T. ROWE PRICE LOGO
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T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, MD 21202
James S. Riepe
Managing Director
Dear Shareholder:
All of the T. Rowe Price mutual funds will hold shareholder meetings in
1994 to elect directors, ratify the selection of independent accountants, and
approve amendments to a number of investment policies.
The T. Rowe Price funds are not required to hold annual meetings each year
if the only items of business are to elect directors or ratify accountants. In
order to save fund expenses, most of the funds have not held annual meetings
for a number of years. There are, however, conditions under which the funds
must ask shareholders to elect directors, and one is to comply with a
requirement that a minimum number have been elected by shareholders, not
appointed by the funds' boards. Since the last annual meetings of the T. Rowe
Price funds, several directors have retired and new directors have been added.
In addition, a number of directors will be retiring in the near future.
Given this situation, we believed it appropriate to hold annual meetings
for all the T. Rowe Price funds in 1994. At the same time, we reviewed the
investment policies of all of the funds for consistency and to assure the
portfolio managers have the flexibility they need to manage your money in
today's fast changing financial markets. The changes being recommended, which
are explained in detail in the enclosed proxy material, DO NOT ALTER THE
FUNDS' INVESTMENT OBJECTIVES OR BASIC INVESTMENT PROGRAMS.
In many cases the proposals are common to several funds, so we have
combined certain proxy statements to save on fund expenses. For those of you
who own more than one of these funds, the combined proxy may also save you the
time of reading more than one document before you vote and mail your ballots.
The proposals which are specific to an individual fund are easily identifiable
on the Notice and in the proxy statement discussion. If you own more than one
fund, please note that EACH FUND HAS A SEPARATE CARD. YOU SHOULD VOTE AND SIGN
EACH ONE, then return all of them to us in the enclosed postage-paid envelope.
Your early response will be appreciated and could save your fund the
substantial costs associated with a follow-up mailing. We know we are asking
you to review a rather formidable proxy statement, but this approach
represents the most efficient one for your fund as well as for the other
funds. Thank you for your cooperation. If you have any questions, please call
us at 1-800-225-5132.
Sincerely,
SIGNATURE
James S. Riepe
Director, Mutual Funds Division
CUSIP#77954D105/fund#069
CUSIP#741841105/fund#057
CUSIP#779570100/fund#043
CUSIP#779573104/fund#044
CUSIP#77957P105/fund#055
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
NOTICE OF MEETING OF SHAREHOLDERS
JUNE 8, 1994
The Annual Meeting of Shareholders of the T. Rowe Price Adjustable Rate
U.S. Government Fund, Inc. ("Adjustable Rate Fund"), T. Rowe Price High Yield
Fund, Inc. ("High Yield Fund"), T. Rowe Price New Income Fund, Inc. ("New
Income Fund"), T. Rowe Price Prime Reserve Fund, Inc. ("Prime Reserve Fund")
and T. Rowe Price Short-Term Bond Fund, Inc. ("Short-Term Bond Fund") (each a
"Fund" and collectively the "Funds"), each a Maryland corporation, will be
held jointly on Wednesday, June 8, 1994, at 10:30 o'clock a.m., Eastern time,
at the offices of the Funds, 100 East Pratt Street, Baltimore, Maryland 21202.
The following matters will be acted upon at that time:
1. FOR THE SHAREHOLDERS OF EACH FUND: To elect directors for the Fund in
which you invest to serve until the next annual meeting, if any, or
until their successors shall have been duly elected and qualified;
2. FOR THE SHAREHOLDERS OF EACH FUND:
A. To amend each Fund's fundamental policies to increase its ability
to engage in borrowing transactions;
B. To amend each Fund's fundamental policies to increase its ability
to engage in lending transactions;
C. To change from a fundamental to an operating policy each Fund's
policy on purchasing securities on margin;
D. To amend each Fund's fundamental policies concerning real estate;
E. To amend each Fund's fundamental policies on the issuance of senior
securities;
F. To amend each Fund's fundamental policies on industry
concentration;
FOR THE SHAREHOLDERS OF THE HIGH YIELD, NEW INCOME, PRIME RESERVE AND
SHORT-TERM BOND FUNDS:
G. To change from a fundamental to an operating policy each Fund's
policy on pledging assets;
FOR THE SHAREHOLDERS OF THE ADJUSTABLE RATE, HIGH YIELD, NEW INCOME AND
SHORT-TERM BOND FUNDS:
H. To amend each Fund's fundamental policies on investing in
commodities and futures contracts to permit greater flexibility in
futures trading;
CUSIP#77954D105/fund#069
CUSIP#741841105/fund#057
CUSIP#779570100/fund#043
CUSIP#779573104/fund#044
CUSIP#77957P105/fund#055
FOR THE SHAREHOLDERS OF THE ADJUSTABLE RATE, HIGH YIELD, PRIME RESERVE
AND SHORT-TERM BOND FUNDS:
I. To change from a fundamental to an operating policy each Fund's
policy on investing in equity securities;
FOR THE SHAREHOLDERS OF THE NEW INCOME FUND:
J. To change from a fundamental to an operating policy the Fund's
policy on short sales;
FOR THE SHAREHOLDERS OF THE HIGH YIELD AND PRIME RESERVE FUNDS:
K. To amend each Fund's fundamental policies to increase the
percentage of Fund assets which may be invested in the securities
of any single issuer;
L. To amend each Fund's fundamental policies to permit the Fund to
purchase more than 10% of an issuer's voting securities;
M. To change from a fundamental to an operating policy each Fund's
policy on control of portfolio companies;
N. To change from a fundamental to an operating policy each Fund's
policy on investing in other investment companies;
O. To change from a fundamental to an operating policy each Fund's
policy on investing in oil and gas programs;
P. To change from a fundamental to an operating policy each Fund's
policy on investing in options;
Q. To change from a fundamental to an operating policy each Fund's
policy on ownership of portfolio securities by officers and
directors;
R. To change from a fundamental to an operating policy each Fund's
policy on purchasing illiquid securities;
S. To change from a fundamental to an operating policy each Fund's
policy on unseasoned issuers;
3. FOR THE SHAREHOLDERS OF EACH FUND: To ratify or reject the selection of
the firms of Coopers & Lybrand as the independent accountants for the
Adjustable Rate Fund and Price Waterhouse as the independent
accountants for the High Yield, New Income, Prime Reserve and
Short-Term Bond Funds for the three-month fiscal year ending May 31,
1994 and for the fiscal year ending May 31, 1995;
4. FOR THE SHAREHOLDERS OF THE NEW INCOME AND PRIME RESERVE FUNDS: To
amend each Fund's Articles of Incorporation to delete the policy on
pricing securities; and
5. To transact such other business as may properly come before the meeting
and any adjournments thereof.
LENORA V. HORNUNG
Secretary
April 22, 1994
100 East Pratt Street
Baltimore, Maryland 21202
YOUR VOTE IS IMPORTANT
SHAREHOLDERS ARE URGED TO DESIGNATE THEIR CHOICES ON EACH OF THE MATTERS TO BE
ACTED UPON AND TO DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOUR
PROMPT RETURN OF THE PROXY WILL HELP ASSURE A QUORUM AT THE MEETING AND AVOID
THE ADDITIONAL FUND EXPENSE OF FURTHER SOLICITATION.
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
MEETING OF SHAREHOLDERS--JUNE 8, 1994
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
by the T. Rowe Price Adjustable Rate U.S. Government Fund, Inc. ("Adjustable
Rate Fund"), T. Rowe Price High Yield Fund, Inc. ("High Yield Fund"), T. Rowe
Price New Income Fund, Inc. ("New Income Fund"), T. Rowe Price Prime Reserve
Fund, Inc. ("Prime Reserve Fund") and T. Rowe Price Short-Term Bond Fund, Inc.
("Short-Term Bond Fund") (each a "Fund" and collectively the "Funds"), each a
Maryland corporation, for use at the Annual Meeting of Shareholders of each
Fund to be held jointly on June 8, 1994, and at any adjournments thereof.
Shareholders may vote only on matters which concern the Fund or Funds in
which they hold shares. Shareholders are entitled to one vote for each full
share, and a proportionate vote for each fractional share, of the Fund held as
of the record date. Under Maryland law, shares owned by two or more persons
(whether as joint tenants, co-fiduciaries, or otherwise) will be voted as
follows, unless a written instrument or court order providing to the contrary
has been filed with the Fund: (1) if only one votes, that vote will bind all;
(2) if more than one votes, the vote of the majority will bind all; and (3) if
more than one votes and the vote is evenly divided, the vote will be cast
proportionately.
In order to hold the meeting, a majority of each Fund's shares entitled to
be voted must have been received by proxy or be present at the meeting. In the
event that a quorum is present but sufficient votes in favor of one or more of
the Proposals are not received by the time scheduled for the meeting, the
persons named as proxies may propose one or more adjournments of the meeting
to permit further solicitation of proxies. Any such adjournment will require
the affirmative vote of a majority of the shares present in person or by proxy
at the session of the meeting adjourned. The persons named as proxies will
vote in favor of such adjournment if they determine that such adjournment and
additional solicitation is reasonable and in the interests of each Fund's
shareholders. The shareholders of each Fund vote separately with respect to
each Proposal.
The individuals named as proxies (or their substitutes) in the enclosed
proxy card (or cards if you own shares of more than one Fund or have multiple
accounts) will vote in accordance with your directions as indicated thereon if
your proxy is received properly executed. You may direct the proxy holders to
vote your shares on a Proposal by checking the appropriate box "For" or
"Against," or instruct them not to vote those shares on the Proposal by
checking the "Abstain" box. Alternatively, you may simply sign, date and
return your proxy card(s) with no specific instructions as to the Proposals.
If you properly execute your proxy card and give no voting instructions with
respect to a Proposal, your shares will be voted for the Proposal. Any proxy
may be revoked at any time prior to its exercise by filing with the Fund a
written notice of revocation, by delivering a duly executed proxy bearing a
later date, or by attending the meeting and voting in person.
Abstentions and "broker non-votes" (as defined below) are counted for
purposes of determining whether a quorum is present for purposes of convening
the meeting. "Broker non-votes" are shares held by a broker or nominee for
which an executed proxy is received by the Fund, but are not voted as to one
or more Proposals because instructions have not been received from the
beneficial owners or persons entitled to vote and the broker or nominee does
not have discretionary voting power. If a Proposal must be approved by a
percentage of votes cast on the Proposal, abstentions and broker non-votes
will not be counted as "votes cast" on the Proposal and will have no effect on
the result of the vote. If the Proposal must be approved by a percentage of
voting securities present at the meeting, abstentions will be considered to be
voting securities that are present and will have the effect of being counted
as votes against the proposal. Broker non-votes will not be counted for any
purpose in connection with calculating the vote on such a Proposal.
VOTE REQUIRED: A PLURALITY OF ALL VOTES CAST AT THE MEETING BY EACH FUND
IS SUFFICIENT TO APPROVE PROPOSAL 1 FOR EACH FUND. A MAJORITY OF THE VOTES
CAST IS SUFFICIENT TO APPROVE PROPOSAL 3 FOR EACH FUND. APPROVAL OF PROPOSAL 4
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF EACH OF THE NEW
INCOME AND PRIME RESERVE FUNDS' OUTSTANDING SHARES. APPROVAL OF ALL REMAINING
PROPOSALS OF EACH FUND REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF THE
LESSER OF (A) 67% OF THE SHARES PRESENT AT THE MEETING IN PERSON OR BY PROXY
(IF THE HOLDERS OF 50% OR MORE OF THE OUTSTANDING SECURITIES ARE PRESENT OR
REPRESENTED BY PROXY) OR (B) A MAJORITY OF EACH FUND'S OUTSTANDING SHARES.
If the proposed amendments to each Fund's fundamental investment policies
are approved, they will become effective on or about July 1, 1994. If a
proposed amendment to a Fund's fundamental investment policies is not
approved, that policy will remain unchanged. If the proposed amendment to the
Articles of Incorporation of the New Income and Prime Reserve Funds is
approved, it will become effective on or about July 1, 1994. If the proposed
amendment to each Fund's Articles of Incorporation is not approved, the
Articles will remain unchanged.
Each Fund will pay a portion of the costs of the meeting, including the
solicitation of proxies, allocated on the basis of the number of shareholder
accounts of each Fund. Persons holding shares as nominees will be reimbursed,
upon request, for their reasonable expenses in sending solicitation materials
to the principals of the accounts. In addition to the solicitation of proxies
by mail, directors, officers, and/or employees of each Fund or of its
investment manager, T. Rowe Price Associates, Inc. ("T. Rowe Price"), may
solicit proxies in person or by telephone.
The approximate date on which this Proxy Statement and form of proxy is
first being mailed to shareholders of each Fund is April 22, 1994.
1. ELECTION OF DIRECTORS
The following table sets forth information concerning each of the nominees
for director indicating the particular Board(s) on which the nominee has been
asked to serve. Each nominee has agreed to hold office until the next annual
meeting (if any) or his/her successor is duly elected and qualified. With the
exception of Ms. Whittemore and Messrs. Black and Burnett, each of the
nominees is a member of the present Board of Directors of the Fund and has
served in that capacity since originally elected by shareholders. Messrs.
Black and Burnett were elected directors of each Fund by its Board of
Directors on April 23, 1993 and January 19, 1993, respectively. A shareholder
using the enclosed proxy form can vote for all or any of the nominees of the
Board of Directors or withhold his or her vote from all or any of such
nominees. IF THE PROXY CARD IS PROPERLY EXECUTED BUT UNMARKED, IT WILL BE
VOTED FOR ALL OF THE NOMINEES. Should any nominee become unable or unwilling
to accept nomination or election, the persons named in the proxy will exercise
their voting power in favor of such other person or persons as the Board of
Directors of the Fund may recommend. There are no family relationships among
these nominees.
The membership of the five Boards will not be identical following election
at the meeting. Specifically, certain individuals who are interested persons
of T. Rowe Price are being elected to only one of the Funds. Shareholders are
being asked to elect the Board of Directors of their respective Fund only.
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Fund All Other Price
Shares Beneficially Funds' Shares
Name, Address, Date of Owned, Directly or Beneficially Owned
Birth of Nominee and Indirectly, as of Directly as of
Position with Fund Principal Occupations/(1)/ 2/28/94/(2)/ 2/28/94
- - - --------------------------------------------------------------------------------------------------------
Robert P. Black Retired: formerly President, Adjustable Rate Fund: 3,223
10 Dahlgren Road Federal Reserve Bank of Richmond; --
Richmond, VA 23233 Director/ Trustee of all other T. High Yield Fund: --
12/21/27 Rowe Price taxable income Funds New Income Fund: --
[bullet]Director since Prime Reserve Fund:
1993 of: --
Adjustable Rate Fund, High Short-Term Bond Fund:
Yield Fund, New Income --
Fund, Prime Reserve Fund
and Short-Term Bond Fund
Calvin W. Burnett, PH.D. President, Coppin State College; Adjustable Rate Fund: 589
2500 West North Avenue Director, Maryland Chamber of --
Baltimore, MD 21216 Commerce and Provident Bank of High Yield Fund: 465
3/16/32 Maryland; President, Baltimore New Income Fund: --
[bullet]Director since Area Council Boy Scouts of Prime Reserve Fund:
1993 of: America; Vice President, Board of 4,000
Adjustable Rate Fund, High Directors, The Walters Art Short-Term Bond Fund:
Yield Fund, New Income Gallery; and a Director/Trustee --
Fund, Prime Reserve Fund of the 11 other T. Rowe Price
and Short-Term Bond Fund Income Funds/Trusts
*George J. Collins President, Managing Director and Adjustable Rate Fund: 14,713
100 East Pratt Street Chief Executive Officer, T. Rowe 6,903
Baltimore, MD 21202 Price Associates, Inc.; Director, High Yield Fund:
7/31/40 Rowe Price-Fleming International, 4,568
[bullet]Chairman of the Inc., New Income Fund:
Board and member of T. Rowe Price Trust Company, and 1,070
Executive Committee: T. Rowe Price Retirement Plan Prime Reserve Fund:
Adjustable Rate Fund Services, Inc.; Chairman of the 1,316,199
(1991), High Yield Fund Board of nine other T. Rowe Price Short-Term Bond Fund:
(1985), New Income Fund Funds/ Trusts; Vice President, 131,080
(1978), and Short-Term President and/or Director of five
Bond Fund (1983) other T. Rowe Price Funds.
[bullet]Prime Reserve
Fund: Vice President and
member of Executive
Committee since 1975
Anthony W. Deering Director, President and Chief Adjustable Rate Fund: 25,179
10275 Little Patuxent Operating Officer, The Rouse --
Parkway Company, real estate developers, High Yield Fund: 208
Columbia, MD 21044 Columbia, Maryland; Advisory New Income Fund: 167
1/28/45 Director, Kleinwort, Benson Prime Reserve Fund:
[bullet]Director: (North America) Corporation, a 64,341
Adjustable Rate Fund registered broker-dealer, and a Short-Term Bond Fund:
(1991), High Yield Fund Director/Trustee of the 11 other 251
(1985), New Income Fund T. Rowe Price Income
(1980), Prime Reserve Fund Funds/Trusts, Institutional
(1979) and Short-Term Bond International Funds, Inc. and T.
Fund (1983) Rowe Price International Funds,
Inc.
*Carter O. Hoffman Managing Director, T. Rowe Price New Income Fund: 253,049
100 East Pratt Street Associates, Inc.; Director, T. 36,428
Baltimore, MD 21202 Rowe Price New Era Fund, Inc.; Prime Reserve Fund:
9/3/27 Vice President, T. Rowe Price 1,140,553
[bullet]New Income Fund: Growth Stock Fund, Inc.
Vice President and member
of Executive Committee
since 1973
[bullet]Prime Reserve
Fund: Chairman of the
Board and member of
Executive Committee since
1975
F. Pierce Linaweaver President, F. Pierce Linaweaver & Adjustable Rate Fund: 22,328
The Legg Mason Tower Associates, Inc.; formerly --
Suite 2700 (1987-1991) Executive Vice High Yield Fund:
111 South Calvert Street President, EA Engineering, 10,427
Baltimore, MD 21202 Science, and Technology, Inc. and New Income Fund: --
8/22/34 (1987-1990) President, EA Prime Reserve Fund:
[bullet]Director: Engineering, Inc.; 23,519
Adjustable Rate Fund Director/Trustee of the 11 other Short-Term Bond Fund:
(1991), High Yield Fund T. Rowe Price Income Funds/Trusts --
(1985), New Income Fund
(1983), Prime Reserve Fund
(1980) and Short-Term Bond
Fund (1983)
*James S. Riepe Managing Director, T. Rowe Price Adjustable Rate Fund: 371,251
100 East Pratt Street Associates, Inc.; President and 5,292
Baltimore, MD 21202 Director, T. Rowe Price High Yield Fund:
6/25/43 Investment Services, Inc.; 40,090
[bullet]Vice President and Chairman of the Board, New Income Fund: 419
member of Executive T. Rowe Price Services, Inc., T. Prime Reserve Fund:
Committee: Adjustable Rate Rowe Price Trust Company, T. Rowe 102,703
Fund (1991), High Yield Price Retirement Plan Services, Short-Term Bond Fund:
Fund (1985), New Income Inc., and four T. Rowe Price 158,124
Fund (1983), and Funds; Vice President and
Short-Term Bond Fund Director/ Trustee of 25 other T.
(1983) Rowe Price Funds/ Trusts;
[bullet]Prime Reserve Director, Rhone-Poulenc Rorer,
Fund: Vice President since Inc.
1982
John G. Schreiber President, Schreiber Investments, Adjustable Rate Fund: 259,118
1115 East Illinois Road a real estate investment company; --
Lake Forest, IL 60045 Director and formerly High Yield Fund:
10/21/46 (1/80-12/90) Executive Vice 14,570
[bullet]Director since President, JMB Realty New Income Fund:
1992 of: Adjustable Rate Corporation, a national real 12,897
Fund, High Yield Fund, New estate investment manager and Prime Reserve Fund:
Income Fund, Prime Reserve developer; Director/Trustee of 105,625
Fund, and Short-Term Bond the 11 other Short-Term Bond Fund:
Fund T. Rowe Price Income Funds/Trusts 22,642
*Charles P. Smith Managing Director, T. Rowe Price New Income Fund: 47 99,148
100 East Pratt Street Associates, Inc.; Vice President,
Baltimore, MD 21202 Rowe Price-Fleming International,
12/4/43 Inc.; Executive Vice President
[bullet]New Income Fund: and Director, T. Rowe Price U.S.
President and member of Treasury Funds, Inc.; Vice
Executive Committee since President of six other T. Rowe
1988 Price Funds/Trusts
*Richard S. Swingle Managing Director, T. Rowe Price High Yield Fund: 153,857
100 East Pratt Street Associates, Inc. 34,875
Baltimore, MD 21202
1/23/45
[bullet]High Yield Fund:
President and member of
Executive Committee since
1987
*Peter VanDyke Managing Director, T. Rowe Price Adjustable Rate Fund: 105,280
100 East Pratt Street Associates, Inc.; Vice President, 667
Baltimore, MD 21202 Rowe Price-Fleming International,
11/29/38 Inc. and T. Rowe Price Trust
[bullet]Adjustable Rate Company; Executive Vice President
Fund: President and member and Director, T. Rowe Price U.S.
of Executive Committee Treasury Funds, Inc.; President,
since 1991 Executive Vice President and/or
Vice President of five other T.
Rowe Price Funds
Anne Marie Whittemore Partner, law firm of McGuire, Adjustable Rate Fund: 475
One James Center Woods, Battle & Boothe; formerly, --
901 East Cary Street Chairman and Director, Federal High Yield Fund: --
Richmond, VA 23219-4030 Reserve Bank of Richmond; New Income Fund: --
3/19/46 Director, Owens & Minor, Inc., Prime Reserve Fund:
[bullet]Initial election USF&G Corporation, Old Dominion --
as Director of: University, and nominated to the Short-Term Bond Fund:
Adjustable Rate Fund, High Board of James River Corporation; --
Yield Fund, New Income Member, Richmond Bar Association
Fund, Prime Reserve Fund, and American Bar Association
and Short-Term Bond Fund
<FN>
* Nominees considered "interested persons" of T. Rowe Price.
