid by underlying Price funds pursuant to the Special Servicing Agreement.

    other shareholder services

    The funds have adopted an administrative fee payment ("AFP") program that authorizes the funds to make payments for services provided on behalf of the funds. Payments are made to retirement plans, retirement plan recordkeepers, insurance companies, banks, and broker-dealers for transfer agency, recordkeeping, and other administrative services. These services include, but are not limited to: transmitting net purchase and redemption orders; maintaining separate records for shareholders reflecting purchases, redemptions, and share balances; mailing shareholder confirmations and periodic statements; processing dividend payments; and telephone services in connection with the above. Under the AFP program, the funds paid the amounts set forth below in calendar year 2007.

    Fund


    Payment

    Africa & Middle East
    $0
    Balanced
    475,448
    Blue Chip Growth
    1,693,737
    California Tax-Free Bond
    1,201
    California Tax-Free Money
    13
    Capital Appreciation
    757,570
    Capital Opportunity
    3,130
    Corporate Income
    601
    Developing Technologies
    48
    Diversified Mid-Cap Growth
    1,772
    Diversified Small-Cap Growth
    119
    Dividend Growth
    21,994
    Emerging Europe & Mediterranean
    27,664
    Emerging Markets Bond
    10,409
    Emerging Markets Stock
    523,409
    Equity Income
    2,299,144
    Equity Index 500
    17,245
    European Stock
    36,697
    Extended Equity Market Index
    6,689
    Financial Services
    26,372
    Georgia Tax-Free Bond
    3,144
    GNMA
    14,388
    TRP Government Reserve Investment
    0
    Global Large-Cap Stock
    (a)
    Global Real Estate
    (a)
    Global Stock
    8,023
    Global Technology
    2,251
    Growth & Income
    19,544
    Growth Stock
    3,273,271
    Health Sciences
    353,950
    High Yield
    201,615
    Inflation Protected Bond
    639
    Institutional Africa & Middle East
    (a)
    Institutional Concentrated Large-Cap Value
    0
    Institutional Core Plus
    578
    Institutional Emerging Markets Bond
    0
    Institutional Emerging Markets Equity
    0
    Institutional Floating Rate
    (a)
    Institutional Foreign Equity
    0
    Institutional Global Equity
    0
    Institutional Global Large-Cap Equity
    (a)
    Institutional High Yield
    0
    Institutional International Bond
    0
    Institutional Large-Cap Core Growth
    171
    Institutional Large-Cap Growth
    0
    Institutional Large-Cap Value
    0
    Institutional Mid-Cap Equity Growth
    0
    Institutional Small-Cap Stock
    0
    Institutional U.S. Structured Research
    481
    International Bond
    342,047
    International Discovery
    778,270
    International Equity Index
    1,306
    International Growth & Income
    82,015
    International Stock
    440,286
    Japan
    10,794
    Latin America
    300,617
    Maryland Short-Term Tax-Free Bond
    1,028
    Maryland Tax-Free Bond
    39,016
    Maryland Tax-Free Money
    0
    Media & Telecommunications
    83,851
    Mid-Cap Growth
    4,698,222
    Mid-Cap Value
    1,337,067
    New America Growth
    75,883
    New Asia
    279,664
    New Era
    432,689
    New Horizons
    790,809
    New Income
    36,356
    New Jersey Tax-Free Bond
    392
    New York Tax-Free Bond
    1,989
    New York Tax-Free Money
    16
    Overseas Stock
    63
    Personal Strategy Balanced
    393,339
    Personal Strategy Growth
    198,124
    Personal Strategy Income
    72,966
    Prime Reserve
    35,682
    Real Estate
    273,320
    TRP Reserve Investment
    0
    Retirement 2005
    (b)
    Retirement 2010
    (b)
    Retirement 2015
    (b)
    Retirement 2020
    (b)
    Retirement 2025
    (b)
    Retirement 2030
    (b)
    Retirement 2035
    (b)
    Retirement 2040
    (b)
    Retirement 2045
    (b)
    Retirement 2050
    (b)
    Retirement 2055
    (b)
    Retirement Income
    (b)
    Science & Technology
    243,533
    Short-Term Bond
    57,395
    Short-Term Income
    0
    Small-Cap Stock
    2,995,777
    Small-Cap Value
    763,019
    Spectrum Growth
    (b)
    Spectrum Income
    (b)
    Spectrum International
    (b)
    Summit Cash Reserves
    1,564
    Summit GNMA
    63
    Summit Municipal Income
    44,899
    Summit Municipal Intermediate
    61,263
    Summit Municipal Money Market
    46
    Tax-Efficient Balanced
    116
    Tax-Efficient Growth
    266
    Tax-Efficient Multi-Cap Growth
    384
    Tax-Exempt Money
    353
    Tax-Free High Yield
    15,469
    Tax-Free Income
    21,309
    Tax-Free Short-Intermediate
    16,576
    Total Equity Market Index
    15,028
    U.S. Bond Index
    143
    U.S. Treasury Intermediate
    11,220
    U.S. Treasury Long-Term
    553
    U.S. Treasury Money
    22,208
    Value
    402,239
    Virginia Tax-Free Bond
    22,912

    156


    157


    158


    (a)Prior to commencement of operations.

    (b)Paid by underlying Price funds pursuant to the Special Servicing Agreement.

    Each Advisor and R Class has adopted an AFP program under which various third parties, including third parties receiving 12b-1 payments, may receive payments from the class in addition to 12b-1 fees for providing various recordkeeping, transfer agency, and administrative services to the classes and/or shareholders thereof. These services include, but are not limited to: transmitting net purchase and redemption orders; maintaining separate records for shareholders reflecting purchases, redemptions, and share balances; mailing shareholder confirmations and periodic statements; processing dividend payments; and telephone services in connection with the above. Under this AFP program, the funds paid the amounts set forth below in calendar year 2007.

    Fund


    Payment

    Blue Chip Growth FundAdvisor Class
    $993,516
    Blue Chip Growth FundR Class
    93,132
    Capital Appreciation FundAdvisor Class
    127,373
    Capital Opportunity FundAdvisor Class
    107
    Capital Opportunity FundR Class
    70
    Dividend Growth FundAdvisor Class
    898
    Equity Income FundAdvisor Class
    2,038,297
    Equity Income FundR Class
    270,016
    Global Large-Cap Stock FundAdvisor Class
    (a)
    Global Real Estate FundAdvisor Class
    (a)
    Global Stock FundAdvisor Class
    3,401
    Growth Stock FundAdvisor Class
    3,413,949
    Growth Stock FundR Class
    853,701
    High Yield FundAdvisor Class
    1,346,376
    International Bond FundAdvisor Class
    179,104
    International Growth & Income FundAdvisor Class
    405,601
    International Growth & Income Fund
    R Class
    53,933
    International Stock FundAdvisor Class
    30,273
    International Stock FundR Class
    1,997
    Mid-Cap Growth FundAdvisor Class
    501,168
    Mid-Cap Growth FundR Class
    174,560
    Mid-Cap Value FundAdvisor Class
    549,286
    Mid-Cap Value FundR Class
    420,040
    New America Growth FundAdvisor Class
    3,794
    New Income FundAdvisor Class
    3,369
    New Income FundR Class
    2,565
    Real Estate FundAdvisor Class
    52,292
    Retirement 2005 FundAdvisor Class
    (b)
    Retirement 2005 FundR Class
    (b)
    Retirement 2010 FundAdvisor Class
    (b)
    Retirement 2010 FundR Class
    (b)
    Retirement 2015 FundAdvisor Class
    (b)
    Retirement 2015 FundR Class
    (b)
    Retirement 2020 FundAdvisor Class
    (b)
    Retirement 2020 FundR Class
    (b)
    Retirement 2025 FundAdvisor Class
    (b)
    Retirement 2025 FundR Class
    (b)
    Retirement 2030 FundAdvisor Class
    (b)
    Retirement 2030 FundR Class
    (b)
    Retirement 2035 FundAdvisor Class
    (b)
    Retirement 2035 FundR Class
    (b)
    Retirement 2040 FundAdvisor Class
    (b)
    Retirement 2040 FundR Class
    (b)
    Retirement 2045 FundAdvisor Class
    (b)
    Retirement 2045 FundR Class
    (b)
    Retirement 2050 FundAdvisor Class
    (b)
    Retirement 2050 FundR Class
    (b)
    Retirement 2055 FundAdvisor Class
    (b)
    Retirement 2055 FundR Class
    (b)
    Retirement Income FundAdvisor Class
    (b)
    Retirement Income FundR Class
    (b)
    Science & Technology FundAdvisor Class
    451,746
    Short-Term Bond FundAdvisor Class
    2,164
    Small-Cap Stock FundAdvisor Class
    542,028
    Small-Cap Value FundAdvisor Class
    813,301
    Tax-Free Income FundAdvisor Class
    336,693
    Value FundAdvisor Class
    1,555,762

    159


    (a)Prior to commencement of operations.

    (b)Paid by underlying Price funds pursuant to the special servicing agreement.

    529 Plans

    T. Rowe Price is the investment manager of several college savings plans established by states under section 529 of the Code. Each plan has a number of portfolios that invest in underlying Price Funds including Blue Chip Growth, Emerging Markets Stock, Equity Index 500, International Growth & Income, International Stock, Mid-Cap Growth, Mid-Cap Value, Overseas Stock, Short-Term Bond, Short-Term Income, Small-Cap Stock, Spectrum Income, Summit Cash Reserves, Total Equity Market Index, U.S. Bond Index, and Value Funds. Each portfolio establishes an omnibus account in the underlying Price Funds. Transfer agent and recordkeeping expenses incurred by the portfolios as a result of transactions by participants in the 529 plans that invest in the Price Funds are paid for by the underlying Price Funds under their agreement with their

    160


    transfer agent, T. Rowe Price Services, Inc. The expenses borne by each underlying Price Fund are set forth in the shareholder report of the underlying fund under "Related Party Transactions."

    Control of Investment Adviser

    T. Rowe Price Group, Inc. ("Group") is a publicly owned company and owns 100% of the stock of T. Rowe Price Associates, Inc., which in turn indirectly owns 100% of T. Rowe Price International, Inc. Group was formed in 2000 as a holding company for the T. Rowe Price-affiliated companies.

    DISTRIBUTOR FOR THE FUNDs

    Investment Services, a Maryland corporation formed in 1980 as a wholly owned subsidiary of T. Rowe Price, serves as distributor for all T. Rowe Price mutual funds on a continuous basis. Investment Services is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority, Inc. ("FINRA").

    Investment Services is located at the same address as the funds and T. Rowe Price100 East Pratt Street, Baltimore, Maryland 21202.

    Investment Services serves as distributor to the funds, pursuant to an Underwriting Agreement ("Underwriting Agreement"), which provides that the funds (other than the Single-Fee Funds) will pay all fees and expenses in connection with necessary state filings; preparing, setting in type, printing, and mailing of prospectuses and reports to shareholders; and issuing shares, including expenses of confirming purchase orders. For the Single-Fee Funds, the Underwriting Agreement provides that Investment Services will pay, or will arrange for others to pay, all of these fees and expenses.

    The Underwriting Agreement also 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 shares for each fund, except for those fees and expenses specifically assumed by the funds. Investment Services` expenses are paid by T. Rowe Price.

    Investment Services acts as the agent of the funds, in connection with the sale of fund 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. Other than as described below with respect to the Advisor and R Class shares, no sales charges are paid by investors or the funds. No compensation is paid to Investment Services.

    Advisor and R Class

    Distribution and Shareholder Services Plan

    The fund directors adopted a plan pursuant to Rule 12b-1 with respect to each Advisor and R Class (collectively "Class"). Each plan provides that the Class may compensate Investment Services or such other persons as the funds or Investment Services designates, to finance any or all of the distribution, shareholder servicing, maintenance of shareholder accounts, and/or other administrative services with respect to Class shares. It is expected that most, if not all, payments under the plan will be made (either directly, or indirectly through Investment Services) to intermediaries other than Investment Services such as broker-dealers, banks, insurance companies, and retirement plan recordkeepers. Under the plan, each Advisor Class pays a fee at the annual rate of up to 0.25% of that class`s average daily net assets and each R Class pays a fee at the annual rate of up to 0.50% of that class`s average daily net assets. Normally, the full amount of the fee is paid to the intermediary on shares sold through that intermediary; however, a lesser amount may be paid. In addition, the fee may be split among intermediaries based on the level of services provided by each. Intermediaries may use the payments for, among other purposes, compensating employees engaged in sales and/or shareholder servicing of the Class, as well as for a wide variety of other purposes associated with supporting, distributing, and servicing Class shares. The amount of fees paid by a Class during any year may be more or less than the cost of distribution and other services provided to the Class and its investors. FINRA rules limit the amount of

    161


    annual distribution and service fees that may be paid by a mutual fund and impose a ceiling on the cumulative distribution fees paid. The plan complies with these rules.

    The plan requires that Investment Services provide, or cause to be provided, a quarterly written report identifying the amounts expended by each Class and the purposes for which such expenditures were made to the fund directors for their review.

    Prior to approving the plan, the funds considered various factors relating to the implementation of the plan and determined that there is a reasonable likelihood that the plan will benefit each fund, its Class, and the Class`s shareholders. The fund directors noted that to the extent the plan allows a fund to sell Class shares in markets to which it would not otherwise have access, the plan may result in additional sales of fund shares. This may enable a fund to achieve economies of scale that could reduce expenses. In addition, certain ongoing shareholder services may be provided more effectively by intermediaries with which shareholders have an existing relationship.

    The plan is renewable from year to year with respect to each fund, so long as its continuance is approved at least annually (1) by the vote of a majority of the fund directors and (2) by a vote of the majority of the funds` independent directors cast in person at a meeting called for the purpose of voting on such approval. The plan may not be amended to increase materially the amount of fees paid by any Class thereunder unless such amendment is approved by a majority vote of the outstanding shares of such Class and by the fund directors in the manner prescribed by Rule 12b-1 under the 1940 Act. The plan is terminable with respect to a Class at any time by a vote of a majority of the independent directors or by a majority vote of the outstanding shares in the Class.

    Payments under the 12b-1 plans will normally be made for funds that are closed to new investors. Such payments are made for the various services provided to the investors by the intermediaries receiving such payments.

    The following payments for the fiscal year indicated were made to intermediaries, including broker-dealers and insurance companies, for the distribution, shareholder servicing, maintenance of shareholder accounts, and/or other administrative services under the plan.


    Fund


    Fiscal Year Ended
    2/29/08

    Tax-Free Income FundAdvisor Class
    $845,000


    Fund


    Fiscal Year Ended
    5/31/08

    High Yield FundAdvisor Class
    $2,798,000
    New Income FundAdvisor Class
    22,000
    New Income FundR Class
    20,000
    Retirement 2005 FundAdvisor Class
    2,000
    Retirement 2005 FundR Class
    1,000
    Retirement 2010 FundAdvisor Class
    798,000
    Retirement 2010 FundR Class
    1,135,000
    Retirement 2015 FundAdvisor Class
    49,000
    Retirement 2015 FundR Class
    8,000
    Retirement 2020 FundAdvisor Class
    1,225,000
    Retirement 2020 FundR Class
    1,700,000
    Retirement 2025 FundAdvisor Class
    47,000
    Retirement 2025 FundR Class
    7,000
    Retirement 2030 FundAdvisor Class
    850,000
    Retirement 2030 FundR Class
    1,216,000
    Retirement 2035 FundAdvisor Class
    27,000
    Retirement 2035 FundR Class
    5,000
    Retirement 2040 FundAdvisor Class
    493,000
    Retirement 2040 FundR Class
    642,000
    Retirement 2045 FundAdvisor Class
    11,000
    Retirement 2045 FundR Class
    3,000
    Retirement 2050 FundAdvisor Class
    16,000
    Retirement 2050 FundR Class
    11,000
    Retirement 2055 FundAdvisor Class
    3,000
    Retirement 2055 FundR Class
    1,000
    Retirement Income FundAdvisor Class
    193,000
    Retirement Income FundR Class
    249,000
    Short-Term Bond FundAdvisor Class
    5,000

    162



    Fund


    Fiscal Year Ended
    10/31/07

    Global Large-Cap Stock FundAdvisor Class
    (a)
    Global Stock FundAdvisor Class
    $6,000
    International Growth & Income FundAdvisor Class
    1,012,000
    International Growth & Income Fund
    R Class
    252,000
    International Stock FundAdvisor Class
    162,000
    International Stock FundR Class
    12,000

    (a)Prior to commencement of operations.


    Fund


    Fiscal Year Ended
    12/31/07

    Blue Chip Growth FundAdvisor Class
    $2,577,000
    Blue Chip Growth FundR Class
    433,000
    Capital Appreciation FundAdvisor Class
    342,000
    Capital Opportunity FundAdvisor Class
    1,000
    Capital Opportunity FundR Class
    2,000
    Dividend Growth FundAdvisor Class
    3,000
    Equity Income FundAdvisor Class
    6,301,000
    Equity Income FundR Class
    1,365,000
    Growth Stock FundAdvisor Class
    8,219,000
    Growth Stock FundR Class
    4,174,000
    International Bond FundAdvisor Class
    645,000
    Mid-Cap Growth FundAdvisor Class
    1,435,000
    Mid-Cap Growth FundR Class
    917,000
    Mid-Cap Value FundAdvisor Class
    1,506,000
    Mid-Cap Value FundR Class
    2,131,000
    New America Growth FundAdvisor Class
    10,000
    Real Estate FundAdvisor Class
    134,000
    Science & Technology FundAdvisor Class
    1,131,000
    Small-Cap Stock FundAdvisor Class
    1,497,000
    Small-Cap Value FundAdvisor Class
    1,928,000
    Value FundAdvisor Class
    3,366,000

    163


    PORTFOLIO TRANSACTIONS

    Investment or Brokerage Discretion

    Decisions with respect to the selection, purchase, and sale of portfolio securities on behalf of the international Price Funds are made by T. Rowe Price International. Decisions with respect to the selection, purchase, and sale of portfolio securities on behalf of all other Price Funds are made by T. Rowe Price. T. Rowe Price and T. Rowe Price International are responsible for implementing these decisions for the Price Funds, including, where applicable, the negotiation of commissions, the allocation of portfolio brokerage and principal business, and the use of affiliates to assist in routing orders for execution.

    How Broker-Dealers Are Selected

    With respect to equity and debt securities, T. Rowe Price or T. Rowe Price International may effect principal transactions on behalf of a fund with a broker-dealer that furnishes brokerage and/or research services; designate any such broker-dealer to receive selling concessions, discounts, or other allowances; or otherwise deal with any such broker-dealer in connection with the acquisition of securities in underwritings. T. Rowe Price or T. Rowe Price International may receive research services in connection with brokerage transactions, including designations in fixed-price offerings.

    Debt Securities

    In purchasing and selling debt securities, T. Rowe Price and T. Rowe Price International ordinarily place transactions with 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 undisclosed compensation) and may involve the designation of selling concessions. Debt securities may also be purchased from underwriters at prices which include underwriting fees. Any transactions placed through broker-dealers serving as primary market-makers reflect the spread between the bid and ask prices. Funds that invest exclusively or primarily in debt securities may nonetheless benefit from research and services received through the use of commissions generated by funds investing in equity securities.

    Equity Securities

    In purchasing and selling equity securities, T. Rowe Price and T. Rowe Price International seek to obtain quality execution at favorable security prices through responsible broker-dealers and, in the case of agency transactions, at competitive commission rates. However, under certain conditions, higher brokerage commissions may be paid in return for a mix of brokerage and research services.

    In selecting broker-dealers to execute the Price Funds` 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, general execution, and operational capabilities of competing broker-dealers, their expertise in particular markets, and brokerage and research services provided by them. It is not the policy of T. Rowe Price or T. Rowe Price International to seek the lowest available commission rate where it is believed that a broker-dealer charging a higher commission rate would offer greater reliability or provide better price or execution.

    As a general practice, transactions involving U.S. equity securities are executed in the primary market with market-makers, or through an electronic communications network ("ECN") or Alternative Trading System. In

    164


    selecting from among these options, T. Rowe Price generally seeks to select the broker-dealers or electronic venue it believes to be actively and effectively trading the security being purchased or sold. In an effort to obtain quality execution, orders for foreign equity securities may be placed through T. Rowe Price International`s trading desk. Executions of orders may be directed to an affiliated trading desk that is best situated to execute a particular order.

    Transactions on stock exchanges involve the payment of brokerage commissions. In transactions on stock exchanges in the U.S., these commissions are negotiated. Traditionally, commission rates have generally not been negotiated on stock markets outside the U.S. However, an increasing number of overseas stock markets have adopted a system of negotiated rates or ranges of rates, although a small number of markets continue to be subject to an established schedule of minimum commission rates. It is expected that equity securities will ordinarily be purchased in the primary markets, whether over-the-counter or listed, and that listed securities may be purchased in the over-the-counter market if such market is deemed the primary market. In the case of securities traded on the over-the-counter markets, there is generally no stated commission, but the price usually includes an undisclosed commission or markup. In underwritten offerings, the price includes a disclosed, fixed commission or discount.

    Evaluating the Overall Reasonableness of Brokerage Commissions Paid

    On a continuing basis, T. Rowe Price and T. Rowe Price International seek to determine what levels of commission rates are reasonable in the marketplace for transactions executed on behalf of mutual funds and other institutional clients. In evaluating the reasonableness of commission rates, T. Rowe Price and T. Rowe Price International may consider any or all of the following: (a) rates quoted by broker-dealers; (b) the size of a particular transaction, in terms of the number of shares, dollar amount, and number of clients involved; (c) the complexity of a particular transaction in terms of both execution and settlement; (d) the level and type of business done with a particular firm over a period of time; (e) the extent to which the broker-dealer has capital at risk in the transaction; (f) historical commission rates; and (g) rates paid by other institutional investors based on available public information.

    Commissions Paid to Broker-Dealers for Research

    T. Rowe Price and T. Rowe Price International receive a wide range of research services from broker-dealers. The services provide domestic and international perspectives and may cover investment opportunities throughout the world. These services include information on the economy, industries, groups of securities, individual companies, statistics, accounting and tax law interpretations, political developments, legal developments affecting portfolio securities, technical market action, pricing and appraisal services, performance analysis, credit analysis, risk measurement analysis, and analysis of corporate responsibility issues. Research services are received primarily in the form of written reports, e-mails, computer-generated services, telephone contacts, and personal meetings with security analysts. Such services may also be provided through meetings arranged with corporate management, industry spokespersons, economists, academicians, and government representatives. Some research may be incorporated into firm-wide systems or communications. Therefore, T. Rowe Price may have access to research obtained through commissions generated by T. Rowe Price International and T. Rowe Price International may have access to research obtained through commissions generated by T. Rowe Price.

    Certain broker-dealers that provide quality brokerage and execution services also furnish proprietary research services to T. Rowe Price and T. Rowe Price International. Proprietary research may also include research provided by an affiliate of the broker-dealer. With regard to the payment of brokerage commissions and receipt of proprietary research, T. Rowe Price and T. Rowe Price International have adopted brokerage allocation policies which embody the concepts of Section 28(e) of the 1934 Act and which are in accordance with the Conduct of Business Rules of the United Kingdom Financial Services Authority. Section 28(e) permits an investment adviser to cause its accounts or clients to pay a higher commission to a broker-dealer that furnishes research services than what might be charged by another broker-dealer that does not furnish research services (or that furnishes brokerage and research services deemed to be of lesser value). The adviser must determine in good faith that the commission is reasonable in relation to the value of the research services (and any brokerage services) provided. The determination may be viewed in terms of either that particular transaction or the overall responsibilities of the adviser with respect to the accounts over which it exercises

    165


    investment discretion. As a result, research may not necessarily benefit all accounts paying commissions to such broker-dealers.

    Except as set forth in the following section on "Directed Brokerage," T. Rowe Price and T. Rowe Price International have policies of not allocating brokerage business in return for products or services other than brokerage or research services, although from time to time each receives third-party vendor services and products serving both research and non-research functions in accordance with the provisions of Section 28(e). T. Rowe Price and T. Rowe Price International cannot always readily determine the extent to which commissions charged by broker-dealers reflect the value of their research services. However, in accordance with regulations issued by the United Kingdom Financial Services Authority, T. Rowe Price International makes a good faith determination of the amount of its clients` commissions attributable to research.

    T. Rowe Price and T. Rowe Price International may receive proprietary research from broker-dealers in connection with brokerage transactions, including selling concessions and designations in fixed-price offerings in which a Price Fund or non-ERISA client participates.

    T. Rowe Price and T. Rowe Price International do not use brokerage commissions to acquire independent, third-party research and related services of non-broker-dealer entities. Proprietary research and services may be acquired or received either directly from executing brokers or indirectly through other brokers in step-out or other transactions or similar arrangements. A "step-out" is an arrangement by which an investment manager executes a trade through one broker-dealer but instructs that entity to step-out all or a portion of the trade to another broker-dealer. This second broker-dealer will clear and settle, and receive commissions for, the stepped-out portion. In the case of the Price Funds, T. Rowe Price or T. Rowe Price International would use a step-out to compensate broker-dealers who provide valuable proprietary research services. These broker-dealers may or may not have trading desks of their own.

    Research services received from broker-dealers are supplemental to the research efforts of T. Rowe Price and T. Rowe Price International and, when utilized, are subject to internal analysis before being incorporated into their investment process. As a practical matter, it would not be possible to take into consideration all of the information and varied opinions presently provided by broker-dealers. Independent third-party research is an important component of the Price Funds` investment selection process but is currently paid for directly by T. Rowe Price or T. Rowe Price International, rather than through third-party soft dollar arrangements. T. Rowe Price may use full service broker-dealers that provide "bundled" proprietary research, either directly or through step-out transactions with other brokers, subject to T. Rowe Price`s best execution obligations. Lower commissions may be available from other broker-dealers that do not provide research.

    While receipt of research services from brokerage firms has not reduced normal research activities by T. Rowe Price or T. Rowe Price International, the expenses of either 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 broker-dealers, T. Rowe Price and T. Rowe Price International are relieved of expenses which they might otherwise bear.

    Directed Brokerage

    The Price Funds that invest in U.S. equity securities have adopted a commission recapture program. Under the program, a percentage of commissions generated by the portfolio transactions of those funds is rebated to the funds by the broker-dealers and credited to short-term security gain/loss.

    At the present time, the Price Funds do not recapture commissions, underwriting discounts, or selling group concessions in connection with debt securities acquired in underwritten offerings. T. Rowe Price and T. Rowe Price International may, however, have the opportunity to designate a portion of the underwriting spread to broker-dealers that participate in the offering.

    Allocation of Brokerage Commissions

    T. Rowe Price and T. Rowe Price International have policies of not pre-committing a specific amount of business to any broker-dealer over any specific time period. Historically, brokerage placement has been determined, as appropriate, 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. T. Rowe Price and T. Rowe Price

    166


    International may choose to allocate brokerage among several broker-dealers that are able to meet the needs of the transaction.

    Each year, T. Rowe Price and T. Rowe Price International assess the contributions of the equity brokerage and research services provided by broker-dealers and create a ranking of broker-dealers in response to these assessments. Portfolio managers, research analysts, and the trading department each evaluate the brokerage, execution, and research services they receive from broker-dealers and make judgments as to the quality of such services. Actual business received by a particular firm may not directly reflect its ranking in the voting process. It may be less than the suggested target but can, and often does, exceed the suggestions because the total business is allocated on the basis of all the considerations described above. Allocation of brokerage business is monitored on a periodic basis by the Equity and Fixed Income Brokerage and Trading Control Committees. In no event is a broker-dealer excluded from receiving business from T. Rowe Price or T. Rowe Price International because it has not been identified as providing research services. Discount or execution-only brokers, as well as ECNs, are used where deemed appropriate.

    Trade Allocation Policies

    T. Rowe Price and T. Rowe Price International have developed written trade allocation guidelines for their trading desks. Generally, when the amount of securities available in a public offering or the secondary markets is insufficient to satisfy the volume or price requirements for the participating client portfolios, the guidelines require a pro-rata allocation based upon the relative sizes of the participating client portfolios or the relative sizes of the participating client orders, depending upon the market involved. In allocating trades made on a combined basis, the trading desks seek to achieve the same net unit price of the securities for each participating client. Because a pro-rata allocation may not always adequately accommodate all facts and circumstances, the guidelines provide for exceptions to allocate trades on an adjusted basis, which may include a system-generated random allocation. For example, adjustments may be made: (i) to eliminate de minimis positions; (ii) to give priority to accounts with specialized investment policies and objectives; and (iii) to reallocate in light of a participating portfolio`s characteristics (e.g., available cash, industry or issuer concentration, duration, credit exposure). With respect to any private placement transactions, conditions imposed by the issuer may limit availability of allocations to client accounts.

    Miscellaneous

    The brokerage allocation policies for T. Rowe Price and T. Rowe Price International are generally applied to all of their fully discretionary accounts, which represent a substantial majority of all assets under management. Research services furnished by broker-dealers through which T. Rowe Price or T. Rowe Price International effect securities transactions may be used in servicing all accounts (including non-Price Funds) managed by T. Rowe Price or T. Rowe Price International. Therefore, research services received from broker-dealers that execute transactions for a particular fund will not necessarily be used by T. Rowe Price or T. Rowe Price International in connection with the management of that fund. The Price Funds do not allocate business to any broker-dealer on the basis of its sales of the funds` shares. However, this does not mean that broker-dealers who purchase fund shares for their clients will not receive business from the fund.

    Since certain clients of T. Rowe Price and T. Rowe Price International have similar investment objectives and programs to those of a particular Price Fund, T. Rowe Price or T. Rowe Price International may make recommendations to other clients that 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 the policy of T. Rowe Price and T. Rowe Price International 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. T. Rowe Price International may also follow this practice. Clients should be aware, however, that the grouping of their orders with other clients` orders may sometimes result in a more favorable price and at other times may result in a less favorable price than if the client orders had not been grouped. Where an 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 will reflect the average price paid or received with respect to the total order.

    167


    T. Rowe Price may also include orders on behalf of the T. Rowe Price Associates Foundation, Inc. and the T. Rowe Price Program for Charitable Giving, Inc., not for profit entities, and the T. Rowe Price Savings Bank in aggregated orders from time to time.

    T. Rowe Price and T. Rowe Price International may give advice and take action for clients, including the Price Funds, which differs from advice given or the timing or nature of action taken for other clients. T. Rowe Price and T. Rowe Price International are not obligated to initiate transactions for clients in any security that their principals, affiliates, or employees may purchase or sell for their own accounts or for other clients.

    Purchase and sale transactions may be effected directly among and between non-ERISA client accounts (including affiliated mutual funds), provided no commission is paid to any broker-dealer, the security traded has readily available market quotations, and the transaction is effected at the independent current market price.