(1) Except as otherwise noted, each individual has held the office indicated, or other offices in
the same company, for the last five years.
(2) In addition to the shares owned beneficially and of record by each of the nominees, the amounts
shown reflect the proportionate interests of Messrs. Collins, Riepe and VanDyke in 12,862 shares
of the Adjustable Rate Fund, Messrs. Collins, Riepe and Swingle in 7,049 shares of the High
Yield Fund, Messrs. Collins, Hoffman, Riepe and Smith in 1,172 shares of the New Income Fund,
Messrs. Collins, Hoffman and Riepe in 6,560 shares of the Prime Reserve Fund and Messrs. Collins
and Riepe in 227,068 shares of the Short-Term Bond Fund which are owned by a wholly-owned
subsidiary of the Funds' investment manager, T. Rowe Price. The amounts shown also reflect the
aggregate interests of these individuals in 53,683, 35,795, 2,106,932, and 60,392 shares of the
High Yield, New Income, Prime Reserve and Short-Term Bond Funds, respectively, owned by the T.
Rowe Price Associates, Inc. Profit Sharing Trust.
John Sagan a director of the Adjustable Rate Fund since 1991 and the High
Yield, New Income, Prime Reserve and Short-Term Bond Funds since 1986, has
retired from the Board and will not be standing for reelection. As of February
28, 1994, Mr. Sagan beneficially owned, directly or indirectly, 12,000, 5,050
and 6,596 shares of the High Yield, New Income and Short-Term Bond Funds,
respectively.
Mr. Charles W. Shaeffer, a director of the New Income and Prime Reserve
Funds from 1973-1979 and 1975-1979, respectively, and Mr. W. Ernest Issel, a
director of the New Income Fund from 1968-1983, have been named by each Fund's
Board of Directors as director emeritus. The position of director emeritus is
honorary only and does not confer any responsibility or voting authority. Mr.
Shaeffer was formerly Chairman of the Board (1966-75), President (1963-74),
and Director (1947-76) of T. Rowe Price.
The directors of each Fund who are officers or employees of T. Rowe Price
receive no remuneration from the Fund. For the fiscal year ended February 28,
1994, Messrs. Black, Burnett, Deering, Linaweaver, Sagan, and Schreiber,
received from the Adjustable Rate, High Yield, New Income, Prime Reserve and
Short-Term Bond Funds' directors' fees aggregating $11,000, $27,000, $27,000,
$45,000 and $15,000, including expenses, respectively. The fee paid to each
such director is calculated in accordance with the following fee schedule: a
fee of $25,000 per year as the initial fee for the first T. Rowe Price
Fund/Trust on which a director serves; a fee of $5,000 for each of the second,
third, and fourth T. Rowe Price Funds/Trusts on which a director serves; a fee
of $2,500 for each of the fifth and sixth T. Rowe Price Funds/Trusts on which
a director serves; and a fee of $1,000 for each of the seventh and any
additional T. Rowe Price Funds/Trusts on which a director serves. Those
nominees indicated by an asterisk (*) are persons who, for purposes of Section
2(a)(19) of the Investment Company Act of 1940 are considered "interested
persons" of T. Rowe Price. Each such nominee is deemed to be an "interested
person" by virtue of his officership, directorship, and/or employment with T.
Rowe Price. Messrs. Black, Burnett, Deering, Linaweaver, Sagan, and Schreiber
are the current independent directors of each Fund.
The T. Rowe Price Funds have established a Joint Audit Committee, which is
comprised of at least one independent director representing each of the Funds.
Mr. Deering, a director of each Fund, is a member of the Committee. The other
members are Leo C. Bailey, Donald W. Dick, Jr., and Hubert D. Vos. These
directors also receive a fee of $500 for each Committee meeting attended. The
Audit Committee holds two regular meetings during each fiscal year, at which
time it meets with the independent accountants of the T. Rowe Price Funds to
review: (1) the services provided; (2) the findings of the most recent audit;
(3) management's response to the findings of the most recent audit; (4) the
scope of the audit to be performed; (5) the accountants' fees; and (6) any
accounting questions relating to particular areas of the
T. Rowe Price Funds' operations or the operations of parties dealing with the
T. Rowe Price Funds, as circumstances indicate.
The Board of Directors of each Fund has an Executive Committee which is
authorized to assume all the powers of the Board to manage the Fund, in the
intervals between meetings of the Board, except the powers prohibited by
statute from being delegated.
The Board of Directors of each Fund has a Nominating Committee, which is
comprised of all the T. Rowe Price Funds' independent directors. The
Nominating Committee, which functions only in an advisory capacity, is
responsible for reviewing and recommending to the full Board candidates for
election as independent directors to fill vacancies on the Board of Directors.
The Nominating Committee will consider written recommendations from
shareholders for possible nominees. Shareholders should submit their
recommendations to the Secretary of the Fund. Members of the Nominating
Committee met informally during the last full fiscal year, but the Committee
as such held no formal meetings.
Each Fund's Board of Directors held seven meetings during the last full
fiscal year. With the exception of Mr. Hoffman, a director of the New Income
and Prime Reserve Funds, and Mr. Swingle, a director of the High Yield Fund,
each director standing for reelection attended 75% or more of the aggregate of
(i) the total number of meetings of the Board of Directors (held during the
period for which he was a director), and (ii) the total number of meetings
held by all committees of the Board on which he served.
EACH FUND
2. APPROVAL OR DISAPPROVAL OF CHANGES TO THE FUNDS' FUNDAMENTAL INVESTMENT
POLICIES
The Investment Company Act of 1940 (the "1940 Act") requires investment
companies such as the Funds to adopt certain specific investment policies that
can be changed only by shareholder vote. An investment company may also elect
to designate other policies that may be changed only by shareholder vote. Both
types of policies are often referred to as "fundamental policies." Certain of
the Funds' fundamental policies have been adopted in the past to reflect
regulatory, business or industry conditions that are no longer in effect.
Accordingly, each Fund's Board of Directors has approved, and has authorized
the submission to each Fund's shareholders for their approval, the amendment
and/or reclassification of certain of the fundamental policies applicable to
each Fund.
The proposed amendments would (i) conform the fundamental policies of each
Fund to ones which are expected to become standard for all T. Rowe Price
Funds, (ii) simplify and modernize the limitations that are required to be
fundamental by the 1940 Act and (iii) eliminate as fundamental any limitations
that are not required to be fundamental by that Act. The Board believes that
standardized policies will assist the Funds and T. Rowe Price in monitoring
compliance with the various investment restrictions to which the T. Rowe Price
Funds are subject. By reducing to a minimum those limitations that can be
changed only by shareholder vote, the Funds would be able to minimize the
costs and delay associated with holding frequent annual shareholders'
meetings. Finally, the Directors also believe that T. Rowe Price's ability to
manage the Funds' assets in a changing investment environment will be enhanced
and that investment management opportunities will be increased by these
changes.
In the following discussion "the Fund" is intended to refer to each Fund.
A. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY TO INCREASE ITS
ABILITY TO ENGAGE IN BORROWING TRANSACTIONS
Because the Fund may occasionally need to borrow money to meet substantial
shareholder redemption or exchange requests when available cash is not
sufficient to satisfy these needs, the Board of Directors has proposed an
amendment to the Fund's fundamental policy which would permit the Fund greater
flexibility to engage in borrowing transactions. The current restriction is
not required by applicable law. The new restriction would (1) allow the Fund
to borrow larger amounts of money; (2) (i) Adjustable Rate, New Income and
Short-Term Bond Funds--borrow from persons in addition to other T. Rowe Price
Funds or banks to the extent permitted by applicable law; (ii) High Yield and
Prime Reserve Funds--borrow from other T. Rowe Price Funds or other persons to
the extent permitted by applicable law; and (3) clarify that the Fund's
restriction on borrowing does not prohibit the Fund from entering into other
proper investments and transactions. Although the proposal would provide the
Prime Reserve Fund greater flexibility to engage in borrowing transactions, as
a practical matter, the Fund does not expect the amendments will result in any
changes to its investment program. The Prime Reserve Fund has no current
intention of engaging in any borrowing.
The new restriction would also conform the Fund's policy on borrowing to
one which is expected to become standard for all T. Rowe Price Funds. The
Board believes that standardized policies will assist the Fund and T. Rowe
Price in monitoring compliance with the various investment restrictions to
which the T. Rowe Price Funds are subject. The Board has directed that such
proposals be submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of borrowing is as
follows:
ADJUSTABLE RATE FUND
"[As a matter of fundamental policy, the Fund may not:] Borrow money,
except the Fund 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 its total assets valued at market. The Fund 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. The Fund may enter into interest rate futures contracts
as set forth in [its fundamental policy on futures] and reverse repurchase
agreements;"
HIGH YIELD FUND
"[As a matter of fundamental policy, the Fund may not:] Borrow money,
except the Fund may borrow from banks as a temporary measure for
extraordinary or emergency purposes, and then only from banks in amounts
not exceeding 15% of its total assets valued at market. The Fund 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. The Fund may enter into interest rate futures contracts
as set forth in [its fundamental policy on futures]. The Fund will not
purchase additional securities when money borrowed exceeds 5% of total
assets;"
NEW INCOME AND SHORT-TERM BOND FUNDS
"[As a matter of fundamental policy, the Fund may not:] Borrow money,
except the Fund 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 its total assets valued at market. The Fund 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. The Fund may enter into interest rate futures contracts
as set forth in [its fundamental policy on futures];"
PRIME RESERVE FUND
"[As a matter of fundamental policy, the Fund may not:] Borrow money,
except the Fund may borrow from banks as a temporary measure for
extraordinary or emergency purposes, and then only from banks in amounts
not exceeding the lesser of 10% of its total assets valued at cost or 5%
of its total assets valued at market. The Fund 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;"
As amended, the Fund's fundamental policy on borrowing would be as
follows:
"[As a matter of fundamental policy, the Fund may not:] Borrow money
except that the Fund may (i) borrow for non-leveraging, temporary or
emergency purposes and (ii) engage in reverse repurchase agreements and
make other investments or engage in other transactions, which may involve
a borrowing, in a manner consistent with the Fund's investment objective
and program, provided that the combination of (i) and (ii) shall not
exceed 33 1/3% of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which come to exceed this
amount will be reduced in accordance with applicable law. The Fund may
borrow from banks, other Price Funds or other persons to the extent
permitted by applicable law;"
In addition, the Board of Directors of the High Yield Fund intends to
adopt the 5% limitation on purchasing additional securities when money
borrowed exceeds 5% (current fundamental policy) as an operating policy which
may be changed by the Board of Directors without further shareholder approval.
The operating policy would be as follows:
"[As a matter of operating policy, the Fund will not:] Purchase additional
securities when money borrowed exceeds 5% of the Fund's total assets;"
The other Funds have already adopted an identical operating policy.
If approved, the primary effect of the proposals would be to allow the
Fund to: (1) borrow up to 33 1/3% (or such higher amount permitted by law) of
its total assets (including the amount borrowed) less liabilities (other than
borrowings) as opposed to the current limitation; (2) (i) Adjustable Rate, New
Income and Short-Term Bond Funds--borrow from persons in addition to banks and
other mutual funds advised by T. Rowe Price or Rowe Price-Fleming
International, Inc. ("T. Rowe Price Funds"); (ii) High Yield and Prime Reserve
Funds--borrow from other T. Rowe Price Funds or other persons to the extent
permitted by applicable law; and (3) enter into other investments consistent
with the Fund's investment objective and program.
33 1/3% LIMITATION
The increase in the amount of money which the Fund could borrow is
primarily designed to allow the Fund greater flexibility to meet shareholder
redemption requests should the need arise. As is the case under its current
policy, the Fund would not borrow to increase income through leveraging. It is
possible the Fund's ability to borrow a larger percentage of its assets could
adversely affect the Fund if the Fund were unable to liquidate sufficient
securities, or the Fund were forced to liquidate securities at unfavorable
prices, to pay back the borrowed sums. However, the Directors believe the
risks of such possibilities are outweighed by the greater flexibility the Fund
would have in borrowing. The increased ability to borrow should permit the
Fund, if it were faced with substantial shareholder redemptions, to avoid
liquidating securities at unfavorable prices or times to a greater degree than
would be the case under the current policy. As noted, the Prime Reserve Fund
has no current intention of engaging in any borrowing transactions.
HIGH YIELD AND PRIME RESERVE FUNDS
BORROWING FROM OTHER PRICE FUNDS
Current law prohibits the Fund from borrowing from other T. Rowe Price
Funds. However, if the proposed amendments to the Fund's fundamental
investment policy on borrowing are approved by shareholders, the Fund may
apply to the Securities and Exchange Commission ("SEC") for an exemption from
this prohibition. There is, of course, no assurance that the SEC would act
favorably on such a request. If the SEC did grant such an order, the Fund
could be allowed to borrow from other T. Rowe Price Funds. T. Rowe Price
believes that the ability to engage in borrowing transactions with the
participating T. Rowe Price Funds as part of a program, referred to as the
"interfund lending program," may allow the Fund to obtain lower interest rates
on money borrowed for temporary or emergency purposes. Any existing T. Rowe
Price Fund participating in the interfund lending program would only do so
upon approval of its shareholders.
As noted above, when the Fund is required to borrow money, it currently
may do so only from banks. When the Fund borrows money from banks, it
typically pays interest on those borrowings at a rate that is higher than
rates available contemporaneously from investments in repurchase agreements.
If the proposed amendment is approved (and an SEC exemptive order were
granted), eligible T. Rowe Price Funds would be permitted to participate in an
interfund lending program to allow various of the T. Rowe Price Funds, through
a master loan agreement, to lend available cash to and borrow from other T.
Rowe Price Funds. Each lending fund could lend available cash to another T.
Rowe Price Fund only when the interfund rate was higher than repurchase
agreement rates or rates on other comparable short-term investments. Each
borrowing fund could borrow through the interfund lending program only when
the interfund loan rate was lower than available bank loan rates.
In determining to recommend the proposed amendment to shareholders for
approval, T. Rowe Price and the Directors considered the possible risks to the
Fund from participation in the interfund lending program. T. Rowe Price does
not view the difference in rates available on bank borrowings and repurchase
agreements or other short-term investments as reflecting a material difference
in the quality of the risk of the transactions, but rather as an indication of
the ability of banks to earn a higher rate of interest on loans than they pay
on repurchase agreements or other short-term investments. There is a risk that
a lending fund could experience a delay in obtaining prompt repayment of a
loan and, unlike repurchase agreements, the lending fund would not necessarily
have received collateral for its loan, although it could require that
collateral be provided as a condition for making a loan. A delay in obtaining
prompt payment could cause a lending fund to miss an investment opportunity or
to incur costs to borrow money to replace the delayed payment. There is also a
risk that a borrowing fund could have a loan recalled on one day's notice. In
these circumstances, the borrowing fund might have to borrow from a bank at a
higher interest cost if money to lend were not available from another T. Rowe
Price Fund. The Directors consider that the benefits to the Fund of
participating in the program outweigh the possible risks to the Fund from such
participation.
In order to permit the Fund to engage in interfund lending transactions,
regulatory approval of the SEC is required because, among other reasons, the
transactions may be considered to be among affiliated parties. If the proposed
amendment is approved by shareholders, the proposed interfund lending program
would be implemented only to the extent permitted by rule or by order of the
SEC and to the extent that the transactions were otherwise consistent with the
investment objectives and limitations of each participating T. Rowe Price
Fund. If exemptive relief from the SEC is not granted, the Fund, as previously
noted, will not be able to engage in the interfund lending program even though
shareholders have approved the proposal. As noted, no prediction can be made
as to whether the SEC would grant such relief.
Shareholders are being asked to approve an amendment to the Fund's
fundamental policy on borrowing in this proposal. Shareholders are also being
asked to vote separately on an amendment to the Fund's fundamental policy on
lending (see pages 14-19). If both amendments are adopted, the Fund, subject
to its investment objective and policies, will be able to participate in the
interfund lending program as both a lender and a borrower. If only one of the
two proposals is adopted, then the Fund's participation in the interfund
lending program will be confined to either lending or borrowing, depending on
which amendment is approved.
The Directors believe the proposed amendment may benefit the Fund by
facilitating its flexibility to explore cost-effective alternatives to satisfy
its borrowing requirements and by borrowing money from other T. Rowe Price
Funds. Implementation of interfund borrowing would be accomplished consistent
with applicable regulatory requirements, including the provisions of any order
the SEC might issue to the Fund and to other T. Rowe Price Funds.
HIGH YIELD, NEW INCOME, PRIME RESERVE AND SHORT-TERM BOND FUNDS
REVERSE REPURCHASE AGREEMENTS
To facilitate portfolio liquidity, it is possible the Fund could enter
into reverse repurchase agreements. In a repurchase agreement, the Fund would
purchase securities from a bank or broker-dealer (Counterparty) with the
agreement that the Counterparty would repurchase the securities at a later
date. Reverse repurchase agreements are ordinary repurchase agreements in
which a fund is a seller of, rather than the purchaser of, securities and
agrees to repurchase them at an agreed upon time and price. Reverse repurchase
agreements can avoid certain market risks and transaction costs associated
with an outright sale and repurchase. Reverse repurchase agreements, however,
may be viewed as borrowings. To the extent they are, the proposed amendment
would clarify that the Fund's restrictions on borrowing would not prohibit the
Fund from entering into a reverse repurchase agreement.
OTHER CHANGES
The other proposed changes in the Fund's fundamental policy--to allow the
Fund to borrow from persons other than banks and other T. Rowe Price Funds to
the extent consistent with applicable law and to engage in transactions other
than reverse repurchase agreements which may involve a borrowing--are simply
designed to permit the Fund the greatest degree of flexibility permitted by
law in pursuing its investment program. Although not specifically referred to
in the proposed new policy, the Fund (other than the Prime Reserve Fund) would
continue to be able to enter into interest rate (as well as other) futures
contracts and options thereon. As noted above, the Fund will not use its
increased flexibility to borrow to engage in transactions which could result
in leveraging the Fund. All activities of the Fund are, of course, subject to
the 1940 Act and the rules and regulations thereunder as well as various state
securities laws.
The Board of Directors recommends that shareholders vote FOR the proposal.
B. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY REGARDING THE
MAKING OF LOANS
ADJUSTABLE RATE, NEW INCOME AND SHORT-TERM BOND FUNDS
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund in order to (i) increase the amount of its
assets which may be subject to its lending policy and (ii) clarify that the
Fund could purchase the entire or any portion of the debt of a borrower. The
new restriction would also conform the Fund's policy on lending to one which
is expected to become standard for all T. Rowe Price Funds. The Board believes
that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such amendment be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of making loans is as
follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Make loans,
although the Fund may (i) purchase money market securities and enter into
repurchase agreements; (ii) acquire publicly-distributed bonds,
debentures, notes and other debt securities and purchase debt securities
at private placement; (iii) lend portfolio securities; and (iv)
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 30% of the value of the Fund's total assets;"
As amended, the Fund's fundamental policy on loans would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Make loans,
although the Fund may (i) lend portfolio securities and participate in an
interfund lending program with other Price Funds provided that no such
loan may be made if, as a result, the aggregate of such loans would exceed
33 1/3% of the value of the Fund's total assets; (ii) purchase money
market securities and enter into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt securities and purchase
debt;"
33 1/3% RESTRICTION
The Fund's current fundamental policy on lending restricts the Fund to
lending no more than 30% of the value of the Fund's total assets. The new
policy would raise this amount to 33 1/3% of the value of the Fund's total
assets. The purpose of this change is to conform the Fund's policy to one that
is expected to become standard for all T. Rowe Price Funds and to permit the
Fund to lend its assets to the maximum extent permitted under applicable law.
The Board of Directors does not view this change as significantly raising the
level of risk to which the Fund would be subject.
PURCHASE OF DEBT
The Fund's fundamental policy on lending allows the Fund to purchase debt
securities as an exception to the general limitation on making loans. However,
the policy could be interpreted as not providing a similar exception for the
purchase of straight debt, e.g., a corporate loan held by a bank which might
not be considered a debt security. The amended policy would clarify that the
purchase of this kind of debt is permissible. Because the purchase of straight
debt could be viewed as a loan by the Fund to the issuer of the debt, the
Board of Directors has determined to clarify this matter by including the
purchase of debt as an exception to the Fund's general prohibition against
making loans. The purchase of debt might be subject to greater risks of
illiquidity and unavailability of public information than would be the case
for an investment in a publicly held security. The primary purpose of this
proposal is to conform the Fund's fundamental policy in this area to one that
is expected to become standard for all T. Rowe Price Funds. The Board of
Directors believes that increased standardization will help promote
operational efficiencies and facilitate monitoring of compliance with the
Fund's investment restrictions.
OTHER CHANGES
Finally, for purposes of this restriction, the Fund will consider the
acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
Because such transactions by the Fund could be viewed as a loan by the Fund to
the maker of the note, the Board of Directors has determined to clarify this
matter by including these transactions as an exception to the Fund's general
prohibition against making loans.
The Board of Directors recommends that shareholders vote FOR the proposal.
HIGH YIELD FUND
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund in order to: (i) increase the amount of its
assets which may be subject to its lending policy; (ii) authorize the Fund to
participate as a lender in an interfund lending program involving the funds
advised by T. Rowe Price or Rowe Price-Fleming International, Inc. (the "T.
Rowe Price Funds"); and (iii) make certain other clarifying changes. The new
restriction would also conform the Fund's policy on lending to one which is
expected to become standard for all T. Rowe Price Funds. The Board believes
that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such amendment be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of making loans is as
follows:
"[As a matter of fundamental policy, the Fund may not:] Make loans,
although the Fund may (i) purchase money market securities and enter into
repurchase agreements, and (ii) lend portfolio securities provided that no
such loan may be made if, as a result, the aggregate of such loans would
exceed 30% of the value of the Fund's total assets; provided, however,
that the Fund may acquire publicly-distributed bonds, debentures, notes
and other debt securities and may purchase debt securities at private
placement within the limits imposed on the acquisition of restricted
securities;"
As amended, the Fund's fundamental policy on loans would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Make loans,
although the Fund may (i) lend portfolio securities and participate in an
interfund lending program with other Price Funds provided that no such
loan may be made if, as a result, the aggregate of such loans would exceed
33 1/3% of the value of the Fund's total assets; (ii) purchase money
market securities and enter into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt securities and purchase
debt;"
33 1/3% RESTRICTION
The Fund's current fundamental policy on lending restricts the Fund to
lending no more than 30% of the value of the Fund's total assets. The new
policy would raise this amount to 33 1/3% of the value of the Fund's total
assets. The purpose of this change is to conform the Fund's policy to one that
is expected to become standard for all T. Rowe Price Funds and to permit the
Fund to lend its assets to the maximum extent permitted under applicable law.
The Board of Directors does not view this change as significantly raising the
level of risk to which the Fund would be subject.
INTERFUND LENDING PROGRAM
The proposed amendments to the Fund's fundamental policy would allow the
Fund to participate in an interfund lending program with other T. Rowe Price
Funds. The nature of this program and the risks associated with the Fund's
participation are set forth under "Borrowing from Other Price Funds" beginning
on page 12. Shareholders are being asked to consider, and vote separately, on
the Fund's participation in the interfund lending program as a borrower and as
a lender.
The Directors believe that the interfund lending program: (i) may benefit
the Fund by providing it with greater flexibility to engage in lending
transactions; and (ii) would facilitate the Fund's ability to earn a higher
return on short-term investments by allowing it to lend cash to other T. Rowe
Price Funds. Implementation of interfund lending would be accomplished
consistent with applicable regulatory requirements, including the provisions
of any order the SEC might issue to the Fund and to other T. Rowe Price Funds.
The Fund has not yet applied for such an order and there is no guarantee any
such order would be granted, even if applied for.
PURCHASE OF DEBT
The Fund's fundamental policy on lending allows the Fund to purchase debt
securities as an exception to the general limitations on making loans.
However, there is no similar exception for the purchase of straight debt,
e.g., a corporate loan held by a bank for example which might not be
considered a debt security. The amended policy would allow the purchase of
this kind of debt. Because the purchase of straight debt could be viewed as a
loan by the Fund to the issuer of the debt, the Board of Directors has
determined to clarify this matter by including the purchase of debt as an
exception to the Fund's general prohibition against making loans. The purchase
of debt might be subject to greater risks of illiquidity and unavailability of
public information than would be the case for an investment in a publicly held
security.
OTHER MATTERS
For purposes of this restriction, the Fund will consider the acquisition
of a debt security to include the execution of a note or other evidence of an
extension of credit with a term of more than nine months. Because such
transactions by the Fund could be viewed as a loan by the Fund to the maker of
the note, the Board of Directors has determined to clarify this matter by
including these transactions as an exception to the Fund's general prohibition
against making loans.
The Board of Directors recommends that shareholders vote FOR the proposal.
PRIME RESERVE FUND
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund in order to: (i) increase the amount of its
assets which may be subject to its lending policy; (ii) authorize the Fund to
participate as a lender in an interfund lending program involving the funds
advised by T. Rowe Price or Rowe Price-Fleming International, Inc. (the "T.
Rowe Price Funds"); and (iii) make certain other clarifying changes. The new
restriction would also conform the Fund's policy on lending to one which is
expected to become standard for all T. Rowe Price Funds. The Board believes
that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such amendment be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of making loans is as
follows:
"[As a matter of fundamental policy, the Fund may not:] Make loans,
although the Fund may (i) purchase money market securities and enter into
repurchase agreements, and (ii) lend portfolio securities provided that no
such loan may be made if, as a result, the aggregate of such loans would
exceed 30% of the value of the Fund's total assets;"
As amended, the Fund's fundamental policy on loans would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Make loans,
although the Fund may (i) lend portfolio securities and participate in an
interfund lending program with other Price Funds provided that no such
loan may be made if, as a result, the aggregate of such loans would exceed
33 1/3% of the value of the Fund's total assets; (ii) purchase money
market securities and enter into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt securities and purchase
debt;"
33 1/3% RESTRICTION
The Fund's current fundamental policy on lending restricts the Fund to
lending no more than 30% of the value of the Fund's total assets. The new
policy would raise this amount to 33 1/3% of the value of the Fund's total
assets. The purpose of this change is to conform the Fund's policy to one that
is expected to become standard for all T. Rowe Price Funds and to permit the
Fund to lend its assets to the maximum extent permitted under applicable law.
The Board of Directors does not view this change as significantly raising the
level of risk to which the Fund would be subject.
INTERFUND LENDING PROGRAM
The proposed amendments to the Fund's fundamental policy would allow the
Fund to participate in an interfund lending program with other T. Rowe Price
Funds. The nature of this program and the risks associated with the Fund's
participation are set forth under "Borrowing from Other Price Funds" beginning
on page 12. Shareholders are being asked to consider, and vote separately, on
the Fund's participation in the interfund lending program as a borrower and as
a lender.
The Directors believe that the interfund lending program: (i) may benefit
the Fund by providing it with greater flexibility to engage in lending
transactions; and (ii) would facilitate the Fund's ability to earn a higher
return on short-term investments by allowing it to lend cash to other T. Rowe
Price Funds.
Implementation of interfund lending would be accomplished consistent with
applicable regulatory requirements, including the provisions of any order the
SEC might issue to the Fund and to other T. Rowe Price Funds. The Fund has not
yet applied for such an order and there is no guarantee any such order would
be granted, even if applied for.
OTHER MATTERS
The new policy would also provide that the purchase of
publicly-distributed or privately-placed debt and the purchase of debt are
exceptions to the Fund's general prohibition against making loans. The Fund,
in accordance, with Rule 2a-7, under the 1940 Act, will continue to purchase
only money market securities. The purpose of the proposed amendment is to
conform the Fund's policy in this area to one which is expected to become
standard for all T. Rowe Price Funds.
For purposes of the restriction on lending, the Fund will consider the
acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
Because such transactions by the Fund could be viewed as a loan by the Fund to
the maker of the note, the Board of Directors has determined to clarify this
matter by including these transactions as an exception to the Fund's general
prohibition against making loans.
The Board of Directors recommends that shareholders vote FOR the proposal.
C. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
PURCHASING SECURITIES ON MARGIN
ADJUSTABLE RATE, HIGH YIELD AND SHORT-TERM BOND FUNDS
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on purchasing securities on margin be changed from a fundamental policy
to an operating policy. Fundamental policies may be changed only by
shareholder vote, while operating policies may be changed by the Board of
Directors without shareholder approval. The purpose of the proposal is to
allow the Fund greater flexibility in responding to market and regulatory
developments by providing the Board of Directors with the authority to make
changes in the Fund's policy on margin without further shareholder approval.
The new restriction would also conform the Fund's policy on margin to one
which is expected to become standard for all T. Rowe Price Funds other than
money market funds. The Board believes that standardized policies will assist
the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that such amendment be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of purchasing securities
on margin is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities on margin, except for use of short-term credit necessary for
clearance of purchases of portfolio securities; except that it may make
margin deposits in connection with interest rate futures contracts,
subject to [its fundamental policy on futures];"
As amended, the Fund's operating policy on purchasing securities on margin
would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase securities
on margin, except (i) for use of short-term credit necessary for clearance
of purchases of portfolio securities and (ii) it may make margin deposits
in connection with futures contracts or other permissible investments;"
The Fund's current policy and the proposed operating policy prohibit the
purchase of securities on margin but allow the Fund to use such short-term
credit as is necessary for clearance of purchases of portfolio securities and
make margin deposits in connection with interest rate futures contracts. Set
forth elsewhere in this proxy is a proposal to allow the Fund to invest in
additional types of futures contracts, not just interest rate futures as set
forth in the current policy. The proposed operating policy also would
acknowledge that the Fund is permitted to make margin deposits in connection
with other investments in addition to futures. Such investments might include,
but are not limited to, written options where the Fund could be required to
put up margin with a broker as security for the Fund's obligation to deliver
the security on which the option is written. The Fund is already permitted to
write options and a vote against this proposal would not change this
authority.
The Board of Directors recommends that shareholders vote FOR the proposal.
NEW INCOME FUND
The Board has proposed that the Fund's Fundamental Investment Policy on
purchasing securities on margin be changed from a fundamental policy to an
operating policy. Fundamental policies may be changed only by shareholder
vote, while operating policies may be changed by the Board of Trustees without
shareholder approval. The purpose of the proposal is to allow the Fund greater
flexibility in responding to market and regulatory developments by providing
the Board with the authority to make changes in the Fund's policy on margin
without further shareholder approval. The new restriction would also conform
the Fund's policy on margin to one which is expected to become standard for
all T. Rowe Price Funds other than the money market funds. The Board believes
that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such amendment be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of purchasing securities
on margin is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities on margin, but the Fund may make margin deposits in connection
with interest rate futures contracts, subject to [its fundamental policy
on futures];"
As amended, the Fund's operating policy on purchasing securities on margin
would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase securities
on margin, except (i) for use of short-term credit necessary for clearance
of purchases of portfolio securities and (ii) it may make margin deposits
in connection with futures contracts or other permissible investments;"
The Fund's current policy and the proposed operating policy prohibit the
purchase of securities on margin but allow the Fund to make margin deposits in
connection with interest rate futures contracts. Set forth elsewhere in this
proxy is a proposal to allow the Fund to invest in additional types of futures
contracts, not just interest rate futures as set forth in the current policy.
The proposed operating policy also would acknowledge that the Fund is
permitted to make margin deposits in connection with other investments in
addition to futures. Such investments might include, but are not limited to,
written options where the Fund could be required to put up margin with a
broker as security for the Fund's obligation to deliver the security on which
the option is written. The Fund is already permitted to write options and a
vote against this proposal would not change this authority. In addition, the
proposed operating policy also would acknowledge that the Fund is permitted to
use such short-term credit as is necessary for clearance of purchases of
portfolio securities as is permitted by Section 12(a)(1) of the 1940 Act which
sets forth the general restriction on mutual funds purchasing securities on
margin.
The Board recommends that shareholders vote FOR the proposal.
PRIME RESERVE FUND
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on purchasing securities on margin be changed from a fundamental policy
to an operating policy. Fundamental policies may be changed only by
shareholder vote, while operating policies may be changed by the Board of
Directors without shareholder approval. The only effect of the proposal would
be to change the Fund's fundamental policy on margin to an operating policy.
The Fund is prohibited from purchasing securities on margin by the 1940 Act.
The Board has directed that such amendment be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of purchasing securities
on margin is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities on margin, except for use of short-term credit necessary for
clearance of purchases of portfolio securities;"
As amended, the Fund's operating policy on purchasing securities on margin
would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase securities
on margin, except for use of short-term credit necessary for clearance of
purchases of portfolio securities;"
The Board of Directors recommends that shareholders vote FOR the proposal.
D. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICIES CONCERNING
REAL ESTATE
ADJUSTABLE RATE AND NEW INCOME FUNDS
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund to conform the Fund's fundamental policy on
investing in real estate to a policy that is expected to become standard for
all T. Rowe Price Funds. The Board believes that standardized policies will
assist the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
proposed amendment is not expected to affect the investment program of the
Fund or instruments in which the Fund invests. Although not specifically
referred to in the new restriction, the Fund will not purchase or sell real
estate limited partnerships. The Board has directed that such amendment be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of investing in real
estate is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
real estate or real estate limited partnerships (although it may purchase
money market securities secured by real estate or interests therein, or
issued by companies which invest in real estate or interests therein);"
As amended, the Fund's fundamental policy on investing in real estate
would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
real estate unless acquired as a result of ownership of securities or
other instruments (but this shall not prevent the Fund from investing in
securities or other instruments backed by real estate or securities of
companies engaged in the real estate business);"
The Board of Directors recommends that shareholders vote FOR the proposal.
HIGH YIELD, PRIME RESERVE AND SHORT-TERM BOND FUNDS
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund to conform the Fund's fundamental policy on
investing in real estate to a policy that is expected to become standard for
all T. Rowe Price Funds. The Board believes that standardized policies will
assist the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
proposed amendment is not expected to affect the investment program of the
Fund or instruments in which the Fund invests. The Board has directed that
such amendments be submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of investing in real
estate is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
real estate (although it may purchase money market securities secured by
real estate or interests therein, or issued by companies which invest in
real estate or interests therein);"
As amended, the Fund's fundamental policy on investing in real estate
would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
real estate unless acquired as a result of ownership of securities or
other instruments (but this shall not prevent the Fund from investing in
securities or other instruments backed by real estate or securities of
companies engaged in the real estate business);"
The Board of Directors recommends that shareholders vote FOR the proposal.
E. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON THE ISSUANCE
OF SENIOR SECURITIES
The Fund's Board of Directors has proposed an amendment to the Fund's
Fundamental Investment Policy on issuing senior securities which would allow
the Fund to issue senior securities to the extent permitted under the 1940
Act. The new policy, if adopted, would provide the Fund with greater
flexibility in pursuing its investment objective and program and would conform
the Fund's policy in this area to one which is expected to become standard for
all T. Rowe Price Funds. The Board believes that standardized policies will
assist the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that such amendment be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of issuing senior
securities is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Issue any class of
securities senior to any other class of securities;"
As amended, the Fund's fundamental policy on issuing senior securities
would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Issue senior
securities except in compliance with the Investment Company Act of 1940;"
The 1940 Act limits a Fund's ability to issue senior securities or engage
in investment techniques which could be deemed to create a senior security.
Although the definition of a "senior security" involves complex statutory and
regulatory concepts, a senior security is generally thought of as a class of
security preferred over shares of the Fund with respect to the Fund's assets
or earnings. It generally does not include temporary or emergency borrowings
by the Fund (which might occur to meet shareholder redemption requests) in
accordance with federal law and the Fund's investment limitations. Various
investment techniques that obligate the Fund to pay money at a future date
(e.g., the purchase of securities for settlement on a date that is longer than
required under normal settlement practices) occasionally raise questions as to
whether a "senior security" is created. The Fund utilizes such techniques only
in accordance with applicable regulatory requirements under the 1940 Act.
Although the Fund has no current intention of issuing senior securities, the
proposed change will clarify the Fund's authority to issue senior securities
in accordance with the 1940 Act without the need to seek shareholder approval.
The Board of Directors recommends that shareholders vote FOR the proposal.
F. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON INDUSTRY
CONCENTRATION
ADJUSTABLE RATE FUND
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on industry concentration be amended to conform the Fund's policy in
this area to one which is expected to become a standard policy for most of the
T. Rowe Price Funds. The Board believes that standardized policies will assist
the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that such amendments be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of industry
concentration is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer (other than obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) 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;"
As amended, the Fund's fundamental policy on industry concentration would
be as follows:
"[As a matter of fundamental policy, the Fund may not:] 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;"
The amended policy does not include any reference to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities as
exceptions to the general prohibition against industry concentration. This is
because governments are not industries (a position confirmed by the SEC).
Therefore, there is no need to make specific reference to these securities in
the policy.
The Board of Directors recommends that shareholders vote FOR the proposal.
HIGH YIELD FUND
The Board of Directors has proposed amendments to the Fundamental
Investment Policy of the Fund on industry concentration. The first amendment
would change the limit of the Fund's total assets which may be invested in the
securities of issuers in the same industry from "25% or more" to "more than
25%." This is merely a technical change. The other amendment would make
specific reference to bank certificates of deposit and bankers' acceptances in
the concentration policy. The Board has directed that such amendments be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of industry
concentration is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer (other than obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) if, as a result,
25% or more of the value of the Fund's total assets would be invested in
the securities of issuers having their principal business activities in
the same industry; provided, however, that the Fund will normally
concentrate 25% or more of its assets in the securities of the banking
industry when the Fund's position in issues maturing in one year or less
equals 35% or more of the Fund's total assets;"
As amended, the Fund's fundamental policy on industry concentration would
be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer if, as a result, more than 25% of the value of
the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry; provided,
however, that the Fund will normally invest more than 25% of its total
assets in the securities of the banking industry including, but not
limited to, bank certificates of deposit and bankers' acceptances, when
the Fund's position in issues maturing in one year or less equals 35% or
more of the Fund's total assets;"
The amended policy does not include any reference to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities as
exceptions to the general prohibition against industry concentration. This is
because governments are not industries (a position confirmed by the SEC).
Therefore, there is no need to make specific reference to these securities in
the policy.
The Board of Directors recommends that shareholders vote FOR the proposal.
NEW INCOME FUND
The Board of Directors has proposed amendments to the Fundamental
Investment Policy of the Fund on industry concentration. The first amendment
would change the limit of the Fund's total assets which may be invested in the
securities of issuers in the same industry from "25% or more" to "more than
25%." This is merely a technical change. The other amendment would expand the
types of banking instruments to which the policy does not apply from bank
certificates of deposit to securities of the banking industry, including but
not limited to, certificates of deposit and bankers' acceptances. The Board
has directed that such amendments be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policy in the area of industry
concentration is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, 25% or more of the value of the Fund's total
assets would be invested in the securities of issuers having their
principal activities in the same industry; provided, however, that the
Fund will invest 25% or more of its assets, but not more than 50%, in any
one of the gas utility, gas transmission utility, electric utility,
telephone utility, and petroleum industries under certain circumstances,
but this limitation does not apply to bank certificates of deposit;"
As amended, the Fund's fundamental policy on industry concentration would
be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer if, as a result, more than 25% of the value of
the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry; provided,
however, that the Fund will invest more than 25% of its total assets, but
not more than 50%, in any one of the gas utility, gas transmission
utility, electric utility, telephone utility, and petroleum industries
under certain circumstances, and further provided that this limitation
does not apply to securities of the banking industry including, but not
limited to, certificates of deposit and bankers' acceptances;"
The Board of Directors recommends that shareholders vote FOR the proposal.
PRIME RESERVE FUND
The Board of Directors has proposed amendments to the Fundamental
Investment Policy of the Fund on industry concentration. The first amendment
would change the limit of the Fund's total assets which may be invested in the
securities of issuers in the same industry from "25% or more" to "more than
25%." This is merely a technical change. The other amendment would expand the
types of banking instruments to which the policy does not apply from bank
certificates of deposit and bankers' acceptances to securities of the banking
industry, including but not limited to, certificates of deposit and bankers'
acceptances. The Board has directed that such amendments be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of industry
concentration is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer if, as a result, 25% or more 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 (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities); this limitation does not apply to certificates of
deposit, or bankers' acceptances;"
As amended, the Fund's fundamental policy on industry concentration would
be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer if, as a result, more than 25% of the value of
the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry; provided,
however, that this limitation does not apply to securities of the banking
industry including, but not limited to, certificates of deposit and
bankers' acceptances;"
The amended policy does not include any reference to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities as
exceptions to the general prohibition against industry concentration. This is
because governments are not industries (a position confirmed by the SEC).
Therefore, there is no need to make specific reference to these securities in
the policy.
The Board of Directors recommends that shareholders vote FOR the proposal.
SHORT-TERM BOND FUND
The Board of Directors has proposed amendments to the Fundamental
Investment Policy of the Fund on industry concentration. The first amendment
would change the limit of the Fund's total assets which may be invested in the
securities of issuers in the same industry from "25% or more" to "more than
25%." This is merely a technical change. The other amendment would make
specific reference to bank certificates of deposit and bankers' acceptances in
the concentration policy. The Board has directed that such amendments be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of industry
concentration is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer (other than obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) if, as a result,
25% or more of the value of the Fund's total assets would be invested in
the securities of issuers having their principal business activities in
the same industry; provided, however, that the Fund will normally
concentrate 25% or more of its assets in the securities of the banking
industry when the Fund's position in issues maturing in one year or less
equals 35% or more of the Fund's total assets; provided, further, that the
Fund will invest 25% or more of its assets, but not more than 50%, in any
one of the gas utility, gas transmission utility, electric utility,
telephone utility, and petroleum industries under certain circumstances;"
As amended, the Fund's fundamental policy on industry concentration would
be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer if, as a result, more than 25% of the value of
the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry; provided,
however, that the Fund will normally invest more than 25% of its total
assets in the securities of the banking industry including, but not
limited to, bank certificates of deposit and bankers' acceptances when the
Fund's position in issues maturing in one year or less equals 35% or more
of the Fund's total assets; provided, further, that the Fund will invest
more than 25% of its total assets, but not more than 50%, in any one of
the gas utility, gas transmission utility, electric utility, telephone
utility, and petroleum industries under certain circumstances;"
The amended policy does not include any reference to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities as
exceptions to the general prohibition against industry concentration. This is
because governments are not industries (a position confirmed by the SEC).
Therefore, there is no need to make specific reference to these securities in
the policy.
The Board of Directors recommends that shareholders vote FOR the proposal.
HIGH YIELD, NEW INCOME, PRIME RESERVE AND SHORT-TERM BOND FUNDS
G. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON PLEDGING
ITS ASSETS
HIGH YIELD FUND
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on pledging its assets be eliminated and replaced with an operating
policy. Fundamental policies may be changed by shareholder vote, while
operating policies may be changed by vote of the Board of Directors without
shareholder approval. Applicable law does not require the current percentage
limitation set forth in the policy and does not require such policy to be
fundamental. The new operating policy would allow the Fund to pledge, in
connection with Fund indebtedness, 33 1/3% of its total assets (an increase
from the current restriction) and allow the Fund to pledge assets in
connection with permissible investments. The Board of Directors believes it is
advisable to provide the Fund with greater flexibility in pursuing its
investment objective and program and responding to regulatory and market
developments. The new restriction would also conform the Fund's policy on
pledging its assets to one which is expected to become standard for all T.
Rowe Price mutual funds. The Board believes that standardized policies will
assist the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price mutual funds are subject.