    T. Rowe Price and T. Rowe Price International have established the Equity and Fixed Income Brokerage and Trading Control Committees, which are responsible for developing and monitoring brokerage policies and resolving questions relating to those policies.

    T. Rowe Price and T. Rowe Price International have established a general investment policy that they will ordinarily not make additional purchases of a common stock for their clients (including the Price funds) if, as a result of such purchases, 10% or more of the outstanding common stock of the issuer would be held by clients in the aggregate. In certain limited instances, however, T. Rowe Price or T. Rowe Price International may increase aggregate ownership to a maximum of 15% or more. All aggregate ownership decisions are reviewed by the appropriate oversight committee. For purposes of monitoring both of these limits, securities held by clients and clients of affiliated advisers are included.

    All funds

    Total Brokerage Commissions

    For the fiscal years indicated, the total brokerage commissions paid by each fund, including the discounts received by securities dealers in connection with underwritings, and the percentage of these commissions paid to firms which provided research, statistical, or other services to T. Rowe Price or T. Rowe Price International in connection with the management of each fund that invests in equity securities, are shown below.


    Fund


    Fiscal Year Ended




















    2/29/08


    %


    2/28/07


    %


    2/28/06


    %

    California Tax-Free Bond
    $255,000
    (a)
    $251,000
    (a)
    $278,000
    (a)
    California Tax-Free Money
    0
    (a)
    2,000
    (a)
    3,000
    (a)
    Georgia Tax-Free Bond
    60,000
    (a)
    67,000
    (a)
    69,000
    (a)
    Maryland Short-Term Tax-Free Bond
    35,000
    (a)
    32,000
    (a)
    17,000
    (a)
    Maryland Tax-Free Bond
    390,000
    (a)
    665,000
    (a)
    417,000
    (a)
    Maryland Tax-Free Money
    2,000
    (a)
    26,000
    (a)
    5,000
    (a)
    New Jersey Tax-Free Bond
    132,000
    (a)
    146,000
    (a)
    140,000
    (a)
    New York Tax-Free Bond
    168,000
    (a)
    325,000
    (a)
    247,000
    (a)
    New York Tax-Free Money
    4,000
    (a)
    0
    (a)
    1,000
    (a)
    Tax-Efficient Balanced
    8,000
    77.00
    10,000
    2.43
    12,000
    2.50
    Tax-Efficient Growth
    14,000
    0
    10,000
    0.70
    9,000
    2.50
    Tax-Efficient Multi-Cap Growth
    11,000
    1.47
    10,000
    2.43
    8,000
    8.44
    Tax-Exempt Money
    2,000
    (a)
    5,000
    (a)
    7,000
    (a)
    Tax-Free High Yield
    1,256,000
    (a)
    720,000
    (a)
    1,552,000
    (a)
    Tax-Free Income
    1,136,000
    (a)
    1,121,000
    (a)
    1,271,000
    (a)
    Tax-Free Short-Intermediate
    96,000
    (a)
    98,000
    (a)
    79,000
    (a)
    Virginia Tax-Free Bond
    261,000
    (a)
    245,000
    (a)
    277,000
    (a)

    168


    (a)Percentages are not required for funds that do not invest in equity securities.


    Fund


    Fiscal Year Ended




















    5/31/08


    %


    5/31/07


    %


    5/31/06


    %

    Corporate Income
    $415,000
    95.7
    $148,000
    93.2
    $193,000
    92.5
    GNMA
    85,000
    (a)
    200,000
    (a)
    5,000
    (a)
    TRP Government Reserve Investment
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    High Yield
    6,936,000
    92.1
    18,250,000
    91.8
    15,965,000
    76.4
    Inflation Protected Bond
    4,000
    (a)
    3,000
    (a)
    1,000
    (a)
    Institutional Core Plus
    43,000
    96.2
    19,000
    94.2
    13,000
    83.1
    Institutional Floating Rate
    (b)
    (b)
    (c)
    (c)
    (c)
    (c)
    Institutional High Yield
    1,063,000
    90.9
    1,399,000
    91.8
    1,473,000
    80.8
    New Income
    3,519,000
    96.2
    2,152,000
    93.7
    2,952,000
    87.6
    Personal Strategy Balanced
    873,000
    15.5
    648,000
    24.5
    556,000
    25.2
    Personal Strategy Growth
    817,000
    18.4
    540,000
    28.9
    461,000
    28.9
    Personal Strategy Income
    370,000
    13.0
    230,000
    20.3
    182,000
    21.1
    Prime Reserve
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    TRP Reserve Investment
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    Retirement 2005
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    Retirement 2010
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    Retirement 2015
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    Retirement 2020
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    Retirement 2025
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    Retirement 2030
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    Retirement 2035
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    Retirement 2040
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    Retirement 2045
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    Retirement 2050
    (b)
    (b)
    (b)
    (b)
    (c)
    (c)
    Retirement 2055
    (b)
    (b)
    (b)
    (b)
    (c)
    (c)
    Retirement Income
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    Short-Term Bond
    658,000
    (a)
    471,000
    (a)
    341,000
    (a)
    Short-Term Income
    550,000
    (a)
    175,000
    (a)
    (c)
    (c)
    U.S. Treasury Intermediate
    8,000
    (a)
    7,000
    (a)
    1,000
    (a)
    U.S. Treasury Long-Term
    20,000
    (a)
    13,000
    (a)
    4,000
    (a)
    U.S. Treasury Money
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)

    (a)Percentages are not required for funds that do not invest in equity securities.

    (b)Not applicable.

    (c)Prior to commencement of operations.


    Fund


    Fiscal Year Ended




















    10/31/07


    %


    10/31/06


    %


    10/31/05


    %

    Africa & Middle East
    $193,000
    8.6
    (a)
    (a)
    (a)
    (a)
    Emerging Europe & Mediterranean
    4,009,000
    4.9
    $3,958,000
    1.6
    $2,100,000
    5.8
    Emerging Markets Stock
    6,981,000
    3.9
    5,791,000
    4.6
    3,173,000
    7.5
    European Stock
    2,949,000
    0.6
    2,491,000
    0.04
    1,289,000
    1.4
    Global Large-Cap Stock
    (a)
    (a)
    (a)
    (a)
    (a)
    (a)
    Global Stock
    2,013,000
    13.1
    1,470,000
    14.0
    511,000
    21.3
    Institutional Africa & Middle East
    (a)
    (a)
    (a)
    (a)
    (a)
    (a)
    Institutional Emerging Markets Equity
    486,000
    3.8
    490,000
    4.4
    330,000
    6.0
    Institutional Foreign Equity
    426,000
    1.6
    538,000
    2.1
    1,476,000
    3.2
    Institutional Global Equity
    11,000
    10.2
    2,000
    19.8
    (a)
    (a)
    Institutional Global Large-Cap Equity
    (a)
    (a)
    (a)
    (a)
    (a)
    (a)
    International Discovery
    6,898,000
    0.5
    5,437,000
    0.6
    3,883,000
    0.5
    International Equity Index
    246,000
    0.0
    116,000
    0.3
    94,000
    1.2
    International Growth & Income
    1,488,000
    1.2
    1,236,000
    2.3
    580,000
    8.0
    International Stock
    15,191,000
    1.6
    12,660,000
    1.8
    12,633,000
    1.9
    Japan
    1,415,000
    0.0
    2,551,000
    0.0
    1,033,000
    0.0
    Latin America
    6,254,000
    9.8
    4,236,000
    33.8
    1,194,000
    60.7
    New Asia
    11,086,000
    0.5
    7,064,000
    0.5
    4,219,000
    0.0
    Overseas Stock
    1,040,000
    0.4
    (a)
    (a)
    (a)
    (a)
    Summit Cash Reserves
    0
    (b)
    0
    (b)
    0
    (b)
    Summit GNMA
    5,000
    (b)
    4,000
    (b)
    2,000
    (b)
    Summit Municipal Income
    569,000
    (b)
    475,000
    (b)
    244,000
    (b)
    Summit Municipal Intermediate
    132,000
    (b)
    95,000
    (b)
    103,000
    (b)
    Summit Municipal Money Market
    2,200
    (b)
    0
    (b)
    9,000
    (b)
    U.S. Bond Index
    54,000
    (b)
    23,000
    (b)
    34,000
    (b)

    169


    (a)Prior to commencement of operations.

    (b)Percentages are not required for funds that do not invest in equity securities.


    Fund


    Fiscal Year Ended




















    12/31/07


    %


    12/31/06


    %


    12/31/05


    %

    Balanced
    $887,000
    8.6
    $379,000
    3.2
    $574,000
    25.0
    Blue Chip Growth
    5,546,000
    33.9
    5,490,000
    52.9
    6,645,000
    56.5
    Capital Appreciation
    7,240,000
    38.7
    6,828,000
    41.2
    5,854,000
    22.0
    Capital Opportunity
    219,000
    31.0
    194,000
    41.7
    148,000
    38.4
    Developing Technologies
    138,000
    44.7
    231,000
    41.4
    161,000
    53.7
    Diversified Mid-Cap Growth
    44,000
    8.9
    69,000
    6.5
    50,000
    25.0
    Diversified Small-Cap Growth
    49,000
    16.4
    93,000
    39.2
    174,000
    49.8
    Dividend Growth
    290,000
    38.7
    322,000
    44.8
    2,923,000
    65.3
    Emerging Markets Bond
    0
    (a)
    3,000
    (a)
    3,000
    (a)
    Equity Income
    12,007,000
    25.1
    6,840,000
    45.4
    6,388,000
    54.9
    Equity Index 500
    483,000
    3.3
    435,000
    1.2
    299,000
    0.4
    Extended Equity Market Index
    116,000
    2.1
    58,000
    1.6
    346,000
    20.9
    Financial Services
    1,451,000
    30.7
    937,000
    36.1
    601,000
    27.8
    Global Real Estate
    (b)
    (b)
    (b)
    (b)
    (b)
    (b)
    Global Technology
    676,000
    25.7
    538,000
    26.8
    1,154,000
    40.3
    Growth & Income
    928,000
    45.4
    1,749,000
    56.8
    4,836,000
    43.0
    Growth Stock
    25,290,000
    23.2
    15,130,000
    32.5
    11,037,000
    38.3
    Health Sciences
    5,621,000
    22.2
    4,392,000
    31.4
    2,694,000
    57.1
    Institutional Concentrated Large-Cap Value
    1,000
    22.1
    1,000
    0.3
    (b)
    (b)
    Institutional Emerging Markets Bond
    0
    (a)
    (a)
    (a)
    (a)
    (a)
    Institutional International Bond
    0
    (a)
    (b)
    (b)
    (b)
    (b)
    Institutional Large-Cap Core Growth
    33,000
    15.5
    24,000
    33.8
    36,000
    55.9
    Institutional Large-Cap Growth
    1,268,000
    32.8
    444,000
    40.0
    120,000
    41.2
    Institutional Large-Cap Value
    60,000
    27.9
    65,000
    22.3
    140,000
    45.1
    Institutional Mid-Cap Equity Growth
    416,000
    25.6
    564,000
    27.4
    510,000
    30.5
    Institutional Small-Cap Stock
    463,000
    21.5
    480,000
    20.6
    458,000
    19.4
    Institutional U.S. Structured Research
    26,000
    14.1
    (b)
    (b)
    (b)
    (b)
    International Bond
    0
    (a)
    44,000
    (a)
    62,000
    (a)
    Media & Telecommunications
    4,653,000
    10.4
    2,994,000
    16.6
    2,511,000
    23.3
    Mid-Cap Growth
    14,570,000
    29.1
    19,865,000
    28.6
    14,723,000
    32.6
    Mid-Cap Value
    14,064,000
    55.0
    10,578,000
    62.0
    11,861,000
    50.9
    New America Growth
    720,000
    44.0
    969,000
    55.5
    1,179,000
    54.1
    New Era
    2,438,000
    25.3
    1,798,000
    37.7
    4,065,000
    47.7
    New Horizons
    14,497,000
    19.0
    12,117,000
    22.4
    10,919,000
    29.7
    Real Estate
    1,624,000
    28.9
    3,267,000
    19.7
    669,000
    39.1
    Science & Technology
    7,083,000
    24.5
    10,182,000
    31.6
    8,350,000
    33.1
    Small-Cap Stock
    8,137,000
    23.3
    7,602,000
    23.6
    6,415,000
    34.3
    Small-Cap Value
    5,001,000
    31.3
    3,002,000
    42.3
    3,933,000
    43.7
    Spectrum Growth
    (c)
    (c)
    (c)
    (c)
    (c)
    (c)
    Spectrum Income
    (c)
    (c)
    (c)
    (c)
    (c)
    (c)
    Spectrum International
    (c)
    (c)
    (c)
    (c)
    (c)
    (c)
    Total Equity Market Index
    37,000
    4.6
    28,000
    1.5
    26,000
    1.7
    Value
    4,054,000
    25.1
    2,210,000
    42.7
    2,745,000
    40.3

    170


    (a)Percentages are not required for funds that do not invest in equity securities.

    (b)Prior to commencement of operations.

    (c)Not applicable.

    Fund Holdings in Securities of Brokers and Dealers

    The following lists the funds` holdings in securities of its regular brokers and dealers as of the end of the fiscal years indicated.








    Fiscal Year Ended 2/29/08





    Fund


    Broker


    Value of Stock Holdings


    Value of Bond Holdings

    California Tax-Free Bond




    Goldman Sachs

    $1,559,000

    Merrill Lynch

    4,781,000
    New York Tax-Free Bond




    Goldman Sachs

    1,206,000
    Tax-Efficient Balanced




    Citigroup
    $62,000


    Goldman Sachs
    170,000
    225,000
    Tax-Efficient Growth




    Citigroup
    24,000


    Goldman Sachs
    594,000

    Tax-Exempt Money




    Lehman Brothers

    34,695,000
    Tax-Free High Yield




    Merrill Lynch

    6,347,000
    Tax-Free Income




    Goldman Sachs

    31,294,000
    Tax-Free Short-
    Intermediate




    Goldman Sachs

    10,233,000

    Merrill Lynch

    3,751,000

    171









    Fiscal Year Ended 5/31/08





    Fund


    Broker


    Value of Stock Holdings


    Value of Bond Holdings

    Corporate Income




    Bank of America Securities

    $3,300,000

    Citigroup Global Markets

    5,930,000

    CS First Boston

    856,000

    Deutsche Bank

    1,575,000

    Goldman Sachs

    3,029,000

    JPMorgan Chase

    4,358,000

    Lehman Brothers

    6,432,000

    Merrill Lynch
    $413,000
    3,906,000

    Morgan Stanley

    3,192,000

    UBS Securities

    1,504,000

    Wachovia Securities

    1,083,000
    GNMA




    Bear Stearns

    6,642,000

    Citigroup Global Markets

    2,994,000

    Deutsche Bank

    2,994,000

    JP Morgan Chase

    8,098,000

    Lehman Brothers

    19,946,000

    Morgan Stanley

    25,442,000

    UBS

    19,946,000
    TRP Government Reserve Investment




    Bank of America

    200,000,000

    Barclays

    200,000,000

    CS First Boston

    175,494,000

    Deutsche Bank

    300,000,000

    Merrill Lynch

    150,000,000

    Wachovia

    60,000,000
    High Yield




    Bank of America
    16,074,000


    Citigroup Global Markets
    24,426,000

    Institutional Core Plus




    Bank of America

    2,092,000

    Citigroup Global Markets

    2,081,000

    CS First Boston

    116,000

    Deutsche Bank

    823,000

    Goldman Sachs

    523,000

    JPMorgan Chase

    1,990,000

    Lehman Brothers

    1,815,000

    Merrill Lynch
    83,000
    458,000

    Morgan Stanley

    582,000

    UBS

    1,127,000

    Wachovia

    301,000
    Institutional High Yield




    Bank of America
    1,628,000


    Citigroup Global Markets
    2,522,000


    Merrill Lynch
    496,000

    New Income




    Bank of America

    162,611,000

    Citigroup

    143,439,000

    CS First Boston

    48,037,000

    Deutsche Bank

    52,986,000

    Goldman Sachs

    42,224,000

    Greenwich Capital Markets

    37,448,000

    JPMorgan Chase

    128,439,000

    Lehman Brothers

    114,677,000

    Merrill Lynch
    3,714,000
    45,176,000

    Morgan Stanley

    88,424,000

    Wachovia

    30,665,000
    Personal Strategy
    Balanced




    Bank of America
    4,027,000
    11,209,000

    Barclays

    759,000

    Bear Stearns

    7,379,000

    Citigroup
    3,222,000
    7,624,000

    Countrywide

    749,000

    CS First Boston

    2,200,000

    Deutsche Bank

    2,223,000

    Goldman Sachs
    4,887,000
    2,026,000

    JPMorgan Chase
    2,296,000
    9,671,000

    Lehman Brothers
    995,000
    8,629,000

    Merrill Lynch
    5,830,000
    2,691,000

    Morgan Stanley
    5,684,000
    3,639,000

    UBS

    5,721,000
    Personal Strategy Growth




    Bank of America
    4,384,000
    4,531,000

    Barclays

    904,000

    Bear Stearns

    2,414,000

    Citigroup
    3,503,000
    3,078,000

    Countrywide

    747,000

    CS First Boston

    1,211,000

    Deutsche Bank

    1,168,000

    Goldman Sachs
    5,275,000
    1,128,000

    JPMorgan Chase
    2,468,000
    3,608,000

    Lehman Brothers
    1,077,000
    3,276,000

    Merrill Lynch
    4,537,000
    3,437,000

    Morgan Stanley
    6,113,000
    986,000

    UBS

    2,018,000
    Personal Strategy Income




    Bank of America
    1,479,000
    6,577,000

    Barclays

    249,000

    Bear Stearns

    5,328,000

    Citigroup
    1,188,000
    6,775,000

    Countrywide

    437,000

    CS First Boston

    959,000

    Deutsche Bank

    2,553,000

    Goldman Sachs
    1,782,000
    1,630,000

    JPMorgan Chase
    847,000
    6,405,000

    Lehman Brothers
    370,000
    5,271,000

    Merrill Lynch
    2,024,000
    1,542,000

    Morgan Stanley
    2,052,000
    2,948,000

    UBS

    3,321,000
    Prime Reserve




    Bank of America

    166,610,000

    Citigroup

    168,135,000

    CS First Boston

    36,000,000

    Deutsche Bank

    49,643,000

    Goldman Sachs

    41,250,000

    JPMorgan Chase

    54,835,000

    Lehman Brothers

    41,651,000

    Merrill Lynch

    38,611,000

    Morgan Stanley

    41,511,000
    TRP Reserve
    Investment




    Bank of America

    241,323,000

    Barclays

    110,000,000

    CS First Boston

    54,751,000

    Deutsche Bank

    77,914,000

    Goldman Sachs

    62,000,000

    JPMorgan Chase

    152,464,000

    Lehman Brothers

    61,873,000

    Merrill Lynch

    63,083,000

    Morgan Stanley

    66,670,000

    Wachovia

    43,741,000
    Short-Term Bond




    Bank of America

    28,177,000

    Citigroup

    30,870,000

    Countrywide

    5,255,000

    CS First Boston

    18,334,000

    Deutsche Bank

    5,028,000

    Goldman Sachs

    13,205,000

    Greenwich Capital Markets

    15,684,000

    JPMorgan Chase

    27,206,000

    Lehman Brothers

    33,804,000

    Merrill Lynch

    11,630,000

    Morgan Stanley

    22,908,000

    Wachovia

    11,852,000
    Short-Term Income




    Bank of America

    15,739,000

    Citigroup

    27,033,000

    Countrywide

    3,750,000

    CS First Boston

    22,909,000

    Deutsche Bank

    2,632,000

    Goldman Sachs

    11,141,000

    Greenwich Capital Markets

    13,136,000

    JPMorgan Chase

    24,811,000

    Lehman Brothers

    27,615,000

    Merrill Lynch

    9,684,000

    Morgan Stanley

    28,515,000

    Wachovia

    7,570,000

    172


    173


    174


    175









    Fiscal Year Ended 10/31/07





    Fund


    Broker


    Value of Stock Holdings


    Value of Bond Holdings

    European Stock




    UBS
    $16,775,000


    Credit Suisse Group
    8,207,000

    Global Stock




    Goldman Sachs
    18,594,000


    UBS
    8,851,000


    Merrill Lynch
    4,952,000

    Institutional Emerging Markets Equity




    EFG-Hermes
    4,035,000

    Institutional Foreign Equity




    UBS
    2,317,000


    Credit Suisse Group
    1,318,000

    Institutional Global Equity




    Goldman Sachs
    131,000


    UBS
    60,000


    Merrill Lynch
    33,000

    International Equity Index




    UBS
    4,341,000


    Credit Suisse Group
    3,379,000


    Deutsche Bank
    2,765,000

    International Growth & Income




    Credit Suisse Group
    32,025,000


    UBS
    19,327,000

    International Stock




    UBS
    105,741,000


    Credit Suisse Group
    60,440,000

    Overseas Stock




    UBS
    11,485,000

    Summit Cash Reserves




    Bank of America

    123,735,000

    JPMorgan Chase

    59,816,000

    Deutsche Bank

    50,000,000

    Citigroup

    49,834,000

    Merrill Lynch

    47,000,000

    Lehman Brothers

    35,717,000

    Goldman Sachs

    30,000,000

    Morgan Stanley

    15,811,000
    Summit GNMA




    UBS

    907,000

    Lehman Brothers

    907,000

    Morgan Stanley

    842,000

    Bank of America

    519,000

    JPMorgan Chase

    401,000
    Summit Municipal Income




    Goldman Sachs

    5,786,000
    Summit Municipal Intermediate




    Goldman Sachs

    5,630,000
    Summit Municipal Money Market




    Lehman Brothers

    25,785,000

    Merrill Lynch

    10,800,000
    U.S. Bond Index




    Bear Sterns

    5,589,000

    Bank of America

    3,000,000

    JPMorgan Chase

    2,874,000

    Morgan Stanley

    2,842,000

    Citigroup

    1,789,000

    Greenwich Capital Markets

    1,191,000

    Goldman Sachs

    1,109,000

    Credit Suisse Group

    973,000

    Lehman Brothers

    605,000

    Deutsche Bank

    570,000

    Merrill Lynch

    502,000

    176


    177









    Fiscal Year Ended 12/31/07





    Fund


    Broker


    Value of Stock Holdings


    Value of Bond Holdings

    Balanced




    Bank of America
    $11,528,000
    $9,625,000

    Bear Stearns
    124,000
    7,819,000

    Citigroup
    8,673,000
    23,350,000

    Countrywide
    1,551,000
    407,000

    Credit Suisse Group

    12,289,000

    Deutsche Bank

    12,752,000

    Goldman Sachs
    17,310,000
    4,255,000

    JPMorgan Chase
    8,102,000
    25,127,000

    Lehman Brothers
    1,314,000
    2,430,000

    Merrill Lynch
    3,146,000
    2,977,000

    Morgan Stanley
    8,925,000
    7,676,000

    UBS
    3,763,000
    4,344,000
    Blue Chip Growth




    Goldman Sachs
    174,406,000


    Merrill Lynch
    46,165,000


    Morgan Stanley
    84,976,000


    UBS
    92,567,000

    Capital Appreciation




    Merrill Lynch
    134,254,000


    Morgan Stanley
    32,551,000

    Capital Opportunity




    Bank of America
    2,310,000


    Bear Stearns
    88,000


    Citigroup
    3,394,000


    Goldman Sachs
    1,656,000


    JPMorgan Chase
    3,527,000


    Lehman Brothers
    851,000


    Merrill Lynch
    1,219,000


    Morgan Stanley
    1,471,000

    Diversified Mid-Cap Growth




    Bear Stearns
    256,000

    Dividend Growth




    Citigroup
    11,187,000


    Morgan Stanley
    7,133,000

    Emerging Markets Bond




    Standard Bank

    14,424,000
    Equity Income




    Citigroup
    168,397,000


    JPMorgan Chase
    553,656,000


    Merrill Lynch
    267,058,000

    Equity Index 500




    Bank of America
    142,823,000


    Citigroup
    114,610,000


    Goldman Sachs
    66,542,000


    JPMorgan Chase
    114,396,000


    Lehman Brothers
    26,971,000


    Merrill Lynch
    35,725,000


    Morgan Stanley
    43,849,000


    PNC
    17,858,000

    Extended Equity
    Market Index




    Investment Technology Group
    286,000


    Stifel Financial
    142,000

    Financial Services




    Bear Stearns
    3,027,000


    Citigroup
    12,483,000


    JPMorgan Chase
    2,907,000


    Lehman Brothers
    1,944,000


    Merrill Lynch
    7,515,000


    Morgan Stanley
    3,898,000


    UBS
    3,762,000

    Growth & Income




    Citigroup
    22,374,000


    Goldman Sachs
    8,620,000


    Merrill Lynch
    10,736,000


    Morgan Stanley
    10,888,000

    Growth Stock




    Goldman Sachs
    158,277,000


    Morgan Stanley
    72,973,000

    Institutional
    Concentrated Large-Cap Value




    Citigroup
    149,000


    Merrill Lynch
    223,000

    Institutional Emerging Markets Bond




    Standard Bank

    648,000
    Institutional
    International Bond




    Barclays

    60,000

    Citigroup

    162,000

    Goldman Sachs

    67,000

    Greenwich

    213,000

    JPMorgan Chase

    135,000

    Lehman Brothers

    64,000

    Merrill Lynch

    61,000

    Standard Bank

    81,000

    UBS

    96,000
    Institutional Large-Cap Core Growth




    Goldman Sachs
    1,000,000


    Merrill Lynch
    263,000


    Morgan Stanley
    489,000


    UBS
    531,000

    Institutional Large-Cap Growth




    Morgan Stanley
    22,949,000

    Institutional Large-Cap Value




    Bank of America
    5,776,000


    Citigroup
    3,147,000


    JPMorgan Chase
    7,447,000


    Merrill Lynch
    3,505,000


    Morgan Stanley
    2,682,000

    Institutional
    U.S. Structured Research




    Bank of America
    961,000


    Bear Stearns
    26,000


    Citigroup
    1,378,000


    Goldman Sachs
    656,000


    JPMorgan Chase
    1,432,000


    Lehman Brothers
    340,000


    Merrill Lynch
    499,000


    Morgan Stanley
    558,000

    International Bond




    Barclays

    2,528,000

    Citigroup

    5,094,000

    Deutsche Bank

    2,756,000

    Goldman Sachs

    1,748,000

    Greenwich

    4,223,000

    JPMorgan Chase

    5,441,000

    Lehman Brothers

    3,048,000

    Merrill Lynch

    1,650,000

    Morgan Stanley

    3,627,000

    Standard Bank

    2,965,000

    UBS

    3,689,000
    New America Growth




    Merrill Lynch
    7,515,000


    Morgan Stanley
    7,967,000

    New Horizons




    Thomas Weisel
    4,188,000

    Small-Cap Stock




    Piper Jaffray
    36,445,000

    Total Equity Market Index




    Bank of America
    5,734,000


    Citigroup
    4,619,000


    Goldman Sachs
    2,744,000


    Investment Technology Group
    110,000


    JPMorgan Chase
    4,630,000


    Lehman Brothers
    1,065,000


    Merrill Lynch
    1,432,000


    Morgan Stanley
    1,747,000


    PNC
    651,000


    Stifel Financial
    89,000

    Value




    Bank of America
    60,652,000


    Citigroup
    81,696,000


    JPMorgan Chase
    62,638,000


    Merrill Lynch
    77,031,000


    Morgan Stanley
    53,375,000

    178


    179


    180


    181


    Portfolio Turnover

    The portfolio turnover rates for the funds (if applicable) for the fiscal years indicated are as follows:

    Fund


    Fiscal Year Ended











    2/29/08


    2/28/07


    2/28/06

    California Tax-Free Bond
    18.1%
    27.5%
    21.2%
    California Tax-Free Money
    (a)
    (a)
    (a)
    Georgia Tax-Free Bond
    19.7
    27.0
    17.7
    Maryland Short-Term Tax-Free Bond
    29.4
    69.7
    44.3
    Maryland Tax-Free Bond
    22.9
    19.6
    17.8
    Maryland Tax-Free Money
    (a)
    (a)
    (a)
    New Jersey Tax-Free Bond
    16.7
    14.8
    17.8
    New York Tax-Free Bond
    28.4
    26.6
    28.9
    New York Tax-Free Money
    (a)
    (a)
    (a)
    Tax-Efficient Balanced
    17.9
    17.8
    20.1
    Tax-Efficient Growth
    30.3
    14.7
    15.7
    Tax-Efficient Multi-Cap Growth
    21.3
    16.7
    19.6
    Tax-Exempt Money
    (a)
    (a)
    (a)
    Tax-Free High Yield
    31.2
    25.2
    20.0
    Tax-Free Income
    29.9
    28.1
    31.0
    Tax-Free Short-Intermediate
    43.2
    46.9
    29.7
    Virginia Tax-Free Bond
    26.4
    28.7
    32.4

    (a)Money funds are not required to show portfolio turnover.


    Fund


    Fiscal Year Ended











    5/31/08


    5/31/07


    5/31/06

    Corporate Income
    38.9%
    42.8%
    59.4%
    GNMA
    89.6(a)
    80.7(a)
    135.1(a)
    TRP Government Reserve Investment
    (b)
    (b)
    (b)
    High Yield
    68.9
    72.0
    65.1
    Inflation Protected Bond
    7.5
    14.3
    15.9
    Institutional Core Plus
    146.7
    110.0
    128.3
    Institutional Floating Rate
    70.8(c)
    (d)
    (d)
    Institutional High Yield
    61.9
    73.0
    80.4
    New Income
    128.3(a)
    104.8(a)
    111.1(a)
    Personal Strategy Balanced
    73.3
    62.4
    49.3
    Personal Strategy Growth
    57.7
    50.1
    36.5
    Personal Strategy Income
    81.4
    70.0
    53.3
    Prime Reserve
    (b)
    (b)
    (b)
    TRP Reserve Investment
    (b)
    (b)
    (b)
    Retirement 2005
    15.3
    22.3
    17.1
    Retirement 2010
    7.8
    13.1
    11.3
    Retirement 2015
    7.6
    10.3
    11.4
    Retirement 2020
    6.7
    8.4
    11.9
    Retirement 2025
    5.9
    8.7
    13.2
    Retirement 2030
    5.6
    7.8
    11.9
    Retirement 2035
    5.4
    8.0
    11.2
    Retirement 2040
    7.3
    8.4
    11.3
    Retirement 2045
    6.4
    8.9
    28.4
    Retirement 2050
    13.4
    24.0(c)
    (d)
    Retirement 2055
    17.0
    33.0(c)
    (d)
    Retirement Income
    7.8
    36.3
    10.2
    Short-Term Bond
    58.8
    70.4
    39.9
    Short-Term Income
    59.0
    39.0(c)
    (d)
    U.S. Treasury Intermediate
    101.1
    37.3
    47.4
    U.S. Treasury Long-Term
    64.9
    33.6
    26.4
    U.S. Treasury Money
    (b)
    (b)
    (b)

    182


    (a)The portfolio turnover rate calculation includes purchases and sales from mortgage dollar roll transactions.

    (b)Money funds are not required to show portfolio turnover.

    (c)Annualized.

    (d)Prior to commencement of operations.


    Fund


    Fiscal Year Ended











    10/31/07


    10/31/06


    10/31/05

    Africa & Middle East
    16.6%(a)
    (b)
    (b)
    Emerging Europe & Mediterranean
    59.6
    55.1%
    28.1%
    Emerging Markets Stock
    43.5
    49.4
    53.3
    European Stock
    88.4
    83.7
    82.0
    Global Large-Cap Stock
    (b)
    (b)
    (b)
    Global Stock
    109.8
    140.6
    154.8
    Institutional Africa & Middle East
    (b)
    (b)
    (b)
    Institutional Emerging Markets Equity
    49.9
    57.0
    57.4
    Institutional Foreign Equity
    73.7
    66.1
    56.2
    Institutional Global Equity
    138.0
    127.6(a)
    (b)
    Institutional Global Large-Cap Equity
    (b)
    (b)
    (b)
    International Discovery
    67.9
    82.3
    85.3
    International Equity Index
    30.5
    36.3
    53.1
    International Growth & Income
    32.8
    36.9
    26.9
    International Stock
    74.1
    64.5
    62.7
    Japan
    110.8
    154.2
    161.2
    Latin America
    23.3
    34.5
    17.8
    New Asia
    53.4
    76.3
    55.9
    Overseas Stock
    46.2(a)
    (b)
    (b)
    Summit Cash Reserves
    (c)
    (c)
    (c)
    Summit GNMA
    92.4
    108.3
    187.2
    Summit Municipal Income
    37.4
    19.3
    24.8
    Summit Municipal Intermediate
    24.4
    24.8
    22.3
    Summit Municipal Money Market
    (c)
    (c)
    (c)
    U.S. Bond Index(e)
    73.7
    72.4
    98.2

    183


    (a)Annualized.

    (b)Prior to commencement of operations.

    (c)Money funds are not required to show portfolio turnover.


    Fund


    Fiscal Year Ended











    12/31/07


    12/31/06


    12/31/05

    Balanced
    60.4%
    42.4%
    27.3%
    Blue Chip Growth
    31.5
    39.2
    43.9
    Capital Appreciation
    52.6
    53.7
    12.1
    Capital Opportunity
    53.9
    52.5
    46.2
    Developing Technologies
    64.0
    89.2
    75.0
    Diversified Mid-Cap Growth
    27.9
    29.8
    20.0
    Diversified Small-Cap Growth
    47.2
    39.1
    29.4
    Dividend Growth
    16.5
    19.6
    23.2
    Emerging Markets Bond
    63.4
    57.4
    50.5
    Equity Income
    25.7
    17.3
    20.5
    Equity Index 500
    4.4
    2.9
    8.4
    Extended Equity Market Index
    37.6
    17.5
    17.3
    Financial Services
    139.8
    113.4(a)
    55.7
    Global Real Estate
    (c)
    (c)
    (c)
    Global Technology
    107.3
    124.7
    96.4
    Growth & Income
    30.8
    50.7
    52.1
    Growth Stock
    51.2
    37.8
    36.2
    Health Sciences
    44.8
    48.8
    55.7
    Institutional Concentrated Large-Cap Value
    19.8
    3.2(b)
    (c)
    Institutional Emerging Markets Bond
    83.8
    145.2(b)
    (c)
    Institutional International Bond
    69.3(b)
    (c)
    (c)
    Institutional Large-Cap Core Growth
    78.4
    48.5
    16.9
    Institutional Large-Cap Growth
    61.2
    51.5
    64.4
    Institutional Large-Cap Value
    21.5
    24.5
    24.0
    Institutional Mid-Cap Equity Growth
    52.4
    30.8
    33.0
    Institutional Small-Cap Stock
    39.8
    22.1
    19.2
    Institutional U.S. Structured Research
    42.5(b)
    (c)
    (c)
    International Bond
    78.4
    120.8
    103.7
    Media & Telecommunications
    64.6
    55.4
    77.8
    Mid-Cap Growth
    35.2
    33.8
    28.6
    Mid-Cap Value
    73.4
    62.4
    45.8
    New America Growth
    60.1
    61.3
    53.0
    New Era
    17.5
    15.6
    35.7
    New Horizons
    27.7
    23.2
    23.5
    Real Estate
    32.5
    25.2
    18.3
    Science & Technology
    80.3
    101.3
    59.2
    Small-Cap Stock
    21.7
    20.0
    20.4
    Small-Cap Value
    14.0
    12.2
    11.9
    Spectrum Growth
    5.0
    7.6
    10.1
    Spectrum Income
    9.0
    12.5
    40.3
    Spectrum International
    1.4
    12.7
    2.7
    Total Equity Market Index
    9.1
    4.2
    4.5
    Value
    18.8
    9.6
    19.4

    184


    (a)The increase in the fund`s portfolio turnover from 2005 to 2006 was primarily the result of changes in the fund`s portfolio holdings and structure initiated by the fund`s new portfolio manager.

    (b)Annualized.

    (c)Prior to commencement of operations.

    185


    Related Performance Information

    The information set forth below shows historical total returns for the Non-U.S. Equity Core Composite. The composite is not a mutual fund. Rather, it is a collection of all the portfolios managed by T. Rowe Price International that have investment objectives, policies, and strategies that are substantially similar to those of the T. Rowe Price Overseas Stock Fund.

    The performance information is historical and should not be considered predictive of the fund`s future results.

    Certain portfolios that comprise the composite may not be mutual funds and thus will not be subject to the diversification requirements and other restrictions and investment limitations imposed on the T. Rowe Price Overseas Stock Fund by the 1940 Act or the Code which, if applicable, may have adversely affected the performance results.

    As of June 30, 2008, there were two portfolios in the composite.

    The following table shows return figures for the composite net of expenses of 0.93%, which is the highest expense ratio of any of the underlying portfolios. Because the expense ratio of the fund is higher than the expense ratios of certain portfolios comprising the composite, the performance shown is lower than the actual returns of the composite.

    Prior Performance of Similar Portfolios Managed by T. Rowe Price International




    Periods ended June 30, 2008














    1 year


    3 years


    5 years


    Since inception
    (1/31/00)

    Non-U.S. Equity Core Composite*




    Average Annual
    -12.75%
    13.01%
    16.63%
    5.47%
    Cumulative
    -12.75
    44.31
    115.80
    56.45
    MSCI EAFE Index




    Average Annual
    -10.15
    13.34
    17.16
    4.78
    Cumulative
    -10.15
    45.61
    120.77
    48.05

    *These figures reflect the prior performance of similar portfolios and are net of 0.93% expenses. Asset-weighted returns are calculated monthly. Each portfolio`s contribution to the composite for the month is calculated by multiplying the monthly portfolio return by the ratio of the portfolio`s beginning asset value as expressed as a percentage of the composite`s beginning asset value. Contributions for all portfolios are summed to determine the composite`s asset-weighted performance for the month. Monthly returns are subsequently linked to determine quarterly asset-weighted returns. This differs from the required SEC method for calculating mutual fund performance.

    186


    The following financial statements are provided in accordance with the Investment Company Act of 1940, which requires a registered investment company to have a net worth of at least $100,000.

    T. Rowe price global real estate fund
    october 15, 2008

    statement of assets and liabilities






    Assets

    Cash
    $ 100,000
    Prepaid registration fees
    91,536
    Total assets
    191,536


    Liabilities

    Payable to manager
    (91,536)
    Total liabilities
    (91,536)


    NET ASSETS
    $100,000


    OFFERING AND REDEMPTION PRICE
    $10.00


    Net Assets Consist of:

    Paid-in-capital applicable to 10,000 shares of $0.0001
    par value capital stock outstanding; 1,000,000,000
    shares authorized
    $100,000

    The accompanying note is an integral part of these financial statements.

    187



    T. Rowe price global real estate fund

    statement of OPERATIONS






    October 15, 2008


    Expenses

    Organization expenses
    $ 170
    Reimbursed by manager
    (170)


    Net investment income
    --




    INCREASE (DECREASE) IN NET ASSETS

    FROM START-UP OPERATIONS
    $ --

    The accompanying note is an integral part of these financial statements.

    188


    T. Rowe price global real estate fund

    NOTE TO FINANCIAL STATEMENTS

    T. Rowe Price Global Real Estate Fund, Inc. (the fund) was organized on July 18, 2008, as a Maryland corporation and is registered under the Investment Company Act of 1940 as a nondiversified, open-end management investment company. Through October 15, 2008, the fund had no operations other than those matters related to organization and registration as an investment company, the registration of shares for sale under the Securities Act of 1933, and the sale of 10,000 shares of the fund at $10.00 per share on October 15, 2008 to T. Rowe Price Associates, Inc. via share exchange from a T. Rowe Price money market mutual fund. The exchange was settled in the ordinary course of business on October 15, 2008 with the transfer of $100,000 cash.

    <R>
    The fund has entered into an investment management agreement with T. Rowe Price Associates, Inc. (the manager). Under the terms of the investment management agreement, the manager is required to bear all expenses of the fund, excluding interest, taxes, brokerage commissions, and extraordinary expenses, through April 30, 2011, which would otherwise cause the fund`s ratio of total expenses to average net assets (expense ratio) to exceed its expense limitation of 1.05%. For a period of three years after the date of any reimbursement or waiver, the fund is required to reimburse the manager for these expenses, provided that average net assets have grown or expenses have declined sufficiently to allow reimbursement without causing the fund`s expense ratio to exceed its expense limitation. Through October 15, 2008, the fund incurred organization expenses in the approximate amount of $170, which the manager has paid on the fund`s behalf.
    </R>

    <R>
    Also through October 15, 2008, initial registration fees in the amount of $91,536 were prepaid by the manager on behalf of the fund. This amount will be repaid to the manager upon commencement of operations and prepaid registration fees will be amortized to expense over the period of benefit, typically one year.
    </R>

    189


    Report of Independent Registered Public Accounting Firm

    To the Board of Directors and Shareholders ofT. Rowe Price Global Real Estate Fund, Inc.:

    In our opinion, the accompanying statement of assets and liabilities and the related statement of operations presents fairly, in all material respects, the financial position of T. Rowe Price Global Real Estate Fund, Inc., (the "Fund") at October 15, 2008, and the results of its operations for the period then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Fund`s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.


    /s/ PricewaterhouseCoopers LLP
    Baltimore, Maryland
    October 16, 2008

    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

    PricewaterhouseCoopers LLP, 100 East Pratt Street, Suite 1900, Baltimore, Maryland 21202, is the independent registered public accounting firm to the funds.

    The financial statements and Report of Independent Registered Public Accounting Firm of the funds included in each fund`s annual report are incorporated into this SAI by reference. A copy of the annual report of each fund with respect to which an inquiry is made will accompany this SAI.

    190



    PART II TABLE OF CONTENTS
































    Page








    Page
















    Investment Objectives and Policies
    157

    In-Kind Redemptions and Purchases
    215
    Risk Factors
    157

    Tax Status
    215
    Portfolio Securities
    172

    Capital Stock
    218
    Derivatives
    187

    Organization of the Funds
    223
    Portfolio Management Practices
    202

    Proxy Voting Process and Policies
    224
    Investment Restrictions
    204

    Federal Registration of Shares
    226
    Custodian
    209

    Legal Counsel
    227
    Code of Ethics
    210

    Ratings of Commercial Paper
    227
    Disclosure of Fund Portfolio Information
    210

    Ratings of Corporate and Municipal Debt Securities
    227

    Pricing of Securities
    212

    Ratings of Municipal Notes and Variable Rate Securities
    229
    Net Asset Value per Share
    213

    Index
    230
    Dividends and Distributions
    215



    PART II

    Part II of this SAI describes risks, policies, and practices that apply to the funds in the T. Rowe Price family of funds.

    INVESTMENT OBJECTIVES AND POLICIES

    The following information supplements the discussion of the funds` investment objectives and policies discussed in the funds` prospectuses. You should refer to each fund`s prospectus to determine the types of securities in which the fund invests. You will then be able to review additional information set forth herein on those types of securities and their risks.

    Shareholder approval is required to substantively change fund objectives. Unless otherwise specified, the investment programs and restrictions of the funds are not fundamental policies. The funds` operating policies are subject to change by the funds` Boards without shareholder approval. The funds` fundamental policies may not be changed without the approval of at least a majority of the outstanding shares of the funds or, if it is less, 67% of the shares represented at a meeting of shareholders at which the holders of more than 50% of the shares are represented.

    RISK FACTORS

    Reference is also made to the sections entitled "Investment Program" and "Portfolio Management Practices" for discussions of the risks associated with the investments and practices described therein as they apply to the funds.

    191


    Risk Factors of Investing in Foreign Securities

    General

    Foreign securities include U.S. dollar-denominated and non-U.S. dollar-denominated securities of foreign issuers.

    There are special risks in foreign investing. Certain of these risks are inherent in any mutual fund investing in foreign securities while others relate more to the countries in which the funds will invest. Many of the risks are more pronounced for investments in developing or emerging market countries, such as many of the countries of Africa, Asia, Eastern Europe, Latin America, the Middle East, and Russia. There is no universally accepted definition of an emerging country, but the funds generally use MSCI Barra to make a classification.

  • Political and Economic Factors Foreign investments involve risks unique to the local political, economic, and regulatory structures in place, as well as the potential for social instability, military unrest, or diplomatic developments that could prove adverse to the interests of U.S. investors. Individual foreign economies can differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency, and balance of payments position. In addition, significant external political and economic risks currently affect some foreign countries. For example, both Taiwan and China still claim sovereignty over one another and there is a demilitarized border and hostile relations between North and South Korea. War and terrorism affect many countries, especially those in Africa and the Middle East. Many countries throughout the world are dependent on a healthy U.S. economy and are adversely affected when the U.S. economy weakens or its markets decline. For example, in 2007 and 2006, the meltdown in the U.S. subprime mortgage market quickly spread throughout global credit markets, triggering a liquidity crisis that affected fixed-income and equity markets around the world. European countries can be significantly affected by the tight fiscal and monetary controls that the European Economic and Monetary Union ("EMU") imposes for membership. Europe`s economies are diverse, its governments are decentralized, and its cultures vary widely. As a result, there is continued concern about national-level support for the euro and the accompanying coordination of fiscal and wage policy among EMU member countries. Member countries are required to maintain tight control over inflation, public debt, and budget deficit to qualify for membership in the EMU. These requirements can severely limit EMU member countries` ability to implement monetary policy to address regional economic conditions.
  • 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 Investments in foreign securities will normally be denominated in foreign currencies. American Depository Receipts ("ADRs"), however, are investments in foreign companies that are denominated in U.S. dollars. Accordingly, a change in the value of any such currency against the U.S. dollar will result in a corresponding change in the U.S. dollar value of the funds` assets denominated in that currency. Such changes will also affect the funds` income. Generally, when a given currency appreciates against the dollar (the dollar weakens), the value of the funds` securities denominated in that currency will rise. When a given currency depreciates against the dollar (the dollar strengthens), the value of the funds` securities denominated in that currency decline.
  • Investment and Repatriation Restrictions Foreign investment in the securities markets of certain foreign countries is restricted or controlled to varying degrees. These restrictions limit and, at times, preclude investment in such countries and increase the cost and expenses of the funds. Investments by foreign investors are subject to a variety of restrictions in many developing countries. These restrictions may take the form of prior governmental approval, limits on the amount or type of securities held by foreigners, and limits on the types of companies in which foreigners may invest. Additional or different restrictions may be imposed at any time by these or other countries in which the funds invest. In addition, the repatriation of both investment income and capital from several foreign countries is restricted and controlled under certain regulations, including in some cases the need for certain government consents.
  • 192


  • 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 ADRs and Global Depository Receipts ("GDRs") traded in the United States or on foreign exchanges. 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 funds` 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 U.S. securities and such levels may not be sustainable. Commissions on foreign securities trades are generally higher than commissions on U.S. exchanges, and while there are 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 U.S. 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 funds.
  • Investment Funds The funds may invest in investment funds which have been authorized by the governments of certain countries specifically to permit foreign investment in securities of companies listed and traded on the stock exchanges in these respective countries. Investment in these funds is subject to the provisions of the 1940 Act. If the funds invest in such investment funds, 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 indirectly bear 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 U.S. 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 funds` foreign portfolio securities may be subject to foreign withholding taxes, thus reducing the net amount of income available for distribution to the funds` shareholders.
  • Costs Investors should understand that the expense ratios of a fund investing primarily in foreign securities can be expected to be higher than investment companies investing in domestic securities, since the cost of maintaining the custody of foreign securities and the rate of advisory fees paid by the fund is higher.
  • 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.
  • Small Companies Small companies may have less experienced management and fewer management resources than larger firms. A smaller company may have greater difficulty obtaining access to capital markets and may pay more for the capital it obtains. In addition, smaller companies are more likely to be involved in fewer market segments, making them more vulnerable to any downturn in a given segment. Some of these factors may also apply, to a lesser extent, to medium-sized companies.
  • Emerging Europe, Middle East, and Africa
  • Political Instability Many formerly communist, eastern European countries have experienced significant political and economic reform in recent years, and the eastward expansion of the European Union could help anchor this reform process. However, the democratization process is still relatively new in a number of the smaller states and political turmoil and popular uprisings remain threats. Russia has made advances in establishing a new political outlook and a market economy, but political risk remains high. Many Middle Eastern economies have little or no democratic tradition and are led by family structures. Opposition parties

    193


    are often banned, leading to dissidence and militancy. Despite a growing trend toward a democratic process, many African nations have a history of dictatorship, military intervention, and corruption. In all regions, such developments, if they were to recur, could reverse favorable trends toward economic and market reform, privatization, and removal of trade barriers, and result in significant disruptions in securities markets.

    Foreign Currency Certain countries in the region may have managed currencies which are pegged to the U.S. dollar or the euro, rather than at levels determined by the market. This type of system can lead to sudden and large adjustments in the currency, which may, in turn, have a disruptive and negative effect on investors. There is no significant foreign exchange market for certain currencies, and it would, as a result, be difficult for the funds to engage in foreign currency transactions designed to protect the value of the funds` interests in securities denominated in such currencies.

    Energy/Resources Russia, the Middle East, and many African nations are highly reliant on income from oil sales. Oil prices can have a major impact on the domestic economy. Other commodities such as base and precious metals are also important to these economies. Fluctuating supply and demand can significantly impact the price of such commodities.

  • 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 recur, 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 experience sudden and large adjustments in their currency which, in turn, can have a disruptive and negative effect on foreign investors. Certain Latin American countries may impose restrictions on 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 funds to engage in foreign currency transactions designed to protect the value of the funds` interests in securities denominated in such currencies.

    Sovereign Debt A number of Latin American countries have been among the largest debtors of developing countries. There have been moratoria on, and reschedulings of, repayment with respect to these debts. Such events can restrict the flexibility of these debtor nations in the international markets and result in the imposition of onerous conditions on their economies.

  • Japan
  • Japan has experienced earthquakes and tidal waves of varying degrees of severity, and the risks of such phenomena, and damage resulting therefrom, continue to exist. Japan also has one of the world`s highest population densities. A significant percentage of the total population of Japan is concentrated in the metropolitan areas of Tokyo, Osaka, and Nagoya. Therefore, a natural disaster centered in or very near to one of these cities could have a particularly devastating effect on financial markets.

    Energy Japan has historically depended on oil for most of its energy requirements. Almost all of its oil is imported, the majority from the Middle East. In the past, oil prices have had a major impact on the domestic economy, but more recently Japan has worked to reduce its dependence on oil by encouraging energy conservation and use of alternative fuels. In addition, a restructuring of industry, with emphasis shifting from basic industries to processing and assembly type industries, has contributed to the reduction of oil consumption. However, there is no guarantee that this favorable trend will continue.

    Foreign Trade Overseas trade is important to Japan`s economy. Japan has few natural resources and must export to pay for its imports of these basic requirements. Because of the concentration of Japanese exports in highly visible products such as automobiles, machine tools, and semiconductors and the large trade surpluses ensuing therefrom, Japan has had difficult relations with its trading partners, particularly the U.S. It is possible

    194


    that trade sanctions or other protectionist measures could impact Japan adversely in both the short term and long term.

  • Asia (ex-Japan)
  • Political Instability The political history of some Asian countries has been characterized by political uncertainty, intervention by the military in civilian and economic spheres, and political corruption. Such developments, if they continue to occur, could reverse favorable trends toward market and economic reform, privatization, and removal of trade barriers, and could result in significant disruption to securities markets.

    Foreign Currency Certain Asian countries may have managed currencies which are maintained at artificial levels to the U.S. dollar rather than at levels determined by the market. This type of system can lead to sudden and large adjustments in the currency which, in turn, can have a disruptive and negative effect on foreign investors. Certain Asian countries also may restrict the free conversion of their currency into foreign currencies, including the U.S. dollar. There is no significant foreign exchange market for certain currencies, and it would, as a result, be difficult for the funds to engage in foreign currency transactions designed to protect the value of the funds` interests in securities denominated in such currencies.

    Economy A number of Asian companies are highly dependent on foreign loans for their operation, some of which may impose strict repayment term schedules and require significant economic and financial restructuring. The economies of many countries in the region are heavily dependent on international trade and are accordingly affected by protective trade barriers and the economic conditions of their trading partners. China has had an increasingly significant and positive impact on the global economy, but its continued success depends on its ability to retain the legal and financial policies on that have fostered economic freedom and market expansion.

    Risk Factors of Investing in Taxable Debt Obligations

    General

    Yields on short-, intermediate-, and long-term securities are dependent on a variety of factors, including the general conditions of the money, bond, and foreign exchange markets; the size of a particular offering; the maturity of the obligation; and the rating of the issue. Debt securities with longer maturities tend to carry higher yields and are generally subject to greater capital appreciation and depreciation than obligations with shorter maturities and lower yields. The market prices of debt securities usually vary, depending upon available yields. An increase in interest rates will generally reduce the value of portfolio investments, and a decline in interest rates will generally increase the value of portfolio investments. The ability of funds investing in debt securities to achieve their investment objectives is also dependent on the continuing ability of the issuers of the debt securities in which the funds invest to meet their obligations for the payment of interest and principal when due.

    After purchase by the funds, a debt security may cease to be rated or its rating may be reduced below the minimum required for purchase by the funds. Neither event will require a sale of such security by the funds. However, such events will be considered in determining whether the funds should continue to hold the security. To the extent that the ratings given by Moody`s, S&P, or others may change as a result of changes in such organizations or their rating systems, the funds will attempt to use comparable ratings as standards for investments in accordance with the investment policies contained in the prospectus. The ratings of Moody`s, S&P, and others represent their opinions as to the quality of securities that they undertake to rate. Ratings are not absolute standards of quality. When purchasing unrated securities, T. Rowe Price, under the supervision of the funds` Boards, determines whether the unrated security is of a quality comparable to that which the funds are allowed to purchase.

    Full Faith and Credit Securities

    Securities backed by the full faith and credit of the United States (for example, GNMA and U.S. Treasury securities) are generally considered to be among the most, if not the most, creditworthy investments available. While the U.S. government has honored its credit obligations continuously for the last 200 years, political events have, at times, called into question whether the United States would default on its obligations. Such an event would be unprecedented and there is no way to predict its results on the securities markets or the funds. However, it is very likely that default by the United States would result in losses to the funds.

    195


    Mortgage Securities

    Mortgage-backed securities, including Government National Mortgage Association ("Ginnie Mae" or "GNMA") 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., a fund) receives monthly scheduled payments of principal and interest, and may receive unscheduled principal payments representing prepayments on the underlying mortgages. Therefore, GNMA securities may not be an effective means of "locking in" long-term interest rates due to the need for the funds to reinvest scheduled and unscheduled principal payments. The incidence of unscheduled principal prepayments is also likely to increase in mortgage pools owned by the funds 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 funds to reinvest principal payments at the then lower prevailing interest rate, and (2) reduce the potential for capital appreciation beyond the face amount of the security and adversely affect the return to the funds. Conversely, in a rising interest rate environment such prepayments can be reinvested at higher prevailing interest rates which will reduce the potential effect of capital depreciation to which bonds are subject when interest rates rise. When interest rates rise and prepayments decline, GNMA securities become subject to extension risk or the risk that the price of the securities will fluctuate more. In addition, prepayments of mortgage securities purchased at a premium (or discount) will cause such securities to be paid off at par, resulting in a loss (gain) to the funds. T. Rowe Price will actively manage the funds` portfolios in an attempt to reduce the risk associated with investment in mortgage-backed securities.

    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 ARMs may prevent income on the ARMs 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 that, when distributed to shareholders, will be taxable as ordinary income.

    High-Yield Securities

    Special Risks of Investing in Junk Bonds The following special considerations are additional risk factors of funds investing in lower-rated securities.

  • Lower-Rated Debt Securities Market 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 funds` portfolios, the funds` 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. Investment in funds which invest in lower-rated debt securities is more risky than investment in shares of funds which invest 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 funds 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.
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  • 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 funds and may also limit the ability of the funds 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 funds own or may acquire illiquid or restricted lower-rated securities, these securities may involve special registration responsibilities, liabilities, costs, and liquidity and valuation difficulties. Changes in values of debt securities which the funds own will affect its net asset value per share. If market quotations are not readily available for the funds` lower-rated or nonrated securities, these securities will be valued by a method that the funds` Boards believe 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 funds accrue income on these securities prior to the receipt of cash payments. The funds 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 portfolio securities to satisfy distribution requirements.
  • Risk Factors of Investing in Municipal Securities

    General

    Yields on municipal securities are dependent on a variety of factors, including the general conditions of the money market and the municipal bond market, the size of a particular offering, the maturity of the obligations, and the rating of the issue. Municipal securities with longer maturities tend to produce higher yields and are generally subject to potentially greater capital appreciation and depreciation than obligations with shorter maturities and lower yields. The market prices of municipal securities usually vary, depending upon available yields. An increase in interest rates will generally reduce the value of portfolio investments, and a decline in interest rates will generally increase the value of portfolio investments. The ability of all the funds to achieve their investment objectives is also dependent on the continuing ability of the issuers of municipal securities in which the funds invest to meet their obligations for the payment of interest and principal when due. The ratings of Moody`s, S&P, and Fitch IBCA, Inc. ("Fitch") represent their opinions as to the quality of municipal securities which they undertake to rate. Ratings are not absolute standards of quality; consequently, municipal securities with the same maturity, coupon, and rating may have different yields. There are variations in municipal securities, both within a particular classification and between classifications, depending on numerous factors. It should also be pointed out that, unlike other types of investments, offerings of municipal securities have traditionally not been subject to regulation by, or registration with, the SEC, although there have been proposals which would provide for regulation in the future.

    The federal bankruptcy statutes relating to the debts of political subdivisions and authorities of states of the United States provide that, in certain circumstances, such subdivisions or authorities may be authorized to initiate bankruptcy proceedings without prior notice to or consent of creditors, which proceedings could result in material and adverse changes in the rights of holders of their obligations.

    Proposals have been introduced in Congress to restrict or eliminate the federal income tax exemption for interest on municipal securities, and similar proposals may be introduced in the future. Proposed "Flat Tax" and "Value Added Tax" proposals would also have the effect of eliminating the tax preference for municipal securities. Some of the past proposals would have applied to interest on municipal securities issued before the date of enactment, which would have adversely affected their value to a material degree. If such a proposal were enacted, the availability of municipal securities for investment by the funds and the value of a fund`s portfolio would be affected and, in such an event, the funds would reevaluate their investment objectives and

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    policies. Also, recent changes to tax laws broadly lowering tax rates, including lower tax rates on dividends and capital gains, could have a negative impact on the desirability of owning municipal securities.

    Although the banks and securities dealers with which the funds will transact business will be banks and securities dealers that T. Rowe Price believes to be financially sound, there can be no assurance that they will be able to honor their obligations to the funds with respect to such transactions.

    Municipal Bond Insurance The funds may purchase insured bonds from time to time. Municipal bond insurance provides an unconditional and irrevocable guarantee that the insured bond`s principal and interest will be paid when due. Insurance does not guarantee the price of the bond. The guarantee is purchased from a private, nongovernmental insurance company.

    There are two types of insured securities that may be purchased by the funds: bonds carrying either (1) new issue insurance; or (2) secondary insurance. New issue insurance is purchased by the issuer of a bond in order to improve the bond`s credit rating. By meeting the insurer`s standards and paying an insurance premium based on the bond`s principal value, the issuer is able to obtain a higher credit rating for the bond. Once purchased, municipal bond insurance cannot be canceled, and the protection it affords continues as long as the bonds are outstanding and the insurer remains solvent.

    The funds may also purchase bonds that carry secondary insurance purchased by an investor after a bond`s original issuance. Such policies insure a security for the remainder of its term. Generally, the funds expect that portfolio bonds carrying secondary insurance will have been insured by a prior investor. However, the funds may, on occasion, purchase secondary insurance on their own behalf.

    Each of the municipal bond insurance companies has established reserves to cover estimated losses. Both the method of establishing these reserves and the amount of the reserves vary from company to company. The risk that a municipal bond insurance company may experience a claim extends over the life of each insured bond. Municipal bond insurance companies are obligated to pay a bond`s interest and principal when due if the issuing entity defaults on the insured bond. Although defaults on insured municipal bonds have been low to date, it is possible for default rates on insured bonds to increase substantially, which could deplete an insurer`s loss reserves and adversely affect the ability of a municipal bond insurer to pay claims to holders of insured bonds, such as the funds. The inability of an insurer to pay a particular claim, or a downgrade of the insurer`s rating, could adversely affect the values of all the bonds it insures. The number of municipal bond insurers is relatively small and, therefore, a significant amount of a municipal bond fund`s assets may be insured by a single issuer.

    High-Yield Securities Lower-quality bonds, commonly referred to as "junk bonds," are regarded as predominantly speculative with respect to the issuer`s continuing ability to meet principal and interest payments. Because investment in low- and lower-medium-quality bonds involves greater investment risk, to the extent the funds invest in such bonds, achievement of their investment objectives will be more dependent on T. Rowe Price`s credit analysis than would be the case if the funds were investing in higher-quality bonds. High-yield bonds may be more susceptible to real or perceived adverse economic conditions than investment-grade bonds. A projection of an economic downturn or higher interest rates, for example, could cause a decline in high-yield bond prices because the advent of such events could lessen the ability of highly leveraged issuers to make principal and interest payments on their debt securities. In addition, the secondary trading market for high-yield bonds may be less liquid than the market for higher-grade bonds, which can adversely affect the ability of the funds to dispose of their portfolio securities. Bonds for which there is only a "thin" market can be more difficult to value inasmuch as objective pricing data may be less available, and judgment may play a greater role in the valuation process.