The Board has directed that such proposals be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of pledging its assets
is as follows:
"[As a matter of fundamental policy, the Fund may not:] Mortgage, pledge,
hypothecate or, in any other manner, transfer as security for indebtedness
any security owned by the Fund, except (i) as may be necessary in
connection with permissible borrowings, in which event such mortgaging,
pledging, or hypothecating may not exceed 15% of the Fund's assets, valued
at cost; provided, however, that as a matter of operating policy, which
may be changed without shareholder approval, the Fund will limit any such
mortgaging, pledging, or hypothecating to 10% of its net assets, valued at
market, in order to comply with certain state investment restrictions; and
(ii) it may enter into interest rate futures contracts;"
The operating policy on pledging of assets, to be adopted by the Fund,
would be as follows:
"[As a matter of operating policy, the Fund may not:] Mortgage, pledge,
hypothecate or, in any manner, transfer any security owned by the Fund as
security for indebtedness except as may be necessary in connection with
permissible borrowings or investments and then such mortgaging, pledging
or hypothecating may not exceed 33 1/3% of the Fund's total assets at the
time of the borrowing or investment;"
The operating policy would allow the Fund to pledge 33 1/3% of its total
assets instead of the current 15% as set forth in the Fund's fundamental
policy and (10% as set forth in the Fund's current operating policy). The new
policy, in addition to allowing pledging in connection with indebtedness would
clarify the Fund's ability to pledge its assets in connection with permissible
investments. Such pledging could arise, for example, when the Fund purchases
certain types of securities on a when-issued or forward basis. As an operating
policy, the Board of Directors could modify the proposed policy on pledging in
the future as the need arose, without seeking further shareholder approval.
Pledging assets to other parties is not without risk. Because assets that
have been pledged to other parties may not be readily available to the Fund,
the Fund may have less flexibility in liquidating such assets if needed.
Therefore, the new policy, by allowing the Fund to pledge a greater portion of
its assets, could, to a greater extent than the current policy, impair the
Fund's ability to meet current obligations, or impede portfolio management. On
the other hand, these potential risks should be considered together with the
potential benefits, such as increased flexibility to borrow and the increased
ability of the Fund to pursue its investment program.
The Board of Directors recommends that shareholders vote FOR the proposal.
NEW INCOME AND SHORT-TERM BOND FUNDS
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on pledging its assets be eliminated and replaced with an operating
policy. Fundamental policies may be changed by shareholder vote, while
operating policies may be changed by vote of the Board of Directors without
shareholder approval. Applicable law does not require the current percentage
limitation set forth in the policy and does not require such policy to be
fundamental. The new operating policy would allow the Fund to pledge, in
connection with Fund indebtedness, 33 1/3% of its total assets (a slight
increase from the current restriction) and allow the Fund to pledge assets in
connection with permissible investments. The Board of Directors believes it is
advisable to provide the Fund with greater flexibility in pursuing its
investment objective and program and responding to regulatory and market
developments. The new restriction would also conform the Fund's policy on
pledging its assets to one which is expected to become standard for all T.
Rowe Price mutual funds. The Board believes that standardized policies will
assist the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price mutual funds are subject.
The Board has directed that such proposals be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of pledging its assets
is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Mortgage, pledge,
hypothecate or, in any manner, transfer any security owned by the Fund as
security for indebtedness except as may be necessary in connection with
permissible borrowings and then such mortgaging, pledging or hypothecating
may not exceed 30% of the Fund's total assets valued at market at the time
of the borrowing;"
The operating policy on pledging of assets, to be adopted by the Fund,
would be as follows:
"[As a matter of operating policy, the Fund may not:] Mortgage, pledge,
hypothecate or, in any manner, transfer any security owned by the Fund as
security for indebtedness except as may be necessary in connection with
permissible borrowings or investments and then such mortgaging, pledging
or hypothecating may not exceed 33 1/3% of the Fund's total assets at the
time of the borrowing or investment;"
The operating policy would allow the Fund to pledge 33 1/3% of its total
assets instead of the current 30%. The new policy, in addition to allowing
pledging in connection with indebtedness would clarify the Fund's ability to
pledge its assets in connection with permissible investments. Such pledging
could arise, for example, when the Fund purchases certain types of securities
on a when-issued or forward basis. As an operating policy, the Board of
Directors could modify the proposed policy on pledging in the future as the
need arose, without seeking further shareholder approval.
Pledging assets to other parties is not without risk. Because assets that
have been pledged to other parties may not be readily available to the Fund,
the Fund may have less flexibility in liquidating such assets if needed.
Therefore, the new policy, by allowing the Fund to pledge a greater portion of
its assets, could, to a greater extent than the current policy, impair the
Fund's ability to meet current obligations, or impede portfolio management. On
the other hand, these potential risks should be considered together with the
potential benefits, such as increased flexibility to borrow and the increased
ability of the Fund to pursue its investment program.
The Board of Directors recommends that shareholders vote FOR the proposal.
PRIME RESERVE FUND
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on pledging its assets be eliminated and replaced with an operating
policy. Fundamental policies may be changed by shareholder vote, while
operating policies may be changed by vote of the Board of Directors without
shareholder approval. Applicable law does not require the current percentage
limitation set forth in the policy and does not require such policy to be
fundamental. The new operating policy would allow the Fund to pledge, in
connection with Fund indebtedness, 33 1/3% of its total assets (an increase
from the current restriction) and allow the Fund to pledge assets in
connection with permissible investments. The Fund has no current intention of
pledging its assets. The purpose of the proposal is to conform the Fund's
policy on pledging its assets to one which is expected to become standard for
all T. Rowe Price Funds. The Board believes that standardized policies will
assist the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that such proposals be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of pledging its assets
is as follows:
"[As a matter of fundamental policy, the Fund may not:] Mortgage, pledge,
hypothecate or, in any other manner, transfer as security for indebtedness
any security owned by the Fund, except as may be necessary in connection
with permissible borrowings, in which event such mortgaging, pledging, or
hypothecating may not exceed 15% of the Fund's assets, valued at cost;
provided, however, that as a matter of operating policy, which may be
changed without shareholder approval, the Fund will limit any such
mortgaging, pledging, or hypothecating to 10% of its net assets, valued at
market, in order to comply with certain state investment restrictions;"
The operating policy on pledging of assets, to be adopted by the Fund,
would be as follows:
"[As a matter of operating policy, the Fund may not:] Mortgage, pledge,
hypothecate or, in any manner, transfer any security owned by the Fund as
security for indebtedness except as may be necessary in connection with
permissible borrowings or investments and then such mortgaging, pledging
or hypothecating may not exceed 33 1/3% of the Fund's total assets at the
time of the borrowing or investment;"
The operating policy would allow the Fund to pledge 33 1/3% of its total
assets instead of the current 15% as set forth in the Fund's fundamental
policy and (10% as set forth in the Fund's current operating policy). The new
policy, in addition to allowing pledging in connection with indebtedness would
clarify the Fund's ability to pledge its assets in connection with permissible
investments. It is not currently contemplated that the Fund would pledge its
assets under any circumstances. As an operating policy, the Board of Directors
could modify the proposed policy on pledging in the future as the need arose,
without seeking further shareholder approval.
Pledging assets to other parties is not without risk. Because assets that
have been pledged to other parties may not be readily available to the Fund,
the Fund may have less flexibility in liquidating such assets if needed.
Therefore, the new policy, by allowing the Fund to pledge a greater portion of
its assets, could, to a greater extent than the current policy, impair the
Fund's ability to meet current obligations, or impede portfolio management. On
the other hand, these potential risks should be considered together with the
potential benefits, such as increased flexibility to borrow and the increased
ability of the Fund to pursue its investment program.
The Board of Directors recommends that shareholders vote FOR the proposal.
ADJUSTABLE RATE, HIGH YIELD, NEW INCOME AND SHORT-TERM BOND FUNDS
H. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICIES ON INVESTING
IN COMMODITIES AND FUTURES CONTRACTS TO PROVIDE GREATER FLEXIBILITY IN
FUTURES TRADING
ADJUSTABLE RATE, NEW INCOME AND SHORT-TERM BOND FUNDS
The Board of Directors has proposed amendments to the Fund's Fundamental
Investment Policies on commodities and futures. The principal purpose of the
proposals is to conform the Fund's policies on commodities and futures with
policies which are expected to become standard for all T. Rowe Price Funds
(other than the money market funds). The Board believes that standardized
policies will assist the Fund and T. Rowe Price in monitoring compliance with
the various investment restrictions to which the T. Rowe Price Funds are
subject. The Board has directed that such amendments be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policies in the area of investing in
commodities and futures are as follows:
COMMODITIES
ADJUSTABLE RATE AND NEW INCOME FUNDS
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
commodities or commodity contracts; except that it may (i) enter into
financial futures contracts and options on financial futures contracts;
(ii) invest in or commit its assets to forward foreign currency exchange
contracts (although the Fund does not consider such contracts to be
commodities); and (iii) purchase or sell financial instruments which have
the characteristics of both futures contracts and securities;"
SHORT-TERM BOND FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
commodities or commodity contracts; except that it may (i) enter into
futures contracts and options on futures contracts; (ii) invest in or
commit its assets to forward foreign currency exchange contracts (although
the Fund does not consider such contracts to be commodities); and (iii)
purchase or sell instruments which have the characteristics of both
futures contracts and securities;"
FUTURES CONTRACTS
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Enter into a
futures contract or options thereon, although the Fund may enter into
financial and currency futures contracts or options on financial and
currency futures contracts;"
As amended, the Fund's fundamental policies on investing in futures and
commodities would be combined and would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
physical commodities; except that it may enter into futures contracts and
options thereon;"
In addition, the Board of Directors intends to adopt the following
operating policy, which may be changed by the Board of Directors without
further shareholder approval.
"[As a matter of operating policy, the Fund will not:] Purchase a futures
contract or an option thereon if, with respect to positions in futures or
options on futures which do not represent bona fide hedging, the aggregate
initial margin and premiums on such options would exceed 5% of the Fund's
net asset value (the "New Operating Policy");"
If adopted, the primary effect of the amendment would be to remove the
restriction in the current policies that the Fund may only enter into
financial and currency futures. Although not specifically described in the
amended fundamental restriction, the Fund would continue to have the ability
to enter into forward foreign currency contracts and to invest in instruments
which have the characteristics of futures and securities or whose value is
determined, in whole or in part, by reference to commodity prices.
As noted, the principal purpose of seeking the proposed change in the
Fund's fundamental policies is to conform such policies to ones which are
expected to become standard for all T. Rowe Price Funds (other than the money
market funds). The Board of Directors believes that standardized policies will
assist the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. However,
the new policy, if adopted, would allow the Fund to enter into any type of
futures contract provided the futures contract was consistent with the Fund's
investment objective and program. The risks of any such futures activity could
differ from the risks of the Fund's currently permitted futures activity.
The Board of Directors recommends that shareholders vote FOR the proposal.
HIGH YIELD FUND
The Board of Directors has proposed amendments to the Fundamental
Investment Policies of the Fund to provide the Fund with greater flexibility
in buying and selling futures contracts. The provisions of the Fund's current
fundamental investment policies in this area are not required by applicable
law and the Directors believe the Fund's investment manager, T. Rowe Price,
should have greater flexibility to enter into futures contracts consistent
with the Fund's investment objective and program and as market and regulatory
developments require and permit without the necessity of seeking further
shareholder approval. The new restriction would also conform the Fund's policy
on commodities and futures to one which is expected to become standard for all
T. Rowe Price Funds (other than the money market funds). The Board believes
that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such amendments be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policies in the area of investing in
commodities and futures are as follows:
COMMODITIES
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
commodities or commodity contracts; except that it may enter into interest
rate futures contracts, subject to [its fundamental policy on futures];"
FUTURES CONTRACTS
"[As a matter of fundamental policy, the Fund may not:] Enter into futures
contracts or options thereon if, as a result thereof, more than 5% of the
Fund's total assets (taken at market value at the time of entering into
the contract) would be committed to initial margin and premiums on such
contracts or options thereon, provided, however, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money
amount, as defined in certain CFTC regulations, may be excluded in
computing such 5%;"
As amended, the Fund's fundamental policies on investing in commodities
and futures would be combined and would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
physical commodities; except that it may enter into futures contracts and
options thereon;"
In addition, the Board of Directors intends to adopt the following
operating policy, which may be changed by the Board of Directors without
further shareholder approval.
"[As a matter of operating policy, the Fund will not:] Purchase a futures
contract or an option thereon if, with respect to positions in futures or
options on futures which do not represent bona fide hedging, the aggregate
initial margin and premiums on such options would exceed 5% of the Fund's
net asset value (the "New Operating Policy");"
If approved, the primary effects of the amendments would be to replace the
restriction that the Fund may not commit more than 5% of its total assets to
initial margin on futures contracts or premiums on options (the "5%
Limitation") with the New Operating Policy. Although not specifically
described in the existing or the amended fundamental restriction, the Fund
would continue to have the ability to enter into forward foreign currency
contracts and could also invest in instruments which have the characteristics
of futures and securities or whose value is determined, in whole or in part,
by reference to commodity prices. The new policy would also permit the Fund to
enter into any type of futures contract, not just those described in its
current prospectus provided such contracts were consistent with the Fund's
investment objective and program. The risks of such futures could differ from
the risks of the Fund's currently permitted futures activity.
THE 5% LIMITATION
The 5% Limitation was previously required by rules of the Commodity
Futures Trading Commission ("CFTC") in order for the Fund to be excluded from
status as a commodity pool operator under applicable CFTC regulations, even if
the Fund used futures for hedging purposes only. The CFTC no longer applies
the 5% test to bona fide hedging activities.
Although applicable state law may still require compliance with similar
limitations, the Board of Directors believes the best interest of the Fund
would be served by replacing the 5% Limitation with the New Operating Policy.
This would provide the Fund with the flexibility to adapt to changes in CFTC
regulations and any state laws without seeking further shareholder approval.
The Board of Directors recommends that shareholders vote FOR the proposal.
ADJUSTABLE RATE, HIGH YIELD, PRIME RESERVE AND SHORT-TERM BOND FUNDS
I. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
PURCHASING EQUITY SECURITIES
ADJUSTABLE RATE, PRIME RESERVE AND SHORT-TERM BOND FUNDS
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on purchasing equity securities be eliminated and replaced
with an operating policy. Fundamental policies may be changed only by
shareholder vote, while operating policies may be changed by the Board of
Directors without shareholder approval. The current policy of the Fund is not
required by applicable law to be fundamental. The purpose of the proposal is
to conform the Fund's policy on purchasing equity securities to one which is
expected to become standard for all T. Rowe Price taxable income funds (other
than the T. Rowe Price High Yield and New Income Funds). The Board believes
that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Fund has no current intention of purchasing
any equity securities. The Board has directed that the proposal be submitted
to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of purchasing equity
securities is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase any
common stocks or other equity securities, or securities convertible into
equity securities;"
The operating policy on purchasing equity securities, to be adopted by the
Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase any common
stocks or other equity securities, or securities convertible into equity
securities except as set forth in its operating policy on investment
companies;"
The operating policy includes a reference to purchasing securities of
investment companies. Although the Fund does not expect to make any
investments in other investment companies, the proposal, if adopted, would
allow it to do so. Purchasing the securities of other investment companies
involves additional costs and is subject to extensive regulation under the
1940 Act.
The Board of Directors recommends that shareholders vote FOR the proposal.
HIGH YIELD FUND
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on purchasing equity securities be eliminated and replaced
with a similar operating policy. Fundamental policies may be changed only by
shareholder vote, while operating policies may be changed by the Board of
Directors without shareholder approval. The current policy of the Fund is not
required by applicable law to be fundamental. Under the new policy, the 20%
limitation would apply to all equity securities not just common stocks as
under the current policy. Equity securities include common and preferred
stocks as well as other related securities. The Board has directed that the
proposal be submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of purchasing equity
securities is as follows:
"[As a matter of fundamental policy, the Fund may not:] Invest more than
20% of the Fund's total assets in common stocks (including up to 5% in
warrants);"
The operating policy on purchasing equity securities, to be adopted by the
Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Invest more than 20%
of the Fund's total assets in equity securities (including up to 5% in
warrants);"
The Board of Directors recommends that shareholders vote FOR the proposal.
NEW INCOME FUND
J. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON SHORT
SALES
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on effecting short sales be eliminated and replaced with a
substantially similar operating policy. Fundamental policies may be changed
only by shareholder vote, while operating policies may be changed by the Board
of Directors without shareholder approval. The current policy of the Fund is
not required by applicable law to be fundamental. The proposal, if adopted,
would provide the Fund with greater flexibility in pursuing its investment
objective and program. The Board has directed that the proposal be submitted
to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of effecting short sales
of securities is as follows:
"[As a matter of fundamental policy, the Fund may not:] . . . Effect short
sales of securities . . .;"
The operating policy on short sales, to be adopted by the Fund, would be
as follows:
"[As a matter of operating policy, the Fund may not:] Effect short sales
of securities;"
The current fundamental policy was formerly required by certain states to
be fundamental. This is no longer the case and the replacement of the policy
with an operating policy will adequately protect the Fund while providing
greater flexibility to the Fund to respond to market or regulatory
developments by allowing the Board of Directors the authority to make changes
in this policy without seeking further shareholder approval.
In a short sale, an investor, such as the Fund, sells a borrowed security
and must return the same security to the lender. Although the Board has no
current intention of allowing the Fund to engage in short sales, if the
proposed amendment is adopted, the Board would be able to authorize the Fund
to engage in short sales at any time without further shareholder action. In
such a case, the Fund's prospectus would be amended and a description of short
sales and their risks would be set forth therein. Any such short sales would
be subject to extensive regulation under the 1940 Act designed to ensure the
Fund could not use short sales for leveraging purposes.
The Board of Directors recommends that shareholders vote FOR the proposal.
PROPOSALS K-S PERTAIN ONLY TO HIGH YIELD AND PRIME RESERVE FUNDS
K. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY TO INCREASE THE
PERCENTAGE OF FUND ASSETS WHICH MAY BE INVESTED IN ANY ONE ISSUER
HIGH YIELD FUND
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund to conform such policies to Section 5(b)(1) of
the 1940 Act and to permit the Fund greater flexibility to invest in
securities considered by T. Rowe Price to present attractive investment
opportunities. Under the amended policy, the Fund would be limited, with
respect to 75% of its total assets, to investing no more than 5% of its total
assets in the securities of any one issuer. However, no such limitation would
apply with respect to the remaining 25% of the Fund's assets. It should be
understood that the proposed amendment, by permitting the Fund to invest a
greater percentage of its assets with a single issuer, could increase the risk
to the Fund in the event of adverse developments affecting the securities of
such issuer. The Board has directed that such amendment be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of investing in the
securities of a single issuer is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer (other than obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities) if, as a result,
more than 5% of the value of the Fund's total assets would be invested in
the securities of a single issuer (including repurchase agreements with
any one issuer);"
As amended, the Fund's fundamental policy on investing in the securities
of a single issuer would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, with respect to 75% of the value of its total
assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S. government, or any of its agencies or
instrumentalities;"
The proposed amendments will not affect the status of the Fund as a
diversified investment company under the 1940 Act. However, the proposed
amendments would allow the Fund to invest a significantly larger portion of
its assets in the securities of a single issuer. Thus, for example, the Fund
could invest 25% of its total assets in the securities of a single issuer, or
10% of its total assets in securities of one issuer and 15% of its total
assets in securities of another issuer. This would cause the Fund's net asset
value per share to be more affected by changes in the value of, and market,
credit and business developments with respect to, the securities of such
issuer(s). In addition, if the Fund were to have a substantial portion of its
assets invested in the securities of a single issuer, the liquidity of the
Fund's investment in that issuer could be reduced. However, the Fund's Board
of Directors believes the Fund should have the increased flexibility to pursue
its investment program which the proposed amendment would allow. Finally,
there are certain investments which may be treated as being U.S. government
securities although they are nominally issued by another person. For example,
subject to applicable limits imposed by the SEC, the Fund will treat
repurchase agreements fully collateralized by U.S. government securities as
U.S. government securities for purposes of this restriction.
The Board of Directors recommends that shareholders vote FOR the proposal.
PRIME RESERVE FUND
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund to conform such policies to Section 5(b)(1) of
the 1940 Act and to conform the Fund's policy in this area to one which is
expected to become standard for all diversified T. Rowe Price Funds. The Board
believes that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. Under the amended policy, the Fund would be
limited, with respect to 75% of its total assets, to investing no more than 5%
of its total assets in the securities of any one issuer. No such limitation
would apply with respect to the remaining 25% of the Fund's assets. However,
under Rule 2a-7 of the 1940 Act, the Fund is not permitted to invest more than
5% of the value of its total assets in the securities of any single issuer.
Thus, the added flexibility which the proposed new policy would provide would
not have any effect on the Fund's investment program. However, should Rule
2a-7 be amended to allow money market funds to invest more than 5% of their
assets in the securities of a single issuer, the Fund's new fundamental policy
would allow it to do so. Any such change would be reflected in the Fund's
prospectus, if and when it occurred. Finally, there are certain investments
which may be treated as being U.S. government securities although they are
nominally issued by another person. For example, subject to applicable limits
imposed by the SEC, the Fund will treat repurchase agreements fully
collateralized by U.S. government securities as U.S. government securities for
purposes of this restriction. The Board has directed that such amendment be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of investing in the
securities of a single issuer is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer if, as a result, more than 5% of the value of the
Fund's total assets would be invested in the securities of a single issuer
(including repurchase agreements with any one issuer) (other than
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities);"
As amended, the Fund's fundamental policy on investing in the securities
of a single issuer would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, with respect to 75% of the value of its total
assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S. government, or any of its agencies or
instrumentalities;"
The Board of Directors recommends that shareholders vote FOR the proposal.
L. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY REGARDING
PURCHASING MORE THAN 10% OF AN ISSUER'S VOTING SECURITIES
HIGH YIELD FUND
The Board of Directors has proposed an amendment to the Fundamental
Investment Policy of the Fund to conform such policy to Section 5(b)(1) of the
1940 Act and to provide the Fund with greater flexibility to invest its assets
in the outstanding voting securities of various companies. Under the amended
policy, the Fund would be restricted from owning more than 10% of an issuer's
outstanding voting securities only with respect to 75% of the value of its
total assets, as opposed to 100% under the current policy. By permitting the
Fund to own more than 10% of the outstanding voting securities of an issuer,
the proposed amendment, if adopted, could increase the risk to the Fund with
respect to adverse developments concerning such securities. The Board of
Directors, however, believes the Fund should have the increased flexibility
which the amendment would provide. The Board has directed that such change be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of purchasing more than
10% of an issuer's voting securities is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer (other than obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities) if, as a result,
more than 10% of the outstanding voting securities of any issuer would be
held by the Fund;"
As amended, the Fund's fundamental policy in the area of purchasing more
than 10% of an issuer's voting securities would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, with respect to 75% of the value of the Fund's
total assets, more than 10% of the outstanding voting securities of any
issuer would be held by the Fund (other than obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities);"
The proposed amendments will not affect the status of the Fund as a
diversified investment company under the 1940 Act. However, the proposed
amendments would permit the Fund to take a larger position in the voting
securities of companies than under the current investment limitation. Thus,
for example, the Fund could purchase 100% of the voting securities of one or
more companies. This would cause the Fund's net asset value per share to be
more affected by changes in the value of, and market, credit and business
developments with respect to, the securities of such companies. In addition,
if the Fund were to own a substantial percentage of an issuer's voting
securities, there is a risk that the liquidity of those securities would be
reduced. However, the Fund's Board of Directors believes the Fund should have
the increased flexibility to pursue its investment program which the proposed
amendment would allow.