    Risk Factors of Investing in Taxable and Tax-Free Money Market Funds

    The T. Rowe Price money market funds will limit their purchases of portfolio instruments to those U.S. dollar-denominated securities which the funds` Boards determine present minimal credit risk and which are eligible securities as defined in Rule 2a-7 under the 1940 Act. Eligible securities are generally securities which have been rated (or whose issuer has been rated or whose issuer has comparable securities rated) in one of the two highest short-term rating categories (which may include sub-categories) by nationally recognized statistical rating organizations ("NRSROs") or, in the case of any instrument that is not so rated, is of comparable high quality as determined by T. Rowe Price pursuant to written guidelines established under the supervision of the

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    funds` Boards. In addition, the funds may treat variable and floating rate instruments with demand features as short-term securities pursuant to Rule 2a-7 under the 1940 Act.

    There can be no assurance that the funds will achieve their investment objectives or be able to maintain their net asset values per share at $1.00. Except to the extent the funds participate in the U.S. Treasury Department`s Temporary Guarantee Program for money market funds, the price of the funds is not guaranteed or insured by the U.S. government and their yields are not fixed. While the funds invest in high-grade money market instruments, investment in the funds is not without risk even if all portfolio instruments are paid in full at maturity. An increase in interest rates could reduce the value of the funds` portfolio investments, and a decline in interest rates could increase the value.

    State Tax-Free Funds

    The following information about the state tax-free funds is updated in June of each year. More current information is available in shareholder reports for these funds.

    California Tax-Free Bond and California Tax-Free Money Funds

    Risk Factors Associated with a California Portfolio

    The funds` concentration in the debt obligations of one state carries a higher risk than a portfolio that is more geographically diversified.

    Types of Municipal Debt The funds invest in municipal bonds and other municipal debt instruments issued by the state of California and its various political subdivisions and agencies. The issuers of these debt obligations include the state of California and its agencies and authorities, counties and municipalities and their agencies and authorities, various California public institutions of higher education, and certain California not-for-profit organizations (e.g., hospitals, private colleges, and nursing homes). The credit quality and risk of these investments will vary according to each security`s structure and underlying economics.

    Debt is issued for a wide variety of public purposes, including transportation, housing, education, electric power, and healthcare. The state of California, and its local governments, agencies and authorities, issue two basic types of debt: general obligation bonds and revenue bonds. General obligation bonds are backed by the unlimited taxing power of the issuer. However, bonds issued by certain counties, municipalities, and agencies of the state and local government are not backed by the full faith and credit of the state. Revenue bonds are typically secured by specific pledged fees or charges for a related project, such as fees generated from use of facilities or enterprises financed by the bonds. As part of its cash management program, the state regularly issues short-term notes to meet its disbursement requirements in advance of the receipt of revenues. Included within the revenue bond sector are tax-exempt lease obligations that are subject to annual appropriations of a governmental body, usually with no implied tax or specific revenue pledge. Local governments also raise capital through the use of Mello-Roos, 1915 Act Bonds, and Tax Increment Bonds, all of which are generally riskier than general obligation debt as they often rely on tax revenues to be generated by future development for their support.

    The funds may also invest in private activity bond issues for corporate and nonprofit borrowers. Sold through various governmental conduits, these issues are backed solely by the revenues pledged by the respective borrowing corporations. No governmental support is implied.

    Political and Legislative Conditions Certain provisions of the California state constitution and state statutes limit the taxing and spending authority of California governmental entities, thus affecting their ability to meet debt service obligations. For example, the constitution limits ad valorem taxes on real property to 1% of "full cash value" and restricts the ability of taxing entities to increase real property taxes. It also prohibits the state from spending revenues beyond its annually adjusted "appropriations limit." Yet another provision further restricts the ability of local governments to levy and collect existing and future taxes, assessments, and fees. In addition to limiting the financial flexibility of local governments in the state, the provision also increases the possibility of voter-determined tax rollbacks and repeals.

    One effect of the tax and spending limitations in California has been a broad scale shift by local governments away from general obligation debt requiring voter approval and pledging of future tax revenues toward lease

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    revenue financing that is subject to abatement and does not require voter approval. Lease-backed debt is generally viewed as a less secure form of borrowing and therefore entails greater credit risk.

    Future initiatives, if proposed and adopted, or future court decisions could create renewed pressure on California governments and their ability to raise revenues. Although Orange County notably filed for protection under the U.S. Bankruptcy Code in 1994, overall the state and its underlying governments have displayed flexibility in overcoming the negative effects of past initiatives.

    Economic and Financial Conditions To a large degree, the credit risk of the portfolio is dependent upon the financial strength of the state of California, its localities and agencies. Financial strength is, in turn, influenced by changing economic conditions which affect the level of taxes collected and revenues earned. While California`s economy has been diverse and resilient, and is typically the largest among the 50 states, the state of California is also normally among the most highly indebted states in the nation. The state has historically experienced more extreme swings in employment levels and property values relative to the rest of the country. In addition, California is more prone to earthquakes, which can result in sudden economic downturns and the unexpected inability of issuers to meet their obligations. More detailed information regarding economic conditions and the financial strength of California is available in the funds` annual and semi-annual shareholder reports.

    Sectors Investment concentration in a particular sector can present unique risks. For example, a significant portion of the funds` assets may be invested in issues related to health care providers. For over a decade, the hospital industry has been under significant pressure to reduce expenses and shorten length of hospital stays, a phenomenon that has negatively affected the financial health of some hospitals. All hospitals are dependent on third-party reimbursement mechanisms that are typically complex, subject to numerous conditions, and uncertain as to how long they will continue.

    The funds may from time to time invest in electric revenue issues. The financial performance of these utilities was impacted by the industry`s moves toward deregulation and increased competition. California`s original electric utility restructuring plan proved to be flawed as it placed over-reliance on the spot market for power purchases during a period of substantial supply and demand imbalance. Now that deregulation has been suspended, municipal utilities face a more traditional set of challenges. In particular, some electric revenue issuers have exposure to or participate in nuclear power plants, which could affect the issuer`s financial performance. Other risks include unexpected outages, plant shutdowns, and more stringent environmental regulations.

    Georgia Tax-Free Bond Fund

    Risk Factors Associated with a Georgia Portfolio

    The fund`s concentration in the debt obligations of one state carries a higher risk than a portfolio that is more geographically diversified.

    Types of Municipal Debt The fund invests in municipal bonds and other municipal debt instruments issued by the state of Georgia and its various political subdivisions and agencies. The issuers of these debt obligations include the state of Georgia and its agencies and authorities, counties and municipalities and their agencies and authorities, various Georgia public institutions of higher education, and certain Georgia not-for-profit organizations (e.g., hospitals, private colleges, and nursing homes). The credit quality and risk of these investments will vary according to each security`s structure and underlying economics.

    The state of Georgia, and its local governments, agencies and authorities, issue two basic types of debt: general obligation bonds and revenue bonds. General obligation bonds are backed by the unlimited taxing power of the issuer. However, bonds issued by certain counties, municipalities, and agencies of the state and local government are not backed by the full faith and credit of the state and may or may not be subject to annual appropriations from the state`s general fund. Revenue bonds are typically secured by specific pledged fees or charges for a related project, such as fees generated from use of facilities or enterprises financed by the bonds. Included within the revenue bond sector are tax-exempt lease obligations that are subject to annual appropriations of a governmental body, usually with no implied tax or specific revenue pledge.

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    The Georgia Constitution imposes certain debt limits and controls. The state`s general obligation debt service cannot exceed 10% of total revenue receipts less refunds of the state treasury and state-issued general obligation bonds have a 25-year maturity limit. The state also established "debt affordability" limits which provide that outstanding debt will not exceed 2.7% of personal income or that maximum annual debt service will not exceed 5% of the prior year`s revenues.

    The fund may also invest in private activity bond issues for corporate and nonprofit borrowers. Sold through various governmental conduits, these issues are backed solely by the revenues pledged by the respective borrowing corporations. No governmental support is implied.

    Economic and Financial Conditions To a large degree, the credit risk of the portfolio is dependent upon the financial strength of the state of Georgia, its localities and agencies. Financial strength is, in turn, influenced by changing economic conditions which affect the level of taxes collected and revenues earned. While local governments in Georgia are primarily reliant on independent revenue sources, such as property taxes, they are not immune to budget shortfalls caused by cutbacks in state aid. More detailed information regarding economic conditions and the financial strength of Georgia is available in the fund`s annual and semi-annual shareholder reports.

    Sectors Investment concentration in a particular sector can present unique risks. For example, a significant portion of the fund`s assets may be invested in issues related to health care providers. For over a decade, the hospital industry has been under significant pressure to reduce expenses and shorten length of hospital stays, a phenomenon that has negatively affected the financial health of some hospitals. All hospitals are dependent on third-party reimbursement mechanisms that are typically complex, subject to numerous conditions, and uncertain as to how long they will continue.

    The fund may from time to time invest in electric revenue issues that have exposure to or participate in nuclear power plants, which could affect the issuer`s financial performance. Such risks include delay in construction and operation due to increased regulation, unexpected outages or plant shutdowns, increased Nuclear Regulatory Commission surveillance, or inadequate rate relief. In addition, the financial performance of electric utilities may be impacted by increased competition and deregulation of the industry.

    The fund may invest in issues related to life care, which includes nursing homes, assisted living facilities, and continuing care retirement communities. These bonds are typically issued with longer-term maturities, although they are usually callable by the issuer on prescribed dates before maturity. Many life care municipal bonds are considered below investment-grade or are not rated by a major rating agency. Reasons for the higher credit risk include uncertainty over future regulations and Medicaid funding, increased competition, and a lack of affordability.

    Maryland Short-Term Tax-Free Bond, Maryland Tax-Free Bond, and Maryland Tax-Free Money Funds

    Risk Factors Associated with a Maryland Portfolio

    The funds` concentration in the debt obligations of one state carries a higher risk than a portfolio that is more geographically diversified.

    Types of Municipal Debt The funds invest in municipal bonds and other municipal debt instruments issued by the state of Maryland and its various political subdivisions and agencies. The issuers of these debt obligations include the state of Maryland and its agencies and authorities, counties and municipalities and their agencies and authorities, various Maryland public institutions of higher education, and certain Maryland not-for-profit organizations (e.g., hospitals, private colleges, and nursing homes). The credit quality and risk of these investments will vary according to each security`s structure and underlying economics.

    The state of Maryland, and its local governments, agencies and authorities, issue two basic types of debt: general obligation bonds and revenue bonds. General obligation bonds are backed by the unlimited taxing power of the issuer. However, many counties, municipalities, and agencies of the state and local government are authorized to borrow money under laws expressly providing that the loan obligations are not debts or pledges of the full faith and credit of the state. The state constitution imposes a 15-year maturity limit on state-issued general obligation bonds. Revenue bonds are typically secured by specific pledged fees or charges for a

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    related project, such as fees generated from use of facilities or enterprises financed by the bonds. Included within the revenue bond sector are tax-exempt lease obligations that are subject to annual appropriations of a governmental body, usually with no implied tax or specific revenue pledge.

    The funds may also invest in private activity bond issues for corporate and nonprofit borrowers. Sold through various governmental conduits, these issues are backed solely by the revenues pledged by the respective borrowing corporations. No governmental support is implied.

    Economic and Financial Conditions To a large degree, the credit risk of the portfolio is dependent upon the financial strength of the state of Maryland, its localities and agencies. Financial strength is, in turn, influenced by changing economic conditions which affect the level of taxes collected and revenues earned. More detailed information regarding economic conditions and the financial strength of Maryland is available in the funds` annual and semi-annual shareholder reports.

    Sectors Investment concentration in a particular sector can present unique risks. For example, a significant portion of the funds` assets may be invested in issues related to health care providers. For over a decade, the hospital industry has been under significant pressure to reduce expenses and shorten length of hospital stays, a phenomenon that has negatively affected the financial health of some hospitals. All hospitals are dependent on third-party reimbursement mechanisms that are typically complex, subject to numerous conditions, and of uncertain duration.

    The funds may from time to time invest in electric revenue issues that have exposure to or participate in nuclear power plants, which could affect the issuer`s financial performance. Such risks include delay in construction and operation due to increased regulation, unexpected outages or plant shutdowns, increased Nuclear Regulatory Commission surveillance, or inadequate rate relief. In addition, the financial performance of electric utilities may be impacted by increased competition and deregulation of the industry.

    The funds may invest in issues related to life care, which includes nursing homes, assisted living facilities, and continuing care retirement communities. These bonds are typically issued with longer-term maturities, although they are usually callable by the issuer on prescribed dates before maturity. Many life care municipal bonds are considered below investment-grade or are not rated by a major rating agency. Reasons for the higher credit risk include uncertainty over future regulations and Medicaid funding, increased competition, and a lack of affordability.

    New Jersey Tax-Free Bond Fund

    Risk Factors Associated with a New Jersey Portfolio

    The fund`s concentration in the debt obligations of one state carries a higher risk than a portfolio that is more geographically diversified.

    Types of Municipal Debt The fund invests in municipal bonds and other municipal debt instruments issued by the state of New Jersey and its various political subdivisions and agencies. The issuers of these debt obligations include the state of New Jersey and its agencies and authorities, counties and municipalities and their agencies and authorities, various New Jersey public institutions of higher education, and certain New Jersey not-for-profit organizations (e.g., hospitals, private colleges, and nursing homes). The credit quality and risk of these investments will vary according to each security`s structure and underlying economics.

    The state of New Jersey, and its local governments, agencies and authorities, issue two basic types of debt: general obligation bonds and revenue bonds. General obligation bonds are backed by the unlimited taxing power of the issuer. However, many counties, municipalities, and agencies of the state and local government are authorized to borrow money under laws expressly providing that the loan obligations are not debts or pledges of the full faith and credit of the state. Revenue bonds are typically secured by specific pledged fees or charges for a related project, such as fees generated from use of facilities or enterprises financed by the bonds. Included within the revenue bond sector are tax-exempt lease obligations that are subject to annual appropriations of a governmental body, usually with no implied tax or specific revenue pledge.

    The majority of the state`s debt is "appropriation-backed." This means that the debt service payments on these obligations must be funded annually by the state legislature, but the legislature has no legal obligation to continue to make such appropriations.

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    The fund may also invest in private activity bond issues for corporate and nonprofit borrowers. These issues are sold through various governmental conduits, such as the New Jersey Economic Development Authority and various local issuers, and are backed solely by the revenues pledged by the respective borrowing corporations. No governmental support is implied. In the past, a number of New Jersey Economic Development Authority issues have defaulted as a result of borrower financial difficulties.

    Economic and Financial Conditions To a large degree, the credit risk of the portfolio is dependent upon the financial strength of the state of New Jersey, its localities and agencies. Financial strength is, in turn, influenced by changing economic conditions which affect the level of taxes collected and revenues earned. More detailed information regarding economic conditions and the financial strength of New Jersey is available in the fund`s annual and semi-annual shareholder reports.

    Sectors Investment concentration in a particular sector can present unique risks. For example, a significant portion of the fund`s assets may be invested in issues related to health care providers. For over a decade, the hospital industry has been under significant pressure to reduce expenses and shorten length of hospital stays, a phenomenon that has negatively affected the financial health of some hospitals. All hospitals are dependent on third-party reimbursement mechanisms that are typically complex, subject to numerous conditions, and uncertain as to how long they will continue.

    The fund may from time to time invest in electric revenue issues that have exposure to or participate in nuclear power plants, which could affect the issuer`s financial performance. Such risks include delay in construction and operation due to increased regulation, unexpected outages or plant shutdowns, increased Nuclear Regulatory Commission surveillance, or inadequate rate relief. In addition, the financial performance of electric utilities may be impacted by increased competition and deregulation of the industry.

    The fund may invest in issues related to life care, which includes nursing homes, assisted living facilities, and continuing care retirement communities. These bonds are typically issued with longer-term maturities, although they are usually callable by the issuer on prescribed dates before maturity. Many life care municipal bonds are considered below investment-grade or are not rated by a major rating agency. Reasons for the higher credit risk include uncertainty over future regulations and Medicaid funding, increased competition, and a lack of consumer affordability.

    New York Tax-Free Bond and New York Tax-Free Money Funds

    Risk Factors Associated with a New York Portfolio

    The funds` concentration in the debt obligations of one state carries a higher risk than a portfolio that is more geographically diversified.

    Types of Municipal Debt The funds invest in municipal bonds and other municipal debt instruments issued by the state of New York and its various political subdivisions and agencies. The issuers of these debt obligations include: the state of New York, New York City, and their agencies and authorities; counties, other municipalities, and their agencies and authorities; various New York public institutions of higher education; and certain New York not-for-profit organizations (e.g., hospitals, private colleges, and nursing homes). The credit quality and risk of these investments will vary according to each security`s structure and underlying economics.

    The state of New York, and its local governments, agencies and authorities, issue two basic types of debt: general obligation bonds and revenue bonds. General obligation bonds are backed by the unlimited taxing power of the issuer. However, bonds issued by certain counties, municipalities, and agencies of the state and local government are not backed by the full faith and credit of the state of New York or New York City. Revenue bonds are typically secured by specific pledged fees or charges for a related project, such as fees generated from use of facilities or enterprises financed by the bonds. Included within the revenue bond sector are tax-exempt lease obligations that are subject to annual appropriations of a governmental body, usually with no implied tax or specific revenue pledge.

    The majority of the state`s debt is "appropriation-backed." This means that the debt service payments on these obligations must be funded annually by the state legislature, but the legislature has no legal obligation to continue to make such appropriations.

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    The funds may also invest in private activity bond issues for corporate and nonprofit borrowers. Sold through various governmental conduits, these issues are backed solely by the revenues pledged by the respective borrowing corporations. No governmental support is implied.

    Economic and Financial Conditions To a large degree, the credit risk of the portfolio is dependent upon the financial strength of the state of New York, its localities and agencies. Financial strength is, in turn, influenced by changing economic conditions which affect the level of taxes collected and revenues earned. The state of New York is typically among the most highly indebted states in the nation and New York City is typically one of the most indebted U.S. cities. More detailed information regarding economic conditions and the financial strength of New York is available in the funds` annual and semi-annual shareholder reports.

    Sectors Investment concentration in a particular sector can present unique risks. For example, a significant portion of the funds` assets may be invested in issues related to health care providers. For over a decade, the hospital industry has been under significant pressure to reduce expenses and shorten length of hospital stays, a phenomenon that has negatively affected the financial health of some hospitals. All hospitals are dependent on third-party reimbursement mechanisms that are typically complex, subject to numerous conditions, and uncertain as to how long they will continue.

    The funds may from time to time invest in electric revenue issues that have exposure to or participate in nuclear power plants, which could affect the issuer`s financial performance. Such risks include delay in construction and operation due to increased regulation, unexpected outages or plant shutdowns, increased Nuclear Regulatory Commission surveillance, or inadequate rate relief. In addition, the financial performance of electric utilities may be impacted by increased competition and deregulation of the industry.

    The funds may invest in issues related to life care, which includes nursing homes, assisted living facilities, and continuing care retirement communities. These bonds are typically issued with longer-term maturities, although they are usually callable by the issuer on prescribed dates before maturity. Many life care municipal bonds are considered below investment-grade or are not rated by a major rating agency. Reasons for the higher credit risk include uncertainty over future regulations and Medicaid funding, increased competition, and a lack of consumer affordability.

    Virginia Tax-Free Bond Fund

    Risk Factors Associated with a Virginia Portfolio

    The fund`s concentration in the debt obligations of one state carries a higher risk than a portfolio that is more geographically diversified.

    Types of Municipal Debt The fund invests in municipal bonds and other municipal debt instruments issued by the commonwealth of Virginia and its various political subdivisions and agencies. The issuers of these debt obligations include the commonwealth of Virginia and its agencies and authorities, counties and municipalities and their agencies and authorities, various Virginia public institutions of higher education, and certain Virginia not-for-profit organizations (e.g., hospitals, private colleges, and nursing homes). The credit quality and risk of these investments will vary according to each security`s structure and underlying economics.

    Debt is issued for a wide variety of public purposes, including transportation, housing, education, healthcare, and industrial development. The commonwealth of Virginia, and its local governments, agencies and authorities, issue two basic types of debt: general obligation bonds and revenue bonds. General obligation bonds are backed by the unlimited taxing power of the issuer. Under Virginia law, general obligation debt is limited to 1.15 times the average of the preceding three years` income tax and sales and use collections. However, bonds issued by many counties, municipalities, and agencies of the commonwealth and local government are not backed by the full faith and credit of the commonwealth but instead are subject to annual appropriations from the commonwealth`s general fund. Revenue bonds are typically secured by specific pledged fees or charges for a related project, such as fees generated from use of facilities or enterprises financed by the bonds. Included within the revenue bond sector are tax-exempt lease obligations that are subject to annual appropriations of a governmental body, usually with no implied tax or specific revenue pledge.

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    The fund may also invest in private activity bond issues for corporate and nonprofit borrowers. Sold through various governmental conduits, these issues are backed solely by the revenues pledged by the respective borrowing corporations. No governmental support is implied.

    Economic and Financial Conditions To a large degree, the credit risk of the portfolio is dependent upon the financial strength of the commonwealth of Virginia, its localities and agencies. Financial strength is, in turn, influenced by changing economic conditions which affect the level of taxes collected and revenues earned. While local governments in Virginia are primarily reliant on independent revenue sources, such as property taxes, they are not immune to budget shortfalls caused by cutbacks in state aid. More detailed information regarding economic conditions and the financial strength of Virginia is available in the fund`s annual and semi-annual shareholder reports.

    Sectors Investment concentration in a particular sector can present unique risks. For example, a significant portion of the fund`s assets may be invested in issues related to health care providers. For over a decade, the hospital industry has been under significant pressure to reduce expenses and shorten length of hospital stays, a phenomenon that has negatively affected the financial health of some hospitals. All hospitals are dependent on third-party reimbursement mechanisms that are typically complex, subject to numerous conditions, and uncertain as to how long they will continue.

    The fund may from time to time invest in electric revenue issues that have exposure to or participate in nuclear power plants, which could affect the issuer`s financial performance. Such risks include delay in construction and operation due to increased regulation, unexpected outages or plant shutdowns, increased Nuclear Regulatory Commission surveillance, or inadequate rate relief. In addition, the financial performance of electric utilities may be impacted by increased competition and deregulation of the industry.

    The fund may invest in issues related to life care, which includes nursing homes, assisted living facilities, and continuing care retirement communities. These bonds are typically issued with longer-term maturities, although they are usually callable by the issuer on prescribed dates before maturity. Many life care municipal bonds are considered below investment-grade or are not rated by a major rating agency. Reasons for the higher credit risk include uncertainty over future regulations and Medicaid funding, increased competition, and a lack of affordability.

    All State Tax-Free Funds

    Risk Factors Associated with Investing in Puerto Rico

    From time to time, the funds invest in debt obligations of the commonwealth of Puerto Rico and its public corporations, the interest of which may be exempt from federal, state, and local income taxes. As of April 1, 2008, the general obligation debt of the commonwealth was rated Baa3 by Moody`s and BBB- by S&P. Both agencies have assigned stable outlooks to the ratings. The credit ratings reflect, in part, their concerns regarding a weak economy, structural budget imbalance, and rising debt burden.

    Types of Debt The debt obligations of Puerto Rico include bonds and notes issued by the commonwealth, its municipalities, and its public corporations, such as highways, water and sewer, and electric power companies. The credit quality and risk of these investments will vary according to each security`s structure and underlying economics.

    Guaranteed direct obligations of the commonwealth supported by a general obligation pledge are subject to strict limitations imposed by the commonwealth`s constitution. Debts of its municipalities are typically supported by property taxes and municipal license taxes, with support from the commonwealth, if necessary. Debts of its public corporations are generally supported by the corporation`s revenues or by commonwealth appropriations or taxes.

    Economic and Financial Conditions Though different measures suggest Puerto Rico`s debt burden is high relative to a U.S. state, the commonwealth issues or supports bonds on behalf of municipalities and other governmental units. In many cases, this type of debt would be issued by local government or public agencies that are independent entities in the United States. One measure to monitor the commonwealth debt levels is by comparing the rate of growth of its debt to the rate of growth of its gross domestic product ("GDP"). For

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    the five -year period ended in June 2007, total public sector debt increased by 44%, whereas GDP rose by 20%.

    Puerto Rico`s economy is often closely linked to the U.S. economy. The dominant sectors of the Puerto Rico economy are manufacturing and services. Manufacturing, especially pharmaceuticals, is very important to the local economy. For 2007, manufacturing accounted for approximately 40% of GDP and approximately 10% of non-farm payroll employment. Total employment levels declined 10% from 2003 to 2007. Many of the losses were in labor-intensive industries as jobs were shifted to more capital-intensive and skilled positions. Services are another component of the local economy, and represented 40% of GDP and 55% of employment. Tourism is an important sub-sector of services, and one of the primary drivers of Puerto Rico`s economy. San Juan is the largest home port for cruise ships in the Caribbean and one of the largest ports in the world. Between 2003 and 2007, the number of tourists rose approximately 4.0% annually while visitors` expenditures increased approximately 8.0%.

    Government officials estimate that general fund revenues and expenditures were both $9.0 billion in fiscal year 2007. However, when adjusted for note proceeds and repayments of various borrowings and transfers, the commonwealth experienced a budget gap of $480 million. The deficit is expected to funded by various fiscal and tax reforms. These measures are anticipated to shrink the gap over the next few years.

    Tax Concerns For many years, U.S. companies operating in Puerto Rico were eligible to receive a special tax treatment. Since 1976, Section 936 of the U.S. tax code entitled certain corporations to credit income derived from business activities in the commonwealth against their U.S. corporate income tax, which in turn spurred significant expansion in capital intensive manufacturing, particularly by large pharmaceutical firms. The tax benefits, however, were phased out over a ten-year period beginning in 1996 and were eliminated beginning with the 2006 tax year. While the ultimate impact of the elimination of the income tax credits over the short- and long-term cannot be determined, preliminary indications are that major pharmaceutical, instrument, and electronic manufacturing firms have not exited the market.

    PORTFOLIO SECURITIES

    Types of Securities

    Set forth below is additional information about certain of the investments described in the funds` prospectuses.

    Debt Securities

  • 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 ("Fannie Mae" or "FNMA"), GNMA, 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 U.S. Treasury.
  • Bank Obligations  Certificates of deposit, banker`s acceptances, and other short-term debt obligations. Certificates of deposit are short-term obligations of commercial banks. A banker`s 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 funds may invest in U.S. banks, foreign branches of U.S. banks, U.S. branches of foreign banks, and foreign branches of foreign banks.
  • Savings and Loan Obligations  Negotiable certificates of deposit and other short-term debt obligations of savings and loan associations.
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  • Supranational Agencies  Securities of certain supranational entities, such as the International Development Bank.
  • Corporate Debt Securities  Outstanding corporate debt securities (e.g., bonds and debentures). Corporate notes may have fixed, variable, or floating rates.
  • Short-Term Corporate Debt Securities Outstanding nonconvertible corporate debt securities (e.g., bonds and debentures) which have one year or less remaining to maturity. Corporate notes may have fixed, variable, or floating rates.
  • Commercial Paper and Commercial Notes  Short-term promissory notes issued by corporations primarily to finance short-term credit needs. Certain notes may have floating or variable rates and may contain options, exercisable by either the buyer or the seller, that extend or shorten the maturity of the note.
  • Foreign Government Securities  Issued or guaranteed by a foreign government, province, instrumentality, political subdivision, or similar unit thereof.
  • Funding Agreements Obligations of indebtedness negotiated privately between the funds and an insurance company. Often such instruments will have maturities with unconditional put features, exercisable by the funds, requiring return of principal within one year or less.
  • There are, of course, other types of securities that are or may become available that are similar to the foregoing, and the funds may invest in these securities.

    Mortgage-Related Securities

  • 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 and 15-year fixed rate, and graduated payment mortgages. Principal and interest payments made on the mortgages in the underlying mortgage pool are passed through to the funds. 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 funds. This principal is returned to the funds 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 U.S. government or one of its agencies or instrumentalities, such as GNMA, 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 U.S. 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.
  • GNMA Certificates GNMA 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 GNMA 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
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  • amended ("VA Loans"), or by pools of other eligible mortgage loans. The Housing Act provides that the full faith and credit of the U.S. 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, GNMA is authorized to borrow from the U.S. Treasury with no limitations as to amount.
  • FNMA Certificates FNMA 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 FNMA. 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.
  • FHLMC Certificates FHLMC is a corporate instrumentality of the United States created pursuant to the Emergency Home Finance Act of 1970, as amended ("FHLMC Act"). FHLMC Certificates represent a pro-rata interest in a group of mortgage loans purchased by FHLMC. FHLMC 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 FHLMC are obligations solely of FHLMC and are not backed by the full faith and credit of the U.S. government.
  • FAMC Certificates FAMC is a federally chartered instrumentality of the United States established by Title VIII of the Farm Credit Act of 1971, as amended ("Charter Act"). FAMC 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. FAMC 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. Similar to FNMA and FHLMC, FAMC Certificates are not supported by the full faith and credit of the U.S. government; rather, FAMC 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 funds. 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 GNMA Certificates are backed by mortgages of this type, and, accordingly, the generally accepted practice treats GNMA Certificates as 30-year securities which prepay in full in the 12th year. FNMA and FHLMC 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.

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  • 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 a CMO structure are retired sequentially as opposed to the pro-rata return of principal found in traditional pass-through obligations. Subject to the various provisions of individual CMO issues, the cash flow generated by the underlying collateral (to the extent it exceeds the amount required to pay the stated interest) is used to retire the bonds. Under the CMO structure, the repayment of principal among the different tranches is prioritized in accordance with the terms of the particular CMO issuance. The "fastest-pay" tranche of bonds, as specified in the prospectus for the issuance, would initially receive all principal payments. When that tranche of bonds is retired, the next tranche, or tranches, in the sequence, as specified in the prospectus, receive all of the principal payments until they are retired. The sequential retirement of bond groups continues until the last tranche, or group of bonds, is retired. Accordingly, the CMO structure allows the issuer to use cash flows of long maturity, monthly pay collateral to formulate securities with short, intermediate, and long final maturities and expected average lives.
  • In recent years, new types of CMO 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 funds invest, 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). 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 Multi-Class Pass-Through Securities Unlike CMOs, U.S. Government Agency Multi-Class Pass-Through Securities, which include FNMA Guaranteed Real Estate Mortgage Investment Conduit 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 multi-class 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 nongovernmental issuers. Pools of conventional residential or commercial 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 funds` quality standards. The funds
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  • 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 funds` 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. Interest only securities ("IOs") receive the interest portion of the cash flow while principal only securities ("POs") 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 PO, as with other mortgage-backed securities described herein, and 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 funds.
  • 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 of cash flows provided to the investor. In contrast, prepayments on the mortgage pool affect the timing 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, investors may fail to fully recoup their 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 funds that it believes the funds should treat IOs and POs, other than government-issued IOs or POs backed by fixed-rate mortgages, as illiquid securities and, accordingly, limit their investments in such securities, together with all other illiquid securities, to 15% of the funds` 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 funds` Boards. The funds` Boards have 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; and size of the issue and the number of dealers who make a market in the IO or PO.