The Board of Directors recommends that shareholders vote FOR the proposal.
PRIME RESERVE FUND
The Board of Directors has proposed an amendment to the Fundamental
Investment Policy of the Fund to conform such policy to Section 5(b)(1) of the
1940 Act. It is unlikely the changed policy would have any effect on the
Fund's investment program in the foreseeable future. However, the proposal, if
adopted, would conform the Fund's policy in this area to one which is expected
to become standard for all diversified T. Rowe Price Funds. The Directors
believe that increased standardization will help promote efficiencies and
facilitate monitoring of compliance with the Fund's investment restrictions.
The Board has directed that such change be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of purchasing more than
10% of an issuer's voting securities is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer if, as a result, more than 10% of the outstanding
voting securities of any issuer would be held by the Fund (other than
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities);"
As amended, the Fund's fundamental policy in the area of purchasing more
than 10% of an issuer's voting securities would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, with respect to 75% of the value of the Fund's
total assets, more than 10% of the outstanding voting securities of any
issuer would be held by the Fund (other than obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities);"
The Board of Directors recommends that shareholders vote FOR the proposal.
M. PROPOSAL TO CHANGE THE DESIGNATION OF THE FUND'S FUNDAMENTAL INVESTMENT
POLICY ON INVESTING FOR CONTROL OF PORTFOLIO COMPANIES
HIGH YIELD FUND
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing for control of portfolio companies be changed
from a fundamental policy to an identical operating policy. Fundamental
policies may only be changed with shareholder approval, while operating
policies may be changed by vote of the Board of Directors without shareholder
approval. While the Fund has no current intention of investing in companies
for the purpose of obtaining or exercising control, the proposed change would
allow the Fund to do so if the Board of Directors determined to change the new
operating policy. The policy is not required to be fundamental under the 1940
Act. The purpose of the proposal is to provide the Fund with the maximum
flexibility permitted by law to pursue its investment program and to conform
the Fund's policy in this area to one which is expected to become standard for
all T. Rowe Price Funds. The Board believes that standardized policies will
assist the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that such change be submitted to shareholders for approval
or disapproval.
The Fund's current fundamental policy in the area of investing for control
of portfolio companies is as follows:
"[As a matter of fundamental policy, the Fund may not:] Invest in
companies for the purpose of exercising management or control;"
As changed, the Fund's operating policy on investing for control of
portfolio companies would be as follows:
"[As a matter of operating policy, the Fund may not:] Invest in companies
for the purpose of exercising management or control;"
The Board of Directors recommends that shareholders vote FOR the proposal.
PRIME RESERVE FUND
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing for control of portfolio companies be changed
from a fundamental policy to an identical operating policy. Fundamental
policies may only be changed with shareholder approval, while operating
policies may be changed by vote of the Board of Directors without shareholder
approval. The Fund has no current intention of investing in companies for the
purpose of obtaining or exercising control. The policy is not required to be
fundamental under the 1940 Act. The purpose of the proposal is to conform the
Fund's policy in this area to one which is expected to become standard for all
T. Rowe Price Funds. The Board believes that standardized policies will assist
the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that such change be submitted to shareholders for approval
or disapproval.
The Fund's current fundamental policy in the area of investing for control
of portfolio companies is as follows:
"[As a matter of fundamental policy, the Fund may not:] Invest in
companies for the purpose of exercising management or control;"
As changed, the Fund's operating policy on investing for control of
portfolio companies would be as follows:
"[As a matter of operating policy, the Fund may not:] Invest in companies
for the purpose of exercising management or control;"
The Board of Directors recommends that shareholders vote FOR the proposal.
N. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
INVESTING IN THE SECURITIES OF OTHER INVESTMENT COMPANIES
HIGH YIELD FUND
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on investing in the securities of other investment companies be
eliminated and replaced with an operating policy. Fundamental policies may be
changed only by shareholder vote, while operating policies may be changed by
vote of the Board of Directors without shareholder approval. The current
policy of the Fund is not required by applicable law to be fundamental. The
purpose of the proposed change is to provide the Fund greater flexibility in
pursuing its investment objective and in responding to regulatory and market
developments. Although the Fund does not typically invest in the securities of
other open-end investment companies and would only, on occasion, purchase
securities of closed-end investment companies, the proposed change would
permit the Fund to invest in the securities of other investment companies to
the maximum extent permitted under the 1940 Act and applicable state law, as
described below, without further shareholder approval. Duplicate fees may
result from any such purchases. The Board has directed that such change be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of investing in the
securities of other investment companies is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities of other investment companies, except in connection with a
merger, consolidation, acquisition, or reorganization. Duplicate fees may
result from such purchases;"
The operating policy on investing in the securities of other investment
companies, to be adopted by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase securities
of open-end or closed-end investment companies except in compliance with
the Investment Company Act of 1940 and applicable state law;"
Under the 1940 Act, the Fund is subject to various restrictions in
purchasing the securities of closed-end and open-end investment companies. The
1940 Act limits the Fund, immediately after a purchase, (1) to investing no
more than 10% of its total assets in the securities of other investment
companies; (2) to owning no more than 3% of the total outstanding voting stock
of any other investment company; and (3) to having no more than 5% of its
total assets invested in securities of another investment company.
Additionally, in the case of a closed-end investment company, the Fund, and
all other mutual funds having T. Rowe Price as an investment manager, are
limited to owning no more than 10% of the total outstanding voting stock of
any closed-end company.
The 1940 Act provides an alternative set of restrictions if the Fund were
to exceed certain of these percentage limitations. Under the alternative, the
Fund could invest any or all of its assets in other investment companies,
provided the Fund and all of its affiliates, immediately after a purchase, did
not own more than 3% of the total outstanding stock of the other investment
company. Under this alternative restriction, the rate at which the Fund could
redeem its investment in the other investment companies in which it invests
might be restricted which could result in a situation where the Fund would not
be able to redeem a portfolio security when it appears to T. Rowe Price to be
in the best interest of the Fund to do so. T. Rowe Price would consider the
effect on the Fund's liquidity and the Fund's ability to timely dispose of
securities, before purchasing the securities of another investment company.
Certain states impose further limitations on the purchase by the Fund of
the securities of other investment companies. At the present time, these
restrictions could prohibit the Fund, with certain exceptions, from: (i)
purchasing or retaining the securities of any open-end investment company;
(ii) purchasing the securities of any closed-end investment company except
through a purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the customary broker's
commission or when the purchase is part of a plan of merger, consolidation,
reorganization or acquisition; and (iii) investing more than 10% of its assets
in one or more investment companies.
It is possible the requirements of the 1940 Act or the states regarding
the Fund's investment in the securities of closed-end and open-end investment
companies could change, or that the Fund could obtain a waiver of their
application. The Board of Directors believes the Fund should have the ability
to respond to potential changes in these areas without the necessity of
holding a further meeting of shareholders.
The Board of Directors recommends that shareholders vote FOR the proposal.
PRIME RESERVE FUND
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on investing in the securities of other investment companies be
eliminated and replaced with an operating policy. Fundamental policies may be
changed only by shareholder vote, while operating policies may be changed by
vote of the Board of Directors without shareholder approval. The current
policy of the Fund is not required by applicable law to be fundamental. The
purpose of the proposed change is to conform the Fund's policy in this area to
one which is expected to become standard for all T. Rowe Price Funds. The
Board believes that standardized policies will assist the Fund and T. Rowe
Price in monitoring compliance with the various investment restrictions to
which the T. Rowe Price Funds are subject. The Fund has no current intention
of purchasing the securities of any other investment companies. The Board has
directed that such change be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policy in the area of investing in the
securities of other investment companies is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities of other investment companies, except in connection with a
merger, consolidation, acquisition, or reorganization. Duplicate fees may
result from such purchases;"
The operating policy on investing in the securities of other investment
companies, to be adopted by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase securities
of open-end or closed-end investment companies except in compliance with
the Investment Company Act of 1940 and applicable state law provided that
the Fund may only purchase the securities of other open-end money market
funds;"
Duplicate fees may result from any such purchases.
The Board of Directors recommends that shareholders vote FOR the proposal.
O. TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON INVESTING IN OIL
AND GAS PROGRAMS
HIGH YIELD FUND
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing in oil and gas programs be eliminated and
replaced with a substantially similar operating policy. Fundamental policies
may be changed only by shareholder vote, while operating policies may be
changed by the Board of Directors without shareholder approval. The current
policy of the Fund is not required by applicable law to be fundamental. The
purpose of the proposal is to conform the Fund's policy on investing in oil
and gas programs to one which is expected to become standard for all T. Rowe
Price Funds. The Board believes that standardized policies will assist the
Fund and T. Rowe Price in monitoring compliance with the various investment
restrictions to which the T. Rowe Price Funds are subject. The Board has
directed that the proposal be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policy in the area of investing in oil and
gas programs is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase
participations or other direct interests or enter into leases with respect
to oil, gas, other mineral exploration or development programs;"
The operating policy on investing in oil and gas programs, to be adopted
by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase
participations or other direct interests or enter into leases with respect
to, oil, gas or other mineral exploration or development programs;"
The current fundamental policy was formerly required by certain states to
be fundamental. This is no longer the case and the replacement of the policy
with an operating policy will adequately protect the Fund while providing
greater flexibility to the Fund to respond to market or regulatory
developments by allowing the Board of Directors the authority to make changes
in this policy without seeking further shareholder approval
The Board of Directors recommends that shareholders vote FOR the proposal.
PRIME RESERVE FUND
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing in oil and gas programs be eliminated and
replaced with a substantially similar operating policy. Fundamental policies
may be changed only by shareholder vote, while operating policies may be
changed by the Board of Directors without shareholder approval. The current
policy of the Fund is not required by applicable law to be fundamental. The
purpose of the proposal is to conform the Fund's policy on investing in oil
and gas programs to one which is expected to become standard for all T. Rowe
Price Funds. The Board believes that standardized policies will assist the
Fund and T. Rowe Price in monitoring compliance with the various investment
restrictions to which the T. Rowe Price Funds are subject. The Board has
directed that the proposal be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policy in the area of investing in oil and
gas programs is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase
participations or other direct interests or enter into leases with respect
to oil, gas, other mineral exploration or development programs;"
The operating policy on investing in oil and gas programs, to be adopted
by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase
participations or other direct interests or enter into leases with respect
to, oil, gas or other mineral exploration or development programs;"
The Board of Directors recommends that shareholders vote FOR the proposal.
P. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON OPTIONS
HIGH YIELD FUND
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing in options be eliminated and replaced with a
substantially similar operating policy. Fundamental policies may be changed
only by shareholder vote, while operating policies may be changed by vote of
the Board of Directors without shareholder approval. Under the new operating
policy, the Fund would be permitted to purchase and sell options of any type
for any purpose consistent with the Fund's investment program. The purpose of
the proposal is to allow the Fund greater flexibility in responding to market
and regulatory developments by allowing the Board of Directors the authority
to make changes in the Fund's policy on options without seeking further
shareholder approval. The new restriction would also conform the Fund's policy
on investing in options to one which is expected to become standard for all T.
Rowe Price Funds. The Board believes that standardized policies will assist
the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that such change be submitted to shareholders for approval
or disapproval.
The Fund's current fundamental policy in the area of investing in options
is as follows:
"[As a matter of fundamental policy, the Fund may not:] Invest in options
except in furtherance of the Fund's investment objectives and policies,
and in this connection the Fund may: (1) buy and sell covered and
uncovered put, call and spread options on securities and currencies, and
(2) purchase, hold, and sell contracts for the future delivery of debt
securities and warrants where the grantor of the warrants is the issuer of
the underlying securities;"
The operating policy on investing in options, to be adopted by the Fund,
would be as follows:
"[As a matter of operating policy, the Fund may not:] Invest in puts,
calls, straddles, spreads, or any combination thereof, except to the
extent permitted by the prospectus and Statement of Additional
Information;"
The Board of Directors recommends that shareholders vote FOR the proposal.
PRIME RESERVE FUND
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing in options be eliminated and replaced with a
substantially similar operating policy. Fundamental policies may be changed
only by shareholder vote, while operating policies may be changed by vote of
the Board of Directors without shareholder approval. The new restriction would
also conform the Fund's policy on investing in options to one which is
expected to become standard for all T. Rowe Price Funds. The Board believes
that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such change be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of investing in options
is as follows:
"[As a matter of fundamental policy, the Fund may not:] Invest in puts,
calls, straddles, spreads, or any combination thereof;"
The operating policy on investing in options, to be adopted by the Fund,
would be as follows:
"[As a matter of operating policy, the Fund may not:] Invest in puts,
calls, straddles, spreads, or any combination thereof, except to the
extent permitted by the prospectus and Statement of Additional
Information;"
While the Fund does not normally engage in options transactions, some of
the Fund's current investments may include demand or "put" features, which can
provide additional liquidity or protection against loss. In addition, the Fund
may from time to time enter into agreements with option-like features, such as
standby commitments or other instruments conveying the right or obligation to
buy or sell securities at a future date. The Fund can already invest in these
types of options and a vote against the proposal would not change this
authority. However, approval of the proposal would allow T. Rowe Price to
develop and implement additional strategies in the future, without the need to
seek further shareholder approval. Any such strategies must, of course, be in
accordance with applicable federal and state regulation. In addition to review
by the Directors, the Fund would not engage in such strategies until they had
been described sufficiently in the Fund's Prospectus and Statement of
Additional Information.
The Board of Directors recommends that shareholders vote FOR the proposal.
Q. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
OWNERSHIP OF PORTFOLIO SECURITIES BY OFFICERS AND DIRECTORS
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on the ownership of portfolio securities by officers and
directors of the Fund and T. Rowe Price be eliminated and replaced with a
substantially similar operating policy. Fundamental policies may be changed
only by shareholder vote, while operating policies may be changed by vote of
the Board of Directors without shareholder approval. The current fundamental
policy was formerly required by certain states to be fundamental, but this is
no longer the case. The Board has directed that the proposal be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of ownership of
portfolio securities by officers and directors is as follows:
EACH FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase or retain
the securities of any issuer if, to the knowledge of the Fund's
management, those officers and directors of the Fund, and of its
investment manager, who each owns beneficially more than .5% of the
outstanding securities of such issuer, together own beneficially more than
5% of such securities;"
As changed, the Fund's operating policy in the area of ownership of
portfolio securities by officers and directors would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase or retain
the securities of any issuer if, to the knowledge of the Fund's
management, those officers and directors of the Fund, and of its
investment manager, who each own beneficially more than .5% of the
outstanding securities of such issuer, together own beneficially more than
5% of such securities;"
The Board of Directors recommends that shareholders vote FOR the proposal.
R. PROPOSAL TO CHANGE THE DESIGNATION OF THE FUND'S FUNDAMENTAL INVESTMENT
POLICY REGARDING THE PURCHASE OF ILLIQUID SECURITIES
HIGH YIELD FUND
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on purchasing unmarketable securities be changed from a fundamental
policy to an operating policy. Fundamental policies may be changed only by
shareholder vote, while operating polices may be changed by the Board of
Directors without shareholder approval. If the proposed change is approved by
shareholders, the Board of Directors of the Fund intends to adopt an operating
policy which would (1) allow the Fund to invest up to 15% of its net assets in
illiquid securities and (2) conform the Fund's operating policy in this area
to one which is expected to become standard for all T. Rowe Price Funds,
except the T. Rowe Price money market funds. The Fund's current fundamental
policy in this area is not required by applicable law and the proposed change
should provide the Fund with greater flexibility in responding to market and
regulatory developments. The Board has directed that such change be submitted
to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of purchasing illiquid
securities is as follows:
"[As a matter of fundamental policy, the Fund may not:] Invest more than
10% of the value of its net assets in repurchase agreements which do not
provide for payment within seven days and restricted securities, illiquid
securities and securities which are not readily marketable;"
As changed, the operating policy on investing in illiquid securities, to
be adopted by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase illiquid
securities if, as a result, more than 15% of its net assets would be
invested in such securities;"
ILLIQUID SECURITIES
As an open-end investment company, the Fund may not hold a significant
amount of illiquid securities because such securities may present problems of
accurate valuation and it is possible the Fund could have difficulty
satisfying redemptions within seven days as required under the 1940 Act. In
general, the SEC defines an illiquid security as one which cannot be sold in
the ordinary course of business within seven days at approximately the value
at which the Fund has valued the security. Illiquid securities have included
those enumerated in the Fund's fundamental restriction on restricted
securities and repurchase agreements of a duration of more than seven days.
The securities markets, however, are evolving and new types of instruments
have developed. In light of these developments, the Fund's fundamental
investment restriction, by essentially assuming restricted securities are
unmarketable, may be overbroad and unnecessarily restrictive. For example, the
markets for various types of securities--repurchase agreements, commercial
paper, and some corporate bonds and notes--are almost exclusively
institutional. These instruments are often either exempt from registration or
sold in transactions not requiring registration. Although these securities may
be legally classified as "restricted," institutional investors will often
justifiably rely either on the issuer's ability to honor a demand for
repayment in less than seven days or on an efficient institutional market in
which the unregistered security can be readily resold. The fact that the
securities may be restricted because of legal or contractual restrictions on
resale to the general public will, therefore, not be dispositive of the
liquidity of such investments.
In recognition of the increased size and liquidity of the institutional
markets for unregistered securities and the importance of institutional
investors in the capital formation process, the SEC has adopted rules,
including Rule 144A under the Securities Act of 1933, designed to further
facilitate efficient trading among institutional investors. These rules permit
a broader institutional trading market for securities subject to restriction
on resale to the general public. If institutional markets develop which trade
in these securities, the Fund could be constrained by its current investment
restrictions. Accordingly, T. Rowe Price recommends that the Fund eliminate
its fundamental limitations in this area so that restricted securities that
are nonetheless liquid may be purchased without regard to the Fund's limit on
investing in illiquid securities. Of course, the Fund would modify its
operating policy to comply with future regulatory and market developments.
If this proposal is approved by shareholders, the specific types of
securities that may be deemed to be illiquid will be determined from time to
time by T. Rowe Price under the supervision of the Directors, with reference
to legal, regulatory and market developments. By making the Fund's policy on
illiquid securities non-fundamental, the Fund will be able to respond more
quickly to such developments because no shareholder vote will be required to
redefine what types of securities may be deemed illiquid.
PERCENTAGE LIMITATIONS
The Fund's fundamental policy limits it to investing no more than 10% of
the value of its total assets in restricted and unmarketable securities. The
new operating policy to be adopted by the Board of Directors, if shareholders
approve elimination of the fundamental policy, would allow the Fund to invest
up to 15% of its net assets in illiquid securities. The 15% limitation
represents a higher percentage than the Fund was previously allowed to invest
in illiquid securities and is the result of a 1992 liberalization by the SEC
in this area. If the fundamental policy is changed to an operating policy, the
Fund will, without the necessity of any further shareholder vote, be able to
take advantage of any future changes in SEC policy in this area.
The Board of Directors recommends that shareholders vote FOR the proposal.
PRIME RESERVE FUND
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on purchasing unmarketable securities be changed from a fundamental
policy to an operating policy. Fundamental policies may be changed only by
shareholder vote, while operating polices may be changed by the Board of
Directors without shareholder approval. If the proposed change is approved by
shareholders, the Board of Directors of the Fund intends to adopt an operating
policy which would (1) allow the Fund to invest up to 10% of its net assets in
illiquid securities and (2) conform the Fund's operating policy in this area
to one which is expected to become standard for all T. Rowe Price Funds
(except that the percentage limit on investing in illiquid securities for the
other T. Rowe Price Funds, which are not money market funds, is 15% instead of
10%). The Fund's current fundamental policy in this area is not required by
applicable law and the proposed change should provide the Fund with greater
flexibility in responding to market and regulatory developments. The Board has
directed that such change be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policy in the area of purchasing illiquid
securities is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities which are not readily marketable, or invest more than 10% of
its net assets in repurchase agreements which do not provide for payment
within seven days and in the obligations of small banks and savings and
loan associations which are not readily marketable;"
As changed, the operating policy on investing in illiquid securities, to
be adopted by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase illiquid
securities if, as a result, more than 15% of its net assets would be
invested in such securities;"
ILLIQUID SECURITIES
As an open-end investment company, the Fund may not hold a significant
amount of illiquid securities because such securities may present problems of
accurate valuation and it is possible the Fund could have difficulty
satisfying redemptions within seven days as required under the 1940 Act. In
general, the SEC defines an illiquid security as one which cannot be sold in
the ordinary course of business within seven days at approximately the value
at which the Fund has valued the security. The current policy of the Fund
prohibits the Fund from purchasing any illiquid (or unmarketable) securities.
The new policy would allow the Fund to make such investments provided they are
consistent with the maturity and credit standards for the Fund and Rule 2a-7
under the 1940 Act which governs the operation of money market funds.
The securities which the Fund purchases are usually highly liquid and this
would continue to be the case even under the new policy. However, the new
policy would allow the Fund to purchase certain types of illiquid
securities--for example privately placed securities which are not registered
under the Securities Act of 1933 and may only be sold under certain limited
conditions. Such securities may, at times, present additional investment
opportunities for the Fund and the Board believes the Fund should have the
maximum flexibility allowed by law to make such investments in a manner
consistent with its investment objective and program. There are, however,
additional risks when investing in illiquid securities. Such securities can be
difficult to value and, by definition, are not easily sold. The Board
believes, however, that these risks are manageable and that the Fund's ability
to purchase illiquid securities will not subject it to undue risk.
If this proposal is approved by shareholders, the specific types of
securities that may be deemed to be illiquid will be determined from time to
time by T. Rowe Price under the supervision of the Directors, with reference
to legal, regulatory and market developments. By making the Fund's policy on
illiquid securities non-fundamental, the Fund will be able to respond more
quickly to such developments because no shareholder vote will be required to
redefine what types of securities may be deemed illiquid or to make other
changes in the policy as permitted by applicable law.
The Board of Directors recommends that shareholders vote FOR the proposal.
S. PROPOSAL TO CHANGE THE DESIGNATION OF THE FUND'S FUNDAMENTAL INVESTMENT
POLICY ON INVESTING IN UNSEASONED ISSUERS
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on investing in the securities of unseasoned issuers be eliminated and
replaced by a substantially similar operating policy. Fundamental policies may
only be changed with shareholder approval, while operating policies may be
changed by vote of the Board of Directors without shareholder approval. The
proposed change should provide the Fund with greater flexibility in responding
to market and regulatory developments without the necessity of seeking further
shareholder approval. The new restriction would also conform the Fund's policy
on investing in unseasoned issuers to one which is expected to become standard
for all T. Rowe Price Funds. The Board believes that standardized policies
will assist the Fund and T. Rowe Price in monitoring compliance with the
various investment restrictions to which the T. Rowe Price Funds are subject.
The Board has directed that such change be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of investing in
unseasoned issuers is as follows:
HIGH YIELD FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer (other than obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities) if, as a result,
more than 5% of the value of the Fund's total assets would be invested in
the securities of issuers which at the time of purchase had been in
operation for less than three years, including predecessors and
unconditional guarantors;"
PRIME RESERVE FUND
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer if, as a result, more than 5% of the value of the
Fund's total assets would be invested in the securities of issuers which
at the time of purchase had been in operation for less than three years,
including predecessors and unconditional guarantors (other than
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities);"
The operating policy on investing in unseasoned issuers, to be adopted by
the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase a security
(other than obligations issued or guaranteed by the U.S., any foreign,
state or local government, their agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be
invested in the securities of issuers which at the time of purchase had
been in operation for less than three years (for this purpose, the period
of operation of any issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer). This restriction
does not apply to securities of pooled investment vehicles or mortgage or
asset-backed securities;"
The new operating policy would add securities issued or guaranteed by
foreign, state or local governments, as well as securities of pooled
investment vehicles and mortgage and asset-backed securities, to the list of
those which are excluded from the percentage restriction on investing in
unseasoned issuers.
The Board of Directors recommends that shareholders vote FOR the proposal.
EACH FUND
3. RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The selection by the Board of Directors of the Adjustable Rate Fund of the
firm of Coopers & Lybrand as the independent accountants for the Fund for the
three-month fiscal year ending May 31, 1994 and for fiscal year ending May 31,
1995 is to be submitted for ratification or rejection by the shareholders of
the Fund at the Shareholders Meeting. The firm of Coopers & Lybrand has served
the Adjustable Rate Fund as independent accountants since its inception. The
selection by the Board of Directors of the High Yield, New Income, Prime
Reserve, and Short-Term Bond Funds of the firm of Price Waterhouse as the
independent accountants for each Fund for the three-month fiscal year ending
May 31, 1994 and for fiscal year ending May 31, 1995 is to be submitted for
ratification or rejection by the shareholders of each Fund at the Shareholders
Meeting. The firm of Price Waterhouse has served each Fund as independent
accountants since each such Fund's inception.
Each Fund has been advised by its independent accountants that they have
no direct or material indirect financial interest in the Fund. Representatives
of the firm of Coopers & Lybrand and Price Waterhouse are expected to be
present at the Shareholders Meeting and will be available to make a statement,
if they desire to do so, and to respond to appropriate questions which the
shareholders may wish to address to them.
NEW INCOME AND PRIME RESERVE FUNDS
4. PROPOSAL TO AMEND THE FUND'S ARTICLES OF INCORPORATION TO ELIMINATE THE
POLICY ON PRICING SECURITIES
The Board of Directors has proposed that the New Income and Prime Reserve
Funds amend their Articles of Incorporation by deleting subparagraphs (iii),
(iv) and (v) of Paragraph 3.04(b)(2) of Article SEVENTH from the New Income
Fund's Articles of Incorporation and subparagraph (iii) of Paragraph
3.04(b)(2) of Article SEVENTH from the Prime Reserve Fund's Articles of
Incorporation regarding the policy on pricing securities in their portfolios.
The manner in which the Fund prices its securities is currently set forth in
the Fund's Statement of Additional Information and the Fund's policy on
pricing securities is not required to be included in its Articles of
Incorporation. The purpose of the proposed amendment is to provide the Fund
with greater flexibility to respond to regulatory and market developments in
pricing its securities, should the need arise. Although there is no current
intention to change the manner in which the Fund's portfolio securities are
priced, the proposal, if adopted, would allow the Fund's Board of Directors to
make changes in the Fund's policy on pricing, in a manner consistent with
applicable law, without seeking further shareholder approval. The Board has
directed that the proposal be submitted to shareholders for approval or
disapproval.
The Fund's policy on pricing securities as stated in the Articles of
Incorporation is as follows:
NEW INCOME FUND
"Article SEVENTH
(2) Valuation of Assets. The value of such assets is to be determined as
follows:
(iii) Securities Listed or Dealt in on New York Stock Exchange. The
value of any security listed or dealt in upon the New York Stock
Exchange and not subject to restrictions against sale by the
Corporation on such Exchange shall be determined as of the close of
trading by taking the last sale price on the date as of which net
asset value is being determined, all as reported by any means in
common use. Lacking any sales, the value shall be deemed to be such,
not higher than the closing asked price and not lower than the closing
bid price therefor on such date, as the Board of Directors or its
delegate may from time to time determine. When an appraisal is made as
part of a determination other than as of the close of trading, the
latest available quotations (i.e., last sale on that day or latest bid
and asked if no sale on that day) shall be used. The Board of
Directors may by resolution permit quotations on an exchange other
than the New York Stock Exchange or over-the-counter rather than stock
exchange quotations to be used when they appear to the Board of
Directors or its delegate to reflect more closely the fair value of
any particular security in the portfolio and may authorize adjustments
to be made in applying any market quotation in order to reflect the
size of the Corporation's holding of the particular security, the
relation to such size of the volume of trading on which such market
quotation is based and other similar factors.
(iv) Securities Listed on Other Exchanges. The value of any security
listed or dealt in on one or more securities exchanges, but not on the
New York Stock Exchange, and not subject to restrictions against sale
by the Corporation on such exchanges, shall be determined as nearly as
possible in the manner described in the preceding subparagraph, with
reference to the quotations on the exchange that, in the opinion of
the Board of Directors or its delegate, best reflects the fair value
of the security.
(v) Unlisted Securities and Other Property. The value of any other
property, the valuation of which is not provided for above, shall be
its fair market value as determined in such manner as the Board of
Directors shall from time to time prescribe by resolution."
PRIME RESERVE FUND
"Article SEVENTH
(2) Valuation of Assets. The value of such assets is to be determined as
follows:
(iii) Securities. The short-term money market securities in which the
Fund invests are traded primarily in the over-the-counter market.
Securities for which representative market quotations are readily
available are valued at the most recent bid price or yield equivalent
as quoted by one or more dealers who make markets in such securities.
Other securities are appraised at values deemed best to reflect their
fair value as determined in good faith by or under the supervision of
officers of the Fund specifically authorized by the Board of
Directors."
The Board of Directors recommends that these provisions of the Articles of
Incorporation be deleted and that the Fund's policy on pricing securities be
described only in the Fund's Statement of Additional Information.
The Board of Directors recommends that shareholders vote FOR the proposal.
INVESTMENT MANAGER
The Fund's investment manager is T. Rowe Price, a Maryland corporation,
100 East Pratt Street, Baltimore, Maryland 21202. The principal executive
officer of T. Rowe Price is George J. Collins, who together with Messrs.
Hoffman and Riepe, Thomas H. Broadus, Jr., James E. Halbkat, Jr., Henry H.
Hopkins, George A. Roche, John W. Rosenblum, Robert L. Strickland, M. David
Testa, and Philip C. Walsh, constitute its Board of Directors. The address of
each of these persons, with the exception of Messrs. Halbkat, Rosenblum,
Strickland and Walsh, is 100 East Pratt Street, Baltimore, Maryland 21202,
and, with the exception of Messrs. Halbkat, Rosenblum, Strickland, and Walsh,
all are employed by T. Rowe Price. Mr. Halbkat is President of U.S. Monitor
Corporation, a provider of public response systems, P.O. Box 23109, Hilton
Head Island, South Carolina 29925. Mr. Rosenblum, whose address is P.O. Box
6550, Charlottesville, Virginia 22906, is the Tayloe Murphy Professor at the
University of Virginia, and a director of: Chesapeake Corporation, a
manufacturer of paper products; Cadmus Communications Corp., a provider of
printing and communication services; Comdial Corporation, a manufacturer of
telephone systems for businesses; and Cone Mills Corporation, a textiles
producer. Mr. Strickland is Chairman of Lowe's Companies, Inc., a retailer of
specialty home supplies, 604 Two Piedmont Plaza Building, Winston-Salem, North
Carolina 27104. Mr. Walsh, whose address is Blue Mill Road, Morristown, New
Jersey 07960, is a consultant to Cyprus Amax Minerals Company, Englewood,
Colorado, and a director of Piedmont Mining Company, Charlotte, North
Carolina.
The officers of the Funds (other than the nominees for reelection as
directors) and their positions with T. Rowe Price are as follows:
- - - -------------------------------------------------------------------------------------------------------
Officer Position with Fund Position with Manager
- - - -------------------------------------------------------------------------------------------------------
Patrice L. Berchtenbreiter* Vice President Vice President
Paul W. Boltz* Vice President Vice President
Catherine H. Bray** Vice President Vice President
Andrew M. Brooks** Vice President Vice President
Robert P. Campbell+ Executive Vice President Vice President
Michael J. Conelius*** Vice President Assistant Vice President
Christy M. DiPietro++ Vice President Vice President
Henry H. Hopkins Vice President Managing Director
Veena A. Kutler++ President Vice President
Heather R. Landon! Executive Vice President Vice President
James M. McDonald!! Executive Vice President Vice President
Edmund M. Notzon! Vice President Vice President
Joan R. Potee@ Vice President Vice President
Robert M. Rubino+ Vice President Vice President
Hubert M. Stiles, Jr.** Vice President Vice President
Jay W. VanErt** Vice President Vice President
Mark J. Vaselkiv** Vice President Vice President
Edward A. Wiese@@ President Vice President
Thea N. Williams** Vice President Vice President
Lenora V. Hornung Secretary Vice President
Carmen F. Deyesu Treasurer Vice President
David S. Middleton Controller Vice President
Roger L. Fiery Assistant Vice President Vice President
Edward T. Schneider Assistant Vice President Assistant Vice President
Ingrid I. Vordemberge Assistant Vice President Employee
<FN>
* Ms. Berchtenbreiter and Mr. Boltz are Vice Presidents of the Prime Reserve Fund only.
** Mmes. Bray and Williams and Messrs. Brooks, Stiles, VanErt, and Vaselkiv are Vice Presidents
of the High Yield Fund only.
*** Mr. Conelius is a Vice President of the Adjustable Rate and Prime Reserve Funds and an
Assistant Vice President of the High Yield Fund only.
+ Mr. Campbell is an Executive Vice President of the Prime Reserve Fund and a Vice President
of the New Income and Short-Term Bond Funds. Mr. Campbell's date of birth is January 31,
1956, and he has been employed by T. Rowe Price since July 30, 1990. Mr. Rubino is a Vice
President of the New Income, Prime Reserve and Short-Term Bond Funds only.
++ Ms. Kutler is the President of the Short-Term Bond Fund and a Vice President of the
Adjustable Rate Fund. Ms. Kutler's date of birth is December 22, 1956, and she has been
employed by T. Rowe Price since November 23, 1987. Ms. DiPietro is a Vice President of the
Short-Term Bond Fund only.
! Ms. Landon is an Executive Vice President of the Adjustable Rate Fund and a Vice President
of the New Income Fund. Ms. Landon's date of birth is July 8, 1954, and she has been
employed by T. Rowe Price since August 27, 1979. Mr. Notzon is a Vice President of the
Adjustable Rate and New Income Funds only.
!! Mr. McDonald is an Executive Vice President of the Prime Reserve Fund, a Vice President of
the Adjustable Rate, High Yield, New Income and Short-Term Bond Funds, and an Assistant Vice
President of the High Yield Fund. Mr. McDonald's date of birth is September 29, 1949, and he
has been employed by T. Rowe Price since September 18, 1976.
@ Ms. Potee is a Vice President of the New Income and Prime Reserve Funds only.
@@ Mr. Wiese is the President of the Prime Reserve Fund and a Vice President of the Short-Term
Bond Fund. Mr. Wiese's date of birth is April 12, 1959, and he has been employed by T. Rowe
Price since June 25, 1984.
The Funds have an Underwriting Agreement with T. Rowe Price Investment
Services, Inc. ("Investment Services"), a Transfer Agency Agreement with T.
Rowe Price Services, Inc. ("Price Services"), and an Agreement with T. Rowe
Price Retirement Plan Services, Inc. ("Retirement Services"), which are
wholly-owned subsidiaries of T. Rowe Price. In addition, the Funds have an
Agreement with T. Rowe Price to perform fund accounting services. James S.
Riepe, a Director and Vice President of the Adjustable Rate, High Yield, New
Income and Short-Term Bond Funds and a Vice President of the Prime Reserve
Fund, is Chairman of the Board of Price Services and Retirement Services and
President and Director of Investment Services. Henry H. Hopkins, a Vice
President of each Fund, is a Vice President and Director of both Investment
Services and Price Services and a Vice President of Retirement Services.
Edward T. Schneider, an Assistant Vice President of each Fund, is a Vice
President of Price Services. Certain officers of the Funds own shares of the
common stock of T. Rowe Price, its only class of securities.
The following information pertains to transactions involving common stock
of T. Rowe Price, par value $.20 per share ("Stock"), during the period March
1, 1993 through February 28, 1994. There were no transactions during the
period by any director or officer of the Fund, or any director or officer of
T. Rowe Price which involved more than 1% of the outstanding Stock of T. Rowe
Price. These transactions did not involve, and should not be mistaken for,
transactions in the stock of the Fund.
During the period, the holders of certain options purchased a total of
371,535 shares of common stock at varying prices from $0.67 to $18.75 per
share. Pursuant to the terms of T. Rowe Price's Employee Stock Purchase Plan,
eligible employees of T. Rowe Price and its subsidiaries purchased an
aggregate of 95,380 shares at fair market value. Such shares were purchased in
the open market during this period for employees' accounts.
The Company's Board of Directors has approved the purchase of up to
2,200,000 shares of its common stock in the open market. During the period,
the Company purchased 110,000 common shares under this plan, leaving 1,402,000
shares authorized for future repurchase at February 28, 1994.
During the period, T. Rowe Price issued 1,154,000 common stock options
with an exercise price of $28.13 per share to certain employees under terms of
the 1990 and 1993 Stock Incentive Plans.
An audited consolidated balance sheet of T. Rowe Price as of December 31,
1993, is included in this Proxy Statement.
INVESTMENT MANAGEMENT AGREEMENT
T. Rowe Price serves as investment manager to the Funds pursuant to their
respective Investment Management Agreements (each the "Management Agreement"
and collectively the "Management Agreements"). The date of each Fund's
Management Agreement and the date it was approved by the respective Fund's
shareholders is as follows:
Date of Shareholder
Management Approval
Fund Agreement Date
--------------------- --------------------- ---------------------
Adjustable Rate July 1, 1992 June 11, 1992
High Yield July 1, 1987 June 10, 1987
New Income July 1, 1987 June 10, 1987
Prime Reserve July 1, 1987 June 9, 1987
Short-Term Bond July 1, 1991 June 13, 1991
By their terms, the Management Agreements will, continue in effect from year
to year as long as they are approved annually by each Fund's Board of
Directors, (at a meeting called for that purpose) or by vote of a majority of
each Fund's outstanding shares. In either case, renewal of the Management
Agreements must be approved by a majority of each Fund's independent
directors. On March 1, 1994, the directors of each Fund, including all of the
independent directors, voted to extend the Management Agreements for an
additional period of one year, commencing May 1, 1994, and terminating April
30, 1995. Each Management Agreement is subject to termination by either party
without penalty on 60 days' written notice to the other and will terminate
automatically in the event of assignment.
Under each Management Agreement, T. Rowe Price provides each Fund with
discretionary investment services. Specifically, T. Rowe Price is responsible
for supervising and directing the investments of each Fund in accordance with
the Funds' investment objectives, programs, and restrictions as provided in
their prospectuses and Statements of Additional Information. T. Rowe Price is
also responsible for effecting all securities transactions on behalf of the
Funds, including the negotiation of commissions and the allocation of
principal business and portfolio brokerage. In addition to these services, T.
Rowe Price provides the Funds with certain corporate administrative services,
including: maintaining each Fund's corporate existence, corporate records, and
registering and qualifying Fund shares under federal and state laws;
monitoring the financial, accounting, and administrative functions of the
Funds; maintaining liaison with the agents employed by the Funds, such as each
Fund's custodian and transfer agent; assisting the Funds in the coordination
of such agents' activities; and permitting T. Rowe Price's employees to serve
as officers, directors, and committee members of the Funds without cost to the
Fund.
Each Fund's Management Agreement also provides that T. Rowe Price, its
directors, officers, employees, and certain other persons performing specific
functions for the Fund will only be liable to the Fund for losses resulting
from willful misfeasance, bad faith, gross negligence, or reckless disregard
of duty.
The Management Agreement provides that each Fund will bear all expenses of
its operations not specifically assumed by T. Rowe Price. However, in
compliance with certain state regulations, T. Rowe Price will reimburse the
Funds for any expenses (excluding interest, taxes, brokerage, other
expenditures which are capitalized in accordance with generally accepted
accounting principles, and extraordinary expenses) which in any year exceed
the limits prescribed by any state in which the Funds' shares are qualified
for sale. Presently, the most restrictive expense ratio limitation imposed by
any state is 2.5% of the first $30 million of the Fund's average daily net
assets, 2% of the next $70 million of such assets, and 1.5% of net assets in
excess of $100 million. For the purpose of determining whether a Fund is
entitled to reimbursement, the expenses of the Fund are calculated on a
monthly basis. If the Fund is entitled to reimbursement, that month's
management fee will be reduced or postponed, with any adjustment made after
the end of the year.
For its services to each Fund under the Management Agreement, T. Rowe
Price is paid a management fee ("Management Fee") consisting of two elements:
a "group" fee ("Group Fee") and an "individual" fund fee ("Individual Fund
Fee"). The Group Fee varies and is based on the combined net assets of all of
the T. Rowe Price Funds distributed by T. Rowe Price Investment Services,
Inc., other than institutional or "private label" products. For this purpose,
the T. Rowe Price Funds include all Funds managed and sponsored by T. Rowe
Price as well as those Funds managed and sponsored by Rowe Price-Fleming
International, Inc. Each Fund pays, as its portion of the Group Fee, an amount
equal to the ratio of its daily net assets to the daily net assets of all the
T. Rowe Price Funds. At February 28, 1994, the Group Fee was 0.34% based on
combined T. Rowe Price Funds' assets of approximately $36.1 billion. In
addition, each Fund pays a flat Individual Fund Fee based on the net assets of
each Fund. The following table lists each Fund's individual fee, combined fee,
net assets and management fee paid to T. Rowe Price, at February 28, 1994.
Individual Combined Net Management
Fund Fee Fee Assets Fee
- - - ------------------ ------------ ------------ ---------------- -------------
Adjustable Rate 0.10% 0.44% $ 225,154,000 $ 526,000
High Yield 0.30% 0.64% 1,623,770,000 10,554,000
New Income 0.15% 0.49% 1,457,959,000 7,750,000
Prime Reserve 0.05% 0.39% 3,378,976,000 13,617,000
Short-Term Bond 0.10% 0.44% 668,066,000 2,873,000
The following chart shows the ratio of operating expenses to average net
assets of the following Funds for the fiscal years ended February 28, 1994,
February 28, 1993 and February 29, 1992.
Fund 1994 1993 1992
- - - ---------------- ----- ----- -----
High Yield 0.85% 0.89% 0.97%
New Income 0.82% 0.84% 0.87%
Prime Reserve 0.74% 0.75% 0.78%
Short-Term Bond 0.74% 0.76% 0.88%
ADJUSTABLE RATE FUND
Effective July 1, 1992, T. Rowe Price agreed to bear any expenses through
June 30, 1993 which would cause the Fund's ratio of expenses to average net
assets to exceed 0.40%. Effective July 1, 1993, T. Rowe Price agreed to extend
the Fund's 0.40% expense limitation for a period of six months through
December 31, 1993. Effective January 1, 1994, T. Rowe Price agreed to bear any
expenses through May 31, 1996, which would cause the Fund's ratio of expenses
to average net assets to exceed 0.70%.
The 0.70% expense limitation will be phased in beginning with a 0.40%
limitation on January 1, 1994; 0.50% on March 1, 1994; 0.60% on September 1,
1994; and 0.70% on March 1, 1995. Expenses paid or assumed under each
agreement are subject to reimbursement to T. Rowe Price by the Fund whenever
the Fund's expense ratio is below 0.40% (for the first two agreements) and
0.70% (for the third agreement); however, no reimbursement will be made after
June 30, 1995 (for the first agreement), December 31, 1995 (for the second
agreement), or May 31, 1998 (for the third agreement) or if it would result in
the expense ratio exceeding 0.40% (for the first two agreements) and 0.70%
(for the third agreement). Pursuant to the present expense limitation,
$938,000 of management fees were not accrued by the Fund for the year ended
February 28, 1994.
The Fund's 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 Fund may reimburse
T. Rowe Price, provided the reimbursement does not result in the Fund's
aggregate expenses exceeding the additional expense limitation.
PORTFOLIO TRANSACTIONS
In the following discussion "the Fund" is intended to refer to each Fund.