  • Adjustable Rate Mortgage Securities ("ARMs") 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 ARMs allows the funds 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. ARMs 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.
  • Other Mortgage-Related Securities 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 funds` objectives, policies, and quality standards, consider making investments in such new types of securities.
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    Asset-Backed Securities

    Background  The asset-backed securities ("ABS") market has been one of the fastest growing sectors of the U.S. fixed-income market since its inception in late 1985. Although initial ABS transactions were backed by auto loans and credit card receivables, today`s market has evolved to include a variety of asset types including home equity loans, student loans, equipment leases, stranded utility costs, and collateralized bond/loan obligations. For investors, securitization typically provides an opportunity to invest in high-quality securities with higher credit ratings and less downgrade/event risk than corporate bonds. Unlike mortgages, prepayments on ABS collateral are less sensitive to changes in interest rates. They can also be structured into classes that meet the market`s demand for various maturities and credit quality.

    Structure  Asset-backed securities are bonds that represent an ownership interest in a pool of receivables sold by originators into a special purpose vehicle (SPV). The collateral types can vary, so long as they are secured by homogeneous assets with relatively predictable cash flows. Assets that are transferred through a sale to a special purpose vehicle are legally separated from those of the seller/servicer, which insulates investors from bankruptcy or other event risk associated with the seller/servicer of those assets. Most senior tranches of ABS are structured to a triple-A rated level through credit enhancement; however, ABS credit ratings range from AAA to non-investment-grade. Many ABS transactions are structured to include payout events/performance triggers which provide added protection against deteriorating credit quality.

    ABS structures are generally categorized by two distinct types of collateral. Amortizing assets (such as home equity loans, auto loans, and equipment leases) typically pass through principal and interest payments directly to investors, while revolving assets (such as credit card receivables, home equity lines of credit, and dealer floor-plan loans) typically reinvest principal and interest payments in new collateral for a specified period of time. The majority of amortizing transactions are structured as straight sequential-pay transactions. In these structures, all principal amortization and prepayments are directed to the shortest maturity class until it is retired, then to the next shortest class and so on. The majority of revolving assets are structured as bullets, whereby investors receive periodic interest payments and only one final payment of principal at maturity.

    Underlying Assets  The asset-backed securities that may be purchased include securities backed by pools of mortgage-related receivables known as home equity loans, or of consumer receivables such as automobile loans or credit card loans. Other types of ABS may also be purchased. 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 securities 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 and return on any asset-backed security is difficult to predict with precision and actual return or yield to maturity may be more or less than the anticipated return or yield to maturity.

    Methods of Allocating Cash Flows  While some 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. 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. 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 funds may invest in such asset-backed securities if the investment is otherwise consistent with the fund`s investment objectives, policies, and restrictions.

    Types of Credit Support  Asset-backed securities are typically backed by a pool of assets representing the obligations of a diversified pool of numerous obligors. To lessen the effect of failures by obligors on the ability of 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

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    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:

  • Excess Spread  Typically, the first layer of protection against losses, equal to the cash flow from the underlying receivables remaining after deducting the sum of the investor coupon, servicing fees, and losses.
  • Subordination  Interest and principal that would have otherwise been distributed to a subordinate class is used to support the more senior classes. This feature is intended to enhance the likelihood that the holder of the senior class certificate will receive regular payments of interest and principal. Subordinate classes have a greater risk of loss than senior classes.
  • Reserve Funds  Cash that is deposited and/or captured in a designated account that may be used to cover any shortfalls in principal, interest, or servicing fees.
  • Overcollateralization  A form of credit enhancement whereby the principal amount of collateral used to secure a given transaction exceeds the principal of the securities issued. Overcollateralization can be created at the time of issuance or may build over time.
  • Surety Bonds  Typically consist of third party guarantees to irrevocably and unconditionally make timely payments of interest and ultimate repayment of principal in the event there are insufficient cash flows from the underlying collateral.
  • 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. There is no guarantee that the amount of any type of credit enhancement available will be sufficient to protect against future losses on the underlying collateral.

    Some of the specific types of ABS that the funds may invest in include the following:

  • Home Equity Loans  These ABS typically are backed by pools of mortgage loans made to subprime borrowers or borrowers with blemished credit histories. The underwriting standards for these loans are more flexible than the standards generally used by banks for borrowers with non-blemished credit histories with regard to the borrower`s credit standing and repayment ability. Borrowers who qualify generally have impaired credit histories, which may include a record of major derogatory credit items such as outstanding judgments or prior bankruptcies. In addition, they may not have the documentation required to qualify for a standard mortgage loan.
  • As a result, the mortgage loans in the mortgage pool are likely to experience rates of delinquency, foreclosure, and bankruptcy that are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in a more traditional manner. Furthermore, changes in the values of the mortgaged properties, as well as changes in interest rates, may have a greater effect on the delinquency, foreclosure, bankruptcy, and loss experience of the mortgage loans in the mortgage pool than on mortgage loans originated in a more traditional manner.

    With respect to first lien mortgage loans, the underwriting standards do not prohibit a mortgagor from obtaining, at the time of origination of the originator`s first lien mortgage loan, additional financing which is subordinate to that first lien mortgage loan, which subordinate financing would reduce the equity the mortgagor would otherwise appear to have in the related mortgaged property as indicated in the loan-to-value ratio.

    Risk regarding mortgage rates

    The pass-through rates on the adjustable-rate certificates may adjust monthly and are generally based on one-month LIBOR. The mortgage rates on the mortgage loans are either fixed or adjusted semiannually based on six-month LIBOR, which is referred to as a mortgage index. Because the mortgage index may respond to various economic and market factors different than those affecting one-month LIBOR, there is not necessarily

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    a correlation in the movement between the interest rates on those mortgage loans and the pass-through rates of the adjustable rate certificates. As a result, the interest payable on the related interest-bearing certificates may be reduced because of the imposition of a pass-through rate cap called the "net rate cap."

    Yield and reinvestment could be adversely affected by unpredictability of prepayments

    No one can accurately predict the level of prepayments that an asset-backed mortgage pool may experience. Factors which influence prepayment behavior include general economic conditions, the level of prevailing interest rates, the availability of alternative financing, the applicability of prepayment charges, and homeowner mobility. Reinvestment risk results from a faster or slower rate of principal payments than expected. A rising interest rate environment and the resulting slowing of prepayments could result in greater volatility of these securities. A falling interest rate environment and the resulting increase in prepayments could require reinvestment in lower yielding securities.

    Credit Card-Backed Securities  These ABS are backed by revolving pools of credit card receivables. Due to the revolving nature of these assets, the credit quality could change over time. Unlike most other asset-backed securities, credit card receivables are unsecured obligations of the cardholder and payments by cardholders are the primary source of payment on these securities. The revolving nature of these card accounts generally provides for monthly payments to the trust. In order to issue securities with longer dated maturities, most Credit Card-Backed Securities are issued with an initial "revolving" period during which collections are reinvested in new receivables. The revolving period may be shortened upon the occurrence of specified events which may signal a potential deterioration in the quality of the assets backing the security.

    Automobile Loans  These ABS are backed by receivables from motor vehicle installment sales contracts or installment loans secured by motor vehicles. These securities are primarily discrete pools of assets which pay down over the life of the ABS. The securities are not obligations of the seller of the vehicle, or servicer of the loans. The primary source of funds for payments on the securities comes from payment on the underlying trust receivables as well as from credit support.

    Inflation-Linked Securities

    Inflation-linked securities are income-generating instruments whose interest and principal payments are adjusted for inflationa sustained increase in prices that erodes the purchasing power of money. TIPS, or Treasury inflation-protected securities, are inflation-linked securities issued by the U.S. government. Inflation-linked bonds are also issued by corporations, U.S. government agencies, states, and foreign countries. The inflation adjustment, which is typically applied monthly to the principal of the bond, follows a designated inflation index, such as the consumer price index (CPI). A fixed coupon rate is applied to the inflation-adjusted principal so that as inflation rises, both the principal value and the interest payments increase. This can provide investors with a hedge against inflation, as it helps preserve the purchasing power of your investment. Because of this inflation-adjustment feature, inflation-protected bonds typically have lower yields than conventional fixed-rate bonds. Municipal inflation bonds generally have a fixed principal amount and the inflation component is reflected in the nominal coupon.

    Inflation-protected bonds normally will decline in price when real interest rates rise. (A real interest rate is calculated by subtracting the inflation rate from a nominal interest rate. For example, if a 10-year Treasury note is yielding 5% and the rate of inflation is 2%, the real interest rate is 3%.) If inflation is negative, the principal and income of an inflation-protected bond will decline and could result in losses for the fund.

    Collateralized Bond or Loan Obligations

    Collateralized Bond Obligations ("CBOs") are bonds collateralized by corporate bonds, mortgages, or asset-backed securities 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

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    buyouts, 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 funds 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 funds 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 funds would consider the loan participation as illiquid and subject to the funds` restriction on investing no more than 15% of their net assets in illiquid securities.

    Where required by applicable SEC positions, the funds 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 funds 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 nonqualifying income earned by the funds cannot exceed 10% of total income.

    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. PIKs 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 funds until the maturity or call date of the bond. The funds will nonetheless be required to distribute substantially all of this gross income each year to comply with the Code, and such distributions could reduce the amount of cash available for investment by the funds.

    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

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    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 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 "nonqualifying" under the Code. The funds may have up to 10% of their gross income (including capital gains) derived from nonqualifying sources.
  • Municipal Securities

    Subject to the investment objectives and programs described in the prospectus and the additional investment restrictions described in this Statement of Additional Information, the funds` portfolios may consist of any combination of the various types of municipal securities described below or other types of municipal securities that may be developed. The amount of the funds` assets invested in any particular type of municipal security can be expected to vary.

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    The term "municipal securities" means obligations issued by or on behalf of states, territories, and possessions of the United States and the District of Columbia and their political subdivisions, agencies, and instrumentalities, as well as certain other persons and entities, the interest from which is exempt from federal income tax. In determining the tax-exempt status of a municipal security, the funds rely on the opinion of the issuer`s bond counsel at the time of the issuance of the security. However, it is possible this opinion could be overturned, and, as a result, the interest received by the funds from such a security might not be exempt from federal income tax.

    Municipal securities are classified by maturity as notes, bonds, or adjustable rate securities.

    Municipal Notes

    Municipal notes generally are used to provide short-term operating or capital needs and generally have maturities of one year or less. Municipal notes include:

  • Tax Anticipation Notes Tax anticipation notes are issued to finance working capital needs of municipalities. Generally, they are issued in anticipation of various seasonal tax revenue, such as income, property, use, and business taxes, and are payable from these specific future taxes.
  • Revenue Anticipation Notes Revenue anticipation notes are issued in expectation of receipt of revenues, such as sales taxes, toll revenues, or water and sewer charges, that are used to pay off the notes.
  • Bond Anticipation Notes Bond anticipation notes are issued to provide interim financing until long-term financing can be arranged. In most cases, the long-term bonds then provide the money for the repayment of the notes.
  • Tax-Exempt Commercial Paper Tax-exempt commercial paper is a short-term obligation with a stated maturity of 270 days or less. It is issued by state and local governments or their agencies to finance seasonal working capital needs or as short-term financing in anticipation of longer-term financing.
  • Municipal Bonds Municipal bonds, which meet longer-term capital needs and generally have maturities of more than one year when issued, have two principal classifications: general obligation bonds and revenue bonds. Additional categories of potential purchases include lease revenue bonds and prerefunded/escrowed to maturity bonds, private activity bonds, industrial development bonds, and participation interests.
  • General Obligation Bonds Issuers of general obligation bonds include states, counties, cities, towns, and special districts. The proceeds of these obligations are used to fund a wide range of public projects, including construction or improvement of schools, public buildings, highways and roads, and general projects not supported by user fees or specifically identified revenues. The basic security behind general obligation bonds is the issuer`s pledge of its full faith and credit and taxing power for the payment of principal and interest. The taxes that can be levied for the payment of debt service may be limited or unlimited as to the rate or amount of special assessments. In many cases voter approval is required before an issuer may sell this type of bond.
  • Revenue Bonds The principal security for a revenue bond is generally the net revenues derived from a particular facility or enterprise or, in some cases, the proceeds of a special charge or other pledged revenue source. Revenue bonds are issued to finance a wide variety of capital projects including: electric, gas, water, and sewer systems; highways, bridges, and tunnels; port and airport facilities; colleges and universities; and hospitals. Revenue bonds are sometimes used to finance various privately operated facilities provided they meet certain tests established for tax-exempt status.
  • Although the principal security behind these bonds may vary, many provide additional security in the form of a mortgage or debt service reserve fund. Some authorities provide further security in the form of the state`s ability (without obligation) to make up deficiencies in the debt service reserve fund. Revenue bonds usually do not require prior voter approval before they may be issued.

  • Lease Revenue Bonds Municipal borrowers may also finance capital improvements or purchases with tax-exempt leases. The security for a lease is generally the borrower`s pledge to make annual appropriations for lease payments. The lease payment is treated as an operating expense subject to appropriation risk and not a full faith and credit obligation of the issuer. Lease revenue bonds are generally considered less secure than a general obligation or revenue bond and often do not include a debt service reserve fund. To the extent the
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  • funds` Boards determine such securities are illiquid, they will be subject to the funds` limit on illiquid securities. There have also been certain legal challenges to the use of lease revenue bonds in various states.
  • The liquidity of such securities will be determined based on a variety of factors which may include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer; and (5) the rating assigned to the obligation by an established rating agency or T. Rowe Price.

  • Prerefunded/Escrowed to Maturity Bonds Certain municipal bonds have been refunded with a later bond issue from the same issuer. The proceeds from the later issue are used to defease the original issue. In many cases the original issue cannot be redeemed or repaid until the first call date or original maturity date. In these cases, the refunding bond proceeds typically are used to buy U.S. Treasury securities that are held in an escrow account until the original call date or maturity date. The original bonds then become "prerefunded" or "escrowed to maturity" and are considered high-quality investments. While still tax-exempt, the security is the proceeds of the escrow account. To the extent permitted by the SEC and the Internal Revenue Service, a fund`s investment in such securities refunded with U.S. Treasury securities will, for purposes of diversification rules applicable to the funds, be considered an investment in U.S. Treasury securities.
  • Private Activity Bonds Under current tax law, all municipal debt is divided broadly into two groups: governmental purpose bonds and private activity bonds. Governmental purpose bonds are issued to finance traditional public purpose projects such as public buildings and roads. Private activity bonds may be issued by a state or local government or public authority but principally benefit private users and are considered taxable unless a specific exemption is provided.
  • The tax code currently provides exemptions for certain private activity bonds such as not-for-profit hospital bonds, small-issue industrial development revenue bonds, and mortgage subsidy bonds, which may still be issued as tax-exempt bonds. Some, but not all, private activity bonds are subject to alternative minimum tax.

  • Industrial Development Bonds Industrial development bonds are considered municipal bonds if the interest paid is exempt from federal income tax. They are issued by or on behalf of public authorities to raise money to finance various privately operated facilities for business and manufacturing, housing, sports, and pollution control. These bonds are also used to finance public facilities such as airports, mass transit systems, ports, and parking. The payment of the principal and interest on such bonds is dependent solely on the ability of the facility`s user to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment.
  • Participation Interests The funds may purchase from third parties participation interests in all or part of specific holdings of municipal securities. The purchase may take different forms: in the case of short-term securities, the participation may be backed by a liquidity facility that allows the interest to be sold back to the third party (such as a trust, broker, or bank) for a predetermined price of par at stated intervals. The seller may receive a fee from the funds in connection with the arrangement.
  • In the case of longer-term bonds, the funds may purchase interests in a pool of municipal bonds or a single municipal bond or lease without the right to sell the interest back to the third party.

    The funds will not purchase participation interests unless a satisfactory opinion of counsel or ruling of the Internal Revenue Service has been issued that the interest earned from the municipal securities on which the funds hold participation interests is exempt from federal income tax to the funds. However, there is no guarantee the IRS would treat such interest income as tax-exempt.

    When-Issued Securities

    New issues of municipal securities are often offered on a when-issued basis; that is, delivery and payment for the securities normally takes place 15 to 45 days or more after the date of the commitment to purchase. The payment obligation and the interest rate that will be received on the securities are each fixed at the time the buyer enters into the commitment. The funds will only make a commitment to purchase such securities with the intention of actually acquiring the securities. However, the funds may sell these securities before the settlement date if it is deemed advisable as a matter of investment strategy. The funds will maintain cash, high-

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    grade marketable debt securities, or other suitable cover with its custodian bank equal in value to commitments for when-issued securities. Such securities either will mature or, if necessary, be sold on or before the settlement date. Securities purchased on a when-issued basis and the securities held in the funds` portfolios are subject to changes in market value based upon the public perception of the creditworthiness of the issuer and changes in the level of interest rates (which will generally result in similar changes in value, i.e., both experiencing appreciation when interest rates decline and depreciation when interest rates rise). Therefore, to the extent the funds remain fully invested or almost fully invested at the same time that they have purchased securities on a when-issued basis, there will be greater fluctuations in their net asset value than if they solely set aside cash to pay for when-issued securities. In the case of the money funds, this could increase the possibility that the market value of the funds` assets could vary from $1.00 per share. In addition, there will be a greater potential for the realization of capital gains, which are not exempt from federal income tax. When the time comes to pay for when-issued securities, the funds will meet their obligations from then-available cash flow, sale of securities, or, although it would not normally expect to do so, from sale of the when-issued securities themselves (which may have a value greater or less than the payment obligation). The policies described in this paragraph are not fundamental and may be changed by the funds upon notice to shareholders.

    Forwards

    In some cases, the funds may purchase bonds on a when-issued basis with longer-than-standard settlement dates, in some cases exceeding one to two years. In such cases, the funds must execute a receipt evidencing the obligation to purchase the bond on the specified issue date, and must segregate cash internally to meet that forward commitment. Municipal "forwards" typically carry a substantial yield premium to compensate the buyer for the risks associated with a long when-issued period, including: shifts in market interest rates that could materially impact the principal value of the bond, deterioration in the credit quality of the issuer, loss of alternative investment options during the when-issued period, changes in tax law or issuer actions that would affect the exempt interest status of the bonds and prevent delivery, failure of the issuer to complete various steps required to issue the bonds, and limited liquidity for the buyer to sell the escrow receipts during the when-issued period.

    Residual Interest Bonds

    Residual interest bonds are a type of high-risk derivative. The funds may purchase municipal bond issues that are structured as two-part, residual interest bond and variable rate security offerings. The issuer is obligated only to pay a fixed amount of tax-free income that is to be divided among the holders of the two securities. The interest rate for the holders of the variable rate securities will be determined by an index or auction process held approximately every seven to 35 days while the bondholders will receive all interest paid by the issuer minus the amount given to the variable rate security holders and a nominal auction fee. Therefore, the coupon of the residual interest bonds, and thus the income received, will move inversely with respect to short-term, 7- to 35-day tax-exempt interest rates. There is no assurance that the auction will be successful and that the variable rate security will provide short-term liquidity. The issuer is not obligated to provide such liquidity. In general, these securities offer a significant yield advantage over standard municipal securities, due to the uncertainty of the shape of the yield curve (i.e., short-term versus long-term rates) and consequent income flows.

    Unlike many adjustable rate securities, residual interest bonds are not necessarily expected to trade at par and in fact present significant market risks. In certain market environments, residual interest bonds may carry substantial premiums, be at deep discounts, or have limited liquidity.

    The funds may invest in other types of derivative instruments as they become available.

    For the purpose of the funds` investment restrictions, the identification of the "issuer" of municipal securities which are not general obligation bonds is made by T. Rowe Price, on the basis of the characteristics of the obligation as described above, the most significant of which is the source of funds for the payment of principal and interest on such securities.

    There are, of course, other types of securities that are or may become available that are similar to the foregoing, and the funds may invest in these securities.

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    Real Estate and Real Estate Investment Trusts ("REITs")

    Investments in REITs may experience many of the same risks involved with investing in real estate directly. These risks include: declines in real estate values, risks related to local or general economic conditions, particularly lack of demand, overbuilding and increased competition, increases in property taxes and operating expenses, changes in zoning laws, heavy cash flow dependency, possible lack of availability of mortgage funds, obsolescence, losses due to natural disasters, condemnation of properties, regulatory limitations on rents and fluctuations in rental income, variations in market rental rates, and possible environmental liabilities. REITs may own real estate properties (Equity REITs) and be subject to these risks directly, or may make or purchase mortgages (Mortgage REITs) and be subject to these risks indirectly through underlying construction, development, and long-term mortgage loans that may default or have payment problems.

    Equity REITs can be affected by rising interest rates that may cause investors to demand a high annual yield from future distributions which, in turn, could decrease the market prices for the REITs. In addition, rising interest rates also increase the costs of obtaining financing for real estate projects. Since many real estate projects are dependent upon receiving financing, this could cause the value of the Equity REITs in which the funds invest to decline.

    Mortgage REITs may hold mortgages that the mortgagors elect to prepay during periods of declining interest rates, which may diminish the yield on such REITs. In addition, borrowers may not be able to repay mortgages when due, which could have a negative effect on the funds.

    Some REITs have relatively small market capitalizations which could increase their volatility. REITs tend to be dependent upon specialized management skills and have limited diversification so they are subject to risks inherent in operating and financing a limited number of properties. In addition, when the funds invest in REITs, a shareholder will bear his proportionate share of fund expenses and indirectly bear similar expenses of the REITs. REITs depend generally on their ability to generate cash flow to make distributions to shareholders. In addition, both Equity and Mortgage REITs are subject to the risks of failing to qualify for tax-free status of income under the Code or failing to maintain their exemptions from the 1940 Act.

    Adjustable Rate Securities

    Generally, the maturity of a security is deemed to be the period remaining until the date (noted on the face of the instrument) on which the principal amount must be paid or, in the case of an instrument called for redemption, the date on which the redemption payment must be made. However, certain securities may be issued with demand features or adjustable interest rates that are reset periodically by predetermined formulas or indexes in order to minimize movements in the principal value of the investment in accordance with Rule 2a-7 under the 1940 Act. Such securities may have long-term maturities, but may be treated as a short-term investment under certain conditions. Generally, as interest rates decrease or increase, the potential for capital appreciation or depreciation on these securities is less than for fixed rate obligations. These securities may take a variety of forms, including variable rate, floating rate, and put option securities.

    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 its 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.

    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 funds to the issuer and no interest accrues to the funds. The purchase of these securities will result in a loss if their values decline prior to the

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    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. At the time the funds make 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 funds 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 its commitments for the securities 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 funds (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 funds remain fully or almost fully invested (in securities with a remaining maturity of more than one year) at the same time they purchase these securities, there will be greater fluctuations in the funds` net asset value than if the funds did not purchase them.

    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 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 that which prevailed when it decided to sell. Restricted securities will be priced at fair value, as determined in accordance with procedures prescribed by the funds` Boards. If, through the appreciation of illiquid securities or the depreciation of liquid securities, the funds should be in a position where more than the allowable amount of its net assets is invested in illiquid assets, including restricted securities, the funds will take appropriate steps to protect liquidity.

    Notwithstanding the above, the funds 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 funds, to trade in privately placed securities even though such securities are not registered under the 1933 Act. The liquidity of these securities is monitored based on a variety of factors.

    Money Funds

    Determination of Maturity of Money Market Securities

    The funds may only purchase securities which at the time of investment have remaining maturities of 397 calendar days or less. The other funds may also purchase money market securities. In determining the maturity of money market securities, funds will follow the provisions of Rule 2a-7 under the 1940 Act.

    Prime Reserve, Summit Cash Reserves, and TRP Reserve Investment Funds

    First Tier Money Market Securities Defined

    At least 95% of the funds` total assets will be maintained in first tier money market securities. First tier money market securities are those which are described as First Tier Securities under Rule 2a-7 of the 1940 Act. These include any security with a remaining maturity of 397 days or less that is rated (or that has been issued by an issuer that is rated with respect to a class of short-term debt obligations, or any security within that class that is comparable in priority and security with the security) by any two nationally recognized statistical rating organizations (or if only one NRSRO has issued a rating, that NRSRO) in the highest rating category for short-term debt obligations (within which there may be sub-categories). First Tier Securities also include unrated securities comparable in quality to rated securities, as determined by T. Rowe Price pursuant to written guidelines established in accordance with Rule 2a-7 under the 1940 Act under the supervision of the funds` Boards.

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    DERIVATIVES

    The funds may use derivatives whose characteristics are consistent with the funds` investment program.

    A derivative is a financial instrument that has a value based on or "derived from" the value of other assets, reference rates, or indexes. Derivatives generally take the form of contracts under which the parties agree to payments between them based upon the performance of a wide variety of underlying references, such as stocks, bonds, commodities, interest rates, currency exchange rates, and various domestic and foreign indexes. The main types of derivatives are futures, options, forward contracts, swaps, and hybrid instruments.

    Like most other fund investments, derivatives are subject to the risk that the market value of the underlying asset will change in a way detrimental to the funds` interest. However, the risks associated with the use of derivatives are different from, and potentially much greater than, the risks associated with investing directly in the instruments on which the derivatives are based. Because some derivatives involve leverage, returns can be magnified, either positively or negatively, and adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the derivative itself.

    Some derivatives are traded on exchanges, while other derivatives are privately negotiated and entered into in the over-the-counter ("OTC") market. Exchange-traded derivatives are traded via specialized derivatives exchanges or other securities exchanges. The exchange acts as an intermediary to the transactions and the terms for each type of contract are generally standardized. OTC derivatives are traded between two parties directly without going through a regulated exchange. The terms of the contract are subject to negotiation by the parties to the contract.

    OTC derivatives are subject to counterparty risk, whereas the exposure to default for exchange-traded derivatives is assumed by the exchange`s clearinghouse. Counterparty risk is the risk that a party to an OTC derivatives contract may fail to perform on its obligations. A loss may be sustained as a result of the insolvency or bankruptcy of the counterparty, or the failure of the counterparty to make required payments or comply with the terms of the contract. In the event of insolvency of the counterparty, the funds may be unable to liquidate a derivatives position. Because the purchase and sale of an OTC derivative does not have the guarantee of a central clearing organization, the creditworthiness of the counterparty is an additional risk factor that the funds need to consider and monitor.

    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").

    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 funds. Interest rate or currency futures can be sold as an offset against the effect of expected increases in interest rates or currency exchange rates and purchased as an offset against the effect of expected declines in interest rates or currency exchange rates.

    Futures can also be used as an efficient means of regulating the funds` exposure to the market.

    Index Funds may only enter into futures contracts that are appropriate for their investment programs to provide an efficient means of maintaining liquidity while being invested in the market, to facilitate trading, or to reduce transaction costs. They will not use futures for hedging purposes. Otherwise, the nature of such futures and the regulatory limitations and risks to which they are subject are the same as those described below.

    Stock index futures contracts may be used to provide a hedge for a portion of the funds` portfolios, as a cash management tool, or as an efficient way to implement either an increase or decrease in portfolio market exposure in response to changing market conditions. The funds may purchase or sell futures contracts with respect to any stock index. Nevertheless, to hedge the funds` portfolios successfully, the funds must sell

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    futures contracts with respect to indices or subindices whose movements will have a significant correlation with movements in the prices of the funds` portfolio securities.

    The funds will enter into futures contracts that are traded on national (or foreign) futures exchanges and are standardized as to maturity date and underlying financial instrument. A public market exists in futures contracts covering various taxable fixed-income securities as well as municipal bonds. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the Commodities Futures Trading Commission ("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 funds` objectives in these areas.

    Regulatory Limitations

    If the funds purchase or sell 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 funds after taking into account unrealized profits and unrealized losses on any such contracts they have 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 Boards without a shareholder vote and does not limit the percentage of the funds` assets at risk to 5%.

    In instances involving the purchase of futures contracts or the writing of call or put options thereon by the funds, 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 funds 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 the funds` assets to cover or identified accounts could impede portfolio management or the funds` 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 funds would comply with such new restrictions.

    Trading in Futures Contracts

    A futures contract provides for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument (e.g., units of a stock index) for a specified price, date, time, and place designated at the time the contract is made. Brokerage fees are incurred when a futures contract is bought or sold and margin deposits must be maintained. Entering into a contract to buy is commonly referred to as buying or purchasing a contract or holding a long position. Entering into a contract to sell is commonly referred to as selling a contract or holding a short position.

    Unlike when the funds purchase or sell a security, no price would be paid or received by the funds upon the purchase or sale of a futures contract. Upon entering into a futures contract, and to maintain the funds` open positions in futures contracts, the funds would be required to deposit with their 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.

    Financial futures are valued daily at closing settlement prices. 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 a payment by the funds ("variation margin") to restore the margin account to the amount of the initial margin.

    Subsequent payments ("mark-to-market payments") to and from the futures broker are made on a daily basis as the price of the underlying assets fluctuates, making the long and short positions in the futures

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    contract more or less valuable. If the value of the open futures position increases in the case of a sale or decreases in the case of a purchase, the funds will pay the amount of the daily change in value to the broker. However, if the value of the open futures position decreases in the case of a sale or increases in the case of a purchase, the broker will pay the amount of the daily change in value to the funds.

    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 funds realize a gain; if it is more, the funds realize a loss. Conversely, if the offsetting sale price is more than the original purchase price, the funds realize a gain; if it is less, the funds realize a loss. The transaction costs must also be included in these calculations. There can be no assurance, however, that the funds will be able to enter into an offsetting transaction with respect to a particular futures contract at a particular time. If the funds are not able to enter into an offsetting transaction, the funds 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 funds.

    Settlement of a stock index futures contract may or may not be in the underlying security. If not in the underlying security, then settlement will be made in cash, equivalent over time to the difference between the contract price and the actual price of the underlying asset (as adjusted by a multiplier) at the time the stock index futures contract expires.

    For example, the S&P 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 funds 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 funds enter 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 funds will gain $1,000 (250 units x gain of $4). If the funds enter 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 funds will lose $500 (250 units x loss of $2).

    It is possible that hedging activities of funds investing in municipal securities will occur through the use of U.S. Treasury bond futures.

    All funds (other than the Money Funds)

    Special Risks of Transactions in Futures Contracts

  • Volatility and Leverage The prices of futures contracts are volatile and are influenced, among other things, by actual and anticipated changes in the market and interest rates, which in turn are affected by fiscal and monetary policies and national and international political and economic events.
  • Most U.S. 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

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    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 funds may elect to close some or all of their futures positions at any time prior to their expiration. The funds would do so to reduce exposure represented by long futures positions or short futures positions. The funds may close their position by taking opposite positions, which would operate to terminate the funds` position in the futures contracts. Final determinations of mark-to-market payments would then be made, additional cash would be required to be paid by or released to the funds, and the funds 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 funds intend 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 funds would continue to be required to make daily mark-to-market and variation margin payments. However, in the event futures contracts have been used to hedge the underlying instruments, the funds 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 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 or economic events. There are several risks in connection with the use by the funds 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 funds` underlying instruments sought to be hedged.
  • Successful use of futures contracts by the funds 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 funds have sold futures to hedge their portfolios 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 funds` portfolios might decline. If this were to occur, the funds would lose money on the futures and also would experience a decline in value in their underlying instruments. However, while this might occur to a certain degree, T. Rowe Price believes that over time the value of the funds` portfolios will tend to move in the same direction as the market indices used to hedge the portfolio. It is also possible that, if the funds were to hedge against the possibility of a decline in the market (adversely affecting the underlying instruments held in their portfolios) and prices instead increased, the funds would lose part or all of the benefit of increased value of those underlying instruments that it had hedged because it would have offsetting losses in their futures positions. In addition, in such situations, if the funds have insufficient cash, it might have to sell underlying instruments to meet daily mark-to-market and 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 funds might have to sell underlying instruments at a time when it would be disadvantageous to do so.

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    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. 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

    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. Options on futures contracts are valued daily at the last sale price on its primary exchange at the time at which the net asset value per share of the funds are computed (close of New York Stock Exchange), or, in the absence of such sale, the mean of closing bid and ask prices.

    Writing a put option on a futures contract serves as a partial hedge against an increase in the value of securities the funds intend to acquire. If the futures price at expiration of the option is above the exercise price, the funds will retain the full amount of the option premium, which provides a partial hedge against any increase that may have occurred in the price of the debt securities the funds intend to acquire. If the futures price when the option is exercised is below the exercise price, however, the funds will incur a loss, which may be wholly or partially offset by the decrease in the price of the securities the funds intend to acquire.

    Funds investing in municipal securities may trade in municipal bond index option futures or similar options on futures developed in the future. In addition, the funds may trade in options on futures contracts on U.S. government securities and any U.S. government securities futures index contract which might be developed.

    From time to time, a single order to purchase or sell futures contracts (or options thereon) may be made on behalf of a fund and other T. Rowe Price funds. Such aggregated orders would be allocated among the fund and the other T. Rowe Price funds in a fair and nondiscriminatory manner.

    Call and put options may be purchased or written on financial indices as an alternative to options on futures.

    Special Risks of Transactions in Options on Futures Contracts

    The risks described under "Special Risks of Transactions in Futures Contracts" are substantially the same as the risks of using options on futures. If the funds were to write an option on a futures contract, it would be required to deposit initial margin and maintain mark-to-market payments in the same manner as a regular futures contract. In addition, where the funds seek to close out an option position by writing or buying an offsetting option covering the same index, underlying instrument, or contract and having the same exercise price and expiration date, their 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

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    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.

    In the event no such market exists for a particular contract in which the funds maintain a position, in the case of a written option, the funds would have to wait to sell the underlying securities or futures positions until the option expires or is exercised. The funds would be required to maintain margin deposits on payments until the contract is closed. Options on futures are treated for accounting purposes in the same way as the analogous option on securities are treated.

    In addition, the correlation between movements in the price of options on futures contracts and movements in the price of the securities hedged can only be approximate. This risk is significantly increased when an option on a U.S. government securities future or an option on some type of index future is used as a proxy for hedging a portfolio consisting of other types of securities. Another risk is that if the movements in the price of options on futures contracts and the value of the call increase by more than the increase in the value of the securities held as cover, the funds may realize a loss on the call, which is not completely offset by the appreciation in the price of the securities held as cover and the premium received for writing the call.

    The successful use of options on futures contracts requires special expertise and techniques different from those involved in portfolio securities transactions. A decision whether, when, and how to hedge involves skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of unexpected market behavior or interest rate trends. During periods when municipal securities market prices are appreciating, the funds may experience poorer overall performance than if it had not entered into any options on futures contracts.

    General Considerations Transactions by the funds in options on futures will be subject to limitations established by each of the exchanges, boards of trade, or other trading facilities governing the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert, regardless of whether the options are written on the same or different exchanges, boards of trade, or other trading facilities or are held or written in one or more accounts or through one or more brokers. Thus, the number of contracts which the funds may write or purchase may be affected by contracts written or purchased by other investment advisory clients of T. Rowe Price. An exchange, boards of trade, or other trading facility may order the liquidations of positions found to be in excess of these limits, and it may impose certain other sanctions.

    Additional Futures and Options Contracts

    Although the funds have 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 funds trade 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

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    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 funds for foreign futures or foreign options transactions may not be provided the same protections as funds received for transactions on U.S. 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 funds` orders are placed and the time they are liquidated, offset, or exercised.

    U.S. Treasury Intermediate and U.S. Treasury Long-Term Funds

    Limitations on Futures and Options

    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 funds` net asset value. In addition, neither of the funds will enter into a futures transaction if it would be obligated to purchase or deliver amounts that would exceed 15% of the funds` total assets.

    The funds 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 funds` total assets.

    The funds 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 funds` 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: the funds may invest up to 15% of total assets in premiums on put options and 15% of total assets in premiums on call options. The total amount of the funds` total assets invested in futures and options will not exceed 15% of the funds` total assets.

    All 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 funds may enter into forward contracts for a variety of purposes in connection with the management of the foreign securities portion of their portfolios. The funds` use of such contracts would include, but not be limited to, the following:

    First, when the funds enter into a contract for the purchase or sale of a security denominated in a foreign currency, they 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 funds will be able to protect themselves 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 funds` portfolio securities denominated in such foreign currency. Alternatively, where appropriate, the funds may hedge all or part of their 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 funds 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 funds. The precise matching of the forward contract amounts and the value of the securities involved will not generally be

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    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 relative currency values 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 funds will be served.

    Third, the funds may use forward contracts when the funds wish to hedge out of the dollar into a foreign currency in order to create a synthetic bond or money market instrumentthe security would be issued in U.S. dollars but the dollar component would be transformed into a foreign currency through a forward contract.

    The funds may enter into forward contracts for any other purpose consistent with the funds` investment objectives and programs. However, the funds 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 funds` 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 funds may net offsetting positions.

    At the maturity of a forward contract, the funds may sell the portfolio security and make delivery of the foreign currency, or they 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 funds retain the portfolio security and engage in an offsetting transaction, the funds will incur a gain or a loss (as described below) to the extent that there has been movement in forward contract prices. If the funds engage in an offsetting transaction, they may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline during the period between the funds` entering into a forward contract for the sale of a foreign currency and the date they enter into an offsetting contract for the purchase of the foreign currency, the funds will realize a gain to the extent the price of the currency they have agreed to sell exceeds the price of the currency they have agreed to purchase. Should forward prices increase, the funds will suffer a loss to the extent the price of the currency they have agreed to purchase exceeds the price of the currency they have agreed to sell.

    The funds` dealing in forward foreign currency exchange contracts will generally be limited to the transactions described above. However, the funds reserve the right to enter into forward foreign currency contracts for different purposes and under different circumstances. Of course, the funds are not required to enter into forward contracts with regard to their 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 funds value their assets daily in terms of U.S. dollars, they do not intend to convert their holdings of foreign currencies into U.S. dollars on a daily basis. They 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 between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the funds at one rate, while offering a lesser rate of exchange should the funds desire to resell that currency to the dealer.

    Federal Tax Treatment of Options, Futures Contracts, and Forward Foreign Exchange Contracts

    The funds may enter into certain options, futures, forward foreign exchange contracts, and swaps, including options and futures on currencies. Entering into such transactions can affect the timing and character of the income and gains realized by the funds and the timing and character of fund distributions.

    Such contracts, which qualify as Section 1256 contracts, will be considered to have been closed at the end of the funds` fiscal years and any gains or losses will be recognized for tax purposes at that time. Such gains or

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    losses (as well as 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 15%) 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 funds 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.

    Certain options, futures, forward foreign exchange contracts, and swaps, which offset another security in the fund, including options, futures, and forward exchange contracts on currencies, which offset a foreign dollar-denominated bond or currency position, may be considered straddles for tax purposes. Generally, a loss on any position in a straddle will be subject to deferral to the extent of any unrealized gain in an offsetting position. For securities that were held for one year or less at inception of the straddle, the holding period may be deemed not to begin until the straddle is terminated. If securities comprising a straddle have been held for more than one year at inception of the straddle, losses on offsetting positions may be treated as entirely long-term capital losses even if the offsetting positions have been held for less than one year. However, a fund may choose to comply with certain identification requirements for offsetting positions that are components of a straddle. Losses with respect to identified positions are not deferred, rather the basis of the identified position that offset the loss position is increased.

    In order for the funds to continue to qualify for federal income tax treatment as regulated investment companies, at least 90% of their gross income for a taxable year must be derived from qualifying income, e.g., generally 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 to which the net gain realized from options, futures, or forward foreign exchange contracts on currencies is qualifying income for purposes of the 90% requirement.

    Entering into certain options, futures, forward foreign exchange contracts, or swaps may result in a "constructive sale" of offsetting stocks or debt securities of the funds. In such case the funds will be required to realize gain, but not loss, on the sale of such positions as if the position were sold on that date.

    For certain options, futures, forward foreign exchange contracts, or swaps, the IRS has not issued comprehensive rules relating to the timing and character of income and gains realized on such contracts. Although not anticipated, it is possible that final rules could result in changes to the amounts recorded by the funds, potentially resulting in tax consequences to the funds.

    Options

    Options are a type of potentially high-risk derivative.

    Writing Covered Call Options

    The funds may write (sell) American or European style "covered" call options and purchase options to close out options previously written. In writing covered call options, the funds expect to generate additional premium income, which should serve to enhance the funds` 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 funds.

    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.

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    The funds generally will write only covered call options. This means that the funds 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 funds will write a call option that is not covered as indicated above but where the funds 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 funds 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 funds` investment objectives. 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 funds generally will not do) but capable of enhancing the funds` total return. When writing a covered call option, the funds, in return for the premium, give up the opportunity for profit from a price increase in the underlying security or currency above the exercise price, but conversely retain the risk of loss should the price of the security or currency decline. Unlike one that owns securities or currencies not subject to an option, the funds have no control over when they may be required to sell the underlying securities or currencies, since they may be assigned an exercise notice at any time prior to the expiration of its obligation as a writer. If a call option the funds have written expires, the funds 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 funds will realize a gain or loss from the sale of the underlying security or currency. The funds do not consider a security or currency covered by a call to be "pledged" as that term is used in the funds` policy, which limits the pledging or mortgaging of 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 funds` loss could be significant.

    The premium received is the market value of an option. The premium the funds 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 funds for writing covered call options will be recorded as a liability of the funds. This liability will be adjusted daily to the option`s current market value, which will be the latest sale price on its primary exchange at the time at which the net asset values per share of the funds are computed (close of the New York Stock Exchange) or, in the absence of such sale, the mean of closing bid and ask prices. 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 funds to write another call option on the underlying security or currency with either a different exercise price or expiration date or both. If the funds desire to sell a particular security or currency from their portfolios on which they have written a call option, or purchased a put option, they 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 funds will be able to effect such closing transactions at favorable prices. If the funds cannot enter into such a transaction, they may be required to hold a security or currency that they might otherwise have sold. When the funds write a covered call option, they run 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 funds 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.

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    Call options written by the funds 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 funds 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 their portfolios. In such cases, additional costs may be incurred.

    The funds 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 funds.

    The funds 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 funds` total assets. In calculating the 25% limit, the funds will offset the value of securities underlying purchased calls and puts on identical securities or currencies with identical maturity dates.

    Writing Covered Put Options

    The funds may write American or European style covered put options and purchase options to close out options previously written by the funds. 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.

    If the funds write put options, they will do so only on a covered basis. This means that the funds 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. Alternatively, the funds 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 funds would generally write covered put options in circumstances where T. Rowe Price wishes to purchase the underlying security or currency for the funds` portfolios at a price lower than the current market price of the security or currency. In such event the funds 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 funds 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 funds. In addition, the funds, because they do not own the specific securities or currencies which they 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 funds 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 funds` total assets. In calculating the 25% limit, the funds will offset the value of securities underlying purchased puts and calls on identical securities or currencies with identical maturity dates.

    The premium received by the funds for writing covered put options will be recorded as a liability of the funds. This liability will be adjusted daily to the option`s current market value, which will be the latest sale price on its primary exchange at the time at which the net asset value per share of the funds is computed (close of the New York Stock Exchange), or, in the absence of such sale, the mean of the closing bid and ask prices.

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    Purchasing Put Options

    The funds may purchase American or European style put options. As the holder of a put option, the funds have 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 funds may enter into closing sale transactions with respect to such options, exercise them, or permit them to expire. The funds may purchase put options for defensive purposes in order to protect against an anticipated decline in the value of their securities or currencies. An example of such use of put options is provided next.

    The funds may purchase a put option on an underlying security or currency (a "protective put") owned by the funds 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 funds, as holder of the put option, are 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 funds may also purchase put options at a time when they do not own the underlying security or currency. By purchasing put options on a security or currency they do not own, the funds seek 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 funds will lose their 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 funds will not commit more than 5% of total assets to premiums when purchasing put options. The premium paid by the funds when purchasing a put option will be recorded as an asset of the funds in the portfolio of investments. This asset will be adjusted daily to the option`s current market value, which will be the latest sale price on its primary exchange at the time at which the net asset values per share of the funds are computed (close of New York Stock Exchange) or, in the absence of such sale, the mean of closing bid and ask prices. 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 funds may purchase American or European style call options. As the holder of a call option, the funds have 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 funds may enter into closing sale transactions with respect to such options, exercise them, or permit them to expire. The funds may purchase call options for the purpose of increasing their current return or avoiding tax consequences which could reduce their current return. The funds 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 funds for the purpose of acquiring the underlying securities or currencies for their portfolios. Utilized in this fashion, the purchase of call options enables the funds 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 funds in purchasing a large block of securities or currencies that would be more difficult to acquire by direct market purchases. So long as the funds hold such a call option, rather than the underlying security or currency itself, the funds are 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 funds may also purchase call options on underlying securities or currencies they own in order to protect unrealized gains on call options previously written by them. A call option would be purchased for this

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    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.

    The funds will not commit more than 5% of total assets to premiums when purchasing call and put options. The premium paid by the funds when purchasing a call option will be recorded as an asset of the funds in the portfolio of investments. This asset will be adjusted daily to the option`s current market value, which will be the latest sale price on its primary exchange at the time at which the net asset values per share of the funds are computed (close of New York Stock Exchange), or, in the absence of such sale, the mean of closing bid and ask prices.

    Dealer (Over-the-Counter) Options

    The funds may engage in transactions involving dealer options. Certain risks, including credit risk and counterparty risk, are specific to dealer options. While the funds would look to a clearing corporation to exercise exchange-traded options, if the funds were to purchase a dealer option, they would rely primarily on the dealer from whom they purchased the option to perform if the option were exercised. Failure by the dealer to do so could result in the loss of the premium paid by the funds as well as loss of the expected benefit of the transaction.

    Exchange-traded options generally have a continuous liquid market, while dealer options are less liquid or could have no liquidity. Consequently, the funds will generally be able to realize the value of a dealer option they have purchased only by exercising it or reselling it to the dealer who issued it. Under certain conditions, the funds may also be able to resell or assign a purchased dealer option to another dealer on substantially the same terms. Similarly, when the funds write a dealer option, unless they can assign the option to another dealer, they 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 funds originally wrote the option. While the funds will seek to enter into dealer options only with dealers who will agree to and are expected to be capable of entering into closing transactions with the funds, there can be no assurance that the dealers will consent to the closing transaction nor is it assured that the funds will realize a favorable price. Until the funds, as a covered dealer call option writer, are able to effect a closing purchase transaction, they 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 counter-party, the funds may be unable to liquidate a dealer option. With respect to options written by the funds, the inability to enter into a closing transaction may result in material losses to the funds.

    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 funds may treat the cover used for written Over-the-Counter ("OTC") options as liquid if the dealer agrees that the funds may repurchase the OTC option they have 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.

    For certain types of OTC options that have substantially similar terms to exchange-traded options, the funds may treat such options, and the underlying cover used for written options, as liquid based on the following factors: (1) the frequency and availability of dealer quotes and the comparability to prices available on an options exchange; (2) the number of dealers willing to purchase or accept assignments of such OTC options; and (3) the nature of the OTC options, their settlement terms and their termination provisions (i.e., the time needed to close out or terminate an OTC position, method of soliciting offers, and mechanics of transfer).

    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.

    There are, of course, other types of securities that are or may become available that are similar to the foregoing, and the funds may invest in these securities.

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    Hybrid Instruments

    A hybrid instrument is 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, the funds 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 funds 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 funds the desired European bond exposure while avoiding currency risk, limiting downside market risk, and lowering transaction costs. Of course, there is no guarantee that the strategy will be successful, and the funds could lose money if, for example, interest rates do not move as anticipated or credit problems develop with the issuer of the hybrid instruments.

    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 of 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 can 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.

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    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 counterparty or issuer of the hybrid instrument would be an additional risk factor which the funds would have to consider and monitor. Hybrid instruments also may not be subject to regulation by the 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.

    Swap Agreements

    A number of the funds may enter into interest rate, index, total return, credit, and, to the extent they may invest in foreign currency-denominated securities, currency rate swap agreements. The funds may also enter into options on swap agreements ("swaptions") on the types of swaps listed above as well as swap forwards.

    Swap agreements are typically two-party contracts entered into primarily by institutional investors for a specified period of time. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on a particular predetermined investment, index, or currency. The gross returns to be exchanged or swapped between the parties are generally calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a basket of securities representing a particular index. A swaption is a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement or to shorten, extend, cancel, or otherwise modify an existing swap agreement at some designated future time on specified terms. The funds may write (sell) and purchase put and call swaptions. A swap forward is an agreement to enter into a swap agreement at some point in the future, usually in 3 to 6 months.

    One example of the use of swaps by the funds is to manage the interest rate sensitivity of the funds. The funds might receive or pay a fixed-rate interest rate of a particular maturity and pay or receive a floating rate in order to increase or decrease the duration of the funds. Or, the funds may buy or sell swaptions to effect the same result. The funds may also replicate a security by selling it, placing the proceeds in cash deposits, and receiving a fixed rate in the swap market.

    Another example is the use of credit default swaps to buy or sell credit protection. A credit default swap is a contract that enables an investor to buy or sell protection against a predetermined issuer credit event. The seller of a credit default swap may enhance income by guaranteeing the creditworthiness of the debt issuer and the buyer is provided with protection against credit risks of the issuer. Market supply and demand factors may cause distortions between the cash securities market and the default swap market.

    Most swap agreements entered into by the funds would calculate the obligations of the parties to the agreement on a "net basis." Consequently, the funds` current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). The funds` current obligations under a net swap agreement will be accrued daily (offset against any amounts owed to the funds) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by assets determined to be liquid by T. Rowe Price.

    The use of swap agreements by the funds entails certain risks. Interest rate and currency swaps could result in losses if interest rate or currency changes are not correctly anticipated by the funds. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated by the funds. Credit default swaps could result in losses if the funds do not correctly evaluate the creditworthiness of the company on which the credit default swap is based.

    The funds will generally incur a greater degree of risk when it writes a swaption than when it purchases a swaption. When the funds purchase a swaption it risks losing only the amount of the premium they have paid should they decide to let the option expire unexercised. However, when the funds write a swaption they will become obligated, upon exercise of the option, according to the terms of the underlying agreement.

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    Because swaps are two-party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid. Moreover, the funds bear the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The funds will enter into swap agreements only with counterparties that meet certain standards of creditworthiness. The swaps market is largely unregulated. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the funds` ability to terminate existing swap agreements or to realize amounts to be received under such agreements.

    There are, of course, other types of securities that are or may become available that are similar to the foregoing, and the funds may invest in these securities.

    PORTFOLIO MANAGEMENT PRACTICES

    Lending of Portfolio Securities

    Securities loans are made to broker-dealers, 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 the funds` investment program. The collateral, in turn, is invested in short-term securities. While the securities are being lent, the funds making the loan will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as a portion of the interest on the investment of the collateral. Normally, the funds employ an agent to implement their securities lending program and the agent receives a fee from the funds for its services. The funds have a right to call each loan and obtain the securities within such period of time that coincides with the normal settlement period for purchases and sales of such securities in the respective markets. The funds will not have the right to vote on securities while they are being lent, but they may call a loan in anticipation of any important vote, when practical. The risks in lending portfolio securities, as with other extensions of secured credit, consist of a possible default by the borrower, 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 be made only 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. Additionally, the funds bear the risk that the reinvestment of collateral will result in a principal loss. Finally, there is also the risk that the price of the securities will increase while they are on loan and the collateral will not adequately cover their value.

    Interfund Borrowing and Lending

    The funds are parties to an exemptive order received from the SEC on December 8, 1998, amended on November 23, 1999, that permits them to borrow money from and/or lend money to other funds in the T. Rowe Price complex. All loans are set at an interest rate between the rates 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 Price Funds.

    Repurchase Agreements

    The funds may enter into a repurchase agreement through which an investor (such as the funds) purchases securities (known as the "underlying security") from well-established securities dealers or banks that are members 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 that do not provide for payment within seven days will be treated as illiquid securities. The funds will enter into repurchase agreements only where (1) the underlying securities are of the type (excluding maturity limitations) which the funds` investment guidelines would allow them to purchase directly, (2) the market value of the underlying security, including interest accrued, will be at all times equal to or exceed the value of the repurchase agreement, and (3) payment for the underlying security is made only

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    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 funds 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 funds seek to enforce their rights thereto; (b) possible subnormal levels of income and lack of access to income during this period; and (c) expenses of enforcing their rights.

    Reverse Repurchase Agreements

    Although the funds have no current intention of engaging in reverse repurchase agreements, they reserve 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 funds, subject to Investment Restriction (1). (See "Investment Restrictions.")

    Money Market Reserves

    The funds may invest their 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. Currently, two such money market funds are in operation: T. Rowe Price Government Reserve Investment Fund ("GRF") and T. Rowe Price Reserve Investment Fund ("RIF"), each a series of the T. Rowe Price Reserve Investment Funds, Inc. Additional series may be created in the future. These funds were created and operate under an exemptive order issued by the SEC.

    Both funds must comply with the requirements of Rule 2a-7 under the 1940 Act governing money market funds. GRF invests primarily in a portfolio of U.S. government-backed securities, primarily U.S. Treasuries, and repurchase agreements thereon. RIF invests at least 95% of its total assets in prime money market instruments receiving the highest credit rating.

    GRF and RIF provide a very efficient means of managing the cash reserves of the funds. While neither GRF nor RIF pays an advisory fee to T. Rowe Price, they will incur other expenses. However, GRF and RIF are expected by T. Rowe Price to operate at very low expense ratios. The funds will only invest in GRF or RIF to the extent consistent with their investment objectives and programs.

    Neither fund is insured or guaranteed by the FDIC or any other government agency. Although the funds seek to maintain a stable net asset value of $1.00 per share, it is possible to lose money by investing in them.

    High Yield, Institutional Floating Rate, and Institutional High Yield Funds

    Short Sales

    The funds may make short sales for hedging purposes to protect them against companies whose credit is deteriorating. Short sales are transactions in which the funds sell a security they do not own in anticipation of a decline in the market value of that security. The funds` short sales would be limited to situations where the funds own 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 funds` net assets.

    To complete a short-sale transaction, the funds must borrow the security to make delivery to the buyer. The funds then are 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 funds are 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 funds 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 funds replace a borrowed security in connection with a short sale, the funds will: (a) maintain daily a segregated account, containing cash, U.S. government securities, or other suitable cover as permitted by the

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    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 it was sold short; or (b) otherwise cover its short position.

    The funds 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 funds replace the borrowed security. The funds 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 funds 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 funds` 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 funds enter 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 funds are permitted to invest may cause certain appreciated positions in securities held by the funds 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 funds 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 funds. Because these rules do not apply to "straight" debt transactions, it is not anticipated that they will have a significant impact on the funds; however, the effect cannot be determined until the issuance of clarifying regulations.

    INVESTMENT RESTRICTIONS

    Fundamental policies may not be changed without the approval of the lesser of (1) 67% of the funds` 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 the funds` outstanding shares. Other restrictions in the form of operating policies are subject to change by the funds` Boards 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 funds. With the exception of the diversification test required by the Code, calculation of the funds` total assets for compliance with any of the following fundamental or operating policies or any other investment restrictions set forth in the funds` prospectuses or SAI will not include collateral held in connection with securities lending activities. For purposes of the tax diversification test, calculation of the fund`s total assets will include investments made with cash received by the funds as collateral for securities loaned. The diversification test required by the Code is set forth in the prospectuses of the funds referred to by name in restrictions (8) and (9) below.

    Fundamental Policies

    As a matter of fundamental policy, the funds may not:

    (a)Borrowing (All funds except Spectrum Funds) Borrow money, except that the funds 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 funds` investment objectives and programs, provided that the combination of (i) and (ii) shall not exceed 33xb6 /xb8 % of the value of the funds` 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 funds may borrow from banks, other Price Funds, or other persons to the extent permitted by applicable law;

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    (b)Borrowing (Spectrum Funds) Borrow money, except the funds may borrow from banks or other Price Funds as a temporary measure for extraordinary or emergency purposes, and then only in amounts not exceeding 30% of total assets valued at market. The funds will not borrow in order to increase income (leveraging), but only to facilitate redemption requests which might otherwise require untimely disposition of portfolio securities. Interest paid on any such borrowings will reduce net investment income;

    (a)Commodities (All funds except Spectrum Growth and Spectrum Income Funds) Purchase or sell physical commodities, except that the funds (other than the Money Funds) may enter into futures contracts and options thereon;

    (b)Commodities (Spectrum Growth and Spectrum Income Funds) Purchase or sell commodities or commodity or futures contracts;

    Equity Securities (Summit Municipal Funds) Purchase equity securities or securities convertible into equity securities;

    (a)Industry Concentration (All funds except Equity Index 500, Extended Equity Market Index, Health Sciences, International Equity Index, Financial Services, Global Real Estate, Prime Reserve, Real Estate, TRP Reserve Investment, Retirement, Spectrum, Summit Cash Reserves, Total Equity Market Index, and U.S. Bond Index Funds) Purchase the securities of any issuer if, as a result, more than 25% of the value of the funds` total assets would be invested in the securities of issuers having their principal business activities in the same industry;

    (b)Industry Concentration (Financial Services, Global Real Estate, Health Sciences, and Real Estate Funds) Purchase the securities of any issuer if, as a result, more than 25% of the value of the funds` total assets would be invested in the securities of issuers having their principal business activities in the same industry, provided, however, that (i) the Health Sciences Fund will invest more than 25% of its total assets in the health sciences industry as defined in the fund`s prospectus; (ii) the Financial Services Fund will invest more than 25% of its total assets in the financial services industry as defined in the fund`s prospectus; and (iii) the Global Real Estate and Real Estate Funds will invest more than 25% of their total assets in the real estate industry as defined in the funds` prospectuses;

    (c)Industry Concentration (Equity Index 500, Extended Equity Market Index, International Equity Index, Total Equity Market Index, and U.S. Bond Index 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, except that the fund will invest more than 25% of the value of its total assets in issuers having their principal business activities in the same industry to the extent necessary to replicate the index that the fund uses as its benchmark as set forth in its prospectus;

    (d)Industry Concentration (Prime Reserve, TRP Reserve Investment, and Summit Cash Reserves Funds) Purchase the securities of any issuer if, as a result, more than 25% of the value of the funds` 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 banker`s acceptances;

    (e)Concentration (Retirement and Spectrum Funds) Concentrate in any industry, except that the funds will concentrate (invest more than 25% of total assets) in the mutual fund industry;

    (a)Loans (All funds except Retirement and Spectrum Funds) Make loans, although the funds 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 33xb6 /xb8 % of the value of the funds` 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;

    (b)Loans (Retirement and Spectrum Funds) Make loans, although the funds may purchase money market securities and enter into repurchase agreements;

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    Margin (Spectrum Funds) Purchase securities on margin, except for use of short-term credit necessary for clearance of purchases of portfolio securities;

    Mortgaging (Spectrum Funds) Mortgage, pledge, hypothecate, or, in any manner, transfer any security owned by the funds as security for indebtedness, except as may be necessary in connection with permissible borrowings, in which event such mortgaging, pledging, or hypothecating may not exceed 30% of the funds` total assets, valued at market;

    Percent Limit on Assets Invested in Any One Issuer (All funds except Africa & Middle East, Emerging Europe & Mediterranean, Emerging Markets Bond, Global Real Estate, Institutional Africa & Middle East, Institutional Concentrated Large-Cap Value, Institutional Emerging Markets Bond, Institutional International Bond, Institutional Large-Cap Growth, International Bond, Latin America, New Asia, Retirement, and Spectrum Funds, and the State Tax-Free Income Trust) Purchase a security if, as a result, with respect to 75% of the value of the funds` total assets, more than 5% of the value of the funds` total assets would be invested in the securities of a single issuer, except securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities;

    Percent Limit on Share Ownership of Any One Issuer (All funds except Africa & Middle East, Emerging Europe & Mediterranean, Emerging Markets Bond, Global Real Estate, Institutional Africa & Middle East, Institutional Concentrated Large-Cap Value, Institutional Emerging Markets Bond, Institutional International Bond, Institutional Large-Cap Growth, International Bond, Latin America, New Asia, Retirement, and Spectrum Funds, and the State Tax-Free Income Trust) Purchase a security if, as a result, with respect to 75% of the value of the funds` total assets, more than 10% of the outstanding voting securities of any issuer would be held by the funds (other than obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities);

    (a)Real Estate (All funds except Retirement and Spectrum Funds) 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 funds from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business);

    (b)Real Estate (Retirement and Spectrum Funds) Purchase or sell real estate, including limited partnership interests therein, unless acquired as a result of ownership of securities or other instruments (although the funds may purchase money market securities secured by real estate or interests therein, or issued by companies or investment trusts which invest in real estate or interests therein);

    (a)Senior Securities (All funds except Spectrum Funds) Issue senior securities except in compliance with the 1940 Act;

    (b)Senior Securities (Spectrum Funds) Issue senior securities;

    Short Sales (Spectrum Funds) Effect short sales of securities;

    Taxable Securities (California Tax-Free Income Trust, State Tax-Free Income Trust, and Tax-Free Funds) During periods of normal market conditions, purchase any security if, as a result, less than 80% of the funds` income would be exempt from federal and, if applicable, any state, city, or local income tax. Normally, the funds will not purchase a security if, as a result, more than 20% of the funds` income would be subject to the AMT; or

    Underwriting Underwrite securities issued by other persons, except to the extent that the funds may be deemed to be an underwriter within the meaning of the 1933 Act in connection with the purchase and sale of fund portfolio securities in the ordinary course of pursuing their investment programs.