INVESTMENT OR BROKERAGE DISCRETION
Decisions with respect to the purchase and sale of portfolio securities on
behalf of the Fund are made by T. Rowe Price. T. Rowe Price is also
responsible for implementing these decisions, including the negotiation of
commissions and the allocation of portfolio brokerage and principal business.
The Fund's purchases and sales of portfolio securities are normally done on a
principal basis and do not involve the payment of a commission although they
may involve the designation of selling concessions. That part of the
discussion below relating solely to brokerage commissions would not normally
apply to the Fund. However, it is included because T. Rowe Price does manage a
significant number of common stock portfolios which do engage in agency
transactions and pay commissions and because some research and services
resulting from the payment of such commissions may benefit the Fund.
HOW BROKERS AND DEALERS ARE SELECTED
FIXED INCOME SECURITIES
Fixed income securities are generally purchased from the issuer or a
primary market-maker acting as principal for the securities on a net basis,
with no brokerage commission being paid by the client, although the price
usually includes an undisclosed compensation. Transactions placed through
dealers serving as primary market-makers reflect the spread between the bid
and asked prices. Securities may also be purchased from underwriters at prices
which include underwriting fees.
T. Rowe Price may effect principal transactions on behalf of the Fund with
a broker or dealer who furnishes brokerage and/or research services, designate
any such broker or dealer to receive selling concessions, discounts or other
allowances, or otherwise deal with any such broker or dealer in connection
with the acquisition of securities in underwritings. T. Rowe Price may receive
brokerage and research services in connection with such designations in fixed
priced underwritings.
In purchasing and selling the Fund's portfolio securities, it is T. Rowe
Price's policy to obtain quality execution at the most favorable prices
through responsible brokers and dealers and, in the case of agency
transactions (in which the Fund does not generally engage), at competitive
commission rates. However, under certain conditions, the Fund may pay higher
brokerage commissions in return for brokerage and research services. In
selecting broker-dealers to execute the Fund's portfolio transactions,
consideration is given to such factors as the price of the security, the rate
of the commission, the size and difficulty of the order, the reliability,
integrity, financial condition, general execution and operational capabilities
of competing brokers and dealers, and brokerage and research services provided
by them. It is not the policy of T. Rowe Price to seek the lowest available
commission rate where it is believed that a broker or dealer charging a higher
commission rate would offer greater reliability or provide better price or
execution.
HOW EVALUATIONS ARE MADE OF THE OVERALL REASONABLENESS OF BROKERAGE
COMMISSIONS PAID
On a continuing basis, T. Rowe Price seeks to determine what levels of
commission rates are reasonable in the marketplace for transactions executed
on behalf of the Fund. In evaluating the reasonableness of commission rates,
T. Rowe Price considers: (a) historical commission rates, both before and
since rates have been fully negotiable; (b) rates which other institutional
investors are paying, based on available public information; (c) rates quoted
by brokers and dealers; (d) the size of a particular transaction, in terms of
the number of shares, dollar amount, and number of clients involved; (e) the
complexity of a particular transaction in terms of both execution and
settlement; (f) the level and type of business done with a particular firm
over a period of time; and (g) the extent to which the broker or dealer has
capital at risk in the transaction.
DESCRIPTION OF RESEARCH SERVICES RECEIVED FROM BROKERS AND DEALERS
T. Rowe Price receives a wide range of research services from brokers and
dealers. These services include information on the economy, industries, groups
of securities, individual companies, statistical information, accounting and
tax law interpretations, political developments, legal developments affecting
portfolio securities, technical market action, pricing and appraisal services,
credit analysis, risk measurement analysis, performance analysis and analysis
of corporate responsibility issues. These services provide both domestic and
international perspective. Research services are received primarily in the
form of written reports, computer generated services, telephone contacts and
personal meetings with security analysts. In addition, such services may be
provided in the form of meetings arranged with corporate and industry
spokespersons, economists, academicians and government representatives. In
some cases, research services are generated by third parties but are provided
to T. Rowe Price by or through broker-dealers.
Research services received from brokers and dealers are supplemental to T.
Rowe Price's own research effort and, when utilized, are subject to internal
analysis before being incorporated by T. Rowe Price into its investment
process. As a practical matter, it would not be possible for T. Rowe Price to
generate all of the information presently provided by brokers and dealers. T.
Rowe Price pays cash for certain research services received from external
sources. T. Rowe Price also allocates brokerage for research services which
are available for cash. While receipt of research services from brokerage
firms has not reduced T. Rowe Price's normal research activities, the expenses
of T. Rowe Price could be materially increased if it attempted to generate
such additional information through its own staff. To the extent that research
services of value are provided by brokers or dealers, T. Rowe Price may be
relieved of expenses which it might otherwise bear.
T. Rowe Price has a policy of not allocating brokerage business in return
for products or services other than brokerage or research services. In
accordance with the provisions of Section 28(e) of the Securities Exchange Act
of 1934, T. Rowe Price may from time to time receive services and products
which serve both research and non-research functions. In such event, T. Rowe
Price makes a good faith determination of the anticipated research and
non-research use of the product or service and allocates brokerage only with
respect to the research component.
COMMISSIONS TO BROKERS WHO FURNISH RESEARCH SERVICES
With regard to the payment of brokerage commissions, T. Rowe Price has
adopted a brokerage allocation policy embodying the concepts of Section 28(e)
of the Securities Exchange Act of 1934, which permits an investment adviser to
cause an account to pay commission rates in excess of those another broker or
dealer would have charged for effecting the same transaction, if the adviser
determines in good faith that the commission paid is reasonable in relation to
the value of the brokerage and research services provided. The determination
may be viewed in terms of either the particular transaction involved or the
overall responsibilities of the adviser with respect to the accounts over
which it exercises investment discretion. Accordingly, while T. Rowe Price
cannot readily determine the extent to which commission rates charged by
broker-dealers reflect the value of their research services, T. Rowe Price
would expect to assess the reasonableness of commissions in light of the total
brokerage and research services provided by each particular broker.
INTERNAL ALLOCATION PROCEDURES
T. Rowe Price has a policy of not precommitting a specific amount of
business to any broker or dealer over any specific time period. Historically,
the majority of brokerage placement has been determined by the needs of a
specific transaction such as market-making, availability of a buyer or seller
of a particular security, or specialized execution skills. However, T. Rowe
Price does have an internal brokerage allocation procedure for that portion of
its discretionary client brokerage or selling concessions business where
special needs do not exist, or where the business may be allocated among
several brokers or dealers which are able to meet the needs of the
transaction.
Each year, T. Rowe Price assesses the contribution of the brokerage and
research services provided by brokers and dealers, and attempts to allocate a
portion of its brokerage and selling concession business in response to these
assessments. Research analysts, counselors, various investment committees, and
the Trading Department each seek to evaluate the brokerage and research
services they receive from brokers and dealers and make judgments as to the
level of business which would recognize such services. In addition, brokers
and dealers sometimes suggest a level of business they would like to receive
in return for the various brokerage and research services they provide. Actual
business received by any firm may be less than the suggested allocations but
can, and often does, exceed the suggestions, because the total business is
allocated on the basis of all the considerations described above. In no case
is a broker or dealer excluded from receiving business from T. Rowe Price
because it has not been identified as providing research services.
MISCELLANEOUS
T. Rowe Price's brokerage allocation policy is consistently applied to all
its fully discretionary accounts, which represent a substantial majority of
all assets under management. Research services furnished by brokers through
which T. Rowe Price effects securities transactions may be used in servicing
all accounts (including non-Fund accounts) managed by T. Rowe Price.
Conversely, research services received from brokers which execute transactions
for the Fund are not necessarily used by T. Rowe Price exclusively in
connection with the management of the Fund.
From time to time, orders for clients may be placed through a computerized
transaction network.
The Fund does not allocate business to any broker-dealer on the basis of
its sales of the Fund's shares. However, this does not mean that
broker-dealers who purchase Fund shares for their clients will not receive
business from the Fund.
Some of T. Rowe Price's other clients have investment objectives and
programs similar to those of the Fund. T. Rowe Price may occasionally make
recommendations to other clients which result in their purchasing or selling
securities simultaneously with the Fund. As a result, the demand for
securities being purchased or the supply of securities being sold may
increase, and this could have an adverse effect on the price of those
securities. It is T. Rowe Price's policy not to favor one client over another
in making recommendations or in placing orders. T. Rowe Price frequently
follows the practice of grouping orders of various clients for execution which
generally results in lower commission rates being attained. In certain cases,
where the aggregate order is executed in a series of transactions at various
prices on a given day, each participating client's proportionate share of such
order reflects the average price paid or received with respect to the total
order. T. Rowe Price has established a general investment policy that it will
ordinarily not make additional purchases of a common stock of a company for
its clients (including the T. Rowe Price Funds) if, as a result of such
purchases, 10% or more of the outstanding common stock of such company would
be held by its clients in the aggregate.
To the extent possible, T. Rowe Price intends to recapture solicitation
fees paid in connection with tender offers through T. Rowe Price Investment
Services, Inc., the Fund's distributor. At the present time, T. Rowe Price
does not recapture commissions or underwriting discounts or selling group
concessions in connection with taxable securities acquired in underwritten
offerings. T. Rowe Price does, however, attempt to negotiate elimination of
all or a portion of the selling-group concession or underwriting discount when
purchasing tax-exempt municipal securities on behalf of its clients in
underwritten offerings.
TRANSACTIONS WITH RELATED BROKERS AND DEALERS (ALL FUNDS EXCEPT ADJUSTABLE
RATE AND PRIME RESERVE FUNDS)
As provided in the Investment Management Agreement between the Fund and T.
Rowe Price, T. Rowe Price is responsible not only for making decisions with
respect to the purchase and sale of the Fund's portfolio securities, but also
for implementing these decisions, including the negotiation of commissions and
the allocation of portfolio brokerage and principal business. It is expected
that T. Rowe Price may place orders for the Fund's portfolio transactions with
broker-dealers through the same trading desk T. Rowe Price uses for portfolio
transactions in domestic securities. The trading desk accesses brokers and
dealers in various markets in which the Fund's foreign securities are located.
These brokers and dealers may include certain affiliates of Robert Fleming
Holdings Limited ("Robert Fleming Holdings") and Jardine Fleming Group Limited
("JFG"), persons indirectly related to T. Rowe Price. Robert Fleming Holdings,
through Copthall Overseas Limited, a wholly-owned subsidiary, owns 25% of the
common stock of Rowe Price-Fleming International, Inc. ("RPFI"), an investment
adviser registered under the Investment Advisers Act of 1940. Fifty percent of
the common stock of RPFI is owned by TRP Finance, Inc., a wholly-owned
subsidiary of T. Rowe Price, and the remaining 25% is owned by Jardine Fleming
Holdings Limited, a subsidiary of JFG. JFG is 50% owned by Robert Fleming
Holdings and 50% owned by Jardine Matheson Holdings Limited. Orders for the
Fund's portfolio transactions placed with affiliates of Robert Fleming
Holdings and JFG will result in commissions being received by such affiliates.
The Board of Directors of the Fund has authorized T. Rowe Price to utilize
certain affiliates of Robert Fleming Holdings and JFG in the capacity of
broker in connection with the execution of the Fund's portfolio transactions.
These affiliates include, but are not limited to, Jardine Fleming (Securities)
Limited ("JFS"), a wholly-owned subsidiary of JFG, Robert Fleming & Co.
Limited ("RF&Co."), Jardine Fleming Australia Securities Limited, and Robert
Fleming, Inc. (a New York brokerage firm). Other affiliates of Robert Fleming
Holdings and JFG also may be used. Although it does not believe that the
Fund's use of these brokers would be subject to Section 17(e) of the 1940 Act,
the Board of Directors of the Fund has agreed that the procedures set forth in
Rule 17e-1 under that Act will be followed when using such brokers.
OTHER
The Funds engaged in portfolio transactions involving broker-dealers in
the following amounts for the fiscal years ended February 28, 1994, February
28, 1993 and February 29, 1992:
Fund 1994 1993 1992
- - - ----------------- --------------- --------------- ---------------
Adjustable Rate $ 793,565,000 $ 1,876,498,000 $ 427,475,000
High Yield 18,554,222,000 16,168,606,000 6,702,967,000
New Income 20,265,475,000 15,193,999,000 6,648,064,000
Prime Reserve 29,024,172,000 36,478,989,000 29,975,769,000
Short-Term Bond 4,266,837,000 5,805,958,000 5,534,535,000
The entire amount for each of these years represented principal
transactions as to which the Adjustable Rate and Prime Reserve Funds have no
knowledge of the profits or losses realized by the respective broker-dealers
for the fiscal years ended February 28, 1994, February 28, 1993 and February
29, 1992. With respect to the High Yield, New Income and Short-Term Bond
Funds, the following amounts consisted of principal transactions as to which
the Funds have no knowledge of the profits or losses realized by the
respective broker-dealers for the fiscal years ended February 28, 1994,
February 28, 1993 and February 29, 1992:
Fund 1994 1993 1992
- - - ------------------------- ---------------- ---------------- ----------------
High Yield $17,956,306,000 $15,737,460,000 $6,682,140,000
New Income 20,206,382,000 15,189,019,000 6,518,595,000
Short-Term Bond 4,266,837,000 0 5,034,535,000
The following amounts involved trades with brokers acting as agents or
underwriters for the fiscal years ended February 28, 1994, February 28, 1993
and February 29, 1992:
Fund 1994 1993 1992
- - - ---------------------------- -------------- -------------- ----------------
High Yield $597,916,000 $431,146,000 $20,827,000
New Income 59,093,000 4,980,000 129,469,000
Short-Term Bond 0 0 5,000,000
The amounts shown below involved trades with brokers acting as agents or
underwriters, in which such brokers received total commissions, including
discounts received in connection with underwritings for the fiscal years ended
February 28, 1994, February 28, 1993 and February 29, 1992:
Fund 1994 1993 1992
- - - ---------------- ----------- ---------- --------
High Yield $16,730,000 $3,661,000 $201,000
New Income 169,000 20,000 402,000
Short-Term Bond 0 0 15,000
The percentage of total portfolio transactions, placed with firms which
provided research, statistical, or other services to T. Rowe Price in
connection with the management of the Funds, or in some cases, to the Funds
for the fiscal years ended February 28, 1994, February 28, 1993 and February
29, 1992, are shown below:
Fund 1994 1993 1992
- - - ---------------------------- ----------- ----------- -----------
Adjustable Rate 100% 94% 100%
High Yield 70% 70% 59%
New Income 61% 61% 87%
Prime Reserve 87% 81% 76%
Short-Term Bond 61% 84% 79%
The portfolio turnover rates for the following Funds for the fiscal years
ended February 28, 1994, February 28, 1993 and February 29, 1992 are as
follows:
Fund 1994 1993 1992
- - - ---------------------------- ----------- ----------- -----------
Adjustable Rate 70.4% 110.8% 98.4%
High Yield 107.0% 104.4% 58.9%
New Income 58.3% 85.8% 49.7%
Short-Term Bond 90.8% 68.4% 380.7%
OTHER BUSINESS
The management of each Fund knows of no other business which may come
before the meeting. However, if any additional matters are properly presented
at the meeting, it is intended that the persons named in the enclosed proxy,
or their substitutes, will vote such proxy in accordance with their judgment
on such matters.
GENERAL INFORMATION
The number of outstanding shares, the number of shares registered to the
T. Rowe Price Trust Company, and the percentage of those shares registered to
the T. Rowe Price Trust Company as Trustee for participants in the T. Rowe
Price Funds Retirement Plan for Self-Employed (Keogh), as Trustee for
participants in T. Rowe Price Funds 401(k) plans, as Custodian for
participants in the T. Rowe Price Funds Individual Retirement Account (IRA),
as Custodian for participants in various 403(b)(7) plans, and as Custodian for
various Profit Sharing and Money Purchase plans for each Fund, as of February
28, 1994, are shown below.
Shares Percent
Registered Representing
Shares to T. Rowe Price Outstanding
Fund Outstanding Trust Company Shares
- - - ---------------- ------------------ ----------------------- ------------------
Adjustable Rate 47,373,000 9,208,060 19.4
High Yield 177,392,000 48,150,870 23.7
New Income 159,860,000 45,312,965 28.2
Prime Reserve 3,384,443,000 905,131,023 26.7
Short-Term Bond 133,552,000 34,413,959 25.8
The T. Rowe Price Trust Company has no beneficial interest in such accounts,
nor in any other account for which it may serve as trustee or custodian.
At February 28, 1994, approximately 5,250,340, 651,425, and 11,238,984
shares of the outstanding stock of the High Yield, New Income and Prime
Reserve Funds, respectively, representing approximately 3.0%, 0.41% and 0.33%,
respectively, were owned by various counsel clients of T. Rowe Price, as to
which T. Rowe Price has discretionary authority. Accordingly such shares are
deemed to be owned beneficially by T. Rowe Price only for the limited purposes
as that term is defined in Rule 13d-3 under the Securities Exchange Act of
1934. T. Rowe Price disclaims actual beneficial ownership of such shares. In
addition, as of February 28, 1994, a wholly-owned subsidiary of T. Rowe Price
owned directly 230,088, 130,781, 18,222, 106,319 and 4,284,314 shares of the
outstanding stock of the Adjustable Rate, High Yield, New Income, Prime
Reserve and Short-Term Bond Funds, respectively, representing approximately
0.49%, 0.07%, 0.01%, .003% and 3.21%, respectively. As of February 28, 1994,
T. Rowe Price owned 712,713 shares of the outstanding stock of the Prime
Reserve Fund representing approximately 0.02%. In addition as of February 28,
1994, Yachtcrew & Co., FBO Spectrum Income Account, State Street Bank and
Trust Co., 1776 Heritage Drive-4W, North Quincy, MA 02171-2101 owned
beneficially 14,753,293, 12,227,925 and 7,444,297 shares of the High Yield,
New Income and Short-Term Bond Funds, respectively, representing approximately
8.3%, 7.6% and 5.6%, respectively.
The following chart indicates the number of shares beneficially owned,
directly or indirectly, by the officers and directors of each Fund, and the
percentage this ownership represents of each Fund's outstanding shares.
Shares
Beneficially % Ownership of
Owned Directly Outstanding
Fund or Indirectly Shares
- - - ------------------------ -------------------- --------------------
Adjustable Rate 36,065 0.08
High Yield 181,079 0.10
New Income 70,890 0.04
Prime Reserve 3,912,500 0.12
Short-Term Bond 463,862 0.35
The ownership of the officers and directors reflects their proportionate
interests, if any, in 18,179, 9,776, 1,598, 8,973 and 328,176 shares of the
Adjustable Rate, High Yield, New Income, Prime Reserve, and Short-Term Bond
Funds, respectively, which are owned by a wholly-owned subsidiary of T. Rowe
Price and their interests in 14,101, 90,158, 48,461, 2,631,168 and 81,056
shares, respectively, owned by the T. Rowe Price Associates, Inc. Profit
Sharing Trust.
A copy of the Annual Report of each Fund for the year ended February 28,
1994, including financial statements, has been mailed to shareholders of
record at the close of business on that date and to persons who became
shareholders of record between that time and the close of business on April 8,
1994, the record date for the determination of the shareholders who are
entitled to be notified of and to vote at the meeting.
ANNUAL MEETINGS
Under Maryland General Corporation Law, any corporation registered under
the 1940 Act is not required to hold an annual meeting in any year in which
the 1940 Act does not require action by shareholders on the election of
directors. The Board of Directors of each Fund has determined that in order to
avoid the significant expense associated with holding annual meetings,
including legal, accounting, printing and mailing fees incurred in preparing
proxy materials, each Fund will take advantage of these Maryland law
provisions. Accordingly, no annual meetings shall be held in any year in which
a meeting is not otherwise required to be held by the 1940 Act for the
election of Directors unless the Board of Directors otherwise determines that
there should be an annual meeting. However, special meetings will be held in
accordance with applicable law or when otherwise determined by the Board of
Directors. Each Fund's By-Laws reflect this policy.
SHAREHOLDER PROPOSALS
If a shareholder wishes to present a proposal to be included in the Proxy
Statement for the next Annual Meeting, and if such Annual Meeting is held in
June, 1995, such proposal must be submitted in writing and received by the
Corporation's Secretary at its Baltimore office prior to December 26, 1994.
FINANCIAL STATEMENT OF INVESTMENT MANAGER
The audited consolidated balance sheet of T. Rowe Price which follows is
required by the 1940 Act, and should not be confused with, or mistaken for,
the financial statements of T. Rowe Price Adjustable Rate U.S. Government
Fund, Inc., T. Rowe Price High Yield Fund, Inc., T. Rowe Price New Income
Fund, Inc., T. Rowe Price Prime Reserve Fund, Inc. and T. Rowe Price
Short-Term Bond Fund, Inc., which are set forth in the Annual Report for each
Fund.
T. ROWE PRICE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
(in thousands)
ASSETS
Cash and cash equivalents ................................... $ 46,218
Accounts receivable ......................................... 43,102
Investments in sponsored mutual funds
Short-term bond and money market mutual funds held
as trading securities ................................... 27,647
Other funds held as available-for-sale securities ......... 69,423
Partnership and other investments ........................... 19,606
Property and equipment ...................................... 39,828
Goodwill and deferred expenses .............................. 9,773
Other assets ................................................ 7,803
-------------
$263,400
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses ..................... $ 15,111
Accrued retirement and other compensation costs ........... 19,844
Income taxes payable ...................................... 5,097
Dividends payable ......................................... 3,784
Debt ...................................................... 12,915
Deferred revenues ......................................... 1,548
Minority interests in consolidated subsidiaries ........... 9,148
-------------
Total liabilities ..................................... 67,447
-------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, $.20 par value--authorized 48,000,000 shares;
issued and outstanding 29,095,039 shares ................ 5,819
Capital in excess of par value ............................ 1,197
Unrealized security holding gains ......................... 5,345
Retained earnings ......................................... 183,592
-------------
Total stockholders' equity ............................ 195,953
-------------
$263,400
-------------
-------------
The accompanying notes are an integral part of the consolidated balance sheet.
T. ROWE PRICE ASSOCIATES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Associates, Inc. and its consolidated subsidiaries (the
"Company") provide investment advisory and administrative services to
sponsored mutual funds and investment products, and to private accounts of
other institutional and individual investors.
BASIS OF PREPARATION
The Company's financial statements are prepared in accordance with generally
accepted accounting principles.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all majority
owned subsidiaries and, by virtue of the Company's controlling interest, its
50%-owned subsidiary, Rowe Price-Fleming International, Inc. ("RPFI"). All
material intercompany accounts are eliminated in consolidation.
CASH EQUIVALENTS
For purposes of financial statement disclosure, cash equivalents consist of
all short-term, highly liquid investments including certain money market
mutual funds and all overnight commercial paper investments. The cost of these
investments is equivalent to fair value.
INVESTMENTS IN SPONSORED MUTUAL FUNDS
On December 31, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which requires the Company to state its mutual fund
investments at fair value and to classify these holdings as either trading
(held for only a short period of time) or available-for-sale securities.
Unrealized holding gains on available-for-sale securities at December 31, 1993
are reported net of income tax effects in a separate component of
stockholders' equity.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk as defined by SFAS No. 105 consist primarily of investments in
sponsored money market and bond mutual funds and accounts receivable. Credit
risk is believed to be minimal in that counterparties to these financial
instruments have substantial assets including the diversified portfolios under
management by the Company which aggregate $54.4 billion at December 31, 1993.
T. ROWE PRICE ASSOCIATES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PARTNERSHIP AND OTHER INVESTMENTS
The Company invests in various partnerships and ventures including those
sponsored by the Company. These investments which hold equity securities,
venture capital investments, debt securities and real estate are stated at
cost adjusted for the Company's share of the earnings or losses of the
investees subsequent to the date of investment. Because the majority of these
entities carry their investments at fair value and include unrealized gains
and losses in their reported earnings, the Company's carrying value for these
investments approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost net of accumulated depreciation and
amortization computed using the straight-line method. Provisions for
depreciation and amortization are based on the following estimated useful
lives: computer and communications equipment and furniture and other
equipment, 3 to 7 years; building, 40 years; leased land, the 50-year lease
term; and leasehold improvements, the shorter of their useful lives or the
remainder of the lease term.
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 1--INVESTMENTS IN SPONSORED MUTUAL FUNDS
Investments in sponsored money market mutual funds, which are classified as
cash equivalents in the accompanying consolidated financial statements,
aggregate $45,272,000 at December 31, 1993.
The Company's investments in sponsored mutual funds held as
available-for-sale at December 31, 1993 (in thousands) includes:
Gross
unrealized Aggregate
Aggregate holding fair
cost gains value
---------------- ---------------- ----------------
Stock funds ........... $34,990 $7,025 $42,015
Bond funds ............ 26,190 1,218 27,408
---------------- ---------------- ----------------
Total ............... $61,180 $8,243 $69,423
---------------- ---------------- ----------------
---------------- ---------------- ----------------
The Company provides investment advisory and administrative services to
the T. Rowe Price family of mutual funds which had aggregate assets under
management at December 31, 1993 of $34.7 billion. All services rendered by the
Company are provided under contracts that set forth the services to be
provided and the fees to be charged. These contracts are subject to periodic
review and approval by each of the funds' boards of directors and, with
respect to investment advisory contracts, also by the funds' shareholders.
Services rendered to the funds accounted for 71% of 1993 revenues.
Accounts receivable from the sponsored mutual funds aggregated $21,741,000
at December 31, 1993.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1993 (in thousands) consists of:
Computer and communications equipment .......... $31,431
Building and leased land ....................... 19,756
Furniture and other equipment .................. 13,889
Leasehold improvements ......................... 4,691
---------------------
69,767
Accumulated depreciation and amortization ...... (29,939)
---------------------
$39,828
---------------------
---------------------
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
NOTE 3--GOODWILL AND DEFERRED EXPENSES
On September 2, 1992, the Company acquired an investment management subsidiary
of USF&G Corporation and combined six USF&G mutual funds with aggregate net
assets of $.5 billion into the T. Rowe Price family of funds. The total
transaction cost which has been recognized using the purchase method of
accounting was approximately $11,024,000, including goodwill of $8,139,000
which is being amortized over 11 years using the straight-line method. Prepaid
non-compete and transition services agreements totaling $2,500,000 are being
amortized over their three-year life. Accumulated amortization at December 31,
1993 aggregates $2,216,000.
Goodwill of $1,980,000 from an earlier corporate acquisition is being
amortized over 40 years using the straight-line method. Accumulated
amortization was $1,039,000 at December 31, 1993.
NOTE 4--DEBT
In June 1991, the Company completed the long-term financing arrangements for
its administrative services facility. Terms of the $13,500,000 secured
promissory note with Confederation Life Insurance Company include an interest
rate of 9.77%, monthly principal and interest payments totaling $128,000 for
10 years, and a final principal payment of $9,845,000 in 2001. A prepayment
option is available under the terms of the note; however, the payment of a
substantial premium would have been required to retire the debt at December
31, 1993. Related debt issuance costs of $436,000 are included in deferred
expenses and are being amortized over the life of the loan to produce an
effective annual interest rate of 10.14%.
The outstanding principal balance for this note was $12,904,000 at
December 31, 1993. A fair value of $16,030,000 was estimated based on the cost
of risk-free assets that could be acquired to extinguish the obligation at
December 31, 1993.
A maximum of $20,000,000 is available to the Company under unused bank
lines of credit at December 31, 1993.
NOTE 5--INCOME TAXES
Deferred income taxes arise from differences between taxable income for
financial statement and income tax return purposes and are calculated using
the liability method prescribed by SFAS No. 109, "Accounting for Income
Taxes."
The net deferred tax liability of $2,596,000 included in income taxes
payable at December 31, 1993 consists of total deferred tax liabilities of
$5,609,000 and total deferred tax assets of $3,013,000. Deferred tax
liabilities include $2,898,000 arising from unrealized holding gains on
available-for-sale securities, $1,353,000 arising from unrealized capital
gains allocated from the Company's partnership investments, and $677,000 from
differences in the recognition of depreciation expense. Deferred tax assets
include $1,100,000 from differences in the recognition of the costs of the
defined benefit retirement plan and postretirement benefits.
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
NOTE 6--COMMON STOCK AND EMPLOYEE STOCK INCENTIVE PLANS
SHARES AUTHORIZED
At December 31, 1993, the Company had reserved 8,151,315 shares of its
unissued common stock for issuance upon the exercise of stock options and
420,000 shares for issuance under an employee stock purchase plan.
SHARE REPURCHASES
The Company's board of directors has authorized the future repurchase of up to
1,432,000 common shares at December 31, 1993.
EXECUTIVE STOCK
At December 31, 1993, there were outstanding 1,226,540 shares of common stock
("Executive Stock") which were sold to certain officers of the Company in 1982
at a discount. These shares are subject to restrictions which require payment
of the discount of $.32 per share to the Company at the earlier of the sale of
such stock or termination of employment.
STOCK INCENTIVE PLANS
The following table summarizes the status of noncompensatory stock options
granted at market value to certain officers and directors of the Company.
OPTIONS OPTIONS
UNEXERCISED OPTIONS GRANTED UNEXERCISED EXERCISABLE
YEAR OPTIONS AT EXERCISED (CANCELED) OPTIONS AT AT
OF DECEMBER 31, DURING DURING DECEMBER 31, DECEMBER 31, EXERCISE
GRANT 1992 1993 1993 1993 1993 PRICE
- - - -------- ------------- ---------- ------------ ------------- -------------- -----------
1983-4 53,000 (30,600) -- 22,400 22,400 $.67 & $.75
1987 309,410 (68,064) -- 241,346 241,346 $5.38 & $9.38
1988 359,000 (66,586) -- 292,414 292,414 $7.94
1989 632,280 (46,288) (5,600) 580,392 312,404 $11.38
1990 681,500 (83,387) (11,800) 586,313 141,313 $7.19 & $8.50
1991 811,450 (37,000) (14,000) 760,450 283,450 $17.00
1992 926,000 (11,600) (27,400) 887,000 168,600 $18.75
1993 -- -- 1,154,000 1,154,000 -- $28.13
------------- -------------- -------------- -------------- --------------
3,772,640 (343,525) 1,095,200 4,524,315 1,461,927
------------- -------------- -------------- -------------- --------------
------------- -------------- -------------- -------------- --------------
The right to exercise stock options generally vests over the five-year period
following the grant. After the tenth year following the grant, the right to
exercise the related stock options lapses and the options are canceled.
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
NOTE 7--EMPLOYEE RETIREMENT PLANS
The Company sponsors two defined contribution retirement plans: a
profit-sharing plan based on participant compensation and a 401(k) plan.
The Company also has a defined benefit plan covering those employees whose
annual base salaries do not exceed a specified salary limit. Participant
benefits are based on the final month's base pay and years of service
subsequent to January 1, 1987. The Company's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. The following table sets forth the plan's funded status and the
amounts recognized in the Company's consolidated balance sheet (in thousands)
at December 31, 1993.
Actuarial present value of
Accumulated benefit obligation for service rendered
Vested .................................................. $ 780
Non-vested .............................................. 1,362
------
Total ................................................... 2,142
Obligation attributable to estimated future
compensation increases .................................. 2,594
------
Projected benefit obligation .............................. 4,736
Plan assets held in sponsored mutual funds, at fair value ... 2,594
------
Projected benefit obligation in excess of plan assets ....... 2,142
Unrecognized loss from decreases in discount rate ........... 407
------
Accrued retirement costs .................................... $1,735
------
------
Discount rate used in determining actuarial present values .. 6.40%
------
------
NOTE 8--COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a minority partner in the joint venture which owns the land and
building in which the Company leases its corporate offices. Future minimum
rental payments under the Company's lease agreement are $3,110,000 in 1994 and
1995, $3,220,000 in 1996, $3,769,000 in 1997 and 1998, and $33,755,000 in 1999
through 2006.
The Company leases office facilities and equipment under other
noncancelable operating leases. Future minimum rental payments under these
leases aggregate $4,621,000 in 1994, $4,123,000 in 1995, $1,776,000 in 1996,
$1,259,000 in 1997, $696,000 in 1998, and $4,806,000 in later years.
At December 31, 1993, the Company had outstanding commitments to invest an
additional $6,757,000 in various investment partnerships and ventures.
The Company has contingent obligations at December 31, 1993 under a
$500,000 direct pay letter of credit expiring not later than 1999 and a
$780,000 standby letter of credit which is renewable annually.
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
NOTE 8--COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Consolidated stockholders' equity at December 31, 1993 includes
$32,635,000 which is restricted as to use under various regulations and
agreements to which the Company and its subsidiaries are subject in the
ordinary course of business.
From time to time, the Company is a party to various employment-related
claims, including claims of discrimination, before federal, state and local
administrative agencies and courts. The Company vigorously defends itself
against these claims. In the opinion of management, after consultation with
counsel, it is unlikely that any adverse determination in one or more pending
employment-related claims would have a material adverse effect on the
Company's financial position.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of T. Rowe Price Associates, Inc.
In our opinion, the accompanying consolidated balance sheet presents fairly,
in all material respects, the financial position of T. Rowe Price Associates,
Inc. and its subsidiaries at December 31, 1993 in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Company's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit in
accordance with generally accepted auditing standards which 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 the opinion expressed above.
PRICE WATERHOUSE
Baltimore, Maryland
January 25, 1994
T. ROWE PRICE LOGO PROXY
- - - ------------------------------------------------------------------------------
INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
- - - ------------------------------------------------------------------------------
T. ROWE PRICE ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
MEETING: 10:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James S. Riepe and Peter VanDyke, as proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all shares of stock of the Fund,
which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, June 8, 1994, at the time indicated
above, at the offices of the Fund, 100 East Pratt Street, Baltimore, Maryland
21202, and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated April 22, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name appears.
Only authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than
one name, see page 3 of the Notice of
Annual Meeting and Proxy Statement.
Dated: -------------------------- , 1994
----------------------------------------
----------------------------------------
Signature(s)
CUSIP#77954D105/fund#069
T. ROWE PRICE LOGO WE NEED YOUR PROXY VOTE BEFORE JUNE 8, 1994
- - - ------------------------------------------------------------------------------
Please refer to the Proxy Statement discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.
Please fold and detach card at perforation before mailing.
- - - ------------------------------------------------------------------------------
1. Election of directors. FOR all nominees WITHHOLD AUTHORITY 1.
listed below (except to vote for all nominees
as marked to the listed below
contrary)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Robert P. Black Calvin W. Burnett George J. Collins Anthony W. Deering
F. Pierce Linaweaver James S. Riepe John G. Schreiber Peter VanDyke
Anne Marie Whittemore
2. Approve changes to the FOR EACH POLICY AGAINST ABSTAIN 2.
Fund's fundamental LISTED BELOW (except ALL ALL
policies. as marked to the
contrary)
IF YOU DO NOT WISH TO APPROVE A POLICY CHANGE, PLEASE CHECK THE APPROPRIATE
BOX BELOW:
(A) Borrowing (D) Real Estate (H) Commodities and
Futures
(B) Lending (E) Senior (I) Equity
Securities Securities
(C) Purchasing on (F) Industry
Margin Concentration
3. Ratify the selection of Coopers & Lybrand as independent accountants.
FOR AGAINST ABSTAIN 3.
I authorize the Proxies, in their discretion, to vote upon such other business
as may properly come before the meeting.
CUSIP#77954D105/fund#069
T. ROWE PRICE LOGO PROXY
- - - ------------------------------------------------------------------------------
INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
- - - ------------------------------------------------------------------------------
T. ROWE PRICE HIGH YIELD FUND, INC. MEETING: 10:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James S. Riepe and Richard S. Swingle, as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all shares of stock of the
Fund, which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, June 8, 1994, at the time indicated
above, at the offices of the Fund, 100 East Pratt Street, Baltimore, Maryland
21202, and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated April 22, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name appears.
Only authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than
one name, see page 3 of the Notice of
Annual Meeting and Proxy Statement.
Dated: -------------------------- , 1994
----------------------------------------
----------------------------------------
Signature(s)
CUSIP#741841105/fund#057
T. ROWE PRICE LOGO WE NEED YOUR PROXY VOTE BEFORE JUNE 8, 1994
- - - ------------------------------------------------------------------------------
Please refer to the Proxy Statement discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.
Please fold and detach card at perforation before mailing.
- - - ------------------------------------------------------------------------------
1. Election of directors. FOR all nominees WITHHOLD AUTHORITY 1.
listed below (except to vote for all nominees
as marked to the listed below
contrary)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Robert P. Black Calvin W. Burnett George J. Collins Anthony W. Deering
F. Pierce Linaweaver James S. Riepe John G. Schreiber Richard S. Swingle
Anne Marie Whittemore
2. Approve changes to the FOR EACH POLICY AGAINST ABSTAIN 2.
Fund's fundamental LISTED BELOW (except ALL ALL
policies. as marked to the
contrary)
IF YOU DO NOT WISH TO APPROVE A POLICY CHANGE, PLEASE CHECK THE APPROPRIATE
BOX BELOW:
(A) Borrowing (F) Industry (L) Voting (Q) Ownership of
Concentration Securities Securities
(B) Lending (G) Pledging Assets (M) Control (R) Illiquid
Securities
(C) Purchasing on (H) Commodities and (N) Investment (S) Unseasoned
Margin Futures Companies Issuers
(D) Real Estate (I) Equity (O) Oil and Gas
Securities
(E) Senior (K) Single Issuer (P) Options
Securities
3. Ratify the selection of Price Waterhouse as independent accountants.
FOR AGAINST ABSTAIN 3.
I authorize the Proxies, in their discretion, to vote upon such other business
as may properly come before the meeting.
CUSIP#741841105/fund#057
T. ROWE PRICE LOGO PROXY
- - - ------------------------------------------------------------------------------
INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
- - - ------------------------------------------------------------------------------
T. ROWE PRICE NEW INCOME FUND, INC. MEETING: 10:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James S. Riepe and Charles P. Smith, as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all shares of stock of the
Fund, which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, June 8, 1994, at the time indicated
above, at the offices of the Fund, 100 East Pratt Street, Baltimore, Maryland
21202, and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated April 22, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name appears.
Only authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than
one name, see page 3 of the Notice of
Annual Meeting and Proxy Statement.
Dated: -------------------------- , 1994
----------------------------------------
----------------------------------------
Signature(s)
CUSIP#779570100fund#043
T. ROWE PRICE LOGO WE NEED YOUR PROXY VOTE BEFORE JUNE 8, 1994
- - - ------------------------------------------------------------------------------
Please refer to the Proxy Statement discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.
Please fold and detach card at perforation before mailing.
- - - ------------------------------------------------------------------------------
1. Election of directors. FOR all nominees WITHHOLD AUTHORITY 1.
listed below (except to vote for all nominees
as marked to the listed below
contrary)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Robert P. Black Calvin W. Burnett George J. Collins Anthony W. Deering
Carter O. Hoffman F. Pierce Linaweaver James S. Riepe John G. Schreiber
Charles P. Smith Anne Marie Whittemore
2. Approve changes to the FOR EACH POLICY AGAINST ABSTAIN 2.
Fund's fundamental LISTED BELOW (except ALL ALL
policies. as marked to the
contrary)
IF YOU DO NOT WISH TO APPROVE A POLICY CHANGE, PLEASE CHECK THE APPROPRIATE
BOX BELOW:
(A) Borrowing (D) Real Estate (G) Pledging Assets
(B) Lending (E) Senior (H) Commodities and
Securities Futures
(C) Purchasing on (F) Industry (J) Short Sales
Margin Concentration
3. Ratify the selection of Price Waterhouse as independent accountants.
FOR AGAINST ABSTAIN 3.
4. Amend Articles of Incorporation to delete policy on pricing securities.
FOR AGAINST ABSTAIN 4.
I authorize the Proxies, in their discretion, to vote upon such other business
as may properly come before the meeting.
CUSIP#779570100/fund#043
T. ROWE PRICE LOGO PROXY
- - - ------------------------------------------------------------------------------
INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
- - - ------------------------------------------------------------------------------
T. ROWE PRICE PRIME RESERVE FUND, INC. MEETING: 10:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints George J. Collins and Carter O. Hoffman, as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all shares of stock of the
Fund, which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, June 8, 1994, at the time indicated
above, at the offices of the Fund, 100 East Pratt Street, Baltimore, Maryland
21202, and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated April 22, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name appears.
Only authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than
one name, see page 3 of the Notice of
Annual Meeting and Proxy Statement.
Dated: -------------------------- , 1994
----------------------------------------
----------------------------------------
Signature(s)
CUSIP#779573104fund#044
T. ROWE PRICE LOGO WE NEED YOUR PROXY VOTE BEFORE JUNE 8, 1994
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Please refer to the Proxy Statement discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.
Please fold and detach card at perforation before mailing.
- - - ------------------------------------------------------------------------------
1. Election of directors. FOR all nominees WITHHOLD AUTHORITY 1.
listed below (except to vote for all nominees
as marked to the listed below
contrary)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Robert P. Black Calvin W. Burnett George J. Collins Anthony W. Deering
Carter O. Hoffman F. Pierce Linaweaver James S. Riepe John G. Schreiber
Anne Marie Whittemore
2. Approve changes to the FOR EACH POLICY AGAINST ABSTAIN 2.
Fund's fundamental LISTED BELOW (except ALL ALL
policies. as marked to the
contrary)
IF YOU DO NOT WISH TO APPROVE A POLICY CHANGE, PLEASE CHECK THE APPROPRIATE
BOX BELOW:
(A) Borrowing (F) Industry (L) Voting (P) Options
Concentration Securities
(B) Lending (G) Pledging Assets (M) Control (Q) Ownership of
Securities
(C) Purchasing on (I) Equity (N) Investment (R) Illiquid
Margin Securities Companies Securities
(D) Real Estate (K) Single Issuer (O) Oil and Gas (S) Unseasoned
Issuers
(E) Senior
Securities
3. Ratify the selection of Price Waterhouse as independent accountants.
FOR AGAINST ABSTAIN 3.
4. Amend Articles of Incorporation to delete policy on pricing securities.
FOR AGAINST ABSTAIN 4.
I authorize the Proxies, in their discretion, to vote upon such other business
as may properly come before the meeting.
CUSIP#779573104/fund#044
T. ROWE PRICE LOGO PROXY
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INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
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T. ROWE PRICE SHORT-TERM BOND FUND, INC. MEETING: 10:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints George J. Collins and James S. Riepe, as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all shares of stock of the
Fund, which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, June 8, 1994, at the time indicated
above, at the offices of the Fund, 100 East Pratt Street, Baltimore, Maryland
21202, and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated April 22, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name appears.
Only authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than
one name, see page 3 of the Notice of
Annual Meeting and Proxy Statement.
Dated: -------------------------- , 1994
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Signature(s)
CUSIP#77957P105fund#055
T. ROWE PRICE LOGO WE NEED YOUR PROXY VOTE BEFORE JUNE 8, 1994
- - - ------------------------------------------------------------------------------
Please refer to the Proxy Statement discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.
Please fold and detach card at perforation before mailing.
- - - ------------------------------------------------------------------------------
1. Election of directors. FOR all nominees WITHHOLD AUTHORITY 1.
listed below (except to vote for all nominees
as marked to the listed below
contrary)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Robert P. Black Calvin W. Burnett George J. Collins Anthony W. Deering
F. Pierce Linaweaver James S. Riepe John G. Schreiber Anne Marie Whittemore
2. Approve changes to the FOR EACH POLICY AGAINST ABSTAIN 2.
Fund's fundamental LISTED BELOW (except ALL ALL
policies. as marked to the
contrary)
IF YOU DO NOT WISH TO APPROVE A POLICY CHANGE, PLEASE CHECK THE APPROPRIATE
BOX BELOW:
(A) Borrowing (D) Real Estate (G) Pledging Assets
(B) Lending (E) Senior (H) Commodities and
Securities Futures
(C) Purchasing on (F) Industry (I) Equity
Margin Concentration Securities
3. Ratify the selection of Price Waterhouse as independent accountants.
FOR AGAINST ABSTAIN 3.
I authorize the Proxies, in their discretion, to vote upon such other business
as may properly come before the meeting.
CUSIP#77957P105/fund#055