    NOTES

    The following Notes should be read in connection with the above-described fundamental policies. The Notes are not fundamental policies.

    Money funds With respect to investment restriction (1), the funds have no current intention of engaging in any borrowing transactions.

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    All funds except Retirement and Spectrum Funds With respect to investment restriction (2), the funds do not consider currency contracts or hybrid investments to be commodities.

    All funds except Retirement and Spectrum Funds For purposes of investment restriction (4):

  • 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 and sub-industries set forth in the Morgan Stanley Capital International/Standard & Poor`s (MSCI/S&P) Global Industry Classification Standard for the International Equity Funds, equity securities of the Tax-Efficient Funds, and Equity Funds except Developing Technologies, Financial Services, Global Technology, Media & Telecommunications, New Era, and Science & Technology Funds. For Developing Technologies, Financial Services, Global Technology, Media & Telecommunications, New Era, and Science & Technology Funds, industries are determined by reference to industry classifications set forth in their semiannual and annual reports. For the Corporate Income, Inflation Protected Bond, Institutional Core Plus, New Income, Short-Term Bond, Short-Term Income, U.S. Bond Index, and the fixed-income investments of the Balanced and Personal Strategy Funds, industries are determined by reference to the classifications of industries and sub-industries set forth in the Lehman Brothers Global Aggregate Bond Index (Lehman). For the Emerging Markets Bond, GNMA, High Yield, Institutional Emerging Markets Bond, Institutional Floating Rate, Institutional High Yield, Institutional International Bond, International Bond, Prime Reserve, TRP Reserve Investment, Summit Income, and U.S. Treasury Funds, industries are determined by reference to industry classifications set forth in their semiannual and annual reports. Annual changes by MSCI/S&P or Lehman to their classifications will be implemented within 30 days after the effective date of the change. The Africa & Middle East Fund, Institutional Africa & Middle East Fund, and Latin America Fund consider telephone and banking companies of a single country to be separate industries from telephone and banking companies of any other country. It is the position of the staff of the SEC that foreign governments are industries for purposes of this restriction. For as long as this staff position is in effect, the International Bond Funds will not invest more than 25% of total assets in the securities of any single foreign governmental issuer. For purposes of this restriction, governmental entities are considered separate issuers.
  • All funds except Summit Income and U.S. Bond Index Funds For purposes of investment restriction (5), the funds 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.

    All funds except Spectrum Funds For purposes of investment restrictions (8) and (9), the funds will treat bonds which are refunded with escrowed U.S. government securities as U.S. government securities.

    Taxable Bond and Money Funds For purposes of investment restrictions (8) and (9), the funds will consider a repurchase agreement fully collateralized with U.S. government securities to be U.S. government securities.

    With respect to investment restriction (11), under the 1940 Act, an open-end investment company can borrow money from a bank provided that immediately after such borrowing there is asset coverage of at least 300% for all borrowings. If the asset coverage falls below 300%, the company must, within three business days, reduce the amount of its borrowings to satisfy the 300% requirement.

    For purposes of investment restriction (13), the funds measure the amount of their income from taxable securities, including AMT securities, over the course of the funds` taxable year.

    Operating Policies

    As a matter of operating policy, the funds may not:

    Borrowing Purchase additional securities when money borrowed exceeds 5% of total assets;

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    Control of Portfolio Companies Invest in companies for the purpose of exercising management or control;

    Equity Securities (California Tax-Free Income Trust, State Tax-Free Income Trust, and Tax-Free Funds) Purchase any equity security or security convertible into an equity security, provided that the funds (other than the Money Funds) may invest up to 10% of total assets in equity securities, which pay tax-exempt dividends and which are otherwise consistent with the funds` investment objectives and, further provided, that Money Funds may invest up to 10% of total assets in equity securities of other tax-free open-end money market funds;

    Forward Currency Contracts (Retirement and Spectrum Funds) Purchase forward currency contracts, although the funds reserve the right to do so in the future;

    (a)Futures Contracts (All funds except Money Funds and Retirement and Spectrum Funds) 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 funds` net asset value;

    (b)Futures (Retirement and Spectrum International Funds) Purchase futures, although the funds reserve the right to do so in the future;

    (c)Futures (Spectrum Growth and Spectrum Income Funds) Invest in futures;

    Illiquid Securities Purchase illiquid securities if, as a result, more than 15% (10% for Spectrum and Money Funds) of net assets would be invested in such securities;

    Investment Companies (All funds except Retirement and Spectrum Funds) Purchase securities of open-end or closed-end investment companies except (i) securities of the TRP Reserve Investment Funds (provided that the investing fund does not invest more than 25% of its total assets in such funds); (ii) securities of T. Rowe Price institutional funds; (iii) in the case of the Money Funds, only securities of other money market funds; (iv) in the case of the California Tax-Free Income Trust, State Tax-Free Income Trust, and Tax-Free Funds, only securities of other tax-free money market funds; (v) otherwise consistent with the 1940 Act;

    Margin (All funds except Spectrum Funds) Purchase securities on margin, except (i) for use of short-term credit necessary for clearance of purchases of portfolio securities and (ii) they may make margin deposits in connection with futures contracts or other permissible investments;

    Mortgaging (All funds except Spectrum Funds) Mortgage, pledge, hypothecate, or, in any manner, transfer any security owned by the funds 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 33xb6 /xb8 % of the funds` total assets at the time of borrowing or investment;

    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 funds would be invested in such programs;

    (a)Options, etc. (All funds except Retirement and Spectrum Funds) Invest in options in excess of the limits set forth in the funds` prospectuses and SAI;

    (b)Options (Retirement Funds) Invest in options although the funds reserve the right to do so in the future;

    (c)Options (Spectrum Funds) Invest in options;

    (a)Short Sales (All funds except High Yield, Institutional Floating Rate, and Institutional High Yield Funds) Effect short sales of securities;

    (b)Short Sales (High Yield, Institutional Floating Rate, and Institutional High Yield Funds) Effect short sales of securities, other than as set forth in the funds` prospectuses and SAI; and

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    Warrants Invest in warrants if, as a result, more than 10% of the value of the fund`s net assets would be invested in warrants, provided that, the Money, Retirement, Spectrum, State Tax-Free, Tax-Free, and Summit Municipal Funds will not invest in warrants.

    NOTES

    The following Notes should be read in connection with the above-described operating policies. The Notes are not operating policies.

    If a fund is subject to an 80% name test as set forth in its prospectus, it will be based on the fund`s net assets plus any borrowings for investment purposes. For purposes of determining whether a fund invests at least 80% of its net assets in a particular country or geographic region, the fund uses the country assigned to a security by MSCI Barra or, if one is not assigned by MSCI Barra, then the country assigned by Bloomberg. The funds generally follow this same process with respect to the remaining 20% of assets but may occasionally make an exception after assessing various factors relating to a company.

    Blue Chip Growth, Capital Opportunity, Developing Technologies, Diversified Small-Cap Growth, Financial Services, Global Technology, Health Sciences, High Yield, Institutional High Yield, Media & Telecommunications, Mid-Cap Value, Personal Strategy, Real Estate, Summit Income, Summit Municipal, U.S. Bond Index, and Value Funds

    Notwithstanding anything in the previously listed fundamental and operating restrictions to the contrary, the funds listed above may invest all of their 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 funds (a "Feeder"), and one or more other funds with the same investment objective and program as the funds, sought to accomplish their investment objectives and programs by investing all of their assets in the shares of another investment company (the "Master"). The Master would, in turn, have the same investment objective and program as the funds. The funds 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.

    International Funds

    In addition to the restrictions previously described, some foreign countries limit, or prohibit, all direct foreign investment in the securities of their companies. However, the governments of some countries have authorized the organization of investment funds to permit indirect foreign investment in such securities. For tax purposes, these funds may be known as Passive Foreign Investment Companies. The funds are subject to certain percentage limitations under the 1940 Act relating to the purchase of securities of investment companies, and may be subject to the limitation that no more than 10% of the value of the fund`s total assets may be invested in such securities.

    Retirement and Spectrum Funds

    There is no limit on the amount the funds may own of the total outstanding voting securities of registered investment companies which are members of the Price Funds. The funds, in accordance with their prospectuses, may invest more than 5% of their total assets in any one or more of the Price Funds. The funds may invest more than 10% of their total assets, collectively, in registered investment companies which are members of the Price Funds.

    CUSTODIAN

    State Street Bank and Trust Company is the custodian for the funds` U.S. securities and cash, but it does not participate in the funds` investment decisions. Portfolio securities purchased in the U.S. are maintained in the custody of the bank and may be entered into the Federal Reserve Book Entry System, or the security depository system of the Depository Trust Corporation, or any central depository system allowed by federal law. In addition, funds investing in municipal securities are authorized to maintain certain of their securities, in particular, variable rate demand notes, in uncertificated form, in the proprietary deposit systems of various dealers in municipal securities. State Street Bank`s main office is at 225 Franklin Street, Boston, Massachusetts

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    02110. State Street Bank maintains shares of the Retirement and Spectrum Funds in the book entry system of the funds` transfer agent, T. Rowe Price Services, Inc.

    All funds that can invest in foreign securities have entered into a Custodian Agreement with JPMorgan Chase Bank, London, pursuant to which portfolio securities which are purchased outside the United States are maintained in the custody of various foreign branches of JPMorgan Chase 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 JPMorgan Chase Bank, London is Woolgate House, Coleman Street, London, EC2P 2HD, England.

    CODE OF ETHICS

    The funds, their investment adviser (T. Rowe Price International for international funds and T. Rowe Price for all other funds), and their principal underwriter (T. Rowe Price Investment Services) have a written Code of Ethics and Conduct which requires persons with access to investment information ("Access Persons") to obtain prior clearance before engaging in most personal securities transactions. Transactions must be executed within three business days of their clearance. In addition, all Access Persons must report their personal securities transactions within 30 days after the end of the calendar quarter. Aside from certain limited transactions involving securities in certain issuers with high trading volumes, Access Persons are typically not 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; a change has occurred in T. Rowe Price`s rating of the security within seven calendar days prior to the date of the proposed transaction; or the security is subject to internal trading restrictions. In addition, Access Persons are prohibited from profiting from short-term trading (e.g., purchases and sales involving the same security within 60 days). Any person becoming an Access Person must file a statement of personal securities holdings within 10 days of this date. All Access Persons are required to file an annual statement with respect to their personal securities holdings. Any material violation of the Code of Ethics is reported to the Boards of the funds. The Boards also review the administration of the Code of Ethics on an annual basis.

    DISCLOSURE OF FUND PORTFOLIO INFORMATION

    Each fund`s portfolio holdings are disclosed on a regular basis in its semiannual and annual reports to shareholders as well as Form N-Q which is filed with the SEC within 60 days of a fund`s first and third fiscal quarter-end. In addition, the funds` Boards have adopted policies and procedures with respect to the disclosure of the funds` portfolio securities and the disclosure of portfolio commentary and statistical information about the funds` portfolios and their securities. The policy on the general manner in which the funds` portfolio securities are disclosed is set forth in the funds` prospectuses. In addition, portfolio holdings with respect to periods prior to the most recent quarter-end may be disclosed upon request, subject to the sole discretion of T. Rowe Price.

    This statement of additional information sets forth details of the funds` policy on portfolio holdings disclosure as well as the funds` policy on disclosing information about the funds` portfolios. In adopting the policies, the Boards of the funds took into account the views of the equity, fixed income and/or international steering committees of the funds` investment advisers on what information should be disclosed and when and to whom it should be disclosed. The steering committees have oversight responsibilities for managing the T. Rowe Price funds. Each steering committee is comprised of senior investment management personnel of T. Rowe Price or T. Rowe Price International, as applicable. Each committee as a whole determines the funds` policy on the disclosure of portfolio holdings and related information. The funds` Boards believe the policies they have adopted are in the best interests of the funds and that they strike an appropriate balance between the desire of some persons for information about the funds` portfolios and the need to protect the funds from potentially harmful disclosures.

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    From time to time, officers of the funds, the funds` investment adviser or the funds` distributor (collectively "TRP") may express their views orally or in writing on one or more of the funds` portfolio securities or may state that the funds have recently purchased or sold one or more securities. Such views and statements may be made to members of the press, shareholders in the funds, persons considering investing in the funds or representatives of such shareholders or potential shareholders, such as fiduciaries of a 401(k) plan or a trust and their advisers and rating and ranking organizations such as Lipper Inc. and Morningstar, Inc. The nature and content of the views and statements provided to each of these persons may differ. The securities subject to these views and statements may be ones that were purchased or sold since the funds` most recent quarter-end and therefore may not be reflected on the list of the funds` most recent quarter-end portfolio holdings disclosed on the Web site.

    Additionally, TRP may provide oral or written information ("portfolio commentary") about the funds, including, but not limited to, how the funds` investments are divided among various sectors, industries, countries, value and growth stocks, small-, mid-, and large-cap stocks, and among stocks, bonds, currencies, and cash, types of bonds, bond maturities, bond coupons, and bond credit quality ratings. This portfolio commentary may also include information on how these various weightings and factors contributed to fund performance. TRP may also provide oral or written information ("statistical information") about various financial characteristics of the funds or their underlying portfolio securities including, but not limited to, alpha, beta, R-squared, duration, maturity, information ratio, Sharpe ratio, earnings growth, payout ratio, price/book value, projected earnings growth, return on equity, standard deviation, tracking error, weighted average quality, market capitalization, percent debt to equity, price to cash flow, dividend yield or growth, default rate, portfolio turnover, and risk and style characteristics. This portfolio commentary and statistical information about the funds may be based on the funds` most recent quarter-end portfolio or on some other interim period such as month-end. The portfolio commentary and statistical information may be provided to members of the press, shareholders in the funds, persons considering investing in the funds or representatives of such shareholders or potential shareholders, such as fiduciaries of a 401(k) plan or a trust and their advisers and rating and ranking organizations. The content and nature of the information provided to each of these persons may differ.

    None of the persons described above will receive any of the information described above if, in the sole judgment of TRP, the information could be used in a manner that would be harmful to the funds. The T. Rowe Price Code of Ethics contains a provision to this effect.

    TRP also discloses portfolio holdings in connection with the day-to-day operations and management of the funds. Full portfolio holdings are disclosed to the funds` custodians and auditors. Portfolio holdings are disclosed to the funds` pricing service vendors and other persons who provide systems or software support in connection with fund operations, including accounting, compliance support, and pricing. Portfolio holdings may also be disclosed to persons assisting the funds in the voting of proxies. In connection with managing the funds, the funds` investment advisers may use analytical systems provided by third parties who may have access to the funds` portfolio holdings. In all of these situations, the funds or TRP have entered into an agreement with the outside party under which the party undertakes to maintain the funds` portfolio holdings on a confidential basis and to refrain from trading on the basis of the information. TRP relies on these non-disclosure agreements in determining that such disclosures are not harmful to the funds. The names of these persons and the services they provide are set forth in the following table under "Fund Service Providers." The policies and procedures adopted by the funds` Boards require that any additions to the list of "Fund Service Providers" be approved by specified officers at TRP.

    Additionally, when purchasing and selling its securities through broker-dealers, requesting bids on securities, obtaining price quotations on securities as well as in connection with litigation involving the funds` portfolio securities, the funds may disclose one or more of their securities. The funds have not entered into formal non-disclosure agreements in connection with these situations; however, the funds would not continue to conduct business with a person who TRP believed was misusing the disclosed information.

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    Fund Service Providers


    Service Provider


    Service

    Broadridge Systems
    Systems Vendor
    DSTI
    Systems Vendor
    COR Financial Solutions
    Systems Vendor
    ITG, Inc.
    Pricing and Systems Vendor
    JPMorgan FCS Corporation
    Systems Vendor
    JPMorgan Chase
    Pricing Vendor
    JPMorgan Chase, London
    Custodian
    S&P/JJ Kenny
    Pricing Vendor
    WCI Consulting
    Systems Vendor
    American Stock Exchange
    Systems Vendor
    Bloomberg
    Systems Vendor
    Bowne & Company
    Systems Vendor
    Business Objects
    Systems Vendor
    Charles River
    Systems Vendor
    Citigroup
    Systems Vendor
    Cognizant
    Systems Vendor
    Eagle
    Systems Vendor
    FactSet
    Systems Vendor
    Interactive Data
    Pricing Vendor
    Investor Tools, Inc.
    Systems Vendor
    Jefferson Wells International
    Professional Staffing Service
    Lehman Brothers
    Systems Vendor
    Macgregor
    Systems Vendor
    McArdle Printing Company
    Printing and Mailing Vendor
    Omgeo LLC
    Systems Vendor
    PricewaterhouseCoopers LLP
    Independent Registered Public Accounting Firm
    RiskMetrics Group, Inc.
    Proxy and Systems Vendor
    Thomson Reuters
    Pricing Vendor
    Serena
    Systems Vendor
    SmartStream Technologies
    Systems Vendor
    State Street Bank
    Custodian
    Sybase Inc.
    Systems Vendor
    Vision
    Systems Vendor
    Wall Street Concepts, Inc.
    Market Information Vendor
    Wilhelm and Cooper LLC
    Professional Staffing Service
    Wilshire
    Systems Vendor

    PRICING OF SECURITIES

    All Price Funds (except Money Funds and Fund-of-Funds)

    Equity securities listed or regularly traded on a securities exchange or in the over-the-counter market are valued at the last quoted sale price or, for certain markets, the official closing price at the time the valuations are made, except for OTC Bulletin Board securities, which are valued at the mean of the latest bid and asked

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    prices. 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 are valued at the mean of the latest bid and asked prices for domestic securities and the last quoted sale price for international securities.

    Debt securities are generally traded in the over-the-counter market. Securities with remaining maturities of one year or more at the time of acquisition are valued using prices 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. Securities with remaining maturities of less than one year at the time of acquisition generally use amortized cost in local currency to approximate fair value. However, if amortized cost is deemed not to reflect fair value or the fund holds a significant amount of such securities with remaining maturities of more than 60 days, the securities are valued at prices furnished by dealers who make markets in such securities, or by an independent pricing service.

    Investments in mutual funds are valued at the mutual fund`s closing net asset value per share on the day of valuation. Purchased and written options are valued at the mean of the closing bid and asked prices. Options on futures contracts are valued at the last sale price. Foreign currency forward contracts are valued using the prevailing forward exchange rate. Financial futures contracts are valued at closing settlement prices. Swaps are valued at prices furnished by independent swap dealers or by an independent pricing service.

    Assets, including investments, and liabilities denominated in foreign currencies are translated into U.S. dollar values each day at the prevailing exchange rate, using the mean of the bid and asked prices of such currencies against U.S. dollars as quoted by a major bank. Purchases and sales of securities, income, and expenses are translated into U.S. dollars at the prevailing exchange rate on the date of the transaction.

    Trading in the portfolio securities of the funds may take place in various foreign markets on certain days (such as Saturday) when the funds are not open for business and do not calculate their net asset value. As a result, net asset values may be significantly affected by trading on days when shareholders cannot make transactions. In addition, trading in the funds` portfolio securities may not occur on days when the funds are open.

    Money Funds

    Securities are valued at amortized cost in accordance with Rule 2a-7 under the 1940 Act.

    Fund-of-Funds

    Investments in the underlying Price funds held by each fund are valued at their closing net asset value per share on the day of valuation.

    All Price Funds

    Other investments, including restricted securities, and those 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 the T. Rowe Price Valuation Committee, established by the funds` Boards.

    NET ASSET VALUE PER SHARE

    The purchase and redemption price of the funds` shares is equal to the funds` net asset value per share or share price. The funds determine their net asset value per share by subtracting their liabilities (including accrued expenses and dividends payable) from their total assets (the market value of the securities the funds hold 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 funds is calculated as of the close of trading on the New York Stock Exchange ("NYSE") every day the NYSE is open for trading. Determination of net asset value (and the offering, sale, redemption, and repurchase of shares) for the funds 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 funds of securities owned by them is not reasonably practicable or it is not reasonably practicable for the

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    funds fairly to determine the value of their net assets, or (d) during which a governmental body having jurisdiction over the funds may by order permit such a suspension for the protection of the funds` 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.

    Money Funds

    Maintenance of Money Funds` Net Asset Value per Share at $1.00

    It is the policy of the funds 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 funds` acquisition costs as adjusted for amortization of premium or accumulation of discount, rather than by reference to their market value. Under Rule 2a-7:

    (a)The Boards must establish written procedures reasonably designed, taking into account current market conditions and the funds` investment objectives, to stabilize the funds` net asset value per share, as computed for the purpose of distribution, redemption, and repurchase, at a single value;

    (b)The funds must (i) maintain a dollarweighted average portfolio maturity appropriate to their 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 dollarweighted average portfolio maturity of 90 days or less;

    (c)The funds must limit their purchase of portfolio instruments, including repurchase agreements, to those U.S. dollar-denominated instruments which the funds` Boards determine present minimal credit risks and which are eligible securities as defined by Rule 2a-7; and

    (d)The Boards must determine that (i) it is in the best interest of the funds and the shareholders to maintain a stable net asset value per share under the amortized cost method; and (ii) the funds will continue to use the amortized cost method only so long as the Boards believe that it fairly reflects the market-based net asset value per share.

    Although the funds believe that they will be able to maintain their net asset value at $1.00 per share under most conditions, there can be no absolute assurance that they will be able to do so on a continuous basis. If the funds` net asset value per share declined, or was expected to decline, below $1.00 (rounded to the nearest one cent), the Boards of the funds 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 funds` net asset value per share were to increase, or were anticipated to increase, above $1.00 (rounded to the nearest one cent), the Boards of the funds might supplement dividends in an effort to maintain the net asset value at $1.00 per share.

    Prime Reserve and TRP 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 funds` Boards.

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    DIVIDENDS AND DISTRIBUTIONS

    Unless you elect otherwise, capital gain distributions, final quarterly dividends and annual dividends, if any, will be reinvested on the reinvestment date using the net asset values per share on 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.

    IN-KIND REDEMPTIONS AND PURCHASES

    Redemptions In-Kind

    The Price Funds have filed with the SEC a notice of election under Rule 18f-1 of the 1940 Act. This election permits a fund to effect a redemption in-kind if, in any 90-day period, a shareholder redeems: (i) more than $250,000 from the fund; or (ii) redeems more than 1% of the fund`s net assets. If either of these conditions is met, the fund has the right to pay the difference between the redemption amount and the lesser of these two figures with securities from the fund`s portfolio rather than in cash.

    In the unlikely event a shareholder receives an in-kind redemption of portfolio securities from a fund, it would be the responsibility of the shareholder to dispose of the securities. The shareholder would be subject to the risks that the value of the securities could decline prior to their sale, the securities could be difficult to sell, and brokerage fees could be incurred.

    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 objectives and policies of the funds; (b) are acquired for investment and not for resale except in accordance with applicable law; (c) have a value that is readily ascertainable via listing on or trading in a recognized United States or international exchange or market; and (d) are not illiquid.

    TAX STATUS

    The funds intend to qualify as "regulated investment companies" under Subchapter M of the Code.

    To be entitled to the special tax benefits applicable to regulated investment companies, the funds will be required to distribute the sum of 90% of their investment company taxable income and 90% of their net tax-exempt income, if any, each year. In order to avoid federal income tax, the funds must distribute all of their investment company taxable income and realized long-term capital gains for each fiscal year within 12 months after the end of the fiscal year. To avoid federal excise tax, the funds 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) and distribute such amounts prior to February 1 of the following calendar year. Shareholders are required to include such distributions in their income for federal income tax purposes whether dividends and capital gain distributions are paid in cash or in additional shares.

    For individual shareholders, a portion of the funds` ordinary dividends representing "qualified dividend income" may be subject to tax at the lower rate applicable to long-term capital gains, rather than ordinary income. Unless extended, this favorable provision will expire on December 31, 2010, and ordinary dividends will again be taxed at tax rates applicable to ordinary income. "Qualified dividend income" is composed of certain dividends received from domestic and qualified foreign corporations. It excludes dividends representing payments in lieu of dividends related to loaned securities, dividends received on certain hedged positions, dividends on non-qualified foreign corporations, and dividends on stocks the funds have not held for more than 60 days during the 121-day period beginning 60 days before the stock became ex-dividend (90 and 181 days for certain preferred stock). Individual shareholders can only apply the lower rate to the qualified portion of the funds` dividends if they have held the shares in the funds on which the dividends were

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    paid for the holding period surrounding the ex-dividend date of the funds` dividends. Little, if any, of the ordinary dividends from the Tax-Free, Taxable Bond, and Taxable Money Funds is expected to qualify for this lower rate.

    For corporate shareholders, a portion of the funds` ordinary dividends may be eligible for the 70% deduction for dividends received by corporations to the extent the funds` income consists of dividends paid by U.S. corporations. This deduction does not include dividends representing payments in lieu of dividends related to loaned securities, dividends received on certain hedged positions, dividends received from certain foreign corporations, and dividends on stocks the funds have not held for more than 45 days during the 90-day period beginning 45 days before the stock became ex-dividend (90 and 180 days for certain preferred stock). Corporate shareholders can only apply the lower rate to the qualified portion of the funds` dividends if they have held the shares in the funds on which the dividends were paid for the holding period surrounding the ex-dividend date of the funds` dividends. Little, if any, of the ordinary dividends from the Tax-Free, International (except Global Large-Cap Stock, Global Stock, and Institutional Global Large-Cap Equity Funds), Taxable Bond, and Taxable Money Funds is expected to qualify for this deduction. Long-term capital gain distributions paid by the funds are not eligible for the dividends-received deduction.

    At the time of your purchase of shares (except in Money Funds), the funds` net asset value may reflect undistributed income, capital gains, or net unrealized appreciation of securities held by the funds. A subsequent distribution to you of such amounts, although constituting a return of your investment, would be taxable as either dividend or capital gain distributions. The funds may be able to reduce the amount of such distributions by utilizing their capital loss carry-overs, if any. For federal income tax purposes, the funds are permitted to carry forward their 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, a fund does not qualify as a regulated investment company under the Code: (1) the fund would be taxed at the normal corporate rates on the entire amount of its taxable income, if any, without a deduction for dividends or other distributions to shareholders; (2) 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; (3) the fund may qualify for the 70% deduction for dividends received by corporations; and (4) foreign tax credits would not "pass through" to shareholders.

    Taxation of Foreign Shareholders

    Foreign shareholders may be subject to U.S. tax on the sale of shares in any fund, or on distributions of ordinary income and/or capital gains realized by a fund, depending on a number of factors, including the foreign shareholder`s country of tax residence, its other U.S. operations (if any), and the nature of the distribution received. Foreign shareholders should consult their own tax adviser to determine the precise U.S. and local tax consequences to an investment in any fund.

    Retirement and Spectrum Funds

    Distributions by the underlying Price funds, redemptions of shares in the underlying Price funds, and changes in asset allocations may result in taxable distributions of ordinary income or capital gains. In addition, the funds will generally not be able to currently offset gains realized by one underlying Price fund in which the funds invest against losses realized by another underlying Price fund. These factors could affect the amount, timing, and character of distributions to shareholders.

    State Tax-Free and Tax-Free Funds

    The funds anticipate that substantially all of the dividends to be paid by each fund will be exempt from federal income taxes. It is possible that a portion of the funds` dividends is not exempt from federal income taxes. You will receive a Form 1099-DIV, Form 1099-INT, or other IRS forms, as required, reporting the taxability of all dividends. The funds will also advise you of the percentage of your dividends, if any, which should be included in the computation of the alternative minimum tax. Social Security recipients who receive income dividends from tax-free funds may have to pay taxes on a portion of their Social Security benefits.

    Because the income dividends of the funds are expected to be derived from tax-exempt interest on municipal securities, any interest on money you borrow that is directly or indirectly used to purchase fund shares is not

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    deductible. Further, entities or persons that are "substantial users" (or persons related to "substantial users") of facilities financed by industrial development bonds should consult their tax advisers before purchasing shares of these funds. The income from such bonds may not be tax-exempt for such substantial users.

    Foreign Income Taxes

    Income received by the funds from sources within various foreign countries may be subject to foreign income taxes withheld at the source. Under the Code, if more than 50% of the value of the funds` total assets at the close of the taxable year comprises securities issued by foreign corporations or governments, the funds may file an election to "pass through" to the funds` shareholders any foreign income taxes as paid by the funds. There can be no assurance that the funds will be able to do so. Pursuant to this election, shareholders will be required to: (1) include in gross income, even though not actually received, their pro-rata share of foreign income taxes paid by the funds; (2) treat their pro-rata share of foreign income taxes as paid by them; and (3) either deduct their pro-rata share of foreign income taxes in computing their taxable income, or use it as a foreign tax credit against U.S. income taxes subject to certain limitations (but not both). A deduction for foreign income taxes may only be claimed by a shareholder who itemizes deductions.

    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 funds will be increased. If the result is a loss, the ordinary income dividend paid by the funds 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 funds` taxable year.

    Passive Foreign Investment Companies

    The funds may purchase the securities of certain foreign investment funds or trusts, called "passive foreign investment companies" for U.S. tax purposes. Sometimes such funds or trusts are the only or primary way to invest in companies in certain countries. Capital gains on the sale of such holdings are considered ordinary income regardless of how long the funds held the investment. In addition, the funds 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 funds intend to treat these securities as sold on the last day of each of their fiscal years and to 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 in prior taxable years. Such gains and losses will be treated as ordinary income or losses. The funds will be required to distribute any resulting income, even though they have not sold the security and received cash to pay such distributions.

    Investing in Mortgage Entities

    Special tax rules may apply to the funds` investments in entities which invest in or finance mortgage debt. Such investments include residual interests in Real Estate Mortgage Investment Conduits and interests in a REIT which qualifies as a taxable mortgage pool under the Code or has a qualified REIT subsidiary that is a taxable mortgage pool under the Code. Although it is the practice of the funds not to make such investments, there is no guarantee that the funds will be able to sustain this practice or avoid an inadvertent investment.

    Such investments may result in the funds receiving excess inclusion income ("EII") in which case a portion of its distributions will be characterized as EII and shareholders receiving such distributions, including shares held through nominee accounts, will be deemed to have received EII. This can result in the funds being required to pay tax on the portion allocated to disqualified organizations: certain cooperatives, agencies or instrumentalities of a government or international organization, and tax-exempt organizations that are not subject to tax on unrelated business taxable income. In addition, such amounts will be treated as unrelated business taxable income to tax-exempt organizations that are not disqualified organizations, and will be subject to a 30% withholding tax for shareholders who are not U.S. persons, notwithstanding any exemptions or rate reductions in any relevant tax treaties.

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    CAPITAL STOCK (MARYLAND CORPORATIONS)

    All funds except Capital Appreciation, Equity Income, GNMA, and New America Growth Funds, and California Tax-Free Income Trust and State Tax-Free Income Trust

    All of the funds, other than those listed immediately above, are organized as Maryland corporations ("Corporations") or series thereof. The funds` Charters authorize the Boards 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 Boards subject to the 1940 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 Boards may increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the funds have authorized to issue without shareholder approval.

    Except to the extent that the funds` Boards might provide 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 directors have provided that as to any matter with respect to which a separate vote of any class is required by the 1940 Act, such requirement as to a separate vote by that class shall apply in lieu of any voting requirements established by the Maryland General Corporation Law. Otherwise, holders of each class of capital stock are not entitled to vote as a class on any matter. Accordingly, the preferences, rights, and other characteristics attaching to any class of shares 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 funds, 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 Corporations, a special meeting of shareholders of the Corporations shall be called by the secretary of the Corporations on the written request of shareholders entitled to cast (a) in the case of a meeting for the purpose of removing a director, at least ten (10) percent and (b) in the case of a meeting for any other purpose, at least 25 percent, in each case of all the votes entitled to be cast at such meeting, provided that any such request shall state the purpose or purposes of the meeting and the matters proposed to be acted on. Shareholders requesting such a meeting must pay to the Corporations the reasonably estimated costs of preparing and mailing the notice of the meeting. The Corporations, however, will otherwise assist the shareholders seeking to hold the special meeting in communicating to the other shareholders of the Corporations to the extent required by Section 16(c) of the 1940 Act.

    The series (and classes) set forth in the following table have been established by the Boards under the Articles of Incorporation of the indicated Corporations. Each series represents a separate pool of assets of the Corporations` shares and has different objectives and investment policies. Maryland law provides that the debts, liabilities, obligations, and expenses incurred with respect to a particular series or class are enforceable against the assets associated with that series or class only. The Articles of Incorporation also provide that the Boards may issue additional series of shares. Each share of each fund represents an equal proportionate share in that fund with each other share and is entitled to such dividends and distributions of income belonging to

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    that fund as are declared by the directors. In the event of the liquidation of a fund, each share is entitled to a pro-rata share of the net assets of that fund. Classes represent separate shares in the funds but share the same portfolios as the indicated funds. Each fund is registered with the SEC under the 1940 Act as an open-end management investment company, commonly known as a "mutual fund."

    Maryland Corporations

    T. Rowe Price Balanced Fund, Inc. (fund)
    T. Rowe Price Blue Chip Growth Fund, Inc. (fund)
    T. Rowe Price Blue Chip Growth FundAdvisor Class (class)
    T. Rowe Price Blue Chip Growth FundR Class (class)
    T. Rowe Price Capital Opportunity Fund, Inc. (fund)
    T. Rowe Price Capital Opportunity FundAdvisor Class (class)
    T. Rowe Price Capital Opportunity FundR Class (class)
    T. Rowe Price Corporate Income Fund, Inc. (fund)
    T. Rowe Price Developing Technologies Fund, Inc. (fund)
    T. Rowe Price Diversified Mid-Cap Growth Fund, Inc. (fund)
    T. Rowe Price Diversified Small-Cap Growth Fund, Inc. (fund)
    T. Rowe Price Dividend Growth Fund, Inc. (fund)
    T. Rowe Price Dividend Growth FundAdvisor Class (class)
    T. Rowe Price Financial Services Fund, Inc. (fund)
    T. Rowe Price Global Real Estate Fund, Inc. (fund)
    T. Rowe Price Global Real Estate FundAdvisor Class (class)
    T. Rowe Price Global Technology Fund, Inc. (fund)
    T. Rowe Price Growth & Income Fund, Inc. (fund)
    T. Rowe Price Growth Stock Fund, Inc. (fund)
    T. Rowe Price Growth Stock FundAdvisor Class (class)
    T. Rowe Price Growth Stock FundR Class (class)
    T. Rowe Price Health Sciences Fund, Inc. (fund)
    T. Rowe Price High Yield Fund, Inc. (fund)
    T. Rowe Price High Yield FundAdvisor Class (class)
    T. Rowe Price Index Trust, Inc. (corporation)
    T. Rowe Price Equity Index 500 Fund (series)
    T. Rowe Price Extended Equity Market Index Fund (series)
    T. Rowe Price Total Equity Market Index Fund (series)
    T. Rowe Price Inflation Protected Bond Fund, Inc. (fund)
    T. Rowe Price Institutional Equity Funds, Inc. (corporation)
    T. Rowe Price Institutional Concentrated Large-Cap Value Fund (series)
    T. Rowe Price Institutional Large-Cap Core Growth Fund (series)
    T. Rowe Price Institutional Large-Cap Growth Fund (series)
    T. Rowe Price Institutional Large-Cap Value Fund (series)
    T. Rowe Price Institutional Mid-Cap Equity Growth Fund (series)
    T. Rowe Price Institutional Small-Cap Stock Fund (series)
    T. Rowe Price Institutional U.S. Structured Research Fund (series)
    T. Rowe Price Institutional Income Funds, Inc. (corporation)
    T. Rowe Price Institutional Core Plus Fund (series)
    T. Rowe Price Institutional Floating Rate Fund (series)
    T. Rowe Price Institutional High Yield Fund (series)
    T. Rowe Price Institutional International Funds, Inc. (corporation)
    T. Rowe Price Institutional Africa & Middle East Fund (series) T. Rowe Price Institutional Emerging Markets Bond Fund (series)
    T. Rowe Price Institutional Emerging Markets Equity Fund (series)
    T. Rowe Price Institutional Foreign Equity Fund (series)
    T. Rowe Price Institutional Global Equity Fund (series)
    T. Rowe Price Institutional Global Large-Cap Equity Fund (series)
    T. Rowe Price Institutional International Bond Fund (series)
    T. Rowe Price International Funds, Inc. (corporation)
    T. Rowe Price Africa & Middle East Fund (series)
    T. Rowe Price Emerging Europe & Mediterranean Fund (series)
    T. Rowe Price Emerging Markets Bond Fund (series)
    T. Rowe Price Emerging Markets Stock Fund (series)
    T. Rowe Price European Stock Fund (series)
    T. Rowe Price Global Large-Cap Stock Fund (series)
    T. Rowe Price Global Large-Cap Stock FundAdvisor Class (class)
    T. Rowe Price Global Stock Fund (series)
    T. Rowe Price Global Stock FundAdvisor Class (class)
    T. Rowe Price International Bond Fund (series)
    T. Rowe Price International Bond FundAdvisor Class (class)
    T. Rowe Price International Discovery Fund (series)
    T. Rowe Price International Growth & Income Fund (series)
    T. Rowe Price International Growth & Income FundAdvisor Class (class)
    T. Rowe Price International Growth & Income FundR Class (class)
    T. Rowe Price International Stock Fund (series)
    T. Rowe Price International Stock FundAdvisor Class (class)
    T. Rowe Price International Stock FundR Class (class)
    T. Rowe Price Japan Fund (series)
    T. Rowe Price Latin America Fund (series)
    T. Rowe Price New Asia Fund (series)
    T. Rowe Price Overseas Stock Fund (series)
    T. Rowe Price International Index Fund, Inc. (corporation)
    T. Rowe Price International Equity Index Fund (series)
    T. Rowe Price Media & Telecommunications Fund, Inc. (fund)
    T. Rowe Price Mid-Cap Growth Fund, Inc. (fund)
    T. Rowe Price Mid-Cap Growth FundAdvisor Class (class)
    T. Rowe Price Mid-Cap Growth FundR Class (class)
    T. Rowe Price Mid-Cap Value Fund, Inc. (fund)
    T. Rowe Price Mid-Cap Value FundAdvisor Class (class)
    T. Rowe Price Mid-Cap Value FundR Class (class)
    T. Rowe Price New Era Fund, Inc. (fund)
    T. Rowe Price New Horizons Fund, Inc. (fund)
    T. Rowe Price New Income Fund, Inc. (fund)
    T. Rowe Price New Income FundAdvisor Class (class)
    T. Rowe Price New Income FundR Class (class)
    T. Rowe Price Personal Strategy Funds, Inc. (corporation)
    T. Rowe Price Personal Strategy Balanced Fund (series)
    T. Rowe Price Personal Strategy Growth Fund (series)
    T. Rowe Price Personal Strategy Income Fund (series)
    T. Rowe Price Prime Reserve Fund, Inc. (fund)
    T. Rowe Price Real Estate Fund, Inc. (fund)
    T. Rowe Price Real Estate FundAdvisor Class (class)
    T. Rowe Price Reserve Investment Funds, Inc. (corporation)
    T. Rowe Price Government Reserve Investment Fund (series)
    T. Rowe Price Reserve Investment Fund (series)
    T. Rowe Price Retirement Funds, Inc. (corporation)
    T. Rowe Price Retirement 2005 Fund (series)
    T. Rowe Price Retirement 2005 FundAdvisor Class (class)
    T. Rowe Price Retirement 2005 FundR Class (class)
    T. Rowe Price Retirement 2010 Fund (series)
    T. Rowe Price Retirement 2010 FundAdvisor Class (class)
    T. Rowe Price Retirement 2010 FundR Class (class)
    T. Rowe Price Retirement 2015 Fund (series)
    T. Rowe Price Retirement 2015 FundAdvisor Class (class)
    T. Rowe Price Retirement 2015 FundR Class (class)
    T. Rowe Price Retirement 2020 Fund (series)
    T. Rowe Price Retirement 2020 FundAdvisor Class (class)
    T. Rowe Price Retirement 2020 FundR Class (class)
    T. Rowe Price Retirement 2025 Fund (series)
    T. Rowe Price Retirement 2025 FundAdvisor Class (class)
    T. Rowe Price Retirement 2025 FundR Class (class)
    T. Rowe Price Retirement 2030 Fund (series)
    T. Rowe Price Retirement 2030 FundAdvisor Class (class)
    T. Rowe Price Retirement 2030 FundR Class (class)
    T. Rowe Price Retirement 2035 Fund (series)
    T. Rowe Price Retirement 2035 FundAdvisor Class (class)
    T. Rowe Price Retirement 2035 FundR Class (class)
    T. Rowe Price Retirement 2040 Fund (series)
    T. Rowe Price Retirement 2040 FundAdvisor Class (class)
    T. Rowe Price Retirement 2040 FundR Class (class)
    T. Rowe Price Retirement 2045 Fund (series)
    T. Rowe Price Retirement 2045 FundAdvisor Class (class)
    T. Rowe Price Retirement 2045 FundR Class (class)
    T. Rowe Price Retirement 2050 Fund (series)
    T. Rowe Price Retirement 2050 FundAdvisor Class (class)
    T. Rowe Price Retirement 2050 FundR Class (class)
    T. Rowe Price Retirement 2055 Fund (series)
    T. Rowe Price Retirement 2055 FundAdvisor Class (class)
    T. Rowe Price Retirement 2055 FundR Class (class)
    T. Rowe Price Retirement Income Fund (series)
    T. Rowe Price Retirement Income FundAdvisor Class (class)
    T. Rowe Price Retirement Income FundR Class (class)
    T. Rowe Price Science & Technology Fund, Inc. (fund)
    T. Rowe Price Science & Technology FundAdvisor Class (class)
    T. Rowe Price Short-Term Bond Fund, Inc. (fund)
    T. Rowe Price Short-Term Bond FundAdvisor Class (class)
    T. Rowe Price Short-Term Income Fund, Inc. (fund)
    T. Rowe Price Small-Cap Stock Fund, Inc. (fund)
    T. Rowe Price Small-Cap Stock FundAdvisor Class (class)
    T. Rowe Price Small-Cap Value Fund, Inc. (fund)
    T. Rowe Price Small-Cap Value FundAdvisor Class (class)
    T. Rowe Price Spectrum Fund, Inc. (corporation)
    Spectrum Growth Fund (series)
    Spectrum Income Fund (series)
    Spectrum International Fund (series)
    T. Rowe Price Summit Funds, Inc. (corporation)
    T. Rowe Price Summit Cash Reserves Fund (series)
    T. Rowe Price Summit GNMA Fund (series)
    T. Rowe Price Summit Municipal Funds, Inc. (corporation)
    T. Rowe Price Summit Municipal Money Market Fund (series)
    T. Rowe Price Summit Municipal Intermediate Fund (series)
    T. Rowe Price Summit Municipal Income Fund (series)
    T. Rowe Price Tax-Efficient Funds, Inc. (corporation)
    T. Rowe Price Tax-Efficient Balanced Fund (series)
    T. Rowe Price Tax-Efficient Growth Fund (series)
    T. Rowe Price Tax-Efficient Multi-Cap Growth Fund (series)
    T. Rowe Price Tax-Exempt Money Fund, Inc. (fund)
    T. Rowe Price Tax-Free High Yield Fund, Inc. (fund)
    T. Rowe Price Tax-Free Income Fund, Inc. (fund)
    T. Rowe Price Tax-Free Income FundAdvisor Class (class)
    T. Rowe Price Tax-Free Short-Intermediate Fund, Inc. (fund)
    T. Rowe Price Strategic Income Fund, Inc. (fund)
    T. Rowe Price Strategic Income FundAdvisor Class (class)
    T. Rowe Price U.S. Bond Index Fund, Inc. (fund)
    T. Rowe Price U.S. Treasury Funds, Inc. (corporation)
    U.S. Treasury Intermediate Fund (series)
    U.S. Treasury Long-Term Fund (series)
    U.S. Treasury Money Fund (series)
    T. Rowe Price Value Fund, Inc. (fund)
    T. Rowe Price Value FundAdvisor Class (class)

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    254


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    Balanced Fund

    On August 31, 1992, the T. Rowe Price Balanced Fund acquired substantially all of the assets of the Axe-Houghton Fund B, a series of Axe-Houghton Funds, Inc. As a result of this acquisition, the SEC requires that the historical performance information of the Balanced Fund be based on the performance of Fund B. Therefore, all performance information of the Balanced Fund prior to September 1, 1992, reflects the performance of Fund B and investment managers other than T. Rowe Price. Performance information after August 31, 1992, reflects the combined assets of the Balanced Fund and Fund B.

    Media & Telecommunications Fund

    On July 28, 1997, the fund converted its status from a closed-end fund to an open-end mutual fund. Prior to the conversion the fund was known as New Age Media Fund, Inc.

    Small-Cap Stock Fund

    Effective May 1, 1997, the fund`s name was changed from the T. Rowe Price OTC Fund to the T. Rowe Price Small-Cap Stock Fund.

    Equity Index 500 Fund

    Effective January 30, 1998, the fund`s name was changed from T. Rowe Price Equity Index Fund to the T. Rowe Price Equity Index 500 Fund.

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    ORGANIZATION OF THE FUNDS (MASSACHUSETTS BUSINESS TRUSTS)

    Capital Appreciation, Equity Income, GNMA, and New America Growth Funds, and California Tax-Free Income Trust and State Tax-Free Income Trust

    For tax and business reasons, these funds were organized as Massachusetts business trusts ("Trusts"). Each fund is registered with the SEC under the 1940 Act as an open-end management investment company, commonly known as a "mutual fund."

    The Declaration of Trust permits the Boards to issue an unlimited number of full and fractional shares of a single class. The Declaration of Trust also provides that the Boards may issue additional series or classes of shares. Each share represents an equal proportionate beneficial interest in the funds. In the event of the liquidation of the funds, each share is entitled to a pro-rata share of the net assets of the funds.

    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 funds 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 Trusts, 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 Trusts.

    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 Trusts may be terminated (i) upon the sale of their assets to another open-end management investment company, if approved by the vote of the holders of two-thirds of the outstanding shares of the Trusts, or (ii) upon liquidation and distribution of the assets of the Trusts, if approved by the vote of the holders of a majority of the outstanding shares of the Trusts. If not so terminated, the Trusts will continue indefinitely.

    Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the funds. However, the Declaration of Trust disclaims shareholder liability for acts or obligations of the funds and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the funds or trustees. 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 funds. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the funds themselves would be unable to meet their obligations, a possibility which T. Rowe Price believes is remote. Upon payment of any liability incurred by the funds, the shareholders of the funds paying such liability will be entitled to reimbursement from the general assets of the funds. The trustees intend to conduct the operations of the funds in such a way as to avoid, as far as possible, ultimate liability of the shareholders for liabilities of such funds.

    The series and classes set forth in the following table have been established by the Boards under the Declaration of Trust of the indicated trusts.

    Massachusetts Business Trusts

    T. Rowe Price California Tax-Free Income Trust (trust)
    California Tax-Free Bond Fund (series)
    California Tax-Free Money Fund (series)
    T. Rowe Price Capital Appreciation Fund (fund)
    T. Rowe Price Capital Appreciation FundAdvisor Class (class)
    T. Rowe Price Equity Income Fund (fund)
    T. Rowe Price Equity Income FundAdvisor Class (class)
    T. Rowe Price Equity Income FundR Class (class)
    T. Rowe Price GNMA Fund (fund)
    T. Rowe Price New America Growth Fund (fund)
    T. Rowe Price New America Growth FundAdvisor Class (class)
    T. Rowe Price State Tax-Free Income Trust (trust)
    Georgia Tax-Free Bond Fund (series)
    Maryland Short-Term Tax-Free Bond Fund (series)
    Maryland Tax-Free Bond Fund (series)
    Maryland Tax-Free Money Fund (series)
    New Jersey Tax-Free Bond Fund (series)
    New York Tax-Free Bond Fund (series)
    New York Tax-Free Money Fund (series)
    Virginia Tax-Free Bond Fund (series)

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    PROXY VOTING Process and POLICIES

    T. Rowe Price Associates, Inc. and T. Rowe Price International, Inc. recognize and adhere to the principle that one of the privileges of owning stock in a company is the right to vote on issues submitted to shareholder votesuch as election of directors and important matters affecting a company`s structure and operations. As an investment adviser with a fiduciary responsibility to its clients, T. Rowe Price analyzes the proxy statements of issuers whose stock is owned by the investment companies that it sponsors and serves as investment adviser. T. Rowe Price also is involved in the proxy process on behalf of its institutional and private counsel clients who have requested such service. For those private counsel clients who have not delegated their voting responsibility but who request advice, T. Rowe Price makes recommendations regarding proxy voting. T. Rowe Price reserves the right to decline to vote proxies in accordance with client-specific voting guidelines.

    Proxy Administration

    The T. Rowe Price Proxy Committee develops our firm`s positions on all major corporate and social responsibility issues, creates guidelines, and oversees the voting process. The Proxy Committee, composed of portfolio managers, investment operations managers, and internal legal counsel, analyzes proxy policies based on whether they would adversely affect shareholders` interests and make a company less attractive to own. In evaluating proxy policies each year, the Proxy Committee relies upon our own fundamental research, independent proxy research provided by third parties such as RiskMetrics Group ("RMG") (formerly known as Institutional Shareholder Services) and Glass Lewis, and information presented by company managements and shareholder groups.

    Once the Proxy Committee establishes its recommendations, they are distributed to the firm`s portfolio managers as voting guidelines. Ultimately, the portfolio manager decides how to vote on the proxy proposals of companies in his or her portfolio. Because portfolio managers may have differences of opinion on portfolio companies and their proxies, or their portfolios may have different investment objectives, these factors, among others, may lead to different votes between portfolios on the same proxies. When portfolio managers cast votes that are counter to the Proxy Committee`s guidelines, they are required to document their reasons in writing to the Proxy Committee. Annually, the Proxy Committee reviews T. Rowe Price`s proxy voting process, policies, and voting records.

    T. Rowe Price has retained RMG, an expert in the proxy voting and corporate governance area, to provide proxy advisory and voting services. These services include in-depth research, analysis, and voting recommendations as well as vote execution, reporting, auditing and consulting assistance for the handling of proxy voting responsibility and corporate governance-related efforts. While the Proxy Committee relies upon RMG research in establishing T. Rowe Price`s voting guidelinesmany of which are consistent with RMG

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    positionsT. Rowe Price deviates from RMG recommendations on some general policy issues and a number of specific proxy proposals.

    Fiduciary Considerations

    T. Rowe Price`s decisions with respect to proxy issues are made in light of the anticipated impact of the issue on the desirability of investing in the portfolio company. Proxies are voted solely in the interests of the client, Price Fund shareholders or, where employee benefit plan assets are involved, in the interests of plan participants and beneficiaries. Practicalities and costs involved with international investing may make it impossible at times, and at other times disadvantageous, to vote proxies in every instance. For example, we might refrain from voting if we or our agents are required to appear in person at a shareholder meeting or if the exercise of voting rights results in the imposition of trading or other ownership restrictions.

    Consideration Given Management Recommendations

    When determining whether to invest in a particular company, one of the primary factors T. Rowe Price considers is the quality and depth of its management. As a result, T. Rowe Price believes that recommendations of management on most issues should be given weight in determining how proxy issues should be voted.

    T. Rowe Price Voting Policies

    Specific voting guidelines have been established by the Proxy Committee for recurring issues that appear on proxies. The following is a summary of the more significant T. Rowe Price policies:

    Election of Directors

    T. Rowe Price generally supports slates with a majority of independent directors. We withhold votes for outside directors on key committees that do not meet certain criteria relating to their independence or their inability to dedicate sufficient time to their board duties due to their commitment to other boards. We also withhold votes for inside directors serving on key board committees and for directors who miss more than one-fourth of the scheduled board meetings. We may also withhold votes from inside directors for failing to establish a formal nominating committee. T. Rowe Price supports shareholder proposals calling for a majority vote threshold for the election of directors as well as those that seek to dismantle a staggered board.

    Executive Compensation

    Our goal is to assure that a company`s equity-based compensation plan is aligned with shareholders` long-term interests. While we evaluate plans on a case-by-case basis, T. Rowe Price generally opposes compensation packages that provide what we view as excessive awards to a few senior executives or that contain excessively dilutive stock option plans. We base our review on criteria such as the costs associated with the plan, plan features, burn rates that are excessive in relation to the company`s peers, dilution to shareholders and comparability to plans in the company`s peer group. We generally oppose plans that give a company the ability to reprice options or to grant options at below market prices. For companies with particularly egregious pay practices we may withhold votes from compensation committee members.

    Mergers and Acquisitions

    T. Rowe Price considers takeover offers, mergers, and other extraordinary corporate transactions on a case-by-case basis to determine if they are beneficial to shareholders` current and future earnings stream and to ensure that our Price Funds and clients are receiving fair compensation in exchange for their investment.

    Anti-takeover, Capital Structure, and Corporate Governance Issues

    T. Rowe Price generally opposes anti-takeover measures and other proposals designed to limit the ability of shareholders to act on possible transactions. Such anti-takeover mechanisms include classified boards, supermajority voting requirements, dual share classes and poison pills. We also oppose proposals that give management a "blank check" to create new classes of stock with disparate rights and privileges. When voting on capital structure proposals, we will consider the dilutive impact to shareholders and the effect on shareholder rights. We generally support shareholder proposals that call for the separation of the Chairman and CEO positions unless there are sufficient governance safeguards already in place. With respect to proposals for the approval of a company`s auditor, we typically oppose auditors who have a significant non-audit relationship with the company.

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    Social and Corporate Responsibility Issues

    T. Rowe Price generally votes with a company`s management on social, environmental, and corporate responsibility issues unless they have substantial investment implications for the company`s business and operations that have not been adequately addressed by management. T. Rowe Price may support well-targeted shareholder proposals that call for enhanced disclosure by companies on environmental and public policy issues that are particularly relevant to their businesses.

    Monitoring and Resolving Conflicts of Interest

    The Proxy Committee is also responsible for monitoring and resolving possible material conflicts between the interests of T. Rowe Price and those of its clients with respect to proxy voting. We have adopted safeguards to ensure that our proxy voting is not influenced by interests other than those of our fund shareholders. While membership on the Proxy Committee is diverse, it does not include individuals whose primary duties relate to client relationship management, marketing, or sales. Since our voting guidelines are predetermined by the Proxy Committee using recommendations from RMG, an independent third party, application of the T. Rowe Price guidelines to vote clients` proxies should in most instances adequately address any possible conflicts of interest. However, for proxy votes inconsistent with T. Rowe Price guidelines, the Proxy Committee reviews all such proxy votes in order to determine whether the portfolio manager`s voting rationale appears reasonable. The Proxy Committee also assesses whether any business or other relationships between T. Rowe Price and a portfolio company could have influenced an inconsistent vote on that company`s proxy. Issues raising possible conflicts of interest are referred to designated members of the Proxy Committee for immediate resolution prior to the time T. Rowe Price casts its vote. With respect to personal conflicts of interest, T. Rowe Price`s Code of Ethics requires all employees to avoid placing themselves in a "compromising position" where their interests may conflict with those of our clients and restricts their ability to engage in certain outside business activities. Portfolio managers or Proxy Committee members with a personal conflict of interest regarding a particular proxy vote must recuse themselves and not participate in the voting decisions with respect to that proxy.

    Index, Retirement, and Spectrum Funds

    Voting of T. Rowe Price Group, Inc., common stock (sym: TROW) by certain T. Rowe Price index funds will be done in all instances in accordance with T. Rowe Price policy, and votes inconsistent with policy will not be permitted. The Retirement and Spectrum Funds own shares in underlying T. Rowe Price funds. If an underlying T. Rowe Price fund has a shareholder meeting, the Retirement and Spectrum Funds normally would vote their shares in the underlying fund in the same proportion as the votes of the other shareholders of the underlying fund. This is known as "echo voting" and is designed to avoid any potential for a conflict of interest. This same process would be followed with respect to any T. Rowe Price funds owning shares in other T. Rowe Price funds.

    T. Rowe Price Proxy Vote Disclosure

    T. Rowe Price funds make broad disclosure of their proxy votes on troweprice.com and on the SEC`s Internet site at http://www.sec.gov. All funds, regardless of their fiscal years, must file with the SEC by August 31, their proxy voting records for the most recent 12-month period ended June 30.

    FEDERAL REGISTRATION OF SHARES

    The funds` shares (except for TRP Government Reserve Investment and TRP Reserve Investment Funds) are registered for sale under the 1933 Act. Registration of the funds` shares are not required under any state law, but the funds are required to make certain filings with and pay fees to the states in order to sell their shares in the states.

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    LEGAL COUNSEL

    Willkie Farr & Gallagher LLP, whose address is 787 Seventh Avenue, New York, New York 10019, is legal counsel to the funds.

    RATINGS OF COMMERCIAL PAPER

    Moody`s Investors Service, Inc. P-1 superior capacity for repayment. P-2 strong capacity for repayment. P-3 acceptable capacity for repayment of short-term promissory obligations.

    Standard & Poor`s Corporation A-1 highest category, degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 satisfactory capacity to pay principal and interest. A-3 adequate capacity for timely payment, but are more vulnerable to adverse effects of changes in circumstances than higher-rated issues. B and C speculative capacity to pay principal and interest.

    Fitch Ratings F-1+ exceptionally strong credit quality, strongest degree of assurance for timely payment. F-1 very strong credit quality. F-2 good credit quality, having a satisfactory degree of assurance for timely payment. F-3 fair credit quality, assurance for timely payment is adequate, but adverse changes could cause the securities to be rated below investment grade.

    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 ratings 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 Ratings Fitch 1Highest grade Commercial paper assigned this rating is regarded as having the strongest degree of assurance for timely payment. Fitch 2Very good grade Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than the strongest issues.

    RATINGS OF CORPORATE AND MUNICIPAL DEBT SECURITIES

    Moody`s Investors Service, Inc.

    AaaBonds 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 edged."

    AaBonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds.

    ABonds rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations.

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    BaaBonds 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.

    BaBonds 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 characterizes bonds in this class.

    BBonds 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.

    CaaBonds rated Caa are of poor standing. Such issues may be in default, or there may be present elements of danger with respect to repayment of principal or payment of interest.

    CaBonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.

    CBonds rated C represent the lowest rated and have extremely poor prospects of attaining investment standing.

    Standard & Poor`s Corporation

    AAAThis is the highest rating assigned by Standard & Poor`s to a debt obligation and indicates an extremely strong capacity to pay principal and interest.

    AABonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong.

    ABonds 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.

    BBBBonds 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, CBonds rated BB, B, CCC, CC, and C 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 C 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.

    DIn default.

    Fitch Ratings

    AAAHigh grade, broadly marketable, suitable for investment by trustees and fiduciary institutions, and liable to slight market fluctuation other than through changes in the money rate. The prime feature of an 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 are often factors, while guarantee or assumption by parties other than the original debtor may influence the rating.

    AAOf 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.

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    ABonds 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.

    BBBBonds 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 and 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 CBonds rated BB, B, CCC, CC, and C are regarded on balance as predominantly speculative with respect to the issuer`s capacity to pay interest and repay principal in accordance with the terms of the obligation for bond issues not in default. BB indicates the lowest degree of speculation and C the highest degree of speculation. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, and the current and prospective financial condition and operating performance of the issuer.

    RATINGS OF MUNICIPAL NOTES AND VARIABLE RATE SECURITIES

    Moody`s Investors Service, Inc. VMIG1/MIG-1 the best quality. VMIG2/MIG-2 high quality, with margins of protection ample, though not so large as in the preceding group. VMIG3/MIG-3 favorable quality, with all security elements accounted for, but lacking the undeniable strength of the preceding grades. Market access for refinancing, in particular, is likely to be less well established. SG adequate quality, but there is specific risk.

    Standard & Poor`s Corporation SP-1 very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. SP-2 satisfactory capacity to pay interest and principal. SP-3 speculative capacity to pay principal and interest.

    Fitch Ratings F-1+ exceptionally strong credit quality, strongest degree of assurance for timely payment. F-1 very strong credit quality. F-2 good credit quality, having a satisfactory degree of assurance for timely payment. F-3 fair credit quality, assurance for timely payment is adequate, but adverse changes could cause the securities to be rated below investment grade.

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    INDEX
































    Page








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    Capital Stock
    218

    Organization of the Funds
    223
    Code of Ethics
    210

    Other Shareholder Services
    122
    Custodian
    209

    Portfolio Securities
    172
    Derivatives
    187

    Part I
    6
    Disclosure of Fund Portfolio Information
    210


    Part II
    157
    Distributor for the Funds
    127

    Portfolio Management Practices
    202
    Dividends and Distributions
    215

    Portfolio Transactions
    130
    Federal Registration of Shares
    226

    Pricing of Securities
    212
    Independent Registered Public Accounting Firm
    156


    Principal Holders of Securities
    76
    In-Kind Redemptions and Purchases
    215

    Proxy Voting Process and Policies
    224
    Investment Management Agreements
    105

    Ratings of Commercial Paper
    227

    Investment Objectives and Policies
    157

    Ratings of Corporate and Municipal Debt Securities
    227

    Investment Restrictions
    204

    Ratings of Municipal Notes and Variable Rate Securities
    229
    Legal Counsel
    227

    Risk Factors
    157
    Management of the Funds
    12

    Tax Status
    216
    Net Asset Value per Share
    213



    